Texas Life Agent Practice Exam

Why might an insurance company adjust rates for individuals with disabilities?

1. To ensure equal coverage across all applicants

2. To account for unique risk factors associated with the disability

3. To enhance competition among insurance providers

4. To simplify the underwriting process

The correct answer is: To account for unique risk factors associated with the disability

An insurance company adjusts rates for individuals with disabilities primarily to account for unique risk factors associated with the disability. Disabilities can lead to higher health care costs, increased likelihood of claims, and potentially shorter life expectancies. Insurance underwriting involves assessing risk and determining premiums based on various factors that may influence an individual's health and likelihood of making a claim in the future. By adjusting rates, insurers take into consideration the specific risks that individuals with disabilities may present. This helps ensure that the premiums are reflective of the actual risk of loss, enabling the company to maintain financial viability while providing coverage. This approach aligns with the principle of risk assessment in insurance, where rates are often based on the level of risk perceived in relation to coverage. The other options do not align as closely with the practices of risk assessment in insurance. For instance, ensuring equal coverage across all applicants is a fundamental ethical principle in insurance, but it doesn't directly explain why rates would be adjusted. Similarly, enhancing competition among providers doesn’t pertain to individual risk assessment, and simplification of the underwriting process does not typically relate to the complexities involved in evaluating disabilities.