Question

How does the presence of a Free Cover Limit (FCL) in a group insurance scheme impact the spread of mortality risk among the insured population?

a.

It increases the mortality risk by focusing only on the healthiest individuals.

b.

It has no impact on the mortality risk as individuals are still required to submit evidence of insurability.

c.

It allows for a good spread of mortality risk by covering all or a significant percentage of employees without individual evidence.

d.

It significantly increases the mortality risk by allowing only the sickest individuals to be covered.

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (c).It allows for a good spread of mortality risk by covering all or a significant percentage of employees without individual evidence. Explanation:The presence of a Free Cover Limit (FCL) in a group insurance scheme allows for a good spread of mortality risk among the insured population. Since the scheme covers all employees (in a compulsory plan) or a certain minimum percentage of employees (in a voluntary plan) without requiring individual evidence of insurability up to a certain limit, it ensures that the risk is distributed across a broad base. This distribution is beneficial because it encompasses a wide range of individuals, thereby mitigating the impact of the few who may represent a higher risk, and offsetting the extra mortality risk over the group as a whole.

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Q. How does the presence of a Free Cover Limit (FCL) in a group insurance scheme impact the spread of mortality risk among the insured population?
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