Final answer:
An insured who has chosen the waiver of premium benefit receives a premium waiver, meaning premiums are not required during certain conditions, like disability. Charging actuarially fair premiums to a group can result in financial losses for an insurer due to moral hazard and mispricing risks.
Step-by-step explanation:
In the context of insurance, when an insured has elected the waiver of premium benefit, he or she will receive C. Premium waiver as a benefit. This means that the policyholder will not have to continue paying premiums under specific conditions, such as in the case of disability. Instead, the insurance company will waive the premium payments, and the policy will remain in force without the insured needing to make further premium payments.
An actuarially fair premium is one where the premium charged reflects the actual risk and expected payouts for the insured. When an insurance company charges an actuarially fair premium to a group as a whole rather than to each individual separately, it risks undercharging those with higher risks and overcharging those with lower risks. This could result in a loss to the company if high-risk individuals make more claims than anticipated, or it could lead to a reduction in customer satisfaction, as low-risk members may leave the policy for cheaper options that reflect their risk more accurately. This is related to the problem of moral hazard, where people might not take precautions against a certain event because they are insured against it, potentially leading to more claims than expected by the insurer.