What is the typical effect of underwriting on the premium of a substandard risk?

In the context of life insurance underwriting, when an applicant is classified as a substandard risk, it indicates that they present a higher potential for claims compared to the average individual. This classification might stem from various factors, including health issues, lifestyle choices, hazardous occupations, or a combination of these.

As a consequence of being deemed a substandard risk, the insurance company typically raises the premium to account for the increased likelihood of a claim. The higher premium compensates the insurer for the additional risk associated with covering that individual. This adjustment ensures that the insurer remains financially stable while providing coverage to individuals who might otherwise struggle to find affordable insurance options.

Discounts or unchanged premiums would not be feasible for substandard risks, as they would not sufficiently address the increased likelihood of payouts. Additionally, while some substandard risks may find it challenging to obtain coverage, options do often still exist, thus making the classification and associated premium increase the more relevant factors in this scenario.