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Against which type of insureds are life insurance companies allowed to make policy rate discriminations?
People of different religions
People that are married
People that smoke
People of different races
The correct answer is: People that smoke
Life insurance companies often use various factors to assess the risk associated with insuring an individual, which can lead to policy rate discrimination. This practice is primarily informed by the need to accurately reflect the risk profile presented by certain behaviors or lifestyle choices. When it comes to individuals who smoke, there is a substantial body of evidence showing that smoking significantly increases the likelihood of adverse health outcomes, which in turn affects the life expectancy of the insured. Consequently, insurers are justified in charging higher premiums to smokers compared to non-smokers because the statistical data enables them to evaluate the added risk more accurately. This differentiation is not only a reflection of the increased risk but also serves to encourage healthier lifestyle choices among insureds. In contrast, factors such as religion, marital status, or race do not have a direct correlation with the mortality risk associated with life insurance. These characteristics cannot justly be used to determine rates since they do not inherently affect life expectancy or insurance risk in the same way that smoking status does. As a result, life insurance companies focus their policy rate discriminations on measurable and relevant risk factors like smoking, which is why this is the correct response.