Chartered Life Underwriter Practice Exam 2025 - Free CLU Practice Questions and Study Guide

Mortality risk refers specifically to the risk associated with the potential death of an insured individual during the term of an insurance policy. This concept is fundamental in the life insurance industry, as life insurance policies are primarily designed to provide financial protection to beneficiaries in the event of the policyholder's death. The calculation of premiums, benefits, and the overall design of life insurance products heavily depend on mortality risk assessments, which involve statistical analysis of life expectancy and the likelihood of death among various demographics.

In contrast, the first choice about market fluctuations pertains to investment risk, which is more relevant in contexts like variable life insurance or investments rather than mortality. The third option regarding policy lapsation is related to the risk of a policyholder not maintaining their insurance coverage due to failure to pay premiums, affecting the continuation of benefits but not relating directly to mortality. Lastly, the risk of insurance fraud involves deceitful actions taken by the policyholder, which impacts the insurance company’s financial integrity but does not concern the actual death of the insured. Understanding mortality risk is crucial for actuaries and underwriters when they assess and price life insurance products.