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
Combination of two basic plans: accumulating units of paid-up permanent life insurance, and decreasing units of group term life insurance. The premium paid each month consists of the (a) ...
U.S. Supreme Court case in 1868 in which the decision (since overruled) was that an insurance policy was not an instrument of commerce, and thus did not involve interstate commerce ...
Policy similar to that of an individual universal life insurance policy except that the coverage is provided (up to a limit) without the requirement of the submission of evidence of ...
Inquiry conducted by a committee of the legislature of the State of New York in 1905 that looked at abuses of life insurance companies operating in the state. This study led to stricter ...
Approach used for sole proprietorships, partnerships, and close corporations in which the business interests of a deceased or disabled proprietor, partner, or shareholder are sold according ...
Audit of the convention blank (NAIC Statement Blank) every third year as to all of the financial activities of a company; company claim practices; and general policy owner relations. ...
Phrase formerly used to describe coverage for perils of accident and sickness. ...
One-year futures contract (standardized agreement between two parties to buy or sell a commodity or financial instrument on an organized futures exchange such as the CBOT within some future ...
Offer and acceptance upon which an agreement is based. For a contract to be legal (and thus enforceable in a court of law), an offer must be made by one party to another party, who accepts ...
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