Final answer:
Whole life insurance, known for its level premium and death benefit, is also called straight life insurance. Calculating the actuarially fair premium requires considering the risk, which can differ based on factors like family health history. The correct option is D.
Step-by-step explanation:
The question pertains to the different names given to life insurance policies, specifically focusing on a policy that has a level death benefit, premium, and accrues cash value. Such a policy is most commonly known as whole life insurance, also referred to as straight life insurance. This name highlights the policy's straightforward nature in terms of premiums remaining constant over the life of the policy and the guaranteed accrual of cash value over time.
In addressing the example provided, the concept of actuarially fair premium is considered for two groups of 50-year-old men based on their family history with cancer. Actuarially fair premium refers to a calculation where the premium charged for insurance is directly proportional to the risk of the insured event occurring. To calculate this, insurers assess the probability of a claim being made and set premiums to reflect the risk involved.
For the group with a family history of cancer, the actuarially fair premium is calculated considering a higher likelihood of death within the next year. The other group, without such a history, would have a lower premium due to their decreased risk. When these premiums are combined for the entire group without accounting for the individuals' cancer history, the company may face a scenario where the healthier individuals are subsidizing the higher risk group, potentially leading to issues such as adverse selection.