California Life-Only & Accident and Health AgentLife InsuranceEasy
A life insurance applicant has a history of a chronic medical condition that, while managed, presents a higher risk than average. The insurer decides to issue the policy but at a higher premium rate to compensate for the increased risk. This is an example of which underwriting decision?
- AStandard
- BSubstandard
- CDeclined
- DPreferred
Show answer & explanationAnswer & explanation
Correct answer: B. Substandard
A substandard rating, also known as a 'rated' policy, is issued when an applicant presents a higher-than-average risk due to factors like a chronic medical condition, and the insurer charges a higher premium to cover this increased risk.
Why the other options are wrong
- A. Standard means the applicant presents an average risk and pays standard premiums.
- C. Declined means the insurer refuses to issue the policy.
- D. Preferred means lower risk, resulting in lower premiums.
Substandard Risk
An underwriting classification for an applicant who presents a higher-than-average risk to the insurer due to health issues, hazardous occupations, or other factors, typically resulting in higher premiums.
- Higher risk than average
- Often due to health, occupation, or lifestyle
- Result: higher premiums (rated policy)
- Policy is still issued, but with modified terms
Memory trick: Underwriting is like a 'risk report card' for insurance applicants.