Chapter 11

Treatment of Sub-standard
Risks
Slide prepared
prepared by:
by:Abdullah
AbdullahAl
AlYousuf
Yousuf Khan
Khan
Slide
Assistant Professor
Professor
Assistant
IUBAT
IUBAT
McGraw-Hill/Irwin

Copyright 2006 by The McGraw-Hill Companies, Inc. All

rights reserved.

1. Types of Sub-standard
Risks
Increasing 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 Substandard Risks

1. Increase in premium
2. Decrease in death benefits
3. Change in class and period of
assurance
4. Any combination of the above
mentioned methods, and
5. Postponement of risks

2.1Increase in Premium
a. Rating 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.

b. Flat extra premium;

Extra premium is charged but the benefit

remains the same.

c. Extra percentage plan;

Numerical rating system is used to identify

the sub-standard risks.

2.2Decrease in Death
Benefits
a. Lien Method;

A rarely issued type ofcoverageunder

which asubstandard riskisinsured, but
less than the fullpolicybenefitis paid
out if the insureddiesbefore a certain
time.

b. Restrictive Clause
Extra hazard is accepted with a
restrictive clause which limits death
benefits under certain circumstances.

2.3changes in the Class and

Period of Assurance
The 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 Methods
For 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