5.2.1 Underwriting Classifications
Though all insurers have their own forms and processes of underwriting, there are typical classifications for underwriting policies that have a direct effect on premiums.
Preferred Risk
The preferred risk is favored by insurers. These are individuals who offer a lower risk for the insurer than a standard risk and are rewarded with generally lower premium rates. High personal characteristics contribute to a preferred risk rating such as nonsmoking and overall good health.
Standard Risk
An application can be accepted and approved "as submitted" for a policy to be issued. If the application is approved as submitted, then a standard premium would be set for the insured. Even though all insurance companies develop their own guidelines of what they consider a standard risk, the premiums are higher than preferred risks.
Substandard Risk
Many insurers may offer substandard (or nonstandard rated) policies for those individuals who fail the standard underwriting options, including those with disabilities. Substandard policies might cover only nursing home facilities, or they might offer no coverage at all but provide discounts on long-term care services. Premiums for substandard policies would be significantly higher than those for standard coverage. Substandard risks typically pay a higher premium rate to compensate for the expected shortened longevity of the insured.
