Ace the Chartered Life Underwriter Challenge 2026 – Secure Your Success and Dominate the Exam!

Preferred risk policies are designed to reward individuals who present lower risk profiles to insurance companies, often resulting in reduced premiums. The essential factor for issuing these policies lies in the insured's better than average mortality or morbidity experience. This means that these individuals typically have a history of better health, lower chances of illness, or longer life expectancy compared to the general population.

Insurance companies assess applicants based on various underwriting criteria, including medical history, lifestyle choices, and family health background. Those who meet the criteria indicating that they are less likely to file claims due to health-related issues are classified under the preferred risk category. This classification allows insurance companies to offer lower premiums reflecting the reduced risk associated with these applicants.

On the other hand, the other options do not accurately capture the underlying principle of preferred risk classification. Factors such as higher coverage amounts or longer policy terms do not inherently affect the health risk profile of the insured, which is the critical component in determining whether a preferred risk policy is appropriate. While those factors might influence the overall pricing structure, they are not the primary reason for issuing reduced premiums in the context of preferred risks.