Rate

A rate is the charge per unit of insurance, while the premium is the total charge for the coverage purchased — The rate is the price charged per unit of insurance, for example a certain amount per one thousand dollars of life insurance or per one hundred dollars of property value. The premium is the total charge the policyholder pays, calculated by multiplying the rate by the number of units purchased and adjusted for other factors. Understanding the distinction matters because premium computation, dividend illustrations, and rate filings all depend on this unit-based pricing structure. A policy priced at five dollars per thousand dollars of coverage for a one hundred thousand dollar policy produces a five hundred dollar premium.

National insurance concept

Ask detailed questions on the application and rate or decline applicants based on the exposure — Adverse selection occurs when high-risk individuals seek insurance more aggressively than low-risk individuals. The proper underwriting response is information gathering and risk classification: ask precise questions about health, habits, and avocations, then rate the risk — higher premium, exclusion, or decline — so the premium reflects the exposure. This is how the law of large numbers remains valid: the pool must stay reasonably homogeneous by risk class.

National insurance concept