[Underwriting and Rating: Setting Insurance Rates]If one in every five houses suffers a $50,000 loss...

Thepure premiumrepresents theexpected loss costper exposure unit. It is calculated as:

Pure Premium=Probability of Loss×Severity of Loss\text{Pure Premium} = \text{Probability of Loss} \times \text{Severity of Loss}Pure Premium=Probability of Loss×Severity of Loss

Here:

Probability of loss = 1 in 5 homes =0.20

Severity (loss amount) =$50,000

0.20×50,000=10,0000.20 \times 50,000 = 10,0000.20×50,000=10,000

But here is the key detail: one loss of $50,000 spread overfive homesmeans:

50,0005=10,000\frac{50,000}{5} = 10,000550,000​=10,000

But the answer choices do not include $10,000 except option C, yet the correct pure premium per homeownerwith equal distribution per yearequals:

$10,000 per home per year

Thus the correct answer isC: $10,000.