Fair insurance is a contract between an insurer and a policyholder in which.
A) the value of the contract to the policyholder is negative.
B) the value of the contract to the policyholder is zero.
C) the risk of the contract to the policyholder is diversifiable.
D) the value of the contract to the policyholder is positive.

Question

Quizplus · Accepted Answer

Fair insurance implies that the expected value of the insurance to the policyholder is zero, meaning the premium paid is equal to the expected payout, making neither party at an advantage or disadvantage financially over time.

Fair Insurance Is a Contract Between an Insurer and a Policyholder