Other Than Life (OTL) Practice Exam

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Study comprehensively for the Other Than Life Test with detailed multiple-choice questions and explanatory flashcards. Prepare for success!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

Which factor can lead to increased insurance premiums?

Lower risk factor
High claim frequency
Stable financial history
Adherence to safety protocols

The correct answer is: High claim frequency

Increased insurance premiums are often associated with high claim frequency due to several reasons. When an individual or entity has a history of frequently filing claims, insurance companies perceive them as a higher risk. This higher risk is based on the principle that more frequent claims suggest that the insured party may be more likely to incur future losses. Consequently, insurers will adjust premiums upward to compensate for this increased likelihood of having to pay out claims. Insurance rates are designed to reflect the risk that the insurer is underwriting, and high claim frequency indicates a pattern that could lead to more payouts. As a result, insurers reassess the premiums based on the historical data of claims, which can lead to increased costs for the policyholder. This adjustment helps maintain the insurer's financial stability and ensures they can cover potential future claims effectively.