Chartered Life Underwriter Exam 2025 – 400 Free Practice Questions to Pass the Exam

Substandard risk is associated with individuals or groups that have characteristics indicating a higher likelihood of filing insurance claims. This classification often stems from specific factors such as health issues, lifestyle choices, or occupations that present increased risk levels. For example, someone working in a hazardous job or with a history of serious health problems would fall under this category.

Insurers recognize that these individuals may require more scrutiny due to their potential for higher claims. Consequently, they may impose higher premiums or additional conditions on such policies to mitigate the increased risk. The term "substandard" directly reflects the perception that these individuals do not fit within the standard risk classification, which involves average risk exposure.

In contrast, the other options describe different levels of risk: desirable or preferred risks are typically healthy individuals with minimal claim history, while standard risks represent average individuals without significant claims history or risk factors. Undesirable risk often refers to risks deemed uninsurable or unprofitable for insurers, further distinguishing it from substandard risks, which, while more problematic, are still insurable under certain conditions.