Insurance Company X is considering issuing a new policy to cover services required by elderly people who suffer from diseases that afflict the elderly. Premiums for the policy must be low enough to attract customers. Therefore, Company X is concerned that the income from the policies would not be sufficient to pay for the claims that would be made.Which of the following strategies would be most likely to minimize Company X's losses on the policies?A) Attracting middle-aged customers unlikely to submit claims for benefits for many years.B) Insuring only those individuals who did not suffer any serious diseases as childrenC) Including a greater number of services in the policy than are included in other policies of lower costD) Insuring only those individuals who were rejected by other companies for similar policiesE) Insuring only those individuals who are wealthy enough to pay for the medical services
Question
Insurance Company X is considering issuing a new policy to cover services required by elderly people who suffer from diseases that afflict the elderly. Premiums for the policy must be low enough to attract customers. Therefore, Company X is concerned that the income from the policies would not be sufficient to pay for the claims that would be made.Which of the following strategies would be most likely to minimize Company X's losses on the policies?A) Attracting middle-aged customers unlikely to submit claims for benefits for many years.B) Insuring only those individuals who did not suffer any serious diseases as childrenC) Including a greater number of services in the policy than are included in other policies of lower costD) Insuring only those individuals who were rejected by other companies for similar policiesE) Insuring only those individuals who are wealthy enough to pay for the medical services
Solution
The strategy that would most likely minimize Company X's losses on the policies would be A) Attracting middle-aged customers unlikely to submit claims for benefits for many years. This is because these customers would be paying premiums for a longer period before they start claiming benefits, thus providing more income to the company. The other options either increase the risk of claims (B, D), do not necessarily reduce the amount of claims (C), or limit the customer base too much (E).
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