What is "substandard risk" in life insurance underwriting?

In life insurance underwriting, "substandard risk" refers to a classification assigned to applicants who present higher risk factors compared to the general population. This categorization is based on various considerations such as health conditions, lifestyle choices (like smoking or high-risk activities), and family medical history. Individuals labeled as substandard risk are likely to have an increased chance of making a claim during the policy term due to these factors.

Consequently, they may be charged higher premiums than standard risk applicants, as insurance companies assess the likelihood of an insured event occurring. This classification helps insurers manage their risk by adjusting the cost of coverage based on the individual circumstances of each applicant, ensuring they can provide coverage while also protecting their financial interests.