Question

An insured has an adjustable insurance policy that has a cost-of-living provision included. She would like to periodically change the face amount of the policy to better suit her current life situation. How often will the insured be allowed to adjust this?

Answer 1

The frequency at which the face amount of an adjustable insurance policy can be altered depends on policy terms, often being annually. Insurance functions such that premiums cover claims, administrative costs, and profits, with actuarially fair premiums reflecting the expected cost of claims in different risk groups.

Step-by-step explanation:

The adjustment frequency of the face amount of an adjustable insurance policy with a cost-of-living provision can vary widely depending on the terms set forth by the insurance company.

Typically, these adjustments are allowed on an annual basis to reflect changes in the cost of living, but it is important for the insured to review their individual policy documents or speak with their insurance representative to understand the specific terms of their policy.

Insurance operates on the principle that the premiums paid by the insured must, over time, cover the claims made, the administrative costs of the insurer, and allow for profits.

Insurance often involves grouping individuals into risk groups based on shared characteristics that affect the likelihood of claims. It is crucial for premiums to be set at levels that are actuarially fair, which entails matching premiums to the expected costs of claims within each risk group.