Which statement correctly distinguishes a rate from a premium?
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The rate is the price charged per unit of insurance, for example a certain amount per one thousand dollars of life insurance or per one hundred dollars of property value. The premium is the total charge the policyholder pays, calculated by multiplying the rate by the number of units purchased and adjusted for other factors. Understanding the distinction matters because premium computation, dividend illustrations, and rate filings all depend on this unit-based pricing structure. A policy priced at five dollars per thousand dollars of coverage for a one hundred thousand dollar policy produces a five hundred dollar premium.
Why the other options are wrong
- B) This reverses the definitions: the premium is the total charge, and the rate is the per-unit price.
- C) Both the rate and the premium are established by the insurer subject to regulatory requirements; the insured does not set either.
- D) Refundability depends on the earned and unearned portions of premium at cancellation, not on whether the figure is a rate or a premium.
Memory hook
Rate = sticker price per unit; premium = total at the register. Multiply the unit price by the units bought.