California Life and Health Insurance Practice Exam

How is the price of insurance defined for each exposure unit?

1. Premium

2. Rate

3. Deductible

4. Fee

The correct answer is: Rate

The price of insurance for each exposure unit is defined as the rate. The rate represents the cost associated with providing insurance coverage, typically expressed as a cost per unit of measurement, such as per $1,000 of coverage or per person. It is essentially a factor used to calculate the total premium for coverage, which is the actual amount policyholders pay for insurance. The concept of exposure units is crucial in insurance, as it helps insurance companies assess risk and determine how much premium needs to be charged for different types of insurance. For instance, in life insurance, the exposure unit may be years of coverage or total insured amounts, while in health insurance, it could relate to the number of insured individuals or specific healthcare services. Understanding this distinction allows for more accurate pricing models and ensures that insurers can cover their anticipated losses and expenses while remaining competitive in the insurance market.