CERTYNEX IFRS ACADEMY

A trainee classifies the risks of a life insurance contract that pays a lump sum on the policyholder's death. The trainee writes: "The policyholder's death is a financial risk transferred to the issuer, because it results in a cash payment; so there is no insurance risk." What is the error in this reasoning?

It forgets that the sum paid on death must be discounted before being compared with the premiums.

It confuses the issuer and the policyholder, since the risk of death is borne by the policyholder, not by the issuer.

It judges the nature of the risk by the means of payment, whereas death is a non-financial event that creates insurance risk.

It applies the definition of an insurance contract to a certain event, whereas death is not one.