Rate Making
Process of calculating a premium so that it is adequate-sufficient to pay losses according to expected frequency and severity, thereby safeguarding against the insurance company becoming insolvent; reasonable-the insurance company should not be able to earn an excessive profit; and not unfairly discriminatory or inequitable. Theoretically, it can be said that each insurance applicant should pay a unique premium to reflect a different expectation of loss, but this would be impractical. Instead, classifications are established for applicants to be grouped according to similar expectation of loss. Statistical studies of a large number of nearly homogeneous exposures in each underwriting classification enable the projection of losses after adjustments for future inflation and statistical irregularities. The adjusted statistics are used to calculate the pure cost of protection, or pure premium, to which the insurance company adds on loads for agent commissions, premium taxes, administrative expenses, contingency reserves, other acquisition costs, and profit margin. The result is the gross premium to be charged to the insured.
Popular Insurance Terms
Investments restricted to short-term Treasury bills (T-bills) and repurchase agreements secured by Treasury bills. These T-bills are secured by the full faith and credit of the Unites ...
Determination that group plans offering legal services are limited to an annual tax-free benefit of $70 per employee; group plans may offer employer-provided educational assistance plans on ...
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In property insurance coverages, provision whereby the limit of the policy automatically increases at each policy anniversary date, subject to the insured's rejection of such an increase. ...
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Ownership of tax-free or tax-deferred investments by a child or for a child, given that these investments will not reach maturity before the child attains at least age 14. The objective is ...
INSURANCE health insurance policy providing coverage for an insured's medical expenses except those that are specifically excluded. This may be the most advantageous medical expense policy ...
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Group coverage for members of a fraternal association, usually on a nonprofit basis. ...
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