California Life and Health Insurance Practice Exam

Which of the following is NOT considered to be an insurer expense?

1. Claim payments

2. Policy premiums

3. Administrative costs

4. Marketing expenses

The correct answer is: Policy premiums

In the context of insurance, understanding expenses is crucial. Claim payments, administrative costs, and marketing expenses are all categorized as expenses incurred by an insurer in the process of conducting its business. Claim payments represent the funds paid out to policyholders for covered losses, thus impacting the insurer's financial resources. Administrative costs include expenses related to the day-to-day operations of the insurer, such as salaries, office supplies, and technology. Marketing expenses cover the costs associated with promoting insurance products and acquiring new customers. On the other hand, policy premiums are not considered an expense; rather, they represent the income generated by the insurer from policyholders in exchange for coverage. This income is vital to the insurer's ability to cover its expenses, including claims and operational costs. Therefore, identifying policy premiums as the correct choice signifies the understanding that they are part of the revenue stream rather than an outflow of funds.