What does it mean when a life insurance agent refers to a substandard risk?
Substandard risk is insurance industry jargon for a condition that prevents a person from meeting the normal requirements of a standard insurance policy. Around 3% of life insurance policy applications are turned down on the basis of being substandard risks. Eight out of 10 of the turndowns are due to physical factors such as heart condition, obesity, and high blood pressure. The other 20% involve occupational hazards, excessive traveling, foreign residence or less common medical problems. One major source of coverage for such people is group insurance policies, which do not require individual assessment of insurability. If you are considered a substandard risk but are not eligible for a group life insurance plan, you might find an insurer willing to provide you with an individual policy without requiring a medical exam if you look hard enough. However, don’t be surprised if the limits of the policy are relatively low, the premiums are unusually high, or both.
