What happens when an insurance policy is issued with a substandard risk classification?

When an insurance policy is issued with a substandard risk classification, the policyholder pays higher premiums. This classification typically indicates that the insured presents a greater risk to the insurer due to factors such as health issues, lifestyle choices, or other characteristics that might increase the likelihood of a claim.

As a result of this increased risk, insurance companies adjust their pricing to reflect the potential for more frequent or larger claims. This adjustment manifests as a higher premium. Insurers assess the level of risk posed by the individual and then set the premium accordingly to ensure that they can cover the potential costs associated with that elevated risk.

Other options, such as cancellation of the policy or reduced coverage, are not standard actions for substandard risks. Policies are usually issued rather than canceled, and the coverage typically remains in line with the initial application, albeit at a higher cost. Thus, in the realm of substandard risk classifications, the appropriate outcome is the imposition of higher premiums for the policyholder.