Which statement about the mathematically fair price for insurance is true?
A) People who will pay no more than the mathematically fair price for insurance are considered to be risk neutral.
B)People who will pay no more than the mathematically fair price for insurance are considered to be risk seeking.
C)When everyone pays the mathematically fair price for insurance, subsidization is reduced or eliminated.
D)The mathematically fair price is impossible to calculate.

Question

Quizplus · Accepted Answer

The mathematically fair price for insurance is the exact amount of money that an individual should pay for insurance based on their specific level of risk. When everyone pays this fair price, it reduces or eliminates the need for subsidization. Therefore, Option C is the correct statement. Option A is incorrect because risk-neutral individuals are willing to pay the fair price for insurance, but not necessarily only up to that point. Option B is also incorrect because risk-seeking individuals are willing to pay more than the fair price for insurance. Option D is incorrect because actuaries use mathematical models to calculate the fair premium for insurance.

Which Statement About the Mathematically Fair Price for Insurance Is