What does the term "substandard risk" describe?

The term "substandard risk" refers to individuals who possess certain health conditions or behaviors that increase their likelihood of filing a claim compared to the average person. As a result of these factors, they are considered a higher risk for insurance companies. This assessment typically leads to higher insurance premiums for these individuals, which reflects the increased likelihood of claims being filed.

In contrast, individuals in excellent health would be classified as standard or preferred risks, which would result in lower premium rates. Those with good income who qualify for standard rates do not fall under the substandard category, as their financial status does not necessarily correlate with their health assessment. Finally, individuals exempt from any health assessments do not present a risk that requires additional consideration, placing them outside the definition of substandard risk. Understanding these classifications helps insurance professionals determine appropriate premiums and coverage terms for different clients.