Associate In Insurance (AINS) 21 Practice Exam

Opportunity cost is the value of the next best alternative you give up whenever you make a choice. When you purchase insurance, the money paid in premiums could have been used elsewhere, such as investing or earning interest. For example, if you spend $500 on a premium, that $500 could potentially earn returns if invested, so the opportunity cost is the foregone gains from that alternative use. This makes the correct choice the one that identifies the potential return on funds that could be invested elsewhere. The other ideas aren’t the opportunity cost of buying insurance: a premium refund at cancellation is a possible recovery, not the forgone benefit of choosing to insure; the insurer’s profit margin is a pricing detail for the insurer and not your foregone alternative; and the deductible is an out-of-pocket cost you pay when you file a claim, not the alternative use of your funds.