Massachusetts Health & Accident Insurance Practice Exam

Which risk type characterizes an individual with lower premiums due to better-than-average health?

1. Standard Risk

2. Preferred Risk

3. Substandard Risk

4. Declined/Uninsurable Risk

The correct answer is: Preferred Risk

The designation of preferred risk is used to classify individuals who exhibit better-than-average health, which leads to lower premium costs for their insurance coverage. Insurers assess various factors, including medical history, lifestyle choices, and current health status, when determining an individual's risk classification. Those who are healthier than the general population are likely to experience fewer claims, prompting insurers to offer them more favorable terms and lower premiums as an incentive. This classification not only reflects their health status but also indicates a lower likelihood of filing claims, which is appealing to insurers looking to minimize risk. On the other hand, standard risk refers to individuals with average health characteristics, while substandard risk applies to those with higher likelihoods of claims due to poor health conditions. Declined or uninsurable risk comprises individuals who do not qualify for insurance coverage due to significant health issues. Understanding these classifications helps in comprehending how underwriting criteria influence insurance premiums.