Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
What is the primary purpose of underwriting in life insurance?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Underwriting exists to protect the insurer against adverse selection, the tendency of high-risk people to seek coverage more eagerly than low-risk people. By gathering and evaluating information, including the application, medical history, MIB reports, and other sources, the underwriter classifies each applicant as preferred, standard, or substandard and prices the risk accordingly. Without underwriting, the risk pool would be distorted and premiums would be inadequate to cover the resulting claims over time.
Why the other options are wrong
- A) Issuing every applicant regardless of risk would invite adverse selection and undermine the premium structure of the whole block.
- C) Investment returns are managed by the insurer's investment function and are not part of underwriting.
- D) Underwriting depends on accurate information gathered with the agent's help; agents still ask health and lifestyle questions.
Memory hook
Underwriting is the gatekeeper that keeps adverse selection out and the premium pool honest.