Question

62. Val-U Insurance Company's main goal is to collect sufficient premiums to pay for the insured losses, to cover the costs of expenses and to make a reasonable profit. Val-U predicts the incurred expenses while still allowing for a margin of error. The ultimate premium charged will be reduced by which of the following?

(Choose from the following options)
1. Return of unearned premiums
2. Dividends
3. Investment income
4. Earned premiums

Answer 1

The ultimate premium charged by an insurance company like Val-U can be reduced through investment income, which is derived from investing the funds not paid out as claims in prior years into safe and liquid assets.

Step-by-step explanation:

The main goal of Val-U Insurance Company is to collect sufficient premiums to cover insured losses, expenses, and make a reasonable profit. When calculating the ultimate premium to charge their customers, the company incorporates predictions of incurred expenses and includes a margin of error. One of the ways the premium charged can be reduced is through investment income. This income is earned from investing the premiums that were collected in the past but not paid out in claims. These funds or reserves are typically invested in safe, liquid assets to ensure they can be accessed easily in case of a disaster. Investment income helps offset the cost of premiums, which benefits customers by reducing the total premium they must pay.