48. Companies issue preferred risk policies with reduced premiums with the expectation of
Answer: D
The expectation is for better than normal mortality or morbidity experience.
Companies issue preferred risk policies with reduced premiums with the expectation of the policyholder experiencing better than normal mortality or morbidity characteristics, meaning they anticipate lower claims due to the insured individuals being healthier on average.
A) higher interest rates on specific product purchases.
This option is incorrect because the issuance of preferred risk policies is not directly related to interest rates on product purchases. The focus here is on the risk assessment of policyholders rather than the financial aspects of interest rates.
B) premature accidental death due to higher hazard exposure.
This choice is also incorrect, as companies do not issue preferred risk policies with the expectation of higher hazard exposure leading to premature accidental death. Instead, they anticipate lower risk and healthier policyholders.
C) the policyholder experiencing worse than average mortality or morbidity characteristics.
This option is incorrect because it contradicts the premise of preferred risk policies. Companies issue these policies expecting policyholders to have better than average health outcomes, not worse.
D) better than normal mortality or morbidity experience.
This is the correct option as it aligns with the purpose of issuing preferred risk policies. Companies offer reduced premiums based on the expectation that the insured individuals will have better health outcomes, leading to fewer claims.
Conclusion
The correct answer, D, is definitive as it directly reflects the rationale behind preferred risk policies, which are designed for healthier individuals. The other options fail to align with the core concept of risk assessment and the intention of reducing premiums based on anticipated lower claims from healthier policyholders.