Under which circumstance is it legal for an insurer to charge one insured more than another insured for the same coverage?

Charging different premiums for the same coverage is permissible when considering the risk profile of each insured. Insurers evaluate various factors to determine an individual's risk level, which influences the cost of insurance premiums. For example, a person with a history of high claims or risky behavior may present a greater likelihood of incurring future claims. Thus, they are classified as higher risk and are charged a correspondingly higher premium.

This practice aligns with the principles of actuarial science, where the cost of insurance is based on the probability of loss. Insurers use statistical methods to assess risk and to set rates accordingly, ensuring that premiums are commensurate with the potential for future claims.

In contrast, other options, such as charging higher premiums based on prior claims alone, following mandated guidelines, or length of the policyholder's relationship with the insurer, do not directly relate to the risk assessment principle that justifies the differentiation in charges based on risk. Therefore, the ability to assess and charge based on risk profiles remains the key reason for tiered premium pricing among policyholders.