Final answer:
The waiver of premium rider pays benefits when the policyholder becomes critically ill or disabled. Insurance companies may face adverse selection if they charge actuarially fair premiums to the whole group rather than individually. High copay policies are for those who want lower premiums, and high premium policies with lower copays are for those who want predictability in costs.
Step-by-step explanation:
The waiver of premium rider benefits are typically paid out under certain conditions, primarily when the policyholder becomes critically ill or disabled to the extent that they cannot continue paying the insurance premiums. This rider is an additional benefit that can be attached to a life insurance policy; it ensures that if the policyholder cannot pay due to a severe illness or injury causing disability, the insurance company waives the premium payments and the policy remains active. This type of rider is designed to help policyholders maintain their coverage even when they are faced with circumstances that affect their ability to make regular payments.
Regarding the insurance company and actuarially fair premiums, charging such premiums to a group as a whole rather than to each group separately might result in adverse selection, where healthier individuals opt out due to higher premiums, leaving a pool of riskier individuals which in turn could drive up claims and losses for the insurance company.
Insurance companies offer policies with a high copay to those who prefer to pay lower premiums but can afford to pay more out-of-pocket at the time of service. Conversely, policies with a high premium but lower copay are typically offered to those who want predictability in their healthcare costs, usually those who require frequent medical services or prefer less out-of-pocket expenses when accessing healthcare services.