What is an actuarially fair insurance policy quizlet

In an actuarially fair insurance policy, the premiums that a person pays to the insurance company are the same as the average amount of benefits for a person in that risk group, that is a group that shares the same risks of an adverse event occurring.

What is an actuarially fair insurance policy?

So for insurance to be actuarially fair, the premium rate must equal the probability of an accident. In actual practice, even if the premium does not equal the probability of an accident, it certainly depends on it - which is why different demographic groups pay widely differing automobile insurance premiums.

What is the actuarially fair premium for full insurance?

Consider insurance that is actuarially fair, meaning that the premium is equal to expected claims: Premium = p · A where p is the expected probability of a claim, and A is the amount of the claim in event of an accident. •

Why is actuarially fair insurance rarely offered by private insurance companies?

Actual insurance premiums are rarely actuarially fair, partially due to a firm making profit, but also due to other factors: administration. moral hazard. adverse selection.

What is an insurance premium quizlet?

An insurance premium is the amount of money that an individual or business must pay for an insurance policy. The insurance premium is income for the insurance company, once it is earned, and also represents a liability in that the insurer must provide coverage for claims being made against the policy.