An applicant with a higher than normal probability of loss may be classified as what type of risk?

When an applicant has a higher than normal probability of loss, they are classified as a substandard risk. This categorization is primarily based on the likelihood that the individual will make a claim against the insurance policy due to factors such as health, lifestyle choices, or hazardous occupations. Insurance companies evaluate applicants based on these risk factors and assign them to appropriate risk categories to determine appropriate premium rates.

Substandard risks typically face higher premiums than standard risks because their individual circumstances present a greater likelihood of claims being filed. This classification helps insurers manage their exposure to risk, ensuring they maintain financial stability while providing coverage for individuals who may require it.

In contrast, preferred risks are those considered lower risk and thus receive lower premium rates. Standard risks fall into the average category, while low risk does not specifically align with the established classifications in the industry. Therefore, recognizing substandard risk as a classification for applicants with higher probabilities of loss is essential for understanding how insurers assess and price their policies.