What type of risk will result in the highest premium?

Substandard risk refers to individuals who present a higher likelihood of making a claim based on their health conditions, lifestyle choices, or other risk factors. As a result, insurance companies charge higher premiums for these individuals to adequately cover the increased risk they represent.

When assessing risk categories, standard risk individuals are considered average and are typically charged average premiums. Preferred risk individuals are seen as lower risk and therefore receive lower premiums due to their favorable health and circumstances. As such, substandard risk represents the highest cost to insurers, leading to higher premiums to mitigate the potential for more frequent or larger payouts in the event of a claim. This understanding is significant in the field of insurance, as accurately evaluating and categorizing risk helps insurers maintain financial stability while still offering coverage.