What characterizes a "substandard risk" in life insurance underwriting?

A "substandard risk" in life insurance underwriting is characterized by individuals who present a higher likelihood of claims based on their health, lifestyle, or other underwriting criteria. These individuals are considered to have above-average risk compared to the general population due to factors such as pre-existing medical conditions, smoking or hazardous occupations. As a result, insurers assess the potential risks differently and, to compensate for the higher risk, they often require these individuals to pay higher premiums than those classified as standard or preferred risks.

This is a standard practice in underwriting, where the insurance company aims to balance the potential financial exposure with the appropriate pricing of the policy. Individuals who are deemed substandard do not qualify for standard rates because their risk profile indicates a greater probability of needing the benefits of the insurance policy sooner than those who fall into healthier categories. Thus, the premium adjustment reflects the insurer's need to mitigate risk while providing coverage for these individuals.