Final answer:
The term is grace period which allows policyholders to make payments past the due date without losing their insurance coverage. It differs from coinsurance, where costs are split between insurer and insured. Charging an actuarially fair premium for a whole group may risk the financial stability of the company due to adverse selection.
Step-by-step explanation:
The term you're looking for is a) Grace period. A grace period in the context of insurance is a set period after the payment due date during which the policyholder can make their premium payment without causing the policy to lapse. This means that even if the payment is made after the original due date, as long as it's within this grace period, the insurance coverage continues uninterrupted. This is different from coinsurance, which refers to the sharing of risk between the policyholder and insurance company, where the policyholder pays a set percentage of a loss, and the insurance company pays the remaining cost.
If an insurance company decides to charge an actuarially fair premium to the group as a whole rather than to each subgroup separately, it may face the risk of adverse selection. High-risk individuals would be more likely to purchase the insurance, while lower-risk individuals might opt-out, considering it not cost-effective. This could lead to a scenario where the insurance company has to pay out more in claims than it collects in premiums, potentially jeopardizing the company's financial stability.