What characterizes a "substandard risk" in life insurance?

A "substandard risk" in life insurance is characterized by an individual who presents a higher risk to the insurer, which typically results in higher premiums or specific restrictions on the policy. This classification arises from various factors such as pre-existing medical conditions, lifestyle choices (like smoking), family medical history, or hazardous occupations. Insurers assess these factors to determine the likelihood of a claim being made, and when an individual is deemed riskier than the standard population, their insurance costs increase to offset the potential for greater claims.

This characterization is pivotal for insurers as it helps them manage risk and maintain financial viability. By charging higher premiums or implementing restrictions, they can cover potential losses associated with insuring individuals who have a higher probability of requiring insurance payouts. This system allows insurers to provide coverage while also accounting for the varying levels of risk presented by applicants.