Question

For a disability policy, as the elimination period is increased up to a point, the premium for the policy will ________.

1) increase
2) decrease
3) remain the same
4) cannot be determined

Answer 1

For a disability policy, increasing the elimination period typically leads to a decrease in the premium. Market supply curve shifts and changes in the equilibrium price occur as a result of environmental regulations and fines imposed on companies.

Step-by-step explanation:

For a disability policy, as the elimination period is increased up to a point, the premium for the policy will decrease. The elimination period is the time that must pass before policy benefits are paid out. If this period is longer, the insurer is at a lower risk of having to pay benefits, resulting in lower premiums for the policyholder.

Shifts in the Market Supply Curve and Equilibrium Price