Tennessee Insurance Practice Exam

If an underwriter reclassifies an applicant's risk due to a health issue, what may this policy be issued with?

1. A deferred premium

2. A standard premium

3. An extra premium

4. A reduced coverage amount

The correct answer is: An extra premium

When an underwriter reclassifies an applicant's risk due to a health issue, it typically reflects a higher level of risk associated with that individual compared to standard applicants. To compensate for this increased risk, the insurance policy may be issued with an extra premium. This extra premium is an additional charge added to the standard premium that accounts for the heightened risk posed by the applicant's health condition. This practice allows insurers to balance the potential risk they take on when insuring an individual who may have a higher incidence of claims due to pre-existing health issues. While other options may seem plausible, such as a reduced coverage amount or a standard premium, they do not sufficiently address the adjustments an insurer would make in response to the reclassification of risk. In essence, the extra premium reflects the underwriter's assessment of the additional risk presented by the applicant.