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An insurance company has decided to offer “college insurance.”

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An insurance company has decided to offer “college insurance.” [#permalink]

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New post 08 Nov 2014, 06:36
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  65% (hard)

Question Stats:

56% (09:18) correct 44% (01:27) wrong based on 328 sessions

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An insurance company has decided to offer “college insurance.” This is a plan that guarantees that a child who is the subject of the insurance will be provided with $30,000 a year for four years of college education upon turning eighteen. Such plans are great for attracting new business to the company, but the insurance company executives worry that the company will lose money, as the premiums may not be enough to pay for the education claims.

Which of the following plans will best help to prevent the insurance company from losing money on the college insurance policies?

A) Requiring that the policies be purchased only for children under the age of two.
B) Insuring children whose families are able to pay for college on their own.
C) Offering an optional five thousand dollar benefit to be used for educational travel abroad.
D) Insuring only one child per family.
E) Offering premium discounts for multiple-policy holders.

Source : Grockit

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Re: An insurance company has decided to offer “college insurance.” [#permalink]

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New post 08 Nov 2014, 06:52
How can company increase the premium.

A) Requiring that the policies be purchased only for children under the age of two. -> This increases the tenure of the policy and that increases the premiums
B) Insuring children whose families are able to pay for college on their own. -> Still they might loose money as the parent might buy policy at 17th birthday of the child and company has to pay next year.
C) Offering an optional five thousand dollar benefit to be used for educational travel abroad. -> Increases the cost of the premium
D) Insuring only one child per family. -> Same issue as option B
E) Offering premium discounts for multiple-policy holders. -> They will loose premiums and eventually money in the policy
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Re: An insurance company has decided to offer “college insurance.” [#permalink]

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New post 30 Jun 2017, 03:44
kinjiGC wrote:
How can company increase the premium.

A) Requiring that the policies be purchased only for children under the age of two. -> This increases the tenure of the policy and that increases the premiums

If the tenor of the policy increased, the size of the premiums may also be decreased.
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Re: An insurance company has decided to offer “college insurance.” [#permalink]

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New post 14 Aug 2017, 20:46
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Mahmud6 wrote:
kinjiGC wrote:
How can company increase the premium.

A) Requiring that the policies be purchased only for children under the age of two. -> This increases the tenure of the policy and that increases the premiums

If the tenor of the policy increased, the size of the premiums may also be decreased.


I meant the total premium (accumulated amount) as the tenure increases as the company doesn't have to pay tuition till eighteen years of age.
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Re: An insurance company has decided to offer “college insurance.” [#permalink]

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New post 14 Aug 2017, 23:25
How I understood the argument is that by setting the age limit of 2 years and below, more parents will be looking forward to buy that insurance thereby increasing number of premiums than by increasing the premiums.

Thanks

Waiting for more explanation.
Re: An insurance company has decided to offer “college insurance.”   [#permalink] 14 Aug 2017, 23:25
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