New Jersey Life and Health State Practice Exam

What is a valid reason why a policy premium would be higher than the standard premium?

1. The insured has a higher risk profile

2. The insured does not meet established underwriting requirements

3. The insurance company is new in the market

4. The policy is for a longer term

The correct answer is: The insured does not meet established underwriting requirements

A higher policy premium can be attributed to a variety of risk factors and underwriting considerations. In the context of the provided choices, a valid reason why a policy premium would be higher than the standard premium is that the insured does not meet established underwriting requirements. This scenario indicates that the individual presents a profile that may involve increased health risks, lifestyle factors, or other elements that make them less favorable to an insurer. Underwriting is the process where insurance companies assess the risk of insuring an applicant. If an applicant’s profile is deemed insufficient or lacking in meeting certain criteria (which may include medical history, occupation, or lifestyle), this can lead insurers to charge a higher premium to account for the additional risk they are taking on. Insurers aim to balance risk and premium pricing, and those who do not meet underwriting standards are often perceived as posing a higher financial risk. The other options reference factors that, while they may affect premium pricing or be relevant for consideration, they do not directly pertain to an individual's validity in meeting underwriting criteria in the same way. For instance, a higher risk profile is indeed a basis for elevated premiums, but it aligns within the broader context of underwriting. A new insurance company might have higher premium rates due to initial operating costs