SOFA-CFE · Question #43
Under audit-type policies, the actual amount of the in-force premium is not known at the inception of the policy.
The correct answer is A. True. Option A is correct because audit-type policies base their final premium on actual exposure figures - such as payroll, sales, or number of employees - that can only be determined after the policy period ends. At inception, the insurer collects only an estimated or deposit…
Question
Under audit-type policies, the actual amount of the in-force premium is not known at the inception of the policy.
Options
- ATrue
- BFalse
How the community answered
(54 responses)- A76% (41)
- B24% (13)
Explanation
Option A is correct because audit-type policies base their final premium on actual exposure figures - such as payroll, sales, or number of employees - that can only be determined after the policy period ends. At inception, the insurer collects only an estimated or deposit premium calculated from projected exposure data. Since the true exposure won't be known until an audit is conducted post-term, the actual in-force premium remains uncertain throughout the policy period.
Option B is incorrect because it assumes the premium is fixed at policy inception, which describes a flat-rated or guaranteed-cost policy, not an auditable one.
Memory tip: Think of audit policies like a restaurant tab - you open a tab (deposit premium) at the start of the night, but the final bill (actual premium) isn't calculated until you're ready to leave (end of policy period).
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