Under California's life insurance anti-discrimination rules, a life insurer may:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
California's life insurance anti-discrimination rules prohibit unfair discrimination between individuals of the same class and equal expectation of life. The rule does not prevent sound underwriting: classifying applicants by actuarially justified factors such as age, health, occupation, or avocation is lawful and is essential to fair pricing. What the law forbids is arbitrary discrimination based on factors such as race, religion, or national origin that do not reflect real differences in risk. An insurer may therefore set different rates for risks that differ in a measurable, actuarially relevant way, but it may not treat individuals with the same risk characteristics differently. This balance protects both fairness and the insurer's right to price risk accurately.
Why the other options are wrong
- B) Discrimination based on race or national origin is expressly prohibited in life insurance. Such factors do not reflect actuarially justifiable differences in risk, so using them to classify applicants is unlawful discrimination.
- C) Refusing coverage based solely on religion is arbitrary discrimination that the law forbids. Religion is not a permissible underwriting factor in California life insurance because it does not relate to the risk of loss.
- D) Rates must be based on factual, actuarially relevant differences in risk. Charging arbitrary rates without any factual basis would constitute unfair discrimination, because the law requires pricing to reflect real differences in risk.
Memory hook
Same class and same life expectancy must mean the same price.