What would be an example of a fair discrimination practice in life insurance?

Charging higher rates for higher-risk individuals is an example of a fair discrimination practice in life insurance because it aligns with the fundamental principles of risk assessment and premium determination. In the insurance industry, individuals are assessed based on various factors, including health status, lifestyle, and occupation. Those who present a higher likelihood of needing to use their insurance—typically due to greater health risks—are charged higher premiums to reflect the increased risk to the insurer.

This practice ensures that the premiums are equitable, as individuals with lower risk profiles subsidize those with higher risk to a certain extent. It adheres to the principle of "risk-based pricing," which is an essential foundation for how insurance operates, allowing companies to remain solvent while providing coverage to those who need it.

In contrast, offering the same premium regardless of health fails to take into account the varied risk levels amongst policyholders, potentially leading to adverse selection where only higher-risk individuals purchase insurance. Using different models for premium calculation, without regard to risk, does not provide a fair basis since it could lead to inconsistencies. Lastly, allowing everyone equal coverage amounts might overlook individual circumstances and needs, which could lead to inequities in coverage adequacy.