What does the term "substandard risk" refer to in the context of insurance?

The term "substandard risk" in the context of insurance specifically refers to individuals who are deemed to have an increased risk of loss due to various factors, such as health conditions, lifestyle choices, or occupational hazards. Insurers evaluate applicants based on their likelihood of filing claims, and those categorized as substandard are recognized as having a higher probability of experiencing an event that would lead to a payout. Consequently, such individuals may face higher premiums compared to standard risks, reflecting the increased likelihood of insurance claims. This categorization is crucial for actuarial calculations and for the insurance company to manage its financial exposure effectively.