PSI Life Exam Practice Test

What is the term for an insurer that selects only insureds with known risks?

1. Predictable loss

2. High risk

3. Comprehensive policy

4. Guaranteed issue

The correct answer is: Predictable loss

The term for an insurer that selects only insureds with known risks is best described by the option of Predictable loss. Insurers aim to balance their risk pool by choosing insureds whose risks can be statistically anticipated, allowing them to better predict losses and set premiums accordingly. When insurers select only those with known risks, they can calculate expected losses more accurately, leading to a more stable and predictable financial outcome. Insurers that opt for this selection process often look for applicants who have a history of lower risk levels or those who fit within specific risk profiles that the insurer has assessed as manageable. This practice helps ensure that the insurer maintains a profitable operation by not exposing themselves to unnecessary volatility in claims. The other options do not accurately reflect this concept. For instance, high risk typically refers to insureds who are more likely to file claims, which insurers may avoid rather than select. Comprehensive policies are broader insurance solutions that cover a wide range of risks but do not specifically denote the selection of only known risks. Guaranteed issue refers to a type of insurance that must be offered to all applicants regardless of risk, which is the opposite of selecting for known risks.