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

Insurance companies issue preferred risk policies with reduced premiums primarily because these policies are based on the insured individuals' better than average mortality or morbidity experience. This means that individuals classified as preferred risks typically possess characteristics that indicate a lower chance of filing a claim. For instance, they might be younger, healthier, or have no significant medical history that suggests an elevated risk of illness or death.

By issuing preferred risk policies, insurers can encourage healthy individuals to purchase insurance while simultaneously minimizing potential claims. This lower risk profile allows the companies to offer reduced premiums, as the likelihood of having to pay out claims is diminished. The premiums reflect the reduced risk associated with these individuals, making insurance more accessible and attractive to a specific segment of the population.

In contrast, factors such as high insurance volume, increased competition, or regulatory requirements do not directly correlate with the establishment of preferred risk classifications and the associated premium reductions. Instead, they relate to broader market dynamics or compliance issues within the insurance industry.