Chapter 17 Exercises

Work these the way a life underwriter works a file: ask of every applicant what is this person's expected mortality, and what does the evidence actually support — and never sum a manual blindly when the findings might be telling one story. Items marked with a dagger (†) have worked solutions in Appendix: Answers to Selected Exercises; the rest are for discussion or self-test. Section references like (§17.5) point you back to the chapter. Numbers in these problems are illustrative teaching figures, not real rates.

A. Recall and definitions

  1. † Define mortality and explain why life underwriting is described as pricing the timing of a certain event rather than the occurrence of an uncertain one. (§17.1)
  2. Distinguish the mortality rate from the mortality ratio. What mortality ratio does a perfectly standard life carry, and what does a ratio of 200% mean? (§17.1)
  3. List the standard sources of life-underwriting evidence in roughly the order they enter the file, and give a one-line statement of what each can do. (§17.2)
  4. † Define the attending physician statement (APS) and explain why it is called the "gold standard" of life evidence — and name its two chief drawbacks. (§17.2)
  5. Name the risk classes from best to worst, and state in one sentence what a table rating is. (§17.3)
  6. Define the build chart and explain why the chapter calls it "a proxy." (§17.5)
  7. Distinguish simplified issue from guaranteed issue, and name the structural device that lets a guaranteed-issue product survive without medical underwriting. (§17.6)
  8. † Define accelerated underwriting and explain what happens to an applicant whose instant data raises questions — and why "routed, not declined" matters. (§17.7)

B. Mortality factors and the build chart

  1. Rank these factors by their typical weight on a life classification and state the condition that governs each where one applies: age, tobacco, build, blood pressure, family history. (§17.4)
  2. † Explain why treated and well-controlled hypertension is often a far smaller debit than the raw blood-pressure reading would suggest — and which evidence source establishes "controlled." (§17.4, §17.2)
  3. An applicant's family history shows a parent who died of heart disease at 82 and a sibling who had a cardiac event at 47. Which one carries underwriting weight, and why does the chapter say to "discount the rest"? (§17.4)
  4. † Two 50-year-old men present an identical height and weight. List three additional pieces of evidence that would most change how you classify that build, and explain how each could push the decision toward a credit or a debit. (§17.5)
  5. Explain the difference between reading "high cholesterol + BMI 28" as two independent strikes versus as part of one metabolic picture. Why does summing a manual blindly over-penalize the correlated case? (§17.3, §17.5)

C. Underwrite this submission

  1. † Underwrite this applicant. A 38-year-old woman applies for \$500,000 of 20-year term. Application: lifelong nonsmoker, no medications, no hospitalizations, recreational runner, no family history of early disease. Paramed/labs: BP 110/70, cotinine negative, lipids excellent, glucose normal, BMI 22. MIB: clean. Rx: none. State the risk class you would offer and the single most important reason, and say whether you would order an APS. (§17.2–§17.5)
  2. Underwrite this applicant. A 55-year-old man applies for \$1,000,000 of whole life. Application: "former smoker, quit recently"; treated high blood pressure; type 2 diabetes diagnosed three years ago. Paramed/labs: BP 138/88, cotinine positive, HbA1c elevated, build heavy. Walk through how you would classify this file, what the positive cotinine does to both the rate and the good-faith question, and whether this is more likely a table rating, a decline, or a postpone pending more evidence. (§17.2, §17.4, §17.6)
  3. † Whole-person re-read. Take the David Okafor facts from the chapter (45, \$1M term, cholesterol mildly elevated, BMI 28, father's MI at 58, BP excellent, nonsmoker, cyclist). Write the box-checking classification and the whole-person classification side by side, and identify the one finding that genuinely earns its debit weight in both readings. (§17.5, The Underwriting File)

