There Are Four Basic Components of an Insurance Premium

question 18

Multiple Choice

There are four basic components of an insurance premium. Which of the following is not one of those components?

• A) Losses suffered by the members of the insurance pool
• B) Law of large numbers
• C) An allowance for unexpected losses
• D) Earnings on investments

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Definitions:

Consumer Surplus

The disparity between the amount consumers are prepared to spend on a product or service and the amount they end up paying, indicating the advantage to consumers.

Allocative Efficiency

A state of the economy in which the distribution of resources among different uses is optimized, leading to an optimal level of consumer satisfaction.

Productive Efficiency

A situation in which an economy or entity is operating at maximum capacity, producing goods or services at the lowest possible cost.

Long-Run Equilibrium

A state in economics where all factors of production and outputs in an industry or market adjust fully to any changes, leading to a stable condition where no participant has an incentive to change behavior.