Utah Life Producer Practice Exam

What is referred to as the price of insurance for each exposure unit?

1. Premium

2. Rate

3. Fee

4. Cost

The correct answer is: Rate

The term that represents the price of insurance for each exposure unit is known as the rate. This concept is fundamental in the insurance industry as it helps to determine how much an individual or business will pay for coverage based on the level of risk associated with insuring them. In the context of insurance, an exposure unit could refer to a variety of contexts, such as the number of vehicles insured, the amount of property covered, or the number of lives insured. The rate is applied to these exposure units to calculate the total premium, which is the overall cost of the insurance policy. Essentially, the rate provides the foundation for calculating the premium that policyholders will pay based on their specific risk profile. Understanding the distinction between rate and premium is crucial. While the rate pertains specifically to the cost per unit of insurance, the premium is the total amount the insured pays, which could be influenced by adjusting the number of exposure units or by variations in the underwriting process. This concept is vital for anyone involved in assessing or pricing insurance products.