Insurance Premium

Aperçu

Every insurance contract turns on one payment: the premium. It is the price of transferring your risk to the insurer, and it is the single thing that makes the whole promise legally binding. Pay it and the insurer is bound to pay your claim; fail to pay it and there is no contract at all. Yet the figure on your policy is not plucked from the air. It is built up, piece by piece, from the insurer's estimate of what your risk will cost.

In this lesson you will learn what a premium really is, how an underwriter decides its size, and how a bare risk cost grows into the office premium you actually pay once expenses, a margin for surprises and a profit are added on. You will rate a premium yourself from real claims figures, and you will work out what an insurer must refund when a policy ends early. These are the calculations WAEC sets almost every year.

Objectifs

  1. Define the premium and explain its function as the consideration in an insurance contract
  2. Describe the factors an underwriter considers in determining a premium
  3. Explain loading and state the reasons an insurer adds it to the basic rate
  4. Explain when a return premium becomes payable and calculate a simple return premium

Note de cours

A young man in Enugu buys motor insurance, pays ₦80,000, and is annoyed that his neighbour pays only ₦55,000 for what looks like the same cover. He suspects he is being overcharged. He is not. The two men present different risks, and the premium is simply the price each one's risk carries. Understand how that price is built and you understand the engine of the whole industry: an insurer that prices its premiums too low collapses when claims arrive, and one that prices them too high loses every customer to a cheaper rival. The premium is where insurance either works or fails.

Évaluation de la leçon

Félicitations, vous avez terminé la leçon sur Insurance Premium. Maintenant que vous avez exploré le concepts et idées clés, il est temps de mettre vos connaissances à lépreuve. Cette section propose une variété de pratiques des questions conçues pour renforcer votre compréhension et vous aider à évaluer votre compréhension de la matière.

Vous rencontrerez un mélange de types de questions, y compris des questions à choix multiple, des questions à réponse courte et des questions de rédaction. Chaque question est soigneusement conçue pour évaluer différents aspects de vos connaissances et de vos compétences en pensée critique.

Utilisez cette section d'évaluation comme une occasion de renforcer votre compréhension du sujet et d'identifier les domaines où vous pourriez avoir besoin d'étudier davantage. Ne soyez pas découragé par les défis que vous rencontrez ; considérez-les plutôt comme des opportunités de croissance et d'amélioration.

  1. The premium in a contract of insurance is best described as the: A. Amount the insurer pays when a loss occurs B. Consideration paid by the insured for the cover C. Value of the property insured D. Profit made by the insurer Answer: B
  2. Which of the following is NOT a form of loading? A. Expense loading B. Profit loading C. Pure premium D. Contingency loading Answer: C
  3. A pure premium of 20,000 naira is loaded with total loadings equal to 40 per cent of the pure premium. The office premium is: A. 24,000 naira B. 28,000 naira C. 8,000 naira D. 20,400 naira Answer: B
  4. Which factor would an underwriter LEAST consider when rating a private motor policy? A. Age and experience of the driver B. Value of the vehicle C. Purpose for which the vehicle is used D. Blood group of the driver Answer: D
  5. A one-year policy carries an annual premium of 60,000 naira. The insurer cancels it after six months. The pro rata return premium is: A. 60,000 naira B. 45,000 naira C. 30,000 naira D. 15,000 naira Answer: C

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