Which Of The Following Statements About The Classification Of Applicants Is Incorrect?
a) Substandard applicants are never declined by underwriters.
b) Substandard applicants are occasionally declined by underwriters.
c) Preferred risk applicants typically have better premium rates than standard risk applicants.
d) An applicant can be classified as a substandard risk because of a hazardous job.
Correct Answer: a) Substandard applicants are never declined by underwriters.
Substandard applicants are never declined by underwriters. In order to determine whether a borrower is at risk of default, underwriters evaluate the borrower’s credit history. A loan application may be declined if an applicant does not meet the underwriting or lender’s standards.
Credit scores that are low, incomes that are insufficient, and debt-to-income ratios that are high may lead to an applicant being deemed substandard. In deciding whether to lend to an applicant, underwriters will consider all available information and may decline the application if they believe the risk is too great.
Substandard applicants are occasionally declined by underwriters. In this case, the underwriter decides that the applicant does not meet the necessary requirements for an insurance policy or loan due to their credit history or employment history.
Lenders and insurers do this to minimize the risk of default or loss. For applicants to increase their chances of getting approved for a loan or insurance policy, it is important that their financial standing is good.
Applicants who are considered preferred risks typically pay lower premium rates than applicants who are considered standard risks. The insurance company will have to pay out less money since preferred-risk applicants are generally seen as less likely to file a claim. These applicants are rewarded for their good risk profiles by receiving lower premium rates.
A number of factors can raise standard risk applicants’ premiums, such as a history of filing claims, a dangerous occupation, or a high-risk lifestyle. An insurance company’s primary goal is to maximize profit while minimizing risk, which is why they offer lower premiums to those who are less likely to need payouts.
Substandard risk can be assigned to an applicant if he or she works in a hazardous environment. Applicants with high-risk jobs may be more likely to file a claim or need insurance as a result. Individuals with hazardous occupations may face higher insurance premiums or may not be covered by insurance companies.
A construction worker, an oil and gas worker, or a miner may be classified as a substandard risk because of their hazardous jobs.