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Question

Difficulty: EasyRisk Classification

An individual applies for a new life insurance policy. During the underwriting review, the underwriter notes the applicant's outstanding medical exam results, non-smoking status, and regular exercise habits. Because the applicant's mortality risk is exceptionally low compared to the general population, the insurance company issues the policy at a reduced premium rate. Which of the following risk classifications has the applicant received?

  1. PreferredAnswer
  2. B
    Standard
  3. C
    Substandard
  4. D
    Declined

Answer

Preferred
The Preferred risk classification is given to individuals who demonstrate a significantly lower mortality risk than the average population due to excellent health, clean family history, and safe lifestyles. Insurers reward these lower-risk applicants with discounted premium rates.

Step-by-Step Solution

1
Analyze the applicant's health and lifestyle profile.
The applicant has outstanding medical results, does not smoke, and exercises regularly.
Identifying the baseline health indicators is the first step in assessing mortality risk.
2
Evaluate the insurer's underwriting decision.
The insurer determined the mortality risk is exceptionally low and issued the policy at a reduced premium rate.
The premium rate action directly correlates with the specific risk category assigned by the underwriter.
3
Match the risk and premium outcome to the correct actuarial classification.
A lower-than-average risk with a reduced premium corresponds to the Preferred risk class.
Standard is for average risks, Substandard is for higher risks with surcharges, and Preferred is reserved for superior risks with lower premiums.

Key Concept

Risk Classification
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Topics

Risk Classification

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