A life insurance underwriter is evaluating four applications for traditional whole life coverage. Based on standard actuarial underwriting principles, arrange the following applicants in sequence from the most favorable risk classification (lowest relative premium rate) to the least favorable risk classification (highest premium rate or uninsurable).
- 1Applicant W: A 45-year-old with a BMI of 22, blood pressure of 112/74, total cholesterol of 165 mg/dL, no history of tobacco use, and both parents living in good health at age 85.
- 2Applicant X: A 45-year-old non-tobacco user with a BMI of 28. They have mild obstructive sleep apnea that is effectively controlled with documented CPAP compliance. Their father died of colon cancer at age 68.
- 3Applicant Y: A 45-year-old non-tobacco user with a BMI of 34, diagnosed with Type 2 diabetes 8 years ago requiring insulin therapy, and a current resting blood pressure of 148/92.
- 4Applicant Z: A 45-year-old daily tobacco user diagnosed with severe chronic obstructive pulmonary disease (COPD) who currently requires continuous supplemental oxygen therapy at home.
Answer
The correct sequence from most favorable to least favorable risk classification is: Applicant W (Preferred), Applicant X (Standard), Applicant Y (Substandard), and Applicant Z (Declined).
The correct sequence is established by evaluating the expected mortality risk of each applicant. Applicant W presents optimal health metrics and qualifies for a Preferred rating. Applicant X has minor, well-controlled conditions suitable for a Standard rating. Applicant Y possesses multiple synergistic risks requiring a Substandard (table-rated) classification. Applicant Z suffers from a terminal-level impairment making them an uninsurable, Declined risk.
Step-by-Step Solution
Key Concept
Life insurance risk classification categorizes applicants based on expected mortality to ensure equitable premium rates, ranging from Preferred (best) to Declined (uninsurable).