South Carolina Life Insurance Practice Exam

What is another name for a substandard risk classification?

1. Universal Life Option A

2. High-Risk Classification

3. Non-Standard Risk

4. Preferred Risk

The correct answer is: Non-Standard Risk

A substandard risk classification refers to individuals who are deemed to have a higher likelihood of making a claim due to their health, lifestyle, or other factors. In the insurance industry, these individuals may not qualify for the standard risk classification and therefore may face higher premiums or specific policy restrictions. The term "Non-Standard Risk" is specifically used to describe those who fall outside the typical risk categories and are considered less favorable from the insurer's perspective. This terminology reflects the assessment that these individuals pose a greater risk, requiring different underwriting criteria and possibly leading to increased costs. Being familiar with the terminology in risk classifications is crucial, as it affects premium calculations, policy eligibility, and the overall approach an insurer takes in risk management. In contrast, other options like "High-Risk Classification" might be used informally, but the industry-standard term remains "Non-Standard Risk."