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Treatment of Sub-standard Risks

Slide prepared by: Abdullah Al Yousuf KhanAssistant ProfessorIUBAT

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ChapterMcGraw-Hill/IrwinCopyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved.110/22/2014Slaide prepared by: AAYK1.Types of Sub-standard RisksIncreasing Extra Risks;The extra mortality increase as the life assured grows older. E.g., patients of diabetes, occupational diseases, overweight, etc.Decreasing Extra Risks;Extra hazard decreases with increase in health. E.g., patients of defective past history.Constant Extra Risks;Extra hazard remains at the same level throughout the life time of the assured. E.g., blindness, deafness, or loss of limb, etc. 2.Methods of Treating Sub-standard RisksIncrease in premiumDecrease in death benefitsChange in class and period of assuranceAny combination of the above mentioned methods, andPostponement of risks2.1Increase in PremiumRating up of age;The life assureds' age will be seen as much older/higher than the real age. So the premium will be calculated accordingly.Flat extra premium;Extra premium is charged but the benefit remains the same.Extra percentage plan;Numerical rating system is used to identify the sub-standard risks.

2.2Decrease in Death BenefitsLien Method;A rarely issued type ofcoverageunder which asubstandard riskisinsured, but less than the fullpolicybenefitis paid out if the insureddiesbefore a certain time.

Restrictive ClauseExtra hazard is accepted with a restrictive clause which limits death benefits under certain circumstances. 2.3changes in the Class and Period of AssuranceThe life assured is given few types of insurance and for a mush shorter period.With standard premium.No lien or extra premium is allowed.Whole life, multipurpose, or triple benefit insurance are not given.Plan is useful where the extra risk is expected to occur later in life.2.4Any combination of the Above Mention MethodsFor certain proponents, any of the above methods can be used, which depends on the practical experience of the insurer.E.g., a proposal for a multipurpose plan may be accepted under an endowment assurance plan with a lien, if proponent is young and underweight. 2.5Postponement Consideration of proposal is postponed for a period, when the initial risk is too high.In future when the health of the proponent improve, the proposal can be accepted. The extra premium or lien can be removed later on when the extra risk is improved in special cases when there are agreement for this.End of Chapter?