In which premium income less return premiums arising from policies issued by the entity collecting the premiums and acting as the primary insurance carrier?

Question

Options

• AIndirect premium
• BDirect premium
• CReinsurance premium
• DEntity premium

• A
  16% (7)
• B
  73% (32)
• C
  7% (3)
• D
  5% (2)

Explanation

Direct premium is the correct answer because it specifically refers to premium income - net of return premiums (e.g., cancellations, endorsements) - generated from policies where the insurer acts as the primary carrier, meaning it issues the policy directly to the policyholder and assumes the underlying risk itself.

Why the distractors are wrong:

• A. Indirect premium - Not a recognized standard insurance accounting term; there is no formal category that describes premiums collected indirectly.
• C. Reinsurance premium - Involves premiums exchanged between insurers in a reinsurance arrangement (ceded or assumed), not from original policyholders - the company here is not acting as the primary carrier.
• D. Entity premium - Also not a standard insurance term; it has no defined meaning in insurance accounting or regulation.

Memory tip: Anchor on the word "Direct" - the insurer is dealing directly with the policyholder as the primary carrier, so the premiums from those policies are direct premiums. If the company is passing risk off to another insurer, it becomes reinsurance; if it's receiving assumed risk, it's assumed premium - only the original, primary-carrier relationship produces direct premium.

No community discussion yet for this question.