Insurance & risk management

Disability policies typically replace 60% to 70% of earned income to maintain the insured's lifestyle while keeping premiums affordable. Replacing 100% of income is incorrect because insurers want to avoid moral hazard, ensuring there remains a financial incentive for the policyholder to return to work.

Term life insurance is designed solely to provide temporary protection, paying a death benefit only if the insured dies within the specified policy term. It does not accumulate cash value, which is a key feature of permanent policies like whole life insurance (Option A).

Term life insurance is designed solely to provide temporary protection, paying a death benefit only if the insured dies within the specified policy term. A diagram for this topic isn't available yet — the worked example below walks the same reasoning step by step.

• !Replacing 100% of income is incorrect because insurers want to avoid moral hazard, ensuring there remains a financial incentive for the policyholder to return to work.
• !This duty directly conflicts with maximizing firm revenue or selling the most profitable products, making Option D incorrect.

Answer each from memory — you'll see instantly whether you're right and why.

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