Washington Life Producer Practice Exam

Preferred risk policies with reduced premiums are issued by insurance companies because the insured has?

1. Higher loss exposure

2. Better than average mortality or morbidity experience

3. Lower than average income

4. Higher insurance claims history

The correct answer is: Better than average mortality or morbidity experience

Preferred risk policies with reduced premiums are issued by insurance companies because the insured has better than average mortality or morbidity experience. This means that individuals categorised as preferred risks are generally healthier or at a lower risk of making a claim compared to the general population. As a result, insurance companies assess these individuals as less likely to incur high costs, allowing them to offer lower premiums to attract these more favorable risk profiles. Being classified as a preferred risk often depends on various factors, such as age, medical history, lifestyle choices, and occupation. Individuals who fall into this category present lower anticipated insurance payouts, making them ideal candidates for reductions in premium costs. Ultimately, this practice not only benefits the insured through lower premiums but also helps the insurance company maintain profitability by balancing risk across its customer base.