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Difficulty: MediumRisk Classification

An underwriter is reviewing a life insurance application for a 35-year-old individual. The applicant's medical exam reveals an ideal body mass index (BMI), excellent blood pressure, and no negative family health history. However, the motor vehicle report (MVR) reveals multiple severe speeding citations and a recent conviction for reckless driving. Based on standard underwriting principles, how will this applicant most likely be classified and what is the primary justification?

  1. Substandard risk; the adverse driving history represents a morale hazard that elevates the overall mortality risk, superseding the excellent medical profile.Answer
  2. B
    Preferred risk; life insurance classifications are based exclusively on the applicant's physiological health metrics and family medical history.
  3. C
    Standard risk; the applicant's exceptional physical health mathematically offsets the increased risk presented by the motor vehicle infractions.
  4. D
    Declined risk; a recent reckless driving conviction constitutes a moral hazard that makes the applicant permanently uninsurable under all life insurance guidelines.

Answer

Substandard risk, because the poor driving record creates a morale hazard that significantly increases mortality risk.
Underwriters evaluate all factors that affect mortality, including medical history, occupation, hobbies, and driving records. A history of reckless driving and severe speeding demonstrates a morale hazard (carelessness or disregard for personal safety) which significantly increases the statistical chance of accidental death. This behavioral factor elevates the applicant's overall risk profile beyond standard limits, resulting in a substandard (rated) classification despite their perfect physical health.

Step-by-Step Solution

1
Analyze the applicant's complete profile, weighing both the positive medical history and the negative behavioral history.
The medical history supports a favorable rating, but the driving history indicates a high risk of accidental death.
Comprehensive underwriting requires evaluating all potential causes of premature mortality.
2
Classify the nature of the driving infractions (reckless driving and severe speeding).
These infractions demonstrate a reckless attitude toward safety, which is defined as a morale hazard.
Distinguishing between physical, moral, and morale hazards is essential for determining the appropriate rating action.
3
Determine the net effect on the applicant's risk classification.
The presence of a severe morale hazard prevents the applicant from receiving a standard or preferred rate, resulting in a substandard classification.
Significant hazards cannot simply be canceled out by good health; they require a premium surcharge (rating) to compensate the insurer for the added risk.

Key Concept

Comprehensive Risk Classification and Morale Hazards
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Topics

Risk Classification

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