1. Discuss the potential for adverse selection when insureds exercise the renewability or convertibility option in a term life insurance policy. Which is more likely to be affected by adverse selection?

2. To what extent does the accidental death benefit (or double indemnity) provision of a life insurance policy violate the rules of good risk management?

3. It is often said that policyholders should not have to pay interest on policy loans since they are borrowing their own money. Explain specifically the fallacy of this argument. Assuming that policyholders did not pay interest on any policy loans, what would happen?

4. What underlying assumptions are embodied in the advice, Buy term and invest the difference? What do you think of this advice?