In the context of future liabilities, what is the primary basis for estimation?

• A. Past costs only
• B. The average salary of workers
• C. The probable total future cost of compensation for the injury or disease
• D. The current year's profits

Answer: (C)

For future liabilities, you estimate based on the probable total future cost of compensation for the injury or disease. This means projecting all expected payments—both indemnity and medical benefits—over the life of the claim and deriving a reserve to cover that ultimate cost. Past costs can inform trends, but they don’t determine the total future cost. The average salary of workers doesn’t capture how benefits are calculated or how long payments may last, and current year’s profits are unrelated to the future obligations of the claim.