Which type of product is likely to have limited variance in premium despite losses?

Which type of product is likely to have limited variance in premium despite losses?

• A. Large Deductible Plan
• B. Guaranteed Cost
• C. Small Deductible Plan
• D. Retrospective Rating Plan

Answer: (B)

A guaranteed cost insurance product is designed to provide a predetermined premium rate that does not fluctuate based on the claims experience of the insured. This means that regardless of whether the insured incurs losses, the premium remains stable, allowing for predictability in budgeting and expense planning. This stability is particularly beneficial for businesses that prefer to manage their cash flow without the volatility associated with other insurance arrangements. In contrast, products like large deductible plans or retrospective rating plans might adjust premiums based on claims history, leading to potential increases in costs after losses are incurred. As a result, guaranteed cost options are less sensitive to loss experiences compared to the other types listed, which tend to have premium structures that are influenced by the number or severity of claims.

A guaranteed cost insurance product is designed to provide a predetermined premium rate that does not fluctuate based on the claims experience of the insured. This means that regardless of whether the insured incurs losses, the premium remains stable, allowing for predictability in budgeting and expense planning.

This stability is particularly beneficial for businesses that prefer to manage their cash flow without the volatility associated with other insurance arrangements. In contrast, products like large deductible plans or retrospective rating plans might adjust premiums based on claims history, leading to potential increases in costs after losses are incurred. As a result, guaranteed cost options are less sensitive to loss experiences compared to the other types listed, which tend to have premium structures that are influenced by the number or severity of claims.