What would be an example of pure premium if there is $500,000 in losses and 1,000 insured homes?

To determine the pure premium, you start by calculating the total losses for the insured population and then divide that amount by the number of insured units. In this scenario, if the total losses amount to $500,000 and there are 1,000 insured homes, you would divide the total losses by the number of homes to find the pure premium per home.

The calculation would be as follows:

• Total losses: $500,000

• Number of insured homes: 1,000

So, the pure premium per home is calculated by dividing $500,000 by 1,000, which results in $500.

This analysis shows that the pure premium reflects the expected losses per insured unit without including any additional costs or expenses. It provides a foundational understanding of how insurance pricing is determined based on underlying risk and anticipated claims. The other choices would yield incorrect values, indicating either an overestimation or underestimation of the pure premium per home based on the given total losses.