A person with a terminal illness buys a life insurance policy planning to die soon and have the family collect the death benefit. Why is this NOT an ideally insurable risk scenario?

Why A is correct

An ideally insurable risk must be fortuitous — the loss must be accidental and beyond the insured's control, not planned or certain. Buying coverage after learning of a terminal illness to guarantee an imminent payout is a classic adverse selection setup in which the event is effectively certain, which defeats the law of large numbers and the requirement that losses be random. Insurers underwrite precisely to detect such situations before they enter the pool.

Why the other options are wrong

• B) Ease of measurement is not the problem; a life insurance death benefit is easily measured, yet the loss must also be fortuitous to be insurable.
• C) Too many healthy applicants would improve, not harm, the risk pool; the problem here is a sick person self-selecting into coverage.
• D) Premium levels are not the reason the scenario fails; the insurer would find the risk uninsurable or charge for known mortality rather than rely on average pricing.

Memory hook

Fortuitous = accidental and unplanned. If death is the plan, insurance becomes a payout machine — not risk transfer.