Final answer:
Single Premium Whole Life policies are likely the most expensive due to upfront payment. Actuarially fair premiums must account for risk differences, which can impact an insurance company's financial stability if not adequately assessed.
Step-by-step explanation:
The Single Premium Whole Life policy generally has the most expensive premium because it requires the policyholder to pay the entire premium in one lump sum upfront, rather than spreading the payments over time as with other policies. In Ordinary Whole Life, the premiums are paid throughout the lifetime of the policy at regular intervals, making it less expensive at the outset. Universal Life offers flexible premiums and can adjust the death benefit, whereas the premiums for Variable Life are tied to investment accounts that can fluctuate over time.
Considering a scenario where an insurance company sells life insurance to those with and without a family history of cancer, actuarially fair premiums would be based on the mortality risk of each group. If such risks are not considered, and a single premium is charged to all, the company may face financial risk if the high-risk group (with a family history of cancer) is larger than expected.