12 Questions
What is the tendency of an insurer to write more bad risks than acceptable risks known as?
Adverse selection
Why do people with more significant risk tend to seek insurance coverage more than those with little risk?
Because they are more likely to need insurance benefits
What is the law of large numbers, in the context of group life insurance?
A principle that states that the larger the group, the more predictable the risk
Why do insurers require proof of insurability for smaller groups?
Because smaller groups have a higher potential for adverse selection
What is the main benefit of writing large groups of individuals in terms of adverse selection?
It reduces the impact of adverse selection
What is the offset of high versus low risk in group life insurance known as?
Spreading the risk
What is the primary reason why the law of large numbers does not apply to a group life insurance policy for ten insureds?
The group is too small to accurately predict the risk
Why would an insurer be hesitant to write a group life insurance policy for a group of employees with a physical impairment?
The group is formed primarily to secure life insurance coverage
What is the primary purpose of a business that is eligible to purchase group insurance?
To produce a product and earn a profit
What is policy persistency in the context of insurance?
The percentage of active policies in force
Why is policy persistency important for an insurer?
It affects the stability and success of the insurer
Why would an insurer shy away from writing a group life insurance policy for a group that changes insurers regularly?
The insurer feels that writing such groups does not represent an acceptable risk
Test your understanding of group life insurance underwriting requirements, including the concept of adverse selection and its impact on insurers. Learn how to reduce the risk of bad risks and ensure profitable insurance policies.
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