General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
In insurance terminology, the "premium" is best described as:
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
The rate is the cost per unit of insurance (for example, per $1,000 of life coverage), and the premium is the rate multiplied by the number of units purchased. The premium is what the insured pays to keep coverage in force. Rates are set based on mortality, expenses, and investment assumptions; the premium is the resulting dollar amount charged to the policyholder. The two terms are often used loosely in conversation, but on the exam they must be kept distinct.
Why the other options are wrong
- A) Unearned reserves are accounting liabilities representing future obligations, not the premium itself.
- B) Commission is the agent's compensation derived from the premium, not the premium.
- C) Cash value is a savings element in permanent life policies, unrelated to the premium definition.
Memory hook
Premium = rate × units. Rate is the price tag per unit; premium is the final bill.