What do the terms 'substandard', 'standard', and 'preferred' mean in underwriting?

The terms 'substandard', 'standard', and 'preferred' are used in underwriting to classify applicants based on their risk levels. Each classification reflects the insurer's assessment of the applicant's likelihood of submitting a claim or experiencing a loss.

A 'preferred' classification typically indicates that the applicant presents a lower risk due to factors such as good health, a stable lifestyle, and a favorable claim history. This category often results in lower premiums due to the reduced likelihood of claims.

A 'standard' classification suggests that the applicant meets average criteria with normal risks associated with their profile. Premiums for these applicants align with the generally expected costs of providing coverage without significant discounts or surcharges.

A 'substandard' classification denotes higher risk factors associated with an applicant, such as health issues or hazardous occupations. Individuals classified as substandard may face higher premiums to compensate for their increased risk.

Understanding these classifications helps underwriters determine appropriate pricing and coverage levels for various applicants, ensuring that the insurance company can maintain profitability while providing necessary protection.