Substandard risk refers to an individual who is considered riskier to insure than the average individual on account of their age, habits, family history of disease, health condition, occupation, hobbies, morals, and residential location or surroundings. For example, an individual who has survived cancer may be considered a substandard risk for health or life insurance policies.
It is also known as impaired risk.
When an insurance company receives an application, they evaluate it for risk, among other factors, and classify the applicant as standard, preferred, substandard or uninsurable. The latter informs the premium rating applicable to the applicant's risk at the time. Certainly, the premium for a substandard applicant is higher than for a standard risk to account for the higher probability of loss.
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