Life insurance underwriting commonly classifies applicants according to their expected mortality risk. A preferred risk presents characteristics that indicate a lower-than-average probability of premature death. These characteristics may include excellent health, favorable medical history, healthy lifestyle factors, and the absence of significant hazardous activities. Because the expected mortality exposure is lower, preferred applicants may qualify for premiums below those charged to standard risks.

A standard risk represents the insurer ' s normal or average underwriting classification and typically receives coverage at the insurer ' s standard premium rate. A substandard risk presents greater-than-normal mortality exposure. Rather than automatically declining such an applicant, an insurer may issue coverage at an increased premium, with a rating, or under other modified underwriting terms.

A rated policy therefore generally reflects increased, not reduced, mortality risk and usually carries a higher premium. A preferred individual would ordinarily not require a substandard rating because preferred classification reflects superior underwriting characteristics.

Consequently, the only accurate statement is that preferred risks pay a lower premium than standard risks, making D correct.

Study Guide Reference: Life Insurance Basics — underwriting; risk classifications; preferred, standard, and substandard risks; rated policies.