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Substandard risk in life insurance refers to an applicant who shows a higher-than-average risk to the insurer. They usually have poor health conditions, risky occupations, an unhealthy lifestyle, or an adverse medical history. Unlike standard risk and preferred risk, they often have to pay higher premiums or will face exclusions due to altered policy terms, given the high likelihood of claims.
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Key TakeawaysWhat is Assessed Under Substandard RiskHow Substandard Risk Works in Life InsuranceUnderstanding Substandard Risk with a Real-Life ExampleComparison: Standard vs Substandard vs Preferred RiskWhy It Matters for PolicyholdersConclusionFAQs To classify an applicant as a substandard risk, insurers evaluate a range of factors. Here’s what’s typically assessed:
Chronic ailments (such as diabetes, hypertension, or asthma), former surgeries, and any ongoing treatments.
Current BMI, blood pressure, cholesterol levels, and results of medically-invoked tests.
Smoking, alcohol use, absence of physical exercise, and high-risk hobbies (if any).
Physical risk exercises-high-risk jobs (e.g., mining, aviation, armed forces) may raise a person’s risk classification in life insurance.
Any history of cancer or heart disease in the family (especially in parents).
Cases of negligent driving or past legal issues could compromise risk classification.
The insurer conducts underwriting to assess the risk associated with the applicant. This assessment includes all the factors mentioned above. If an applicant meets all of the assessment factors, the underwriter classifies the applicant as substandard and adjusts policy terms accordingly. Some insurers categorise risks under various rating categories, each with corresponding premium adjustments.
A typical substandard policy may include the following:
These are often known as extra premiums or loadings. The increase in premium depends on the severity of the risk and can be significantly higher than standard rates.
Insurers may apply exclusions or waiting periods, especially for pre-existing conditions (e.g., diabetes, cardiac issues).
Rahul, a 40-year-old software engineer, is applying for a ₹1 crore term insurance plan. He is a smoker, drinks occasionally, and likes to go on mountaineering adventures. He was recently diagnosed with Type II diabetes.
After his medical reports and lifestyle habits are reviewed, he is declared a substandard risk. The underwriter concludes that Rahul is at a considerably greater risk of early mortality compared to a 40-year-old non-smoker with no adventurous hobbies and chronic conditions.
While in some rare cases, he might be declined, the insurer decides to offer him a ₹1 crore term plan with substandard loadings.
Disclaimer: The example provided is for illustrative purposes only. Premium rates, loadings, exclusions, and underwriting decisions vary across insurers.
Insurers usually charge higher premiums for substandard risks because these individuals have a statistically higher chance of early death, leading to earlier claim payouts. Here's how substandard risk compares with the other two common risk categories.
| Risk Category | Definition | Premium Cost | Underwriting Outcome | Eligibility Criteria | Policy Issuance Speed | Likelihood of Exclusions |
| Preferred Risk | Applicant presents lower-than-average mortality risk | Lowest | Approved with the best terms | Meets or exceeds insurer benchmarks for health & lifestyle | Fast | Very Low |
| Standard Risk | Applicant aligns with average risk profile assumptions | Standard (Base Rate) | Approved at standard terms | Meets general underwriting criteria | Moderate | Low |
| Substandard Risk | Applicant presents above-average mortality risk | Higher (with premium loadings) | Approved with additional conditions or declined | Falls short of standard underwriting benchmarks | Slower (due to additional review) | Moderate to High |
Understanding substandard and other various types of risks is crucial. They impact not only the premium rate but also the overall application process.
Knowing about substandard risk empowers you to:
However, being classified as substandard does not mean you are uninsurable. Many companies offer personalised solutions to high-risk individuals.
Substandard risk in life insurance doesn’t only mean that an individual has to pay a higher premium. It is equally risky for the insurer. While the standard applicant pays the base rate, the substandard risk faces a higher premium, which is usually applied through table ratings or flat extra charges. This ensures that the price of coverage reflects the increased likelihood of the insurer paying out a death benefit. Despite the higher costs, substandard life insurance policies provide crucial financial protection for individuals who might otherwise struggle to obtain life insurance.
Written by
Neviya Laishram
Senior Editor – Health, Life and Group Health Insurance Content at ACKO
With a journalism background, she brings 9 years of experience in strategising and editing health, life, and group health insurance content. Having written for magazines and digital publications, she combines research and editorial expertise to create credible, useful content for readers.
Reviewed by
Vaibhav Kumar Kaushik
Senior Director – Life Insurance Strategy
Senior Director – Life Insurance Strategy at Acko, I drive customer-centric, digitally led strategies that shape the future of Life insurance. With expertise in new business development, D2C growth, and investment management, I’ve helped build and scale Acko’s Term Life offerings by aligning customer insights with innovative product strategy to fuel sustainable growth.
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