Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An applicant is classified as a substandard risk. The insurer will typically:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
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.
Why the other options are wrong
- B) Issuing at the standard rate would undercharge for the added risk and harm the pool.
- C) Product selection depends on the applicant's needs, not on the substandard rating.
- D) Higher risk produces higher premiums, not lower ones.
Memory hook
Substandard = higher odds, higher premium. Flat extras and rated-up ages keep the pool fair.