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Question

Difficulty: EasyRisk Classification

Marcus works full-time as a deep-sea welder, an occupation known for significant physical hazards. Upon reviewing his life insurance application, the underwriter concludes that his profession presents a higher-than-average risk of mortality, but the risk remains acceptable to the insurer. Consequently, the company issues the policy with a higher premium rate to compensate for the added hazard. What specific risk classification was assigned to Marcus?

  1. A
    Preferred risk
  2. B
    Standard risk
  3. Substandard riskAnswer
  4. D
    Declined risk

Answer

Substandard risk
Substandard risk (also known as a rated risk) is assigned to applicants who have a higher-than-average probability of loss due to factors like adverse health history, dangerous hobbies, or hazardous occupations. Because the risk is still acceptable, the insurer issues the policy but charges a higher premium to account for the increased exposure.

Step-by-Step Solution

1
Analyze the applicant's risk profile based on the scenario details.
The applicant has a hazardous occupation causing a higher-than-average mortality risk, but the risk is still acceptable to the insurer.
Identifying the severity and acceptability of the risk determines the rating category.
2
Evaluate the insurer's action regarding the premium.
The insurer issued the policy but charged a higher premium rate to compensate for the increased hazard.
Premium adjustments directly correlate with the assigned risk classification.
3
Match the scenario findings to the appropriate risk classification.
A higher-than-average but acceptable risk that requires a premium surcharge is classified as a substandard risk.
This is the standard definition of the substandard risk classification in life insurance underwriting.

Key Concept

Substandard Risk Classification
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Topics

Risk Classification

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