Substandard Risk
An applicant presenting above-average risk, issued with a table rating (extra percentage), flat extra premium, policy lien, or exclusion - declined only when uninsurable.
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Practice This Concept
After underwriting review, an insurer determines an applicant is a substandard risk. Which action best reflects how the insurer may respond?
Offer the policy with an extra premium (rating) or a limitation for the increased risk — For a substandard risk, the insurer may offer the policy with a rated (extra) premium reflecting the higher mortality, add a rider or endorsement excluding or limiting certain causes, or in severe cases decline or postpone the application. Underwriting outcomes range from standard issue to rating to declination based on the degree of risk. The insurer is not required to issue every applicant at preferred rates, and beneficiary exams are irrelevant to the decision.
National insurance concept
An applicant is classified as a substandard risk. The insurer will typically:
Charge a higher premium or add a flat extra premium to reflect the increased risk of loss — Substandard risks, also called rated or impaired risks, present a higher than average chance of loss because of health history, occupation, or avocations. Insurers either increase the premium, using a rated-up age or a flat extra premium per thousand, or limit coverage to reflect the added mortality risk. The higher premium compensates the pool for the additional risk so that standard-risk policyowners do not subsidize impaired lives. A decline or postponement is used when the risk is too great to insure.
National insurance concept
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