Question

48. The first year premium for a claims-made malpractice insurance policy is less than that for an occurrence policy because —

A.​the first-year premium covers the risk only for incidents that occur and a claim is made during the first year.

B.​an occurrence policy assumes a fixed risk while a claims-made policy assumes a variable risk.

C.​the administrative costs of a claims-made policy are lower than those for an occurrence policy.

D.​an occurrence policy, by definition, has higher limits.

Answer 1

Answer : Option - A, the first-year premium covers the risk only for incidents that occur and a claim is made during the first year.

Explanation :

The first year premium for a claims-made malpractice insurance policy is less than that for an occurrence policy because the first-year premium covers the risk only for incidents that occur and a claim is made during the first year.

During the second year the premium increases because in second year policy cover incidents that occurred during the first and second year as long as the claim is reported during the second year.