Final answer:
The policy may be issued with an extra premium or an exclusion for the medical condition to accommodate the increased risk due to the applicant's health issue.
Step-by-step explanation:
When an underwriter determines that an applicant's risk should be recategorized due to a health issue, several actions can be taken. One common approach is to issue the policy with a extra premium, which is an increased cost to account for the additional risk the insurance company takes by insuring the individual. An exclusion for the medical condition may also be considered, wherein the insurance policy would not cover claims related to that specific health issue. The other options listed, such as a concealment clause or an extended contestable period, are not typical responses to the scenario of a pre-existing health condition influencing risk assessment. Insurance markets often confront challenges such as adverse selection, where riskier individuals are more likely to buy insurance, thus increasing the overall cost and potentially leading to higher premiums for those with pre-existing conditions.