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
Fringe benefit provided by the employer to its employees as sanctioned under the 1981 Economic Recovery Tax Act. Under Internal Revenue Code Section 129, this benefit is nontaxable to the ...
Premium payment made by the policy owner under a universal life insurance policy, usually on an automatic monthly preauthorized bank draft basis. The amount of the payment is established ...
Insurance for which premiums are charged according to the size of the face amount of the policy, so that the greater the face amount, the lower the cost per $1000 unit of insurance. ...
Addition to a life insurance policy stating that when an insured becomes disabled for at least six months, premiums due are waived. Depending on the rider, the insured may begin to receive ...
Fund established to pay specified losses, usually the low severity property losses. This type of account is an excellent device in conjunction with a self-insurance plan, in which the fund ...
Professional liability coverage for a practitioner in a given field of expertise. Coverage takes the form of defending the practitioner against liability suits whether or not with ...
Loan under which the owner of a home receives the equity in the form of a series of monthly income payments for life. Upon the owner's death, the lender institution (usually a bank) gains ...
Coverage for damage to property resulting from riot or civil commotion. Riot is defined by most state laws as a violent disturbance involving three or more (in some states two or more) ...
Judicial rule of evidence under which no reduction in damages awarded by a court is allowed for bodily injury, sickness, illness, or accident merely because the plaintiff has other ...
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