South Carolina Life Insurance Practice Exam

What characteristics of the group do underwriters consider before issuing a group life policy?

1. Membership duration

2. Purpose, size, financial strength and turnover

3. Employee age averages

4. Claim history

The correct answer is: Purpose, size, financial strength and turnover

Underwriters assess multiple characteristics of the group when deciding on issuing a group life policy, with specific attention to factors such as purpose, size, financial strength, and turnover. The purpose of the group can indicate the level of stability and commitment among its members, allowing underwriters to evaluate the overall risk associated with insuring the group. For instance, groups formed for a specific short-term project might present higher risks compared to those with a long-term objective and defined stability. The size of the group is also paramount, as larger groups tend to spread risk more effectively, which can lead to more favorable underwriting terms. A significant size can mitigate the effect of high claims from members, thus benefiting the insurer. Financial strength is another critical aspect, as insurers prefer to underwrite policies for groups that demonstrate fiscal responsibility and strong financial health. This stability can mean a higher likelihood of premium payments and a reduced risk of claims. Turnover rates within the group provide insights into its stability. High turnover can lead to increased administrative costs and potential instability in enrollment, which might impact claims and coverages. In summary, by focusing on these characteristics—purpose, size, financial strength, and turnover—underwriters can make informed decisions that align with their risk management strategies and financial goals