In premium calculation, what is the formula for the insured's premium payable to the insurer?

• A. Premium equals rate divided by exposure units
• B. Premium equals rate plus exposure units
• C. Premium equals rate multiplied by exposure units
• D. Premium equals exposure units divided by rate

Answer: (C)

Premiums are calculated by multiplying the rate by the number of exposure units. The rate is the price per unit of exposure, reflecting how costly each unit of risk is, and the exposure units represent how much risk the policy covers (such as total insured value, number of items, or payroll). Multiplication makes the premium grow with both factors, so increasing either the rate or the exposure units increases the premium accordingly. For example, a rate of $5 per unit with 10 units results in a $50 premium. Adding or dividing the rate and exposure units wouldn’t correctly reflect how pricing scales with the amount of risk insured.