The correct answer is: A. In determination of premium higher the rate of interest assumed the lower is the premium.
The premium is the amount of money that an insured person pays to an insurance company in exchange for coverage against a specific risk. The premium is determined by a number of factors, including the type of insurance, the amount of coverage, the insured’s age, health, and lifestyle, and the insurer’s risk assessment.
One of the most important factors in determining the premium is the rate of interest that the insurer assumes it will earn on the premiums it collects. This is because the insurer uses the premiums to invest in assets, such as bonds and stocks, and the interest earned on these investments helps to offset the costs of claims and other expenses.
If the insurer assumes a higher rate of interest, it will be able to invest the premiums at a higher rate of return, which will reduce the amount of money it needs to charge in premiums. Conversely, if the insurer assumes a lower rate of interest, it will need to charge higher premiums in order to generate enough income to cover its costs.
Therefore, the correct answer is: A. In determination of premium higher the rate of interest assumed the lower is the premium.
Here is a brief explanation of each option:
- Option B: In determination of premium higher the rate of interest assumed higher is the premium. This is incorrect because, as explained above, a higher rate of interest assumption leads to lower premiums.
- Option C: In determination of premium lower the rate of interest assumed lower is the premium. This is incorrect because, as explained above, a lower rate of interest assumption leads to higher premiums.
- Option D: Premium is not determined by rate of interest assumed to be earned by the insurer. This is incorrect because, as explained above, the rate of interest assumed is one of the most important factors in determining the premium.