General InsuranceSeen in 1 question
Preferred Risk
An applicant whose health, lifestyle, and history indicate better-than-average longevity or loss experience, qualifying for the lowest premium class.
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Practice This Concept
Classifying applicants into standard, substandard, and preferred risk classes primarily helps an insurer:
Charge premiums that fairly reflect each class's expected losses — Risk classification groups applicants with similar expected loss patterns so that each class is priced fairly: preferred risks pay less, substandard risks pay more. This equitable distribution of cost keeps insurance affordable for low risks while still covering elevated ones. Classification is the pricing arm of underwriting and depends directly on the law of large numbers.
National insurance concept
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