Final answer:
Last survivor life insurance
covers two or more people and pays out upon the last person's death. It's useful for estate planning.
Actuarial fair premiums are based on mortality rates and family history which can impact an insurance company's risk and pricing.
Step-by-step explanation:
The type of life insurance policy that covers two or more people with the death benefit payable upon the last person's death is known as last survivor life insurance, also referred to as survivorship life insurance or second-to-die insurance. This policy is particularly useful for estate planning purposes where the aim is to leave a legacy to heirs or to fund estate tax obligations that arise upon the death of the second insured.
Cash-value (whole) life insurance offers a death benefit and additionally accumulates a cash value that can serve as a financial resource for the policyholder. Understanding the different life insurance policies is crucial when considering the objectives of the insured and their beneficiaries.
Regarding the actuarially fair premium for 50-year-old men with and without a family history of cancer, the fair premium would be calculated based on the expected mortality rate for each group.
For men with a family history of cancer (20% of the group) having a 1 in 50 chance of dying, the fair premium would be higher compared to those without a family history (80% of the group) with a 1 in 200 chance of dying.
If the insurance company charges the same premium to the entire group, those with lower risk effectively subsidize those with higher risk, which can lead to adverse selection, influencing the more healthy individuals to opt-out or seek insurance elsewhere.
The type of life insurance policy that covers two or more people with the death benefit payable upon the last person's death is called Last survivor life insurance. This policy is also known as second-to-die insurance or survivorship life insurance.
With last survivor life insurance, the death benefit is only paid out when both insured individuals have passed away. This type of policy is often used for estate planning or to provide funds for beneficiaries after both individuals have passed.