A fair insurance policy is an insurance policy whose premium:
A)is zero.
B)allows the insurance company to profit.
C)equals the expected value of the claims.
D)reflects the needs of the buyer of insurance.

Question

Quizplus · Accepted Answer

A fair insurance policy is one where the premium paid by the insured equals the expected value of the claims. This ensures that neither the insurance company nor the insured is being unfairly benefited or disadvantaged. If the premium is too high, the insured is paying more than the expected value of the claims, while if the premium is too low, the insurance company is not able to cover the costs of the claims. Therefore, a premium that equals the expected value of the claims is considered fair.

A Fair Insurance Policy Is an Insurance Policy Whose Premium