Substandard Insurance
An individual who may not qualify for a standard insurance policy may receive a substandard insurance policy from an insurance provider. Additionally, if the insurer eliminates a rating and later discovers that the risk reduction was from misrepresentation, the provider can contest the death claim and may even charge additional premiums before paying out a death benefit. Insurance brokers and other entities submit insurance applications on behalf of clients, and insurance underwriters review the application and decide whether or not to offer insurance coverage. Underwriters base their decisions on standard risk analysis factors. The levels of risk classification include: **Preferred Plus**: Also known as preferred elite, super preferred, or preferred select, is the best classification, and includes those in excellent health, with an ideal height-to-weight ratio, and no red-flag issues. **Preferred**: Much like preferred plus class gets but may have small but manageable identified health problems such as high cholesterol or blood pressure. Some of the factors that can trigger a substandard rating include: Health issues, including a family history of illness or premature death, above-average alcohol consumption, or the use of tobacco products A poor driving record Hazardous occupations, such as working on off-shore oil rigs Dangerous hobbies, such as drag racing or skydiving To determine the risk for an individual application, the company will look at the medical history, prescription medication use, family medical history, driving record, employment, dangerous hobbies such as racing or scuba diving, and smoking habits.
What Is a Substandard Insurance?
An individual who may not qualify for a standard insurance policy may receive a substandard insurance policy from an insurance provider. Substandard insurance policies contain special or restrictive provisions and will have higher premiums due to the higher risk posed by the individual. Since they are considered a higher risk, it increases the probability that the insurance provider will incur a loss.
How Substandard Insurance Works
A broad array of consumers may be forced to seek substandard insurance coverage, including those with poor driving records or individuals with poor physical health. Usually, the coverage extended by the insurance company will be more restricted due to the increased risk of providing coverage to the individual.
If an individual receives a substandard rating because they engage in a dangerous occupation or hobby, insurers may reconsider and remove the poor score when the applicant moves to a safer job or stops participating in the dangerous activity. However, if the rating is related to a chronic health issue, it may be much harder to remove.
Additionally, if the insurer eliminates a rating and later discovers that the risk reduction was from misrepresentation, the provider can contest the death claim and may even charge additional premiums before paying out a death benefit.
Special Considerations
Insurance brokers and other entities submit insurance applications on behalf of clients, and insurance underwriters review the application and decide whether or not to offer insurance coverage.
Underwriters base their decisions on standard risk analysis factors. Companies use risk classification to determine the risk associated with underwriting the policy and the premium charged for coverage.
To determine the risk for an individual application, the company will look at the medical history, prescription medication use, family medical history, driving record, employment, dangerous hobbies such as racing or scuba diving, and smoking habits. The levels of risk classification include:
Example of Substandard Insurance
A healthy 50-year-old male might pay $1,500 a year for $1 million of 20-year term coverage, while another 50-year-old man with a substandard rating could spend more than $3,000 a year for the same coverage. If both individuals died ten years into their coverage, the healthy man would have paid $15,000 for the $1 million death benefit. The other man would have spent more than $30,000 for the same benefit.
Some of the factors that can trigger a substandard rating include:
Related terms:
Insurance Coverage
Insurance coverage is the amount of risk or liability covered for an individual or entity by way of insurance services. read more
Insurance Risk Class
An insurance risk class has similar characteristics, which are used to determine the risks of underwriting a policy and the premium that should be charged. read more
Insurance Underwriter
An insurance underwriter is a professional who evaluates the risks involved when insuring people or assets and establishes the pricing. read more
Insurance Claim
An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event. The insurance company validates the claim and, once approved, issues payment to the insured. read more
Lapse
A lapse is the cessation of a privilege, right, or policy due to time or inaction. Learn how a lapse impacts contracts, insurance, and stock shares. read more
Life Insurance Guide to Policies and Companies
Life insurance is a contract in which an insurer, in exchange for a premium, guarantees payment to an insured’s beneficiaries when the insured dies. read more
Risk Analysis
Risk analysis is the process of assessing the likelihood of an adverse event occurring within the corporate, government, or environmental sector. read more
Term Life Insurance
Term life insurance is a type of life insurance that guarantees payment of a death benefit during a specified time period. read more
Underwriting
Underwriting—financing or guaranteeing—is the process through which an individual or institution takes on financial risk for a fee. read more