Under California Insurance Code Sections 10140-10145, an insurer is prohibited from refusing to issue a life insurance policy, or charging a different rate, based primarily on the applicant's:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Sections 10140-10145 prohibit insurers from discriminating on the basis of race, color, religion, national origin, ancestry, and similar personal characteristics when issuing policies or setting rates. These protected characteristics have no actuarial justification for different treatment, so using them would be both unfair and unlawful. By contrast, age, health, smoking, occupation, and hobbies are legitimate underwriting factors because they genuinely affect mortality and morbidity risk; insurers may use them to classify risks and price coverage fairly. The law thus draws a clear line between prohibited personal characteristics and permissible risk-based factors, and agents must be careful not to advise or imply different treatment based on protected traits.
Why the other options are wrong
- B) Age and health status are valid actuarial factors because they correlate with mortality and morbidity, so insurers may use them to classify risks and set rates. Because these factors genuinely predict future claims, their use in pricing is actuarially sound and generally permitted by the non-discrimination statutes.
- C) Smoking habits are a legitimate underwriting factor because they are statistically linked to mortality and morbidity risk, so using them to price coverage is lawful. Smoking status directly affects mortality and morbidity, so it falls within the legitimate risk factors that distinguish covered statutes from prohibited ones.
- D) Occupation and hazardous hobbies are accepted risk factors that insurers may consider in underwriting, because they measurably affect the chance of loss. Risk-based factors that change the probability of loss may be considered, unlike the protected personal characteristics the statutes prohibit.
Memory hook
Skin color, creed, and birthplace are off the rating sheet; health and habits are on it.