Impaired risk is a term used by a life insurance company to classify an individual seeking a policy who may represent a great monetary risk to the company. This is because the individual may either be in poor health or has an occupation that is particularly risky. As these people run a greater risk of dying in a relatively short time after the policy is sold, the insurance company may lose out on the insurance premium payments that help to pay for the coverage. For this reason, insurance companies may deny coverage to individuals with impaired risk, or they may offer coverage to them at higher rates.
Life insurance is a way for people to provide for the ones they love even after the policy holder passes away. A typical policy provides benefits to the policy holder's beneficiary after his or her death. In return, the insurance company receives payments from the policy holder, usually in regular installments, to offset the cost of the coverage. If the individual applying for a life insurance policy is deemed by the life insurance company to have a higher than normal chance of dying than others would, this person is classified as an impaired risk.
Insurance companies determine the individuals who represent an impaired risk through a variety of methods upon their application for a policy. The companies use thorough questionnaires to find out everything possible about the medical history of the people applying for life insurance. In addition, the company usually requires that extensive medical testing be performed on the individual to find out if there are any existing medical conditions that have not yet been diagnosed.
A person may also be classified as an impaired risk depending on the occupation he has. For example, particularly stressful jobs that require strenuous physical labor may also lead to shorter life spans for the individuals who do those jobs. In addition, there may be specific jobs in which the person doing them actually risks his life in performing his duties. Insurance companies employ risk experts who determine if certain occupations exceed the standard risk levels and base their policy decisions on the assessments of these experts.
For an individual considered to be an impaired risk, finding a life insurance company willing to accept her can be difficult. Many insurance companies will deny coverage to such individuals for fear that they'll lose out on receiving premium payments. If they do accept these high-risk individuals, they may require higher premiums, which must be paid in a relatively short span of time compared to normal policies.