A contract which has the final policy premium calculated based on the loss experience of the insured during the term of the policy is called:

Question

Options

• Apremium written contract
• Bretrospectively rated contract
• Closs adjustment contract
• DNone of the above

• A
  5% (1)
• B
  81% (17)
• C
  5% (1)
• D
  10% (2)

Explanation

Retrospective rating is a premium calculation method where the final premium is adjusted after the policy period ends, based on actual losses the insured experienced - making option B correct. This approach rewards policyholders who have good loss experience with lower premiums and penalizes poor performers with higher ones, all within a pre-agreed minimum and maximum range.

Option A ("premium written contract") is not a recognized insurance term - it conflates the concept of "written premium" (the total premium charged) with a contract type, making it meaningless as a category. Option C ("loss adjustment contract") is also fabricated; loss adjustment refers to the process of investigating and settling claims, not a premium calculation method.

Memory tip: Think "retro = look back" - a retrospectively rated contract looks back at what actually happened during the policy term to set the final premium, unlike a prospective (standard) policy where premium is fixed upfront based on predictions.

No community discussion yet for this question.