AD Banker Comprehensive Practice Exam

To mitigate claims from a substandard disability risk, an insurer may take which of the following actions?

1. Charge additional premium

2. Remove all exclusion riders

3. Reduce the amount of benefit

4. Increase the elimination period

The correct answer is: Reduce the amount of benefit

The correct action to mitigate claims from a substandard disability risk is to reduce the amount of benefit. When dealing with a substandard risk—meaning the individual presents a higher likelihood of filing a claim due to their health or lifestyle—the insurer can lessen their exposure to potential claims by limiting the maximum benefits provided under the policy. Reducing the amount of benefit offered helps to align the insurer’s risk with the insured's likelihood of needing assistance. By offering a smaller payout, the insurer decreases the financial impact of claims that could arise from such a risk, ensuring that they can still cover legitimate claims while managing their overall risk exposure. Other actions, such as charging additional premiums, while potentially beneficial for the insurer, do not directly address the claim risk associated with a substandard individual. Similarly, removing exclusion riders would not aid in risk management, as these riders typically limit the insurer's liability for certain risks that could prove costly. Increasing the elimination period delays the time before benefits are received, but it does not fundamentally change the insurer’s exposure to claims from the risk itself. Thus, adjusting the benefit amount is a direct method to control the associated risks.