Cognitive Abilities Test (CAT4) Practice Exam

Why are premium audits essential for certain commercial insurance policies?

To punish the insured for filing too many claims. Because initial premiums are deposit premiums, and the audit ascertains actual exposure to determine the final premium. To evaluate the performance of the independent insurance agent. To comply with federal income tax regulations.

Correct Answer:

Because initial premiums are deposit premiums, and the audit ascertains actual exposure to determine the final premium.

Explanation:

Since commercial premiums are often estimated up front (deposit premiums), a premium audit determines the actual exposure during the policy term so the insurer can collect the correct premium.

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