Final answer:
The conversion privilege under a group life plan allows for an individual plan conversion upon employment termination. Actuarially fair premiums are based on calculated risks, and without full information, such as family cancer histories, insurers set premiums for a group as a whole. Information asymmetry is a key concept affecting insurance pricing and offerings. The correct option is c.
Step-by-step explanation:
The conversion privilege under a group life plan allows an employee to convert to a individual plan upon employment termination. This means that if an individual leaves their job, they have the option to convert their group life insurance into a private, individual policy without needing to provide evidence of insurability.
An actuarially fair premium is one that is calculated based on the expected costs and risks associated with insuring individuals from a particular group. If the insurance company were selling life insurance separately to each group knowing their family cancer histories, it would adjust the premiums accordingly.
On the other hand, if the insurer could not discern family cancer histories, the premium would be based on an average risk level that encompasses the entire group, spreading the risk across all members.
The idea that an individual may have more detailed information about their risk factors than an insurance company can realistically obtain is known as information asymmetry.
This concept is crucial in insurance markets because it can impact the pricing and offerings of insurance products, like life or car insurance, where individual risk factors are significant. The correct option is c.