Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
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 exists to evaluate the applicant's risk of loss and assign a classification — preferred, standard, or substandard — so that premiums match the expected mortality of the risk. This prevents adverse selection, where high-risk individuals would otherwise buy coverage at average rates and undermine the insurer's pricing. The underwriting decision determines whether the applicant is accepted, declined, or rated, and at what premium.
Why the other options are wrong
- B) Underwriting may decline or rate an applicant; acceptance is never guaranteed for every applicant.
- C) Underwriting has no role in beneficiary taxation, which is governed by the Internal Revenue Code.
- D) Commissions are set by agency contracts, not by the underwriting process.
Memory hook
Underwriting = the bouncer at the risk club: check the applicant, sort the classes, keep the pool honest.