Life & Health Insurance Exam (National Portion)Underwriting and Policy IssueEasy
A life insurance applicant has a history of heart disease, high blood pressure, and is a smoker. The underwriter assigns a higher-than-standard premium due to these factors. Which risk classification has been applied to this applicant?
- ADeclined Risk
- BPreferred Risk
- CStandard Risk
- DSubstandard Risk
Show answer & explanationAnswer & explanation
Correct answer: D. Substandard Risk
Substandard risk, also known as rated risk, is assigned to applicants who present a higher-than-average risk to the insurer due to health issues, hazardous occupations, or dangerous hobbies, leading to higher premiums.
Why the other options are wrong
- A. Declined risk means the insurer has refused to issue a policy due to excessively high risk or uninsurable conditions.
- B. Preferred risk is for individuals with excellent health and lifestyle habits, qualifying them for lower premiums.
- C. Standard risk is for individuals who meet the insurer's average health and lifestyle criteria.
Substandard Risk
An insurance applicant classified as having a higher-than-average risk, typically due to health, occupation, or lifestyle, leading to increased premiums.
- Higher risk than standard
- Results in higher premiums (rated policy)
- May be due to health, occupation, or hobbies
Memory trick: Risk Class: P.S.S.D. - Preferred, Standard, Substandard, Declined. Know your place!