D. Price this risk

  1. † A standard 45-year-old's annual premium for a given term policy is \$1,200 (illustrative). Using the chapter's "each table ≈ +25% of standard mortality, ~+25% of premium" convention, estimate the annual premium at Table 2, Table 4, and Table 6. Show the mortality ratio at each. (§17.3)
  2. An applicant rates to Table 4 for a permanent condition plus a temporary flat extra of \$5 per \$1,000 for a recent surgery, on a \$250,000 policy. Explain in words how the table rating and the flat extra combine, and why a flat extra is the right tool for a temporary hazard rather than another table. (§17.3)
  3. † Explain why simplified-issue rates are higher than fully underwritten rates for the same face amount and age, even for an applicant who is genuinely healthy. What is the healthy simplified-issue buyer paying for? (§17.6)

E. Find the red flag

  1. † A \$2,000,000 application lists "excellent health, no medications," but the Rx history shows recent fills of a cardiac medication and an anticoagulant, and the MIB shows two other applications in the last six months. Identify the red flags, say what each one is versus what it proves, and state your next two underwriting actions. (§17.2)
  2. An applicant declares "nonsmoker," the build and labs are otherwise preferred, but the cotinine test is positive. List the two distinct problems this single result creates and how each is handled. (§17.4, §17.2)
  3. A simplified-issue product is being advertised primarily on websites people visit after a serious diagnosis, and early claims are running far worse than priced. Name the failure (it is not in the product's rate table) and tie it back to the Chapter 1 concept it illustrates. (§17.6; Ch. 1)

F. Memo and communication

  1. † Write the adverse-action note. An applicant is offered Table 4 rather than the preferred rate they expected, based in part on a prescription-database report and the APS. In 4–6 sentences, draft the substance of the notice you owe them: what to say about the basis of the decision, their FCRA rights, and the path to dispute or supplement the record — without disclosing more than is appropriate. (§17.2, §17.7; Ch. 4 FCRA)
  2. Write the recommendation. A business owner-operator (single owner, ~\$45M revenue) is buying a commercial package and has no key-person or buy-sell life in place. In a short paragraph to the broker, explain why the company has an insurable interest in the owner's life and what two life products would address the exposure — without quoting a price. (§17.1, The Underwriting File; Ch. 4 insurable interest)

G. Ethics and judgment

  1. † Ethics dilemma. Your accelerated-underwriting model assigns better mortality scores, on average, to applicants from certain zip codes, and the variable driving it is a credit-based attribute that correlates with neighborhood. The model is accurate on held-out data. State the tension between actuarial fairness and social fairness here, name the specific legal concept at risk, and recommend a concrete governance step. (§17.7; preview of Ch. 35)
  2. An applicant has had a genetic test showing a high-risk variant for a condition they have not developed. Lay out the argument for and the argument against a life insurer being permitted to use that result, and explain why the chapter refuses to resolve it. (§17.7)
  3. Is it ethical to sell a guaranteed-issue policy with a two-year graded death benefit to an elderly buyer who may not understand that early natural death returns only premiums? Argue both that the graded benefit is a necessary anti-selection device and that the disclosure obligation is therefore especially heavy. (§17.6)

H. The Underwriting File extension

  1. † Extend the file. The Harbor Steel beat this chapter is a life aside, not a property/casualty advance. Write the two-to-three-sentence note you would add to the running file: the key-person and buy-sell exposure on the single owner-operator, the insurable-interest basis that makes it lawful, and an explicit statement that this is flagged for the broker, not priced on the commercial-package desk. (The Underwriting File; Ch. 4)
  2. The chapter says David Okafor "returns one last time in Chapter 35." Based on §17.7, predict the one question about David that Chapter 35 will press — and why his preferred-or-near classification here is what makes that question sharp. (§17.5, §17.7)
  3. Suppose, at the next renewal review, you learn the accelerated path approved a cohort of lives whose later APS data (pulled on a random holdout) shows materially worse health than their instant data suggested. Describe how this single finding should change (a) the program's triggers, (b) its pricing assumption, and (c) the holdout rate itself — and connect each to the combined ratio. (§17.6, §17.7; Ch. 3)