CARD T030
Indemnity
The principle of indemnity is compensation for a covered loss rather than a profit from that loss.
How it works
Expense-reimbursement coverage measures payment against a covered expense, subject to limits and cost sharing. Do not apply that model mechanically to every life or health product. A life policy pays a stated death benefit, and a fixed hospital indemnity policy pays an agreed amount when its trigger is met, regardless of the actual bill. The word “indemnity” in a product name therefore needs context. [1] [7]
For a $1,000 eligible expense, reimbursement coverage does not create a $2,000 payment simply to produce a profit. A separate policy promising $200 per covered hospital day calculates its benefit by covered days instead.
Distinguish the indemnity principle from fixed-benefit products. Life insurance is not reimbursement for the measured monetary value of a life.
CARD T031
Mortality
Mortality concerns death rates in a population.
How it works
A mortality table lists estimated death rates at different ages. It commonly shows the chance that a person of a given age will die before the next birthday, the number expected to survive to each age, and average remaining life expectancy. Life insurers use this information to estimate how many death claims a group may produce. Annuity insurers use it to estimate how long lifetime income payments may continue. It describes a group, not the date a particular person will die. Premiums also reflect expenses, interest, and other factors. [9]
In a simplified hypothetical table, an annual death probability of 0.002 means about 2 deaths per 1,000 people of that age over the next year. An insurer can use that estimate when planning for claims; it cannot identify which two people will die.
Mortality = death. Morbidity = illness, injury, or disability.
CARD T032
Morbidity
Morbidity concerns the occurrence and extent of illness, injury, or disability in a population.
How it works
Morbidity describes how often people become ill, injured, or disabled, and how serious or long-lasting those conditions are. Health insurers use it to estimate treatment claims; disability insurers use it to estimate how often income benefits may be needed and for how long. Two groups with the same number of disability claims can have very different costs if one group’s disabilities last much longer. Mortality measures deaths; morbidity measures illness, injury, and disability. [9]
An insurer estimates how many workers will become disabled and how long benefits may continue. Both frequency and duration are relevant to its morbidity assumptions.
For disability income, ask both “how often?” and “how long?” Do not substitute death rates for disability experience.
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Practice questions
Select an answer, then check it to see why each option is right or wrong.
T030 · Indemnity
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T031 · Mortality
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T032 · Morbidity
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Sources & further reading
Original explanations and practice scenarios informed by the following regulator resources. State examples are not presented as nationwide deadlines or requirements.