General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
A life insurer prices coverage at $1.20 per $1,000 of face amount, and a $100,000 policy therefore costs $120 per year. Which term describes the $1.20-per-$1,000 figure?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The rate is the cost per unit of insurance — for life insurance, typically the price per $1,000 of face amount. The premium is the total consideration paid for the policy, calculated by multiplying the rate by the number of units ($1.20 x 100 units = $120). Keeping the terms straight is important because rates are actuarially derived pricing inputs while premiums are the amounts policyholders actually pay.
Why the other options are wrong
- B) The premium is the total paid, $120 in this example, not the per-unit cost of $1.20.
- C) A dividend is a return of excess premium to policyholders of participating policies, unrelated to pricing units.
- D) Unearned premium is the portion of a paid premium for coverage not yet provided, not a pricing unit.
Memory hook
Rate = price per unit. Premium = rate times units. $1.20 a thousand is the rate; $120 is the premium.