An insurance policy is actuarially fair if:

Question

Quizplus · Accepted Answer

An actuarially fair insurance policy is one where the expected value of the claims paid out equals the expected value of the premiums received by the insurer. In other words, on average it is expected to pay out as much in compensation as it receives in premiums, making option D the correct choice. Option A is not necessarily true because some policyholders may have claims that exceed the average loss, while others may have no claims at all. Option B is not necessarily true because premiums may vary based on factors such as risk and coverage level. Option C is not possible as losses are inevitable in insurance.

An Insurance Policy Is Actuarially Fair If