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Question

Difficulty: HardRisk Classification

An experienced underwriter is assessing a comprehensive life insurance application for a 38-year-old individual. The applicant's personal medical examination reveals perfect current health metrics and an optimal body mass index. However, the application discloses two significant risk factors: both of the applicant's parents passed away from cardiovascular disease prior to age 45, and the applicant actively participates in amateur stock car racing every weekend. According to standard risk classification guidelines, which of the following is the most appropriate underwriting decision?

  1. A
    Classify as a standard risk, applying a flat extra premium for the racing avocation while ignoring the family history due to the applicant's perfect current medical exam.
  2. B
    Decline the application entirely, because the simultaneous presence of a physical hazard from the racing and a moral hazard from the family history renders the risk uninsurable.
  3. Classify as a substandard risk, utilizing a tabular rating to account for the family history and a flat extra premium for the racing avocation.Answer
  4. D
    Classify as a preferred risk, because underwriters evaluate life insurance strictly on the applicant's personal current health status rather than genetic predispositions.

Answer

The application should be classified as a substandard risk, using a tabular rating for the adverse family history and a flat extra premium for the racing avocation.
The correct answer accurately identifies that the applicant should be classified as a substandard risk due to the compounding physical hazards. A tabular rating (or table rating) is appropriate for health-related risks like adverse family history because the mortality risk increases with age. Simultaneously, a flat extra premium is the correct method for constant hazards like dangerous avocations, where the risk of an accident is steady over time.

Step-by-Step Solution

1
Evaluate the applicant's personal health metrics and family history.
Current health is perfect, but family history shows early-onset cardiovascular disease.
Family history is a key physical hazard that impacts long-term mortality risk, preventing a Preferred or Standard classification regardless of current health.
2
Analyze the impact of the applicant's avocation (amateur stock car racing).
The avocation introduces a significant, constant physical hazard.
Hazardous hobbies require premium adjustments, typically through a flat extra premium, because the risk of a fatal accident remains constant regardless of the insured's age.
3
Synthesize the risk factors to determine the final classification and rating approach.
The application is classified as Substandard with combined rating methods.
The combination of adverse family history (addressed via tabular rating) and hazardous avocation (addressed via flat extra premium) accurately reflects the overall risk profile.

Key Concept

Underwriting Substandard Risks and Premium Rating Methods
Estimated Time:1m 30s
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Topics

Risk Classification

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