Which types of insureds are life insurance companies allowed to make policy rate discriminations against?

Life insurance companies often assess risk factors when determining policy rates, which allows them to set premiums according to the likelihood of a claim being made. One significant factor is a person's smoking status, as smoking increases health risks and is correlated with a higher likelihood of mortality. Consequently, insurers are permitted to charge higher premiums or discriminate against individuals who smoke, reflecting the increased risk associated with that lifestyle choice.

This practice is grounded in the principle of actuarial fairness, where insurers base their pricing on the estimated cost of risk presented by the insured. As a result, individuals who smoke generally face higher life insurance rates compared to non-smokers, healthy individuals, and senior citizens, as those groups may present a lower overall risk in terms of longevity and health complications related to smoking.

Understanding this allows for a better grasp of how insurance companies formulate their pricing strategies and the reasoning behind health-related underwriting practices within life insurance policies.