Final answer:
A life insurance policy's waiver of premium takes effect when the insured becomes totally disabled. This benefit keeps the policy active without the need for further payment if the policyholder cannot work due to disability. It does not apply in cases of unemployment, duration of policy ownership, or terminal illness.
Step-by-step explanation:
Understanding Waiver of Premium in Life Insurance
When it comes to a life insurance policy's waiver of premium, this benefit generally takes effect when the insured becomes totally disabled. This means that if the policyholder is unable to continue working due to a disability, the insurance company will waive the premium payments and keep the policy in force, ensuring that the coverage continues without the need for further payment from the policyholder. This waiver does not apply if the insured becomes unemployed, has had the policy for a specified number of years, or has become terminally ill. These are all different situations that do not necessarily result in the activation of the waiver of premium benefit.
When it comes to insurance payouts, each type of insurance has specific conditions under which it pays out. For example:
- Health insurance pays out when medical expenses are incurred.
- Life insurance pays out when the policyholder dies.
- Car insurance pays out when a car is damaged, stolen, or causes damage to others.
- Home insurance pays out when a dwelling is damaged or burglarized.
In terms of calculating premiums, if the insurance company were selling life insurance separately to groups based on family history of cancer, the premiums would be calculated differently, ensuring that they are actuarially fair for each group. If life insurance is sold to the entire group without the knowledge of family cancer histories, the actuarially fair premium for the group as a whole would likely be calculated by averaging the risk.
If an insurance company charges the actuarially fair premium to the group as a whole rather than separately, it could face the issue of adverse selection, which occurs when those at higher risk are more likely to purchase insurance, potentially leading to financial losses for the insurance company.