Other Than Life (OTL) Practice Exam

Which of the following clauses may be included in some insurance policies for premium adjustments based on conditions?

1. A short rate cancellation clause

2. A premium adjustment clause

3. An extended coverage clause

4. A self-insured retention clause

The correct answer is: A premium adjustment clause

The premium adjustment clause is designed to modify the insurance premium based on specific conditions or events that may occur during the policy period. This could involve adjustments based on factors such as the actual risk experienced, changes in coverage, or losses incurred. By including this clause, the insurer and the insured can ensure that the premium reflects the current level of risk, which helps maintain fairness in the coverage provided. This adjustment mechanism can be particularly useful in policies where risks fluctuate significantly over time, ensuring that both parties are treated equitably based on the actual exposure. The presence of a premium adjustment clause allows for a more dynamic relationship between the insurer and the insured, with the understanding that premium payments may vary according to the conditions encountered. In contrast, other clauses listed serve different purposes. A short rate cancellation clause typically dictates the refund amount when a policy is canceled by the insured before the end of the term. An extended coverage clause generally expands the scope of coverage but does not pertain to premium adjustments. A self-insured retention clause establishes a threshold amount of loss that the insured must cover before the insurer pays, but again, it does not function as a mechanism for adjusting premiums based on changing conditions.