How does a substandard risk compare to a standard risk in terms of premiums?

A substandard risk is typically someone whose health, lifestyle, or other factors present a higher likelihood of filing a claim compared to a standard risk. Because insurance underwriting involves assessing the potential risk associated with providing coverage, insurers charge higher premiums for substandard risks to account for that increased risk of loss.

Higher premiums for substandard risks serve to compensate the insurer for the greater likelihood that they will need to pay out a benefit. Standard risks, on the other hand, are individuals considered average in terms of health and lifestyle, which qualifies them for lower premiums due to their reduced risk profile.

In this context, individuals who fit the substandard risk category may have medical conditions or lifestyle choices, such as smoking or obesity, that raise their likelihood of health issues, thus increasing their insurance costs. This differentiation in premiums is a standard practice within the insurance industry to ensure that pricing is reflective of the risk each individual poses to the insurer.