Montana State Life Insurance Practice Exam

What is the significance of having at least 100 new entrants yearly in a debtor group?

1. It helps in premium calculation

2. It ensures the policy can be issued

3. It aids in claim processing

4. It establishes coverage limits

The correct answer is: It ensures the policy can be issued

Having at least 100 new entrants yearly in a debtor group is crucial because it ensures that there is sufficient participation to make the insurance policy viable. A larger group of participants spreads the risk across more individuals, which not only stabilizes premiums but also helps maintain the overall sustainability of the insurance product. Insurance companies rely on a healthy number of participants to accurately assess risk and manage claims. When there are enough members, it becomes feasible for the insurer to issue policies more confidently, as the risk is diversified, reducing the chance of financial loss due to unusually high claims. Consequently, the presence of a minimum number of entrants supports the operational feasibility of providing the insurance coverage.