Pricing of Products I MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Pricing of Products I, 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 Pricing of Products I MCQs are designed to help you grasp the core concepts and excel in solving problems.

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Pricing of Products I MCQs | Page 1 of 13

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Q1.
What is the primary difference between price and premium?

a.

Price is exchanged for future benefits, while premium is the cost of goods or services.

b.

Price is stipulated in the contract, while premium is the amount paid for insurance coverage.

c.

Price is linked to revenue levels, while premium is the amount exchanged for insurance benefits.

d.

Price is determined by financial and marketing aspirations, while premium is expressed in terms of money.

Discuss
Answer: (c).Price is linked to revenue levels, while premium is the amount exchanged for insurance benefits. Explanation:Price refers to the cost of goods or services, while premium specifically refers to the amount paid for insurance coverage, which is directly linked to revenue levels.
Q2.
How are premiums typically determined in traditional insurance products?

a.

By calculating the benefits paid on the happening of events mentioned in the insurance contract.

b.

By setting prices that meet both the company's financial and marketing aspirations.

c.

By stipulating the payment schedule in the contract with regard to time and mode of payment.

d.

By calculating the amount to be paid for a stipulated benefit amount.

Discuss
Answer: (d).By calculating the amount to be paid for a stipulated benefit amount. Explanation:Premiums in traditional insurance products are typically determined by calculating the amount to be paid for a stipulated benefit amount.
Q3.
In the context of unit-linked products, what role does pricing play?

a.

Setting prices for fixed benefits.

b.

Determining the charges deducted from premiums or funds.

c.

Calculating the future benefits exchanged for premiums.

d.

Stipulating the payment schedule for premiums.

Discuss
Answer: (b).Determining the charges deducted from premiums or funds. Explanation:In unit-linked products, pricing is used to determine the charges deducted from premiums or funds, as the benefits and premiums may not be fixed.
Q4.
What aspect of pricing is emphasized in traditional insurance products?

a.

Flexibility in choosing benefits.

b.

Determining charges deducted from premiums.

c.

Meeting financial and marketing aspirations.

d.

Stipulating payment schedules.

Discuss
Answer: (c).Meeting financial and marketing aspirations. Explanation:In traditional insurance products, pricing is primarily focused on meeting the company's financial and marketing aspirations.
Q5.
In unit-linked products, what primarily differentiates products between companies or within the same company?

a.

The flexibility in choosing premiums.

b.

The fixed multiple of sum assured benefit.

c.

The level and frequency of charges.

d.

The stipulated payment schedules.

Discuss
Answer: (c).The level and frequency of charges. Explanation:In unit-linked products, the level and frequency of charges primarily differentiate products between companies or within the same company.
Q6.
What aspect of pricing is crucial for traditional participating products?

a.

Flexibility in choosing premiums.

b.

Determination of bonuses and premiums.

c.

The fixed multiple of sum assured benefit.

d.

The stipulated payment schedules.

Discuss
Answer: (b).Determination of bonuses and premiums. Explanation:For traditional participating products, the determination of both bonuses to be paid along with premiums to be charged is crucial for pricing.
Q7.
How can two companies have very different premiums for the same guaranteed level of benefits in traditional participating products?

a.

By offering different sum assured multiples.

b.

By setting varying bonus rates.

c.

By adjusting the payment schedules.

d.

By providing flexible premium options.

Discuss
Answer: (b).By setting varying bonus rates. Explanation:Two companies can have very different premiums for the same guaranteed level of benefits in traditional participating products by setting varying bonus rates.
Q8.
In innovative non-participating products, what is the focus of pricing?

a.

Flexibility in choosing premiums.

b.

Calculation of guaranteed additions.

c.

Determination of sum assured multiples.

d.

Stipulating the payment schedules.

Discuss
Answer: (b).Calculation of guaranteed additions. Explanation:In innovative non-participating products, pricing is more focused on the calculation of guaranteed additions rather than the actual premium to be charged.
Q9.
What equation is typically used to determine the price of insurance products?

a.

Inflows = Outflows

b.

Price = Benefit + Expenses + Profit margin

c.

Present Value of Premiums = Present Value of Benefits + Present Value of Expenses

d.

Price = Premiums - Expenses - Profit margin

Discuss
Answer: (b).Price = Benefit + Expenses + Profit margin Explanation:The equation used to determine the price of insurance products is Price = Benefit + Expenses + Profit margin.
Q10.
How is the determination of price typically approached in insurance products?

a.

By minimizing benefits to increase profits.

b.

By maximizing expenses to ensure quality service.

c.

By adjusting premiums, benefits, and expenses to achieve desired profits.

d.

By setting a fixed premium regardless of benefits and expenses.

Discuss
Answer: (c).By adjusting premiums, benefits, and expenses to achieve desired profits. Explanation:The determination of price in insurance products is typically approached by adjusting premiums, benefits, and expenses to achieve desired profits.
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