How is the premium calculated in an insurance policy?

The premium in an insurance policy is calculated by multiplying the rate by the units of insurance. This method reflects how insurance companies determine the cost of coverage based on the risk associated with insuring an individual or entity.

The "rate" represents the cost per unit of coverage and is influenced by various factors, including the insured's age, health, lifestyle, and the specific type of insurance. The "units of insurance" indicates the total coverage amount being purchased.

By multiplying these two components, insurers can derive the total premium that the policyholder needs to pay for the coverage provided. This calculation ensures that premiums are appropriately adjusted to reflect the specific characteristics and needs of the insured, leading to more tailored and fair pricing.

In contrast, other methods described in the options do not accurately reflect the standard approach to premium calculation used in the insurance industry.