Disability income insurance premiums are based primarily on:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Disability income insurance protects against loss of earning capacity from sickness or injury, so its pricing is driven by morbidity, the frequency and severity of disability-causing illness and injury in a given risk class. Life insurance, by contrast, is priced primarily on mortality. Disability pricing also reflects expenses, investment income, benefit period, and the probationary and elimination periods, but morbidity is the fundamental risk measure. Understanding this difference explains why disability rates vary so strongly with occupation and elimination period.
Why the other options are wrong
- B) Mortality tables apply to life insurance, which pays on death; disability insurance pays while the insured is alive but disabled.
- C) Investment objectives belong to annuity or separate-account products, not to disability income pricing.
- D) Lapse experience is an administrative factor in many lines, but morbidity is the core basis for disability rates.
Memory hook
Life prices death; disability prices being alive but unable to work. Morbidity, not mortality, drives the rate.