Question

Why do insurers charge/retain premiums at higher rates and refund premiums at higher rates for canceled annual policies?

a.

To encourage policyholders to cancel their policies.

b.

To simplify premium calculations.

c.

To prevent anti-selection against the insurers and cover initial expenses.

d.

To maximize their profits.

Posted under IC38 Life Insurance Agent Exam

Answer: (c).To prevent anti-selection against the insurers and cover initial expenses. Explanation:Insurers charge/retain premiums at higher rates and refund premiums at higher rates for canceled annual policies to prevent anti-selection against the insurers and cover initial expenses.

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Q. Why do insurers charge/retain premiums at higher rates and refund premiums at higher rates for canceled annual policies?
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