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An insurance company earns Rs. 250 per person as annual premium for MEDICLAIM insurance that covers hospitalization bill up to Rs. 18,900 at the rate of 80% of actual bills. It is estimated that only 1 out of every 100 insured persons would incur the hospitalization bill of Rs.15, 000. This scheme costs the insurance company 10% of the revenue as administrative cost. In the situation given above, if instead of 1, 1.6 out of hundred incur hospitalization bills and the company wants to maintain its profit per person, how much should be the premium charged?
  • a)
    Rs. 325
  • b)
    Rs. 300
  • c)
    Rs. 330
  • d)
    None of these
Correct answer is option 'C'. Can you explain this answer?
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Verified Answer
An insurance company earns Rs. 250 per person as annual premium for ME...
As the firm wants to maintain same profit per person, let us first calculate the profit for 100 persons.
►If there are 100 persons the revenue collected will be 100* 250 = 25000.
►Out of this there will be 1 claim of 80% of 15000, that is Rs. 12000.
►Besides that the administrative cost will be 10% of 25000 i.e. Rs. 2500.
►Thus the profit will be 25000 - 12000 - 2500 = 10500.
►Instead of 1, 1.6 people incur a hospitalization bill.
►So cost of insurance firm = 12000 × 1.6 = 19200
►Now let the total amount of annual premium be x
►Therefore Total cost of the firm = 19200 + 0.1x
►Since the firm wants to maintain same profit per person, therefore 
x – (19200 + 0.1x) = 10500
0.9x = 29700  →   x = 33000
►Therefore premium to be charged per person if the firm wants to maintain the same level of profit
= 33000 / 100 = 330
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Most Upvoted Answer
An insurance company earns Rs. 250 per person as annual premium for ME...
Given information:
- Annual premium for MEDICLAIM insurance = Rs. 250 per person
- Coverage of hospitalization bill = 80% of actual bills
- Maximum coverage limit = Rs. 18,900
- Only 1 out of every 100 insured persons incur the hospitalization bill of Rs. 15,000
- Administrative cost = 10% of the revenue

Calculating the revenue:
- Let's assume there are 100 insured persons
- The revenue from premiums for these 100 persons = 100 * Rs. 250 = Rs. 25,000

Calculating the total claim amount:
- Only 1 out of 100 insured persons incur the hospitalization bill of Rs. 15,000
- So, the total claim amount for these 100 persons = 1 * Rs. 15,000 = Rs. 15,000

Calculating the administrative cost:
- Administrative cost = 10% of the revenue = 10% of Rs. 25,000 = Rs. 2,500

Calculating the profit per person:
- Profit per person = Revenue - Claim amount - Administrative cost
- Profit per person = Rs. 25,000 - Rs. 15,000 - Rs. 2,500 = Rs. 7,500

Calculating the new claim amount:
- If 1.6 out of 100 insured persons incur hospitalization bills, then the new claim amount = 1.6 * Rs. 15,000

Calculating the new revenue:
- The new revenue from premiums for these 100 persons = 100 * new premium

Calculating the new administrative cost:
- New administrative cost = 10% of the new revenue

Calculating the new profit per person:
- New profit per person = New revenue - New claim amount - New administrative cost

Calculating the new premium:
- To maintain the same profit per person, we can equate the profit per person equations and solve for the new premium.

Therefore, the correct answer is option 'C' i.e., Rs. 330.
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An insurance company earns Rs. 250 per person as annual premium for MEDICLAIM insurance that covers hospitalization bill up to Rs. 18,900 at the rate of 80% of actual bills. It is estimated that only 1 out of every 100 insured persons would incur the hospitalization bill of Rs.15, 000. This scheme costs the insurance company 10% of the revenue as administrative cost.In the situation given above, if instead of 1, 1.6 out of hundred incur hospitalization bills and the company wants to maintain its profit per person, how much should be the premium charged?a)Rs. 325b)Rs. 300c)Rs. 330d)None of theseCorrect answer is option 'C'. Can you explain this answer?
Question Description
An insurance company earns Rs. 250 per person as annual premium for MEDICLAIM insurance that covers hospitalization bill up to Rs. 18,900 at the rate of 80% of actual bills. It is estimated that only 1 out of every 100 insured persons would incur the hospitalization bill of Rs.15, 000. This scheme costs the insurance company 10% of the revenue as administrative cost.In the situation given above, if instead of 1, 1.6 out of hundred incur hospitalization bills and the company wants to maintain its profit per person, how much should be the premium charged?a)Rs. 325b)Rs. 300c)Rs. 330d)None of theseCorrect answer is option 'C'. Can you explain this answer? for CAT 2024 is part of CAT preparation. The Question and answers have been prepared according to the CAT exam syllabus. Information about An insurance company earns Rs. 250 per person as annual premium for MEDICLAIM insurance that covers hospitalization bill up to Rs. 18,900 at the rate of 80% of actual bills. It is estimated that only 1 out of every 100 insured persons would incur the hospitalization bill of Rs.15, 000. This scheme costs the insurance company 10% of the revenue as administrative cost.In the situation given above, if instead of 1, 1.6 out of hundred incur hospitalization bills and the company wants to maintain its profit per person, how much should be the premium charged?a)Rs. 325b)Rs. 300c)Rs. 330d)None of theseCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for CAT 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for An insurance company earns Rs. 250 per person as annual premium for MEDICLAIM insurance that covers hospitalization bill up to Rs. 18,900 at the rate of 80% of actual bills. It is estimated that only 1 out of every 100 insured persons would incur the hospitalization bill of Rs.15, 000. This scheme costs the insurance company 10% of the revenue as administrative cost.In the situation given above, if instead of 1, 1.6 out of hundred incur hospitalization bills and the company wants to maintain its profit per person, how much should be the premium charged?a)Rs. 325b)Rs. 300c)Rs. 330d)None of theseCorrect answer is option 'C'. Can you explain this answer?.
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