CARD T058
Preferred Risk
An applicant qualifying for an insurer’s more favorable risk class. The class may carry a lower premium than standard coverage.
How it works
Preferred applicants meet the insurer’s criteria for a more favorable expected risk than standard. The label and qualification rules vary among insurers. Compare rates only for otherwise comparable policies; a preferred classification does not make a larger or different policy cheaper in every comparison. [10]
Two people apply for comparable coverage at the same insurer. The one qualifying for preferred status may receive a lower rate than the one in the standard class.
Preferred describes the risk class, not priority claim service or guaranteed future health.
CARD T059
Standard Risk
An applicant meeting the insurer’s ordinary underwriting criteria for a coverage class. Standard rates apply to that classification.
How it works
Standard means the applicant meets the insurer’s ordinary criteria for the relevant class. It is a baseline classification, not a promise that the individual will have average health every year. It differs from preferred (more favorable) and substandard (greater assessed risk). [10]
After reviewing the application, an insurer offers its regular rate for the applicant’s policy and class, without a special risk surcharge.
Standard does not mean uninsurable, and it does not necessarily mean the insurer’s lowest rate.
CARD T060
Substandard Risk
An applicant presenting greater risk than the insurer’s standard class. Coverage may require extra premium or modified terms.
How it works
A substandard or rated risk presents higher expected loss than the standard class. The insurer may offer coverage with an extra premium, a table rating, or other permitted modifications. Some risks instead are postponed or declined. Rated is not the same as rejected. [10]
A life insurer offers the requested death benefit at an extra premium because of a disclosed medical risk. The applicant has an offer, but on less favorable pricing than standard.
Substandard is an underwriting label, not a judgment of the applicant’s character.
CARD T061
Backdating
Assigning a policy date earlier than its issue date for a permitted purpose. Limits and effects depend on applicable rules and policy terms.
How it works
Permitted backdating can use an earlier policy date to preserve a younger insurance age. The owner may owe premium for the earlier period, so compare that added cost with possible rate savings. Backdating limits vary. It is not permission to falsely state when an application was signed or to assume a loss before application is covered. [15]
An insurer permits an earlier policy date that saves one insurance-age step. The owner compares the lower future rate with the additional premium required for that earlier date.
An earlier policy date is not proof of retroactive coverage for every event before application.
APPLY THE TERMS
Practice questions
Select an answer, then check it to see why each option is right or wrong.
T058 · Preferred Risk
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T059 · Standard Risk
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T060 · Substandard Risk
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T061 · Backdating
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Sources & further reading
Original explanations and practice scenarios informed by the following regulatory, legal, and product resources. State examples are not presented as nationwide deadlines or requirements.