Substandard Insurance Definition

What is substandard insurance?

A person who may not qualify for a standard insurance policy may receive a substandard insurance policy from an insurance provider. Substandard insurance policies contain special or restrictive provisions and will have higher premiums due to the higher risk posed by the individual. Since they are considered a higher risk, it increases the likelihood that the insurer will suffer a loss.

Key points to remember

  • Lower quality insurance is for people who are at a higher risk of filing a claim.
  • High-risk policyholders include, but are not limited to, those with poor physical health or poor driving records.
  • Insurers look at family and medical history, as well as driving and employment records to assess risk.
  • Hazardous work and dangerous hobbies can also trigger a substandard insurance rating.

How substandard insurance works

A wide range of consumers may be forced to seek out substandard insurance coverage, including those with poor driving records or those in poor physical health. Usually, the coverage extended by the insurance company will be more restricted due to the increased risk of providing coverage to the individual.

If a person receives a lower than standard score because they have a dangerous occupation or hobby, insurers can reconsider and remove the poor score when the claimant moves to a safer job or stops participating in the dangerous activity. . However, if the note is related to a chronic health condition, it may be much more difficult to remove.

Additionally, if the insurer eliminates a rating and later discovers that the reduction in risk is due to misrepresentation, the provider can dispute the death request and may even charge additional premiums before paying out a death benefit.

Special Considerations

Insurance brokers and other entities submit insurance applications on behalf of customers, and insurers review the application and decide whether or not to offer insurance coverage.

Underwriters base their decisions on standards Risk analysis The factors. Companies use risk classification to determine the risk associated with taking out the policy and the premium charged for the cover.

To determine the risk of an individual claim, the company will review medical history, prescription drug use, family medical history, driving record, employment, hazardous hobbies such as running or diving diving and smoking habits. Risk classification levels include:

  • Favorite More: Also known as elite favorite, super favorite, or elite favorite, is the best classification and includes people who are in excellent health, with an ideal height-to-weight ratio and no red flag issues.
  • Prefer: Much like preferred class plus, but may have small but manageable identified health issues such as high cholesterol or blood pressure.
  • Standard Plus: It also means “healthy”, but with some additional problems, such as not having the ideal size or having a family history of illness.
  • Standard: This includes people considered slightly overweight, but with an average life expectancy and a family history of problems such as cancer and heart disease before the age of 60.
  • Sub-standard: These applicants have complicated medical histories, such as diabetes or heart disease, poor driving record, dangerous occupation or hobby, drug, alcohol or tobacco abuse. In addition, the company will further identify the individual using a table note with letters or numbers (usually AJ or 1-10).

Example of substandard insurance

A healthy 50-year-old man might pay $1,500 a year for $1 million of 20-year term coverage, while another 50-year-old man with a substandard rating might spend more than $3,000 a year. year for the same coverage. If both people died ten years after their coverage began, the healthy man would have paid $15,000 for the $1 million death benefit. The other man reportedly spent over $30,000 on the same benefit.

Some of the factors that can trigger a substandard rating include:

  • Health issues, including a family history of illness or premature death, above-average alcohol consumption, or use of tobacco products
  • A bad driving record
  • Hazardous occupations, such as working on offshore oil rigs
  • Dangerous hobbies, such as drag racing or skydiving