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Technically a given category of insurance policy is under

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Re: Technically a given category of insurance policy is under [#permalink]

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New post 23 Sep 2015, 21:33
Technically a given category of insurance policy is under priced if, over time, claims against it plus expenses associated with it exceed total income from premiums.
But premium income can be invested and will then yield returns of its own.
Therefore, an under priced policy does not represent a net loss in every case.

The argument above is based on which of the following assumptions?

(A) No insurance policies are deliberately under priced in order to attract customers to the insurance company offering such policies.
(This is new info as we have no info whether a policy is under-priced or not in the argument. It just defines a category.)
(B) A policy that represents a net loss to the insurance company is not an under priced policy in every case.
(opposite of conclusion)
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set.
(We don't need to assume regarding prediction of claims)
(D) The income earned by investing premium income is the most important determinant of an insurance company’s profits. (importance is not given profits here as author spoke only of losses)
(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned.
(This indicates a possible assumption and indicates that claims do not require paying out all the incomes implying that it need not result in a loss.)
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Re: Technically a given category of insurance policy is under [#permalink]

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New post 07 Oct 2015, 04:30
D is certainly wrong, look the stimulus says Insurance policy and Option D talks about Insurance Company.
If you negate E the conclusion falls apart.
Stimulus: CLAIM+EXPENSE > PREMIUM......
our purpose is to add a premise so that CLAIM+EXPENSE<=PREMIUM+INTE REST(from loans)

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Re: Technically a given category of insurance policy is under [#permalink]

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New post 07 Oct 2015, 04:44
I came out with D initially, but E is the clear winner.

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Re: Technically a given category of insurance policy is under [#permalink]

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New post 09 Oct 2015, 03:28
Sometimes, there is a clue/ key word in the conclusion statement which, depending on weakening/strengthening cases, directly correlates to its matching pair in the answer choices. So trying to find such a pair saves time ( of course it is not always advisable).

Here, the conclusion says: "represent a net loss in every case. "

And the answer choice E has its complementary keyword: "The claims against at least some under priced"

So, once such a pair is found, we can quickly check its validity and more often than not, it is THE answer.
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Technically a given category of insurance policy is under [#permalink]

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New post 15 Oct 2015, 00:53
D is basically a shell game. We are talking about policies. We are not talking about the company's profit.

I used Assumption Negation Technique (by MGMAT) here. Just negate the answer choice. If it weakens (actually destroys) the argument as a whole then you have the correct answer.

(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned.

Negating (E):
(E) The claims against at least some under priced policies require paying out all of the premium income from those policies as soon as it is earned. --- Then there's no way the company could invest that premium to make an income, right?

Actually, when I was reading I was pre-thinking and I came up with another assumption --- that all investments are GUARANTEED to make an income. This is not the case. What if the investment turns south?

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Re: Technically a given category of insurance policy is under [#permalink]

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New post 24 Nov 2015, 19:02
Thoughtosphere wrote:
nitya34 wrote:
Technically a given category of insurance policy is under priced if, over time, claims against it plus expenses associated with it exceed total income from premiums. But premium income can be invested and will then yield returns of its own. Therefore, an under priced policy does not represent a net loss in every case.

The argument above is based on which of the following assumptions?

(A) No insurance policies are deliberately under priced in order to attract customers to the insurance company offering such policies.
(B) A policy that represents a net loss to the insurance company is not an under priced policy in every case.
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set.
(D) The income earned by investing premium income is the most important determinant of an insurance company’s profits.
(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned.



The statement says that a policy is under priced if the claims associated with it exceed the total income, then it states that the premium can be invested and it will yield returns of its own.

The first assumption that came to my mind is that every premium that is deposited is invested and that every deposited premium gives returns.

A - The statement doesn't talk about how the customers are attracted
B - The cases are not discussed
C - This answer could have been a better trap, had the word "accuracy" not used in it.
D - This is another trap. The statement didn't talk about the profits of the insurance companies.
E - That's the answer. It matches the initial assumption I had. This is a finely worded answer. It has used "SOME", which means that the range of policies is from one to all.

E


Why did you eliminate C just bcoz accuracy was mentioned in it? I thought, if they are able to estimate the level of claims then they would set the premium accordingly so that after investing the premium, they will get a net profit. If level of claims are high, they may set high premium.

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Re: Technically a given category of insurance policy is under [#permalink]

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New post 22 Sep 2017, 00:07
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Ella02 wrote:
So difficul :/ I do not 7nderstand it



(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned. If the claims request to pay out all of the premium income, then those income could not be used to invest and thus will sure post a net loss in every case. This is correct assumption.

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Re: Technically a given category of insurance policy is under [#permalink]

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New post 27 Oct 2017, 03:05
mohnish104 wrote:
the key to this question are the words "not in every case". so we are not actually looking for most cases or many cases. usually the words 'at least some' throw us off the hook. In this case at least some is sufficient and thats what we are looking for. and hence the answer is E.


i discarded option E because of the word sometimes. But u correctly mentioned the key here is not in every case.

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Re: Technically a given category of insurance policy is under [#permalink]

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New post 05 Dec 2017, 11:21
Technically a given category of insurance policy is under priced if, over time, claims against it plus expenses associated with it exceed total income from premiums. But premium income can be invested and will then yield returns of its own. Therefore, an under priced policy does not represent a net loss in every case.

The argument above is based on which of the following assumptions?

(A) No insurance policies are deliberately under priced in order to attract customers to the insurance company offering such policies. -We are concerned about the loss and not about consumer attraction.
(B) A policy that represents a net loss to the insurance company is not an under priced policy in every case. -This reverses the causality.
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set. -Okay? out of scope
(D) The income earned by investing premium income is the most important determinant of an insurance company’s profits. - Most important?
(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned. -Correct. If we don't need to pay the claims we can invest that money and make some profit.
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Re: Technically a given category of insurance policy is under   [#permalink] 05 Dec 2017, 11:21

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