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Question

Difficulty: EasyRisk Classification

An applicant for a new life insurance policy undergoes medical underwriting. The results show that the applicant is in exceptionally good health, maintains an ideal weight, has never used tobacco, and works in a safe administrative role. Based on these favorable factors, which risk classification will the insurer most likely assign to this applicant?

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

Answer

Preferred risk
The correct classification is preferred risk because this category is reserved for applicants whose health history, lifestyle, and occupation present a significantly lower-than-average probability of loss. Because they represent a lower risk to the insurer, they are rewarded with the lowest possible premium rates.

Step-by-Step Solution

1
Analyze the applicant's profile presented in the scenario.
The applicant is in exceptionally good health, has an ideal weight, uses no tobacco, and has a safe job.
Underwriters use these factors to determine the probability of a loss occurring.
2
Correlate the applicant's risk level with standard insurance classifications.
The profile indicates a significantly lower-than-average risk of mortality.
Lower-than-average risks qualify for the best rating category.
3
Identify the correct terminology for the lowest risk category.
The correct classification is preferred risk.
Insurers classify above-average health and lifestyle profiles as preferred risks, which typically receive lower premium rates.

Key Concept

Insurance applicants who demonstrate a lower-than-average risk of loss are classified as preferred risks and generally qualify for lower premium rates.
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Topics

Risk Classification

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