SOFA-CFE · Question #38
The premium which is earned over the contract period in relation to the expiration of risk is known as:
The correct answer is C. single premium. Single premium (C) is correct because it refers to a one-time, lump-sum payment made at policy inception that is then earned by the insurer gradually over the entire contract period as the risk expires - meaning the insurer recognizes revenue proportionally as coverage is…
Question
The premium which is earned over the contract period in relation to the expiration of risk is known as:
Options
- Amonthly premium
- Bannual premium
- Csingle premium
- DNone of the above
How the community answered
(25 responses)- A8% (2)
- B16% (4)
- C72% (18)
- D4% (1)
Explanation
Single premium (C) is correct because it refers to a one-time, lump-sum payment made at policy inception that is then earned by the insurer gradually over the entire contract period as the risk expires - meaning the insurer recognizes revenue proportionally as coverage is provided and liability diminishes.
Monthly premium (A) and annual premium (B) describe only the frequency of payment installments, not the mechanism by which a premium is earned relative to risk expiration - they say nothing about how or when the premium is recognized over the contract life.
Memory tip: Think of "single" as a single deposit that gets unlocked piece by piece as each day of risk passes - the insurer hasn't fully "earned" it until the policy expires, so it mirrors the expiration of risk perfectly.
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