In the context of insurance, a Preferred Risk refers to an insured person or applicant for insurance coverage who is considered to pose a lower risk of filing a claim than the average, or ‘standard’ applicant. Their lower risk status could be due to various factors such as their health, environment, occupation, lifestyle, or driving record, etc.
Significance in Insurance Policies:
Insurance companies assess risk when issuing policies to minimize potential losses. Applicants classified as preferred risks often benefit from lower premiums due to their reduced likelihood of causing financial loss to the insurer.
Factors Contributing to Preferred Risk Status:
- Health: Excellent overall health condition and lack of medical issues make an applicant a preferred risk.
- Lifestyle: Engaging in safer habits and giving avoiding risky activities also can contribute.
- Occupation: Having a less hazardous job lessens insurance risk.
- Environment: Living in an area with minimal threatening natural phenomena or low crime rates is a factor.
Implication:
Preferred Risks constitute a crucial segment of policyholders, and understanding this classification can help customers negotiate better terms and assist brokers and agents in strategic policy setting.
It is advisable that potential insurants with possbility or current base of being classified as preferred risk seek information from recent regulatory and legal sources, such as provisions in The Patient Protection and Affordable Care Act in terms of healthcare-related applications to further learn how this status affects cost and coverage granularity.
