How Do You Spell PURE PREMIUM?
Pronunciation: [pjˈʊ͡ə pɹˈiːmi͡əm] (IPA) 
Pronunciation: [pjˈʊ͡ə pɹˈiːmi͡əm] (IPA)
Pure premium is a term commonly used in the insurance industry to describe the underlying cost of insurance coverage before any additional expenses or profit margins are factored in. It represents the expected amount an insurer needs to collect from its policyholders in order to cover potential claims, administrative costs, and regulatory fees, without considering any provisions for investment income or future contingencies.
The pure premium is calculated by estimating the frequency and severity of potential losses, and then incorporating various statistical methods to determine the expected cost of covering these losses. This involves analyzing historical data, current market conditions, and actuarial expertise to forecast the risks and uncertainties associated with insurable events. The result is a figure that reflects the expected value of claims that an insurer will likely have to pay out in the future.
Insurance companies refer to the pure premium as a fundamental measure of the cost of insurance and use it as a basis for determining the final premium charged to policyholders. After calculating the pure premium, insurers add expenses such as commissions, administrative costs, overheads, and profit margins to arrive at the total premium. By separating out the pure premium, insurers can provide transparency to policyholders, regulators, and other stakeholders regarding the actual cost of coverage and the premiums charged. This clarity helps ensure that policies are priced fairly and accurately, supporting the stability and sustainability of the insurance industry.
The word "pure" has its roots in Old French, where it was spelled as "pur", and Latin, where it was spelled as "purus". It ultimately comes from the Proto-Indo-European root *peh₁- ("clean, pure").
The word "premium" can be traced back to the Latin word "praemium", which meant "reward" or "prize". It is derived from the verb "praemere", which means "to take ahead" or "to buy up in advance". This Latin term later evolved in meaning to "bonus" or "extra payment".
When combined, "pure premium" refers to a term commonly used in insurance industries, representing the base cost or actual risk coverage a company provides to their customers, without any added expenses or risk factors.
