Oklahoma Life Producer Practice Exam 2025 – All-in-One Resource to Master Your Certification

Question: 1 / 400

What is the primary difference between gross premium and net premium?

Gross premium is the insurer's profit

Net premium includes total deductions

Gross premium includes total amount before deductions

The primary difference between gross premium and net premium lies in the components each term includes. Gross premium refers to the total amount of money that an insurance policyholder is required to pay for their insurance coverage before any deductions, such as administrative costs, commissions, and reserves, are taken into account. In this sense, the gross premium can be viewed as the full price of the policy as presented to the consumer.

In contrast, the net premium is the portion of the premium that is available to be used for claims, as it subtracts these various expenses from the gross premium. It essentially reflects the insurer's necessary income that will be allocated to cover the expected losses from claims.

Understanding this difference is crucial for anyone involved in the insurance industry, as it impacts how premiums are structured and ultimately influences profitability and pricing strategies.

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Net premium is paid by the insured in full

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