Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
The primary purpose of underwriting in life insurance is to:
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
Underwriting exists to evaluate each applicant's risk and place the applicant into the appropriate risk classification, such as preferred, standard, or substandard. This protects the risk pool by preventing adverse selection — the tendency of those most likely to die to seek the most coverage. By charging premiums that match the risk presented, the insurer keeps rates equitable for all policyholders and remains financially sound. Investment income, commissions, and uniform pricing are not the purposes of underwriting; they are separate pricing and distribution matters.
Why the other options are wrong
- A) Charging every applicant the same premium would force low risks to subsidize high risks and encourage adverse selection, defeating the purpose of underwriting.
- B) Investment income is earned on reserves and premiums, but it is not what underwriting is designed to achieve.
- C) Commissions are set by compensation schedules, not by the underwriting classification of the risk.
Memory hook
Underwriting sorts apples by risk so premiums stay fair.