The primary purpose of underwriting in life insurance is to:
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Underwriting is the process of evaluating and classifying the risk presented by each applicant so that the insurer prices the coverage appropriately and maintains a balanced risk pool. Without underwriting, adverse selection would result — applicants who are poorer risks being more likely to seek coverage — and premiums would become inadequate to cover losses. Underwriting assigns applicants to risk classes (preferred, standard, substandard), and the premium reflects the class. It does not eliminate risk-taking; insurance exists precisely because the insurer assumes risk, priced through underwriting.
Why the other options are wrong
- B) Underwriting differentiates premiums by risk class. It does not guarantee equal premiums for all applicants, because applicants present different levels of mortality risk.
- C) Issuing policies without regard to mortality would invite adverse selection and threaten the insurer’s solvency. That is the opposite of underwriting’s purpose.
- D) Underwriting prices risk rather than eliminating it. The insurer still assumes the risk through the contract, and no insurer eliminates all risk-taking.
Memory hook
Underwriting = sort the risk buckets so premiums fit the risk and the pool stays healthy.