A contractor's workers' compensation policy has an experience modification rate (EMR) of 1.25. If the base premium is $8,000, what is the actual premium the contractor will pay?
Correct Answer
A) $10,000
The actual premium is calculated by multiplying the base premium by the EMR: $8,000 × 1.25 = $10,000.
Why This Is the Correct Answer
The actual premium is calculated by multiplying the base premium by the EMR: $8,000 × 1.25 = $10,000. An EMR above 1.0 indicates a worse-than-average claims history, resulting in a higher premium than the base rate.
Why the Other Options Are Wrong
Option B: $9,000
$9,000 would result from applying an EMR of 1.125, not 1.25. This is a common arithmetic error when students confuse the modifier with a flat dollar add-on.
Option C: $8,000
$8,000 would be correct only if the EMR were exactly 1.0 (average claims history). A modifier of 1.25 means the contractor pays more than the base, not the base itself.
Option D: $6,400
$6,400 results from multiplying $8,000 × 0.80, which would apply if the EMR were 0.80 (better-than-average safety record). The EMR of 1.25 increases, not decreases, the premium.
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