When a Fraternal Insurer Began Operations,it Asked Each Member,regardless of Age,to

question 32

Multiple Choice

When a fraternal insurer began operations,it asked each member,regardless of age,to pay $20 per month to the fraternal's group life insurance plan.In exchange,each member received the same amount of life insurance.Soon younger members of the group began to drop out when they realized their premiums were subsidizing the older workers who had a higher chance of loss.Which important underwriting principle was violated in this case?

• A)An underwriting profit should be attained.
• B)Moral hazard should be avoided.
• C)Insureds should be selected according to underwriting standards.
• D)There should be equity among policyholders.

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Definitions:

Account Balances

The amounts of money held in financial accounts, calculated as the funds deposited minus funds withdrawn, plus any interest or capital gains.

Prepaid Account

An account reflecting payments made in advance for goods or services, which are recognized as expenses when the goods or services are actually consumed.

Accounts Payable

Short-term liabilities representing amounts owed to suppliers or creditors for goods and services received but not yet paid for.

Trial Balance

A bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account columns to check the accuracy of the entries.