Final answer:
Guarantee of insurability allows insured individuals to increase their benefit levels without the need for proving insurability. When an insurance company charges an actuarially fair premium to the entire group instead of individual sub-groups, it may face adverse selection and potential financial instability. The correct option is b.
Step-by-step explanation:
The option that allows the insured to periodically increase benefit levels without providing evidence of insurability is b) Guarantee of insurability.
This option typically allows the policyholder to purchase additional coverage at predetermined times or life events without having to prove they are still in good health.
If an insurance company charges the actuarially fair premium to the group as a whole instead of each group separately, this could lead to issues of adverse selection where healthier individuals or groups might opt out, leaving a less healthy, more risky pool of insureds.
Eventually, this could result in the insurance company facing financial instability due to higher-than-expected claims. The correct option is b.