Definition
Standard Life
A standard life is an applicant whose risk profile is normal, allowing cover at the insurer's ordinary rates without loading or exclusions.
After underwriting, applicants are classified by risk: a standard life meets the insurer's normal health, occupation and lifestyle criteria and is offered cover at standard premiums. Those with elevated risk become substandard (rated) lives, attracting a loading or exclusions, while exceptionally healthy applicants may qualify for preferred 'non-smoker' or 'super-healthy' rates.
Classifying lives accurately keeps premiums fair across the pool and protects against adverse selection. The category assigned at proposal determines the price and terms of the policy throughout its life, subject to any later review.
Related terms
- UnderwritingUnderwriting is the process by which an insurer evaluates a risk, decides whether to accept it, and on what terms and premium.
- Premium LoadingLoading is an extra premium an insurer charges above the standard rate to reflect higher-than-normal risk in a particular applicant.
- Adverse SelectionAdverse selection is the tendency for higher-risk individuals to seek insurance more eagerly than lower-risk ones, skewing the risk pool.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.