The death of the insured rises much faster than the general population. After 10 years the mortality of these 25 years of age, there 0.66/1000/year male smokers. Consequently, a group of one thousand men of 25 years with a $ 100,000 policy, all of average health, a life insurance company would have to collect about $ 50 per year for each of a large group to meet relatively few claims expected. (0.35 to 0.66 expected deaths each year x $ 100,000 payment for death u003d $ 35 per policy). Sales commissions and administrative measures should be taken into account so that it makes good business sense. A policy of 10 years for a person 25 years are non-smoking male with a medical history may receive preferential deals as low as $ 90 a year for a policy of $ 100,000 in a competitive market for life insurance in the U.S..
The insurance company collects premiums of the policy owner and invests them to create a pool of money that can pay claims and finance the operations of the insurance company. Most of the money that the insurance companies that comes directly from premiums paid, as money gained through investment of premiums can not, even in the most ideal market conditions, vest enough money per year to pay claims. [Citation needed] The cost of life insurance with the insurer increased 's age because statistically, people are more likely to die as they age.
Since adverse selection can have a negative impact on the financial situation of the insurer, the insurer investigates each proposed insured unless the policy is below a minimum established company, starting with the application process. The group insurance policies are an exception.
