California Life-Only & Accident and Health AgentLife InsuranceMedium
A life insurance applicant has a history of high-risk hobbies, such as skydiving and competitive race car driving. During the underwriting process, the insurer determines that these activities significantly increase the risk of the applicant's death. What is the most likely action the insurer will take regarding this application?
- AIssue the policy with an exclusion rider for death caused by these hobbies.
- BIssue the policy with a reduced death benefit and a lower premium.
- CDecline the application due to uninsurable risk.
- DIssue the policy as standard, ignoring the hobbies.
Show answer & explanationAnswer & explanation
Correct answer: A. Issue the policy with an exclusion rider for death caused by these hobbies.
For high-risk hobbies, insurers often issue policies with an exclusion rider, which states that the death benefit will not be paid if the insured's death is a direct result of participating in the specified hazardous activity. This allows the insurer to provide coverage for other risks while mitigating the elevated risk from the hobbies.
Why the other options are wrong
- B. A reduced death benefit might occur with a substandard rating, but usually with a higher premium, not lower, and an exclusion rider is more direct for specific activities.
- C. While possible, declining is usually a last resort; an exclusion rider is a more common way to manage specific high risks.
- D. Ignoring significant risks would be against sound underwriting principles.
Exclusion Rider (Life Insurance)
A rider attached to a life insurance policy that excludes coverage for specific causes of death, typically high-risk activities or pre-existing conditions.
- Prevents the insurer from paying a death benefit if death is caused by the excluded activity.
- Allows individuals with certain risks to obtain coverage for other causes of death.
- Common for aviation, hazardous sports, or certain occupations.
Memory trick: Standard, Substandard, Preferred, Declined: Underwriting's risk call.