Economics of Life Insurance

Question 1

Market power

Answer 1

Market failure in which one or a few sellers/buyers has the power to influence the price of a product or service.

Question 2

3 Conditions giving rise to market power

Answer 2

1) barrier to entry
2) economies of scale or scope
3) product differentiation/price discrimination

Question 3

Huebner’s 5 human life value (HLV) admonitions

Answer 3

1) HLV should be carefully appraised and capitalized
2) HLV should be recognized as the creator of property values
3) the family unit is an economic unit organized around the HLV of its members
4) the HLV and its protection should be regarded as constituting the principal economic link between the present and succeeding generations
5) Regarding the significance of the HLV relative to property values, principles of business management utilized in connection with property values should be applied to life values

Question 4

Insurance density

Answer 4

Average annual per capita DPW within a market

Question 5

Insurance penetration

Answer 5

Ratio of yearly DPW to GDP within a market

Question 6

Morbidity risk

Answer 6

Possibility that injury, illness, or incapacity creates unacceptable financial consequences

Question 7

Longevity risk

Answer 7

Possibility of outliving one’s financial resources

Question 8

Mortality risk

Answer 8

(1) Possibility that one’s death creates undesirable financial consequences for others
(2) Possibility that a budgeting and savings program designed to support an individual or family to and through retirement is not completed due to the death of as breadwinner during his or her working life.

Question 9

Assessment basis

Answer 9

Insurance contacts that permits insureds to be assessed retrospectively as claims occur to provide promised benefit payments