Texas Life Agent Practice Exam

What happens when an insurer issues a 'rated policy'?

1. It leads to automatic denial of the application

2. It is considered to be a counteroffer

3. It guarantees full coverage without adjustment

4. It has no implications for the policyholder

The correct answer is: It is considered to be a counteroffer

When an insurer issues a 'rated policy,' it is important to understand the concept of a counteroffer. A rated policy indicates that the insurer deems the applicant to have higher-than-average risk, leading them to offer the policy at a higher premium than initially requested. This situation arises when the underwriting process identifies certain factors—such as health conditions, lifestyle choices, or hazardous occupations—that warrant additional premium charges to offset the increased risk associated with insuring that individual. This creates a scenario where the terms of the original application are changed, which is essentially what a counteroffer represents. The applicant must then decide whether to accept the new terms laid out in the rated policy or to decline the offer altogether. Therefore, the issuance of a rated policy is a negotiation step between the insurer and the policyholder regarding the coverage and cost of the insurance. The other choices do not accurately reflect what happens with a rated policy. A rated policy does not automatically lead to a denial of application; rather, it shows that coverage is still being offered albeit under different terms. It does not guarantee full coverage without adjustment, as the very fact of a rating implies a modification of the premium based on perceived risk. Lastly, it certainly has implications for the policyholder, as it affects