An insurer issues a disability income policy to an applicant who has controlled high blood pressure but charges a higher premium than the standard rate. This outcome is known as:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
When underwriting identifies a risk factor, such as high blood pressure, that raises the probability of a disability claim but does not make the applicant uninsurable, the insurer typically accepts the applicant on a substandard or rated basis. A rating means the premium is increased, the benefit amount is reduced, or both, so that the price reflects the elevated morbidity risk. This is a routine underwriting outcome for applicants with treatable or controlled health conditions, and it allows coverage to be offered rather than denied. The insurer has determined the risk is insurable, just at a higher cost.
Why the other options are wrong
- B) A declination is a refusal to issue coverage. Because this applicant received a policy, even at a higher premium, the outcome is an acceptance on rated terms rather than a declination.
- C) The higher premium reflects the elevated risk created by the blood-pressure condition, not administrative overhead. Risk-based pricing, in which the premium tracks the applicant's expected claim cost, is what distinguishes a rated policy from a standard one.
- D) Guaranteed issue means coverage is offered without medical underwriting, typically in group settings. Pricing a policy based on the applicant's blood pressure is individual underwriting, the opposite of guaranteed issue.
Memory hook
Rated policy = accepted, but priced up for extra risk.