West Virginia State Life Insurance Practice Exam

What might happen if an underwriter finds that an applicant's risk needs to be recategorized?

1. The policy is automatically denied

2. A higher premium is charged

3. The policy may be issued with an exclusion for the medical condition

4. The applicant will need to undergo additional testing

The correct answer is: The policy may be issued with an exclusion for the medical condition

When an underwriter determines that an applicant's risk needs to be recategorized, it often leads to the policy being issued with specific exclusions related to the identified medical condition. This means that while the policy is still granted, it may not cover certain risks that are associated with the applicant's health issues. Such exclusions help the insurance company manage its risk while still providing the insured with a level of coverage. Issuing a policy with medical exclusions is a common practice in underwriting, especially for applicants with pre-existing conditions or significant health risks. This allows the insurer to mitigate potential losses while accommodating the applicant's need for coverage. It reflects a tailored approach, where the insurer can still offer some form of protection while addressing the heightened risk. The other potential outcomes, such as automatic denial, higher premiums, or the necessity of additional testing, can occur in different scenarios but are not the immediate response to recategorization of risk in most instances. Instead, the practice of issuing policies with exclusions is a viable option that balances both the insurer's risk management needs and the applicant's desire for insurance coverage.