Premium Bases Expense Rates MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Premium Bases Expense Rates, a fundamental topic in the field of IC 92 Actuarial Aspects of Product Development. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our Premium Bases Expense Rates MCQs are designed to help you grasp the core concepts and excel in solving problems.

In this section, you'll find a wide range of Premium Bases Expense Rates mcq questions that explore various aspects of Premium Bases Expense Rates problems. Each MCQ is crafted to challenge your understanding of Premium Bases Expense Rates principles, enabling you to refine your problem-solving techniques. Whether you're a student aiming to ace IC 92 Actuarial Aspects of Product Development tests, a job seeker preparing for interviews, or someone simply interested in sharpening their skills, our Premium Bases Expense Rates MCQs are your pathway to success in mastering this essential IC 92 Actuarial Aspects of Product Development topic.

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Premium Bases Expense Rates MCQs | Page 1 of 9

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Q1.
Why is it essential for insurance companies to monitor their expenses regularly?

a.

To increase policy benefits

b.

To maintain profitability

c.

To reduce policy premiums

d.

To minimize policy coverage

Discuss
Answer: (b).To maintain profitability Explanation:Monitoring expenses regularly is crucial for insurance companies to ensure they remain profitable by effectively managing their costs.
Q2.
What is the consequence of underestimating expenses in premium estimation?

a.

Increased profit margins

b.

Potential loss of profit

c.

Competitive premiums

d.

Higher policy benefits

Discuss
Answer: (b).Potential loss of profit Explanation:Underestimating expenses in premium estimation can lead to a potential loss of profit as it may eat into the profit margin of the insurer.
Q3.
Why is overestimating expenses also problematic in premium calculation?

a.

It leads to higher policy benefits

b.

It ensures competitive premiums

c.

It can result in lower-than-expected sales

d.

It reduces the risk of losses

Discuss
Answer: (c).It can result in lower-than-expected sales Explanation:Overestimating expenses in premium calculation can cause lower-than-expected sales, as high premiums may not be competitive in the market.
Q4.
How are expenses primarily classified in insurance?

a.

As financial and non-financial

b.

As variable and fixed

c.

As internal and external

d.

As tangible and intangible

Discuss
Answer: (b).As variable and fixed Explanation:Expenses in insurance are primarily classified as variable and fixed, based on their nature and behavior.
Q5.
What characterizes semi-variable expenses?

a.

They are solely fixed costs

b.

They are solely variable costs

c.

They contain both fixed and variable components

d.

They are unrelated to activity levels

Discuss
Answer: (c).They contain both fixed and variable components Explanation:Semi-variable expenses contain both fixed and variable components, where the fixed cost element is incurred regardless of activity levels, while the variable component varies with activity.
Q6.
Why are the initial expenses for setting up an insurance company typically borne by the shareholders?

a.

To reduce policy premiums

b.

To ensure profitability from the outset

c.

To attract potential policyholders

d.

To minimize financial risk for policyholders

Discuss
Answer: (b).To ensure profitability from the outset Explanation:The shareholders bear the initial setup expenses of an insurance company to ensure profitability from the beginning, as passing on these expenses entirely to policyholders could make premiums prohibitively high.
Q7.
What makes estimating initial setup expenses for an insurance company challenging?

a.

Fluctuating tax rates

b.

Inflation rates

c.

Stamp duties

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:Estimating initial setup expenses for an insurance company is challenging due to factors such as fluctuating tax rates, inflation, stamp duties, and other uncertainties.
Q8.
How are fixed expenses in insurance pricing defined?

a.

Expenses incurred irrespective of policy premiums

b.

Expenses incurred solely based on policy size

c.

Expenses incurred only when a policy is sold

d.

Expenses incurred after policy issuance

Discuss
Answer: (a).Expenses incurred irrespective of policy premiums Explanation:Fixed expenses in insurance pricing refer to expenses incurred regardless of the size of the policy premium, covering both marginal and non-marginal costs.
Q9.
What is the difference between marginal and non-marginal costs in insurance?

a.

Marginal costs are incurred only when a policy is sold, while non-marginal costs are independent of policy sales.

b.

Marginal costs are fixed expenses, while non-marginal costs are variable expenses.

c.

Marginal costs cover policy printing expenses, while non-marginal costs cover administrative overhead.

d.

Marginal costs contribute to shareholder profits, while non-marginal costs cover policyholder benefits.

Discuss
Answer: (a).Marginal costs are incurred only when a policy is sold, while non-marginal costs are independent of policy sales. Explanation:Marginal costs are incurred with each new policy sold, while non-marginal costs are independent of policy sales and represent fixed overhead expenses.
Q10.
How do fixed expenses contribute to the profitability of an insurance company?

a.

By covering both marginal and non-marginal costs

b.

By reducing policy premiums

c.

By attracting more policyholders

d.

By minimizing shareholder investments

Discuss
Answer: (a).By covering both marginal and non-marginal costs Explanation:Fixed expenses contribute to the profitability of an insurance company by covering both marginal costs associated with new policies and some non-marginal costs, thus ensuring the recovery of initial setup expenses over time.
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