General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
The primary purpose of underwriting in insurance is to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Underwriting is the process of evaluating, classifying, and selecting risks so the insurer accepts applicants whose exposure is consistent with the rates charged. By grouping similar risks — preferred, standard, and substandard — the insurer preserves the equity of the risk pool and offers coverage at prices that reflect each group's loss expectancy. Accurate classification also prevents adverse selection and protects the insurer's financial solvency.
Why the other options are wrong
- B) Equal coverage and price for every applicant would destroy risk classification; insurers legally distinguish applicants based on insurable risk factors.
- C) Underwriting occurs before and at issuance, not at the claims stage, and never exists to avoid paying covered claims.
- D) Selling policies without regard to risk would invite adverse selection and financial insolvency; selection is precisely underwriting's job.
Memory hook
Underwriting = sorting the pool so each group pays its fair share. It is a gatekeeper, not a salesman.