An insurance company is processing four different life insurance applications. Based on standard underwriting guidelines, arrange the following applicant profiles in order from the lowest expected mortality rate (qualifying for the lowest premium) to the highest expected mortality rate (resulting in a rejection).
- 1An applicant in excellent physical condition with a safe occupation and no family history of early mortality.
- 2An applicant in average health with a normal life expectancy and standard occupational risks.
- 3An applicant with a chronic but manageable health condition, such as controlled high blood pressure.
- 4An applicant with a terminal illness and a life expectancy of less than six months.
Answer
The correct sequence from lowest to highest expected mortality is: the applicant in excellent health (Preferred), the applicant with average health (Standard), the applicant with a manageable chronic condition (Substandard), and the applicant with a terminal illness (Declined).
Underwriting classifies risks to ensure that the premiums charged adequately cover the expected losses. The standard hierarchy of risk from lowest to highest is: Preferred (exceptional health), Standard (average health), Substandard (impaired health but still insurable at a higher rate), and finally Declined (uninsurable).
Step-by-Step Solution
Key Concept
Life Insurance Risk Classification Categories
Estimated Time:45s