Which of the following is Correct?

Question

Options

• AUnder the monthly pro rata method, the policy year is divided into two equal parts, with the first
• BUnder the monthly pro rata method, the policy year is divided into twelve equal parts, with the
• CUnder the monthly pro rata method, the policy year is divided into twenty-four equal parts, with
• DUnder the monthly pro rata method, the policy year is divided into forty-eight equal parts, with

• A
  6% (3)
• B
  10% (5)
• C
  80% (41)
• D
  4% (2)

Explanation

Option C is correct because the monthly pro rata method divides the policy year into 24 equal parts - each of the 12 months is split into two half-month periods (the 1st–15th and the 16th–end of month), yielding 24 segments total. This allows insurers to calculate earned or return premiums by crediting or charging in half-month increments rather than full months.

Why the distractors are wrong:

• A (2 parts) describes a semi-annual split, which is far too coarse and not a recognized pro rata calculation method.
• B (12 parts) describes a simple monthly division, sometimes called the "monthly" method, but it lacks the half-month precision that defines the monthly pro rata method.
• D (48 parts) would imply weekly divisions (≈4 per month), which is not what this method does.

Memory tip: Think "monthly pro rata = monthly × 2." Each month gets cut in half, so 12 months × 2 halves = 24 parts. The word pro rata signals finer granularity than a plain monthly split, and doubling the months to 24 is exactly that refinement.

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