Final answer:
A preferred risk individual would pose the least amount of risk to the insurer, with lower probabilities of claim and therefore lower premiums.
Step-by-step explanation:
An individual classified as a preferred risk would pose the least amount of risk to the insurer. This classification indicates a lower likelihood of filing a claim, and thus preferred risk individuals typically pay lower insurance premiums.
When insurance companies classify individuals into risk groups, they are attempting to assess the possibility of future claims based on past events and behaviors. For instance, having a major automobile accident may lead an insurance company to consider someone a high-risk driver, despite the driver's claim to being low-risk. The insurance industry faces challenges such as moral hazard and adverse selection, which stem from imperfect information and the difficulty in accurately categorizing individuals' risk levels.