What is typically true about the relationship between benefit limits and premiums?

The correct statement reflects a fundamental principle in insurance pricing. When benefit limits are higher, it signifies that the insurer is taking on greater risk. This increased exposure typically translates to higher premiums, as the insurer needs to account for the potential of paying out larger claims. Essentially, the premium is calibrated to cover not just the expected claims but also the risk involved in insuring higher limits.

Insurers use statistical data and actuarial analysis to determine the likelihood of claims occurring and their potential size. Consequently, when insured amounts increase, the insurer must adjust premiums accordingly to ensure that they can adequately cover potential liabilities and still remain profitable. This understanding is critical for both insurers and policyholders when discussing coverage options and pricing strategies.