South Carolina Life Insurance Practice Exam

In group life insurance, how are premiums generally determined?

1. Based on the group's collective claim risk

2. Each individual member's risk factors

3. Historical performance of the insurance provider

4. Fixed rates that are the same for all members

The correct answer is: Based on the group's collective claim risk

In group life insurance, premiums are primarily determined based on the group's collective claim risk. This means that insurers assess the risk associated with the entire group rather than evaluating individual members separately. By analyzing the overall demographic, health status, age distribution, and occupation of the group, insurers can estimate the likelihood of claims occurring and set premiums accordingly. This method allows group insurance to often be more economical than individual policies because the risk is spread out among all members, averaging out individual claims experiences. Therefore, the assessment of the entire group's characteristics is crucial for determining appropriate premium rates that reflect overall risk rather than the risk profile of each individual.