Massachusetts Life Producer Practice Exam

In what scenario could the coverage of an insurance policy be modified?

1. Applicant is a substandard risk

2. Applicant is a preferred risk

3. Applicant does not have prior insurance

4. Applicant has a good credit score

The correct answer is: Applicant is a substandard risk

Modifying the coverage of an insurance policy typically occurs when an applicant is identified as a substandard risk. This means that based on the insurer's underwriting criteria, the applicant is considered to have a higher likelihood of filing a claim due to identified factors such as health conditions, lifestyle choices, or other risk-related behaviors. In such cases, insurers may choose to adjust the terms of the coverage, which could include increasing the premium, adding specific exclusions, or modifying the amount of coverage offered. This allows the insurer to manage the risk associated with insuring an individual deemed at a higher risk. In contrast, applicants classified as preferred risks often enjoy better terms and conditions without the need for modifications because they present a lower risk profile. Similarly, the absence of prior insurance or a good credit score may not lead to the same necessity for modification, as these factors typically influence a risk class but do not inherently indicate that coverage must be adjusted.