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Life insurance is a financial product. People buy it to protect their future financial security and to protect their dependents against financial hardship when they die. Many life insurance products also allow policy holders to accumulate savings that can be used in time of financial need. Sixty-nine percent of families owned some type of life insurance in 1998, the most recent year for which this statistic is available (American Council of Life Insurers [ACLI] 2001, p. 93). The need for private life insurance protection continues to grow. Americans purchased $2.7 trillion worth of new coverage in 2000, 7% more than in 1999. By the end of 2000, total life insurance coverage in the United States reached $16 trillion, up $457 billion, or 3% over 1999 (ACLI 2001, pp. 93-94). Three types of life insurance policies predominate. Individual insurance is sold and underwritten on an individual basis. Group insurance is underwritten on a group of people as a whole, such as employees of a company or members of an organization. Credit insurance guarantees payment of some form of credit, such as a mortgage or other loan, in the event the insured person dies. It can be bought on either an individual or group basis. Individual life insurance is the most widely purchased form of protection. It is typically purchased through agents and issued through with face amounts of at least $1,000, although larger minimum amounts are common in today's market. Individual policies are principally used for family protection, but also for business purposes. A business may purchase life insurance to protect against economic loss that would result from the death of the owner or key employee. At the end of 2000, individual life insurance accounted for 59% of all life insurance in force in the United States (ACLI 2001, pp. 94-95). Individual life insurance protection in the United States rose to $9.4 trillion at the end of 2000, up 2% from $9.2 trillion in 1999. It has grown at an average annual rate of 6% since 1990, when $5.4 trillion was in force. The size of newly purchased policies also continued to rise in 2000, on average growing 12% to $134,800, compared with $119,000 in 1999 and $75,300 in 1990 (ACLI 2001, pp. 95-96). Individual policies provide two basic types of protection. Term policies insure an individual for a specified period of time or term. Permanent or whole life policies insure an individual for his or her entire life. In 2000, 87.4% of applications for individual life insurance resulted in policies that were issued and paid for, 8.3% of these applications resulted in offers for coverage that were declined by the applicant, and only 4.3% were declined by insurers (ACLI 2001, p. 108). In the same year, over 21 % of policies were issued at preferred-risk r accounting for 52 % of the face amount of coverage issued. Seventy-five percent of policies were issued at standard rates, accounting for 43% of the face amount issued; and 5% were issued at substandard (or extra- risk) rates (ACLI 2001, pp. 107, 109). Risk classification enables insurers to take advantage of a num factors that contribute to the high rate of acceptance of applicants. Improvements in medicine, job safety, and public health make possible issuance of coverage at standard and preferred rates previously not possible. Similarly, sale of extra-risk policies, issued to individuals in poor health or hazardous occupations at higher than standard premiums, make it possible for some people to obtain coverage they could not have purchased in the past.
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The Life Insurance Market 
