Which type of risk is associated with the highest insurance premium?

Substandard risk refers to individuals who have a higher likelihood of making a claim due to factors such as poor health, hazardous occupations, or engaging in risky activities. Because these individuals present a greater risk to insurance companies, the premiums for substandard risks are priced higher to offset the increased likelihood of claims. Insurance companies use risk classification to differentiate between applicants based on their risk levels, and those categorized as substandard must pay significantly more to ensure coverage reflects their increased risk exposure.

In contrast, preferred risks are those who represent a lower risk and consequently receive lower premiums, as they are less likely to file claims. Standard risks are average individuals who fall into the typical risk category and have associated premiums that reflect this status. Low risk is not an official category in most insurance classifications and typically aligns more closely with the preferred risk, indicating a lower likelihood of claims. Thus, the classification as substandard directly correlates with a higher premium due to the increased insurance risk.