California Life-Only & Accident and Health AgentAccident and Health InsuranceEasy
A client is applying for a new individual health insurance policy. Due to a pre-existing heart condition, the insurer decides to offer the policy but at a higher premium rate than standard. This adjustment to the premium is a result of the insurer classifying the applicant as what type of risk?
- AStandard risk
- BDeclined risk
- CSubstandard risk
- DPreferred risk
Show answer & explanationAnswer & explanation
Correct answer: C. Substandard risk
A substandard risk is an applicant who presents a higher-than-average risk to the insurer due to health conditions, hazardous occupations, or other factors. Insurers often issue policies to substandard risks but charge higher premiums or impose limitations to offset the increased risk.
Why the other options are wrong
- A. Standard risk refers to applicants who present an average level of risk and qualify for standard premium rates.
- B. Declined risk means the insurer has refused to issue a policy due to excessively high risk.
- D. Preferred risk refers to applicants who present a lower-than-average risk and may qualify for lower premiums.
Substandard Risk (Health Insurance)
An applicant for health insurance who presents a higher-than-average risk of loss to the insurer due to factors such as adverse health history, dangerous occupation, or unhealthy habits. Such applicants may be issued a policy with a higher premium or modified coverage.
- Higher-than-average risk.
- Results in higher premiums or policy modifications.
- Still insurable, unlike a declined risk.
Memory trick: Risk classifications: Some are SUBstandard, some are not.