ABC Insurance Company calculated the amount that it expected to pay in claims for each policy sold.Rather than selling the insurance for the amount it expected to pay in claims,ABC added an allowance to cover the cost of doing business,including commissions,taxes,and acquisition expenses.This allowance is called a(n)
A)policyowner dividend.
B)premium.
C)expense loading.
D)rate credit.

Question

Quizplus · Accepted Answer

The allowance added to cover the cost of doing business, including commissions, taxes, and acquisition expenses, is called an expense loading. This is not the same as a policyowner dividend, which would be a return of premiums to the policyholder. Premiums are the amount paid by the policyholder for the insurance coverage, but they do not necessarily include the expense loading. Rate credit refers to a reduction in the premium due to certain factors like good driving records, while the expense loading is always included in the premium. Therefore, the best choice is C, expense loading.

ABC Insurance Company Calculated the Amount That It Expected to Pay