AD Banker Comprehensive Practice Exam

If an insured pays a premium that is lower than others that are in the same class, this insured is considered to be rated as?

1. Substandard

2. Preferred

3. Reduced

4. Standard

The correct answer is: Preferred

When determining the rating classification for an insured based on premium payment levels, a lower premium compared to others in the same classification typically suggests that the insured presents a lower risk to the insurer. The preferred classification is designated for individuals who demonstrate better-than-average risk characteristics, which often results in lower premiums than those in the standard risk category. Individuals rated as preferred are usually characterized by favorable health, lifestyle factors, and overall risk profiles that make them less likely to submit claims. In contrast, a substandard rating would indicate a higher risk profile and would come with increased premiums, while standard rates apply to average risk individuals. The concept of reduced is not a formal classification within insurance; rather, it describes a situation or outcome rather than a specific rating designation. As such, when someone pays a premium that is lower than the typical rates for their class, it indicates they are rated as preferred, reflecting their lower risk status.