Pearson VUE Life Insurance Practice Exam

The adjustment of insurance premiums primarily involves changing premiums based on the policyholder's risk profile. This means that insurers assess an individual's likelihood of filing a claim, which is influenced by various factors such as health status, lifestyle choices, age, and driving record in the case of auto insurance. If a policyholder is considered higher risk due to these factors, their premiums may be increased to better align with the potential for future claims. Conversely, a lower-risk policyholder may see a decrease in their premium since they represent a lower likelihood of making a claim.

Adjustments based on risk profiles ensure that premiums are reflective of the expected cost of coverage for specific individuals and help maintain the insurer's financial stability by collecting adequate premiums that correspond to the risk posed by each insured entity. This method promotes fairness in pricing, as individuals are charged premiums that correspond more accurately to the level of risk they bring to the insurance pool.