If the expected value of a claim is _____ the insurance premium, then the policy is considered actuarially fair.

Question

Quizplus · Accepted Answer

If the expected value of a claim is equal to the insurance premium, the insurer is charging a fair price that reflects the risk exposure of the policyholder. This is the definition of actuarial fairness. If the expected claims are higher than the premium, the insurer will likely lose money on the policy, and if the expected claims are lower than the premium, the insurer will earn a profit.

If the Expected Value of a Claim Is _____ the Insurance