What does the term "substandard risk" indicate in insurance underwriting?

The term "substandard risk" in insurance underwriting refers to an individual who poses a higher risk than what is typically considered standard for insurance purposes. This classification occurs when the applicant's health status, lifestyle factors, or other risk factors suggest that their likelihood of experiencing an insured event is increased compared to the average individual. As a result, substandard risks may be charged higher premiums or placed under stricter policy terms to account for their greater risk profile. This classification helps insurers manage their exposure to loss while still providing coverage to individuals who may not meet the standard criteria.

Understanding this concept is crucial for effectively interpreting underwriting decisions and pricing strategies in life insurance.