The primary purpose of underwriting in life insurance is to:

Why A is correct

The primary purpose of underwriting is to evaluate and classify applicants by risk so that the insurer can charge premiums commensurate with the risk and avoid adverse selection. Adverse selection occurs when higher-risk individuals seek insurance more eagerly than lower-risk individuals; without risk classification, healthy insureds would subsidize unhealthy ones and the insurer could become insolvent. Underwriting uses medical history, lifestyle, occupation, and other factors to assign applicants to classes, such as preferred, standard, or substandard, each with an appropriate premium.

Why the other options are wrong

• Underwriting aims to select and classify risks, not to reject all applicants; a profitable book of business includes a range of risk classes. This choice does not fit the arrangement described in the question, so it is clearly not the right option to choose.
• Insurance is inherently risk-taking; underwriting manages risk through classification, not by eliminating it entirely. Accordingly, this option is not correct because it does not match the specific rule or product that is described in the question.
• Charging the same premium to all applicants regardless of risk would encourage adverse selection and is the opposite of sound underwriting. This option therefore does not match the facts presented in the question and is not the correct answer to select.

Memory hook

Underwriting sorts risk into classes so that premiums stay fair.