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Insurance · Underwriting and Premiums

What is the purpose of underwriting in life insurance?

Reviewed by Jordan Morley, Editorial Lead at 247SimpleTests. Written by the 247SimpleTests Editorial Team from the official source material cited on every question.

Correct answer

To evaluate and classify the risk presented by an applicant so the insurer can decide whether to issue coverage and at what premium rate

  1. A To evaluate and classify the risk presented by an applicant so the insurer can decide whether to issue coverage and at what premium rate
  2. B To pay claims faster
  3. C To set the free-look period
  4. D To sell more policies regardless of risk

Why this is the answer

Underwriting is the process by which an insurer evaluates the risk an applicant represents — using information such as age, health history, medical exams, lifestyle, and occupation — and classifies that risk to decide whether to offer coverage and, if so, at what premium. Risk classifications commonly include preferred, standard, and substandard (rated), and an applicant may be declined if the risk is too high. Proper underwriting protects the insurer's pool from adverse selection and ensures premiums reflect risk. Understanding that underwriting assesses and prices risk — not merely processes applications — is fundamental to the life insurance exam.
Source: NAIC Model Outline, Underwriting

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About this topic: Underwriting and Premiums

Underwriting and premium questions cover the information sources an underwriter uses, risk classifications, the factors that set premiums (mortality, interest, expense) and the rules on fair underwriting. This is one of 6 Life Insurance questions on underwriting and premiums, each with a full explanation on a single study page.

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