Which of the following best defines pure premium?

The concept of pure premium specifically refers to the portion of the total premium that is allocated to cover the expected losses of policyholders. This is an essential component in insurance pricing as it ensures that the insurer can meet the anticipated claims resulting from covered events.

Pure premium does not take into account administrative costs, profit margins, or any other expenses, which are covered by the remaining parts of the total premium. This definition highlights the focus on risk management and loss prevention in the insurance industry, as the main purpose of collecting premiums is to accumulate funds sufficient to cover claims that arise.

By understanding pure premium this way, it becomes clear that it is a fundamental aspect of actuarial science and underwriting practices, defining the financial resources necessary to meet policyholder obligations based solely on risk exposure.