The primary purpose of life insurance underwriting is to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Underwriting evaluates the risk presented by each applicant and prevents adverse selection, the tendency of high-risk individuals to seek coverage disproportionately. By assigning applicants to risk classes such as preferred, standard, and substandard, the insurer ensures that premiums accurately reflect the risk and that the overall pool remains sound. Underwriting uses the application, medical information, MIB reports, and other sources to classify the risk. The process protects both the insurer and the other policyowners by keeping the risk pool fair. A sound underwriting program is essential to the insurer's financial stability.
Why the other options are wrong
- Underwriting aims at sound pricing and risk classification, not at guaranteeing a profit on any single policy.
- Underwriting intentionally declines or rates some applications; it does not approve every application regardless of risk.
- Dividends on participating policies are determined by the insurer's actual experience, not by the underwriting process.
Memory hook
Underwriting = the gatekeeper who sorts risks so the pool stays fair and funded.