Life & Health Insurance Exam (National Portion)Life InsuranceMedium
An employer offers a group life insurance plan where the cost of coverage is based on the average age and gender of the entire group, rather than individual characteristics. This is an example of which underwriting principle?
- AGroup Underwriting
- BIndividual Selection
- CAdverse Selection
- DExperience Rating
Show answer & explanationAnswer & explanation
Correct answer: A. Group Underwriting
Group underwriting is the practice of evaluating an entire group as a single unit to determine eligibility and rates for group insurance. The cost is based on the risk characteristics of the group as a whole, rather than on each individual member.
Why the other options are wrong
- B. Individual selection refers to the process where individuals purchase policies based on their own needs and health, not a group concept.
- C. Adverse selection is the tendency for poorer risks to seek insurance; group underwriting aims to *prevent* it, not be an example of it.
- D. Experience rating is a method used to determine premiums based on the group's past claims experience, which is a component of group underwriting, but 'Group Underwriting' is the broader principle being described.
Group Underwriting
The process of assessing the risk of an entire group, rather than individual members, for insurance purposes. Premiums are determined based on the group's overall characteristics, such as age, gender, occupation, and claims history.
- Focuses on the group as a whole, not individuals.
- Aims to prevent adverse selection.
- Simpler and less expensive than individual underwriting.
- Relies on a large, stable group to spread risk.
Memory trick: Underwriting: Is it one person or a whole group?