| Many people today have a small amount of life | | | | company must be able to identify and |
| insurance as a benefit of employment; | | | | distinguish the risks each applicant poses, |
| however, it is seldom sufficient to provide | | | | assess these risks, charge the appropriate |
| for total family protection, college | | | | premium to cover the risks, and invest wisely |
| education, or business coverage in the event | | | | so that sufficient moneys exist to pay all |
| of premature death. | | | | present and future claims. Different groups |
| | | | of insured's with different life expectations |
| To cover these financial needs people buy | | | | must be distinct based on real differences in |
| individually underwritten life insurance from | | | | mortality expectation. |
| the private market in different amounts and | | | | |
| at different times throughout their life. | | | | Life expectancy varies by age, gender, |
| People seeking this protection are free to | | | | medical and family histories, avocation, and |
| choose when to buy, what to buy, and how much | | | | lifestyle. Applicants for life insurance have |
| to pay for coverage. They can buy when they | | | | different medical histories and risk factors |
| are young and healthy, or wait until middle | | | | for future disease that affect life |
| age hoping their health will stay good, or | | | | expectancy. Each group of insurance |
| they can buy at a higher premium if they | | | | underwriters is charged a premium sufficient |
| develop a chronic illness. | | | | to cover costs associated wt its expected |
| | | | rate of death. The primary task of an |
| Based on their financial portfolio and | | | | underwriter is to assess life expectancy |
| coverage needs, they can choose products | | | | based on medical, occupational a vocational |
| ranging from an inexpensive term insurance | | | | factors significant to life expectancy. |
| product to high cash value (whole life) | | | | |
| product. The private life insurance system | | | | It is vital that the insurer have a full |
| provides an important financial safety net, | | | | understanding, and particularly the same |
| but it is entirely voluntary and | | | | knowledge, as the applicant in order to |
| unsubsidized. An individual life insurance | | | | assess accurately that risk equitably. |
| policy is, in effect, a commercial | | | | |
| transaction in which the insurer agrees to | | | | Before offering coverage to an applicant, |
| pay a specified death benefit in exchange for | | | | life insurers attempt to identify factors |
| payment of a premium proportional to the | | | | that may shorten the person's usual life |
| mortality risk assumed by the insurer. | | | | expectancy at a given age. If identifiable |
| | | | risks exist, the underwriter uses actuarial |
| The one characteristic common to all | | | | and medical information to calculate life |
| individual life insurance products is | | | | expectancy and determine an appropriate |
| transfer of the financial loss caused by | | | | premium. |
| unexpected death to the life insurance | | | | |
| company. The real product is payment of the | | | | There are many different types of life |
| death benefit regardless of when that death | | | | insurance products and their particular |
| occurs during the lifetime of the product. | | | | features play different roles in determining |
| The death benefit for each individual far | | | | the price of each one. Because life |
| exceeds annual and cumulative premiums plus | | | | expectancy is defined as the age at which |
| earnings for several years, particularly for | | | | half the insured's will have died, it's a |
| young applicants. | | | | moving target that increases with the age of |
| | | | the individual at the time of application. |
| To offer this financial protection, the | | | | |