Final answer:
An insurance agreement is formed through an offer, acceptance, and consideration. The insurance premium is a payment made to the insurer, not an element of the agreement. An actuarially fair policy sets premiums to match the average benefits for a risk group, but moral hazards may arise. Therefore, the correct option is 4.
Step-by-step explanation:
When forming an insurance contract, an agreement is established through several key elements. However, out of the options listed, the insurance premium is NOT one of the elements that constitute an agreement. The three components that do form an agreement are offer, acceptance, and consideration. Insurance premiums, while a crucial part of the insurance process, are the regular payments made by policyholders to the insurance company, not part of the initial agreement formation. Premiums fund the collective pool that enables the insurance company to compensate those who experience the insured-against event. In an actuarially fair insurance policy, these premiums would be set to match the average benefits expected to be paid to the members of the risk group. One challenge in insurance is the problem of moral hazard, where those insured might take greater risks because they do not bear the full cost of that risk.