What would be an expense factor in an insurance program
Options:
A) Premiums collected
B) Mortality costs
C) Opportunity costs
D) Investment interest
The Correct Answer Is:
- B) Mortality costs
Mortality costs would be an expense factor in an insurance program. Insurance companies are always looking for ways to reduce their expenses, which is why mortality costs may be a factor in an insurance program. Mortality costs are the expenses incurred due to deaths of policy holders. These expenses can include medical expenses, funeral services, and settlement payments. In recent years, insurers have been increasingly focused on reducing these costs by implementing programs that provide members with discounts or free coverage for specific types of injuries or illnesses.
Premiums collected would NOT be an expense factor in an insurance program.Premiums are paid by the policy-holder, not the insurance company. Premiums are used to pay claims and cover operational costs of the insurance company. The percentage of premiums collected as expenses varies from industry to industry. In some industries, such as auto insurance, premiums account for nearly 90% of expenses. In others, such as life insurance, premiums only account for a small fraction of overall expenses
Opportunity costs are not an expense factor in an insurance program. When a person makes a decision, they must weigh the costs and benefits of the decision. The cost of an opportunity is the benefit that could have been received if that opportunity had not been lost. Opportunity costs cannot be measured, which means they cannot be expenses in an insurance program.
Investment interest would not be an expense factor in an insurance program. An insurance company would earn its income from premiums paid by policyholders, so it would make no sense to include investment interest as an expense. This is because the company could simply reinvest the interest payments back into the policies to continue making money.