88. In disability income insurance, an insurer can reduce its risk by
Answer: C
Lengthening the elimination period reduces the insurer's risk.
By lengthening the elimination period in disability income insurance, an insurer can decrease the likelihood of claims being paid out, thereby reducing its overall risk exposure.
A) broadening the definition of covered disability
Broadening the definition of covered disability would likely increase the insurer's risk rather than reduce it. A wider definition may lead to more claims being filed, as more conditions could qualify for benefits, thereby increasing the insurer's financial exposure.
B) lengthening the benefit period
Lengthening the benefit period would also increase the insurer's risk. A longer benefit period means that the insurer may have to pay out claims for an extended duration, which can lead to higher overall costs and increased risk of loss.
C) lengthening the elimination period
Lengthening the elimination period is a strategy that effectively reduces the insurer's risk. This period is the time an insured must wait before benefits are paid, and by extending it, the insurer limits the number of claims they must pay, thereby lowering their risk exposure.
D) removing an exclusion rider
Removing an exclusion rider can increase the insurer's risk since it would eliminate limitations on certain conditions that are not covered. This action could lead to a higher frequency of claims for disabilities that were previously excluded, thus increasing the insurer's potential losses.
Conclusion
The correct answer is C, as lengthening the elimination period helps the insurer mitigate risk by delaying the payout of benefits, thus reducing the number of claims they may have to cover. In contrast, the other options either increase risk or do not effectively address the insurer's need to minimize potential losses.