General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An applicant with a history of chronic back problems applies for disability insurance. The insurer offers coverage with an extra premium rather than a standard rate. The higher premium reflects the insurer's response to a(n):
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A chronic medical condition is a physical hazard — a tangible health condition that raises the probability of a disability claim. Insurers respond by classifying the applicant as substandard and charging an extra premium (a rating) so the rate reflects the elevated expected cost. This is standard risk classification: hazards are priced, not arbitrarily penalized, and the applicant still obtains coverage at a rate proportionate to the risk.
Why the other options are wrong
- B) The condition raises the chance of a loss but does not guarantee one; a guaranteed loss would not be an insurable risk at all.
- C) A morale hazard is carelessness arising because insurance exists, not a preexisting medical condition.
- D) Disability risk is a pure risk; there is no chance of gain, so this is not a speculative risk being transferred.
Memory hook
Chronic back = physical hazard = substandard rating. The premium math absorbs the extra odds.