Final answer:
An Ordinary (Straight) Life policy is whole life insurance with a death benefit and a cash value. It is designed to last a lifetime and pays out upon the policyholder's death. Premiums are based on actuarial calculations taking into account various risks and company expenses.
Step-by-step explanation:
All of the following statements are true regarding an Ordinary (Straight) Life policy EXCEPT one that is not provided here. An Ordinary (Straight) Life policy, typically referred to as whole life insurance, includes both a death benefit and a cash value component. This policy type is designed to last for the insured's entire lifetime as long as the premiums are paid. The policy accumulates cash value over time, which can be borrowed against or used as collateral. It can also serve as a savings or investment account for the policyholder's use. The death benefit is the amount that will be paid out to the beneficiaries when the policyholder dies.
It is important to note that different insurance policies have different payout mechanisms. Policies may pay out for various reasons, such as when medical expenses are incurred due to illness or accident, or activities related to vehicle damage or dwelling incidents. However, an Ordinary Life policy specifically pays out a death benefit when the policyholder passes away.
Insurance premiums are determined based on actuarial calculations, which involve assessing the risk associated with different groups of policyholders. Companies factor in variables such as investment income, administrative costs, and the risk profiles of insured groups in order to ensure that overall, the premiums cover claims, expenses, and profits. Asymmetric information can complicate this, as individuals often know more about their own risk levels than the insurance company, which can lead to adverse selection if not managed properly by the insurer.