Connecticut Life Producer Practice exam

What term describes a policy issued to substandard risk applicants?

1. Standard risk policy

2. Uninsurable policy

3. Rated-up policy

4. Preferred policy

The correct answer is: Rated-up policy

The term that describes a policy issued to substandard risk applicants is a rated-up policy. This type of policy is specifically designed for individuals whose risk profiles are higher than normal, which can be due to health issues, lifestyle factors, or other conditions that increase the likelihood of a claim being filed. In such cases, an insurer assesses the additional risk and adjusts the premium accordingly, typically increasing it to reflect the higher likelihood of claims. This practice allows the insurer to provide coverage to individuals who might otherwise be denied due to their substandard risk status, while also ensuring that the price of the policy is commensurate with the elevated risk involved. In contrast, the other terms refer to different categories of insurance policies. A standard risk policy is issued to individuals who present an average risk, while a preferred policy is available to individuals with lower-than-average risk, who may receive better terms and lower premiums. An uninsurable policy is generally not offered at all, as it denotes applicants deemed too high-risk to insure under any circumstances. Thus, the rated-up policy appropriately reflects the underwriting process for substandard risks.