Life & Health Insurance Practice Exam

What is the purpose of underwriting in life insurance?

1. To determine the premiums based on the risk profile of the applicant

2. To provide policy benefits upon death

3. To analyze legal documents for compliance

4. To ensure insurance policies are available to all applicants

The correct answer is: To determine the premiums based on the risk profile of the applicant

The purpose of underwriting in life insurance is primarily to determine the premiums based on the risk profile of the applicant. Underwriting involves assessing an individual's health, lifestyle, occupation, and other relevant factors to evaluate the likelihood of filing a claim. This risk assessment informs the insurance company on how much the applicant should be charged for their policy, ensuring that the premiums are aligned with the anticipated risk involved in insuring the applicant's life. Underwriters collect and analyze a range of information, including medical records, questionnaires, and sometimes even lifestyle habits, to paint a complete picture of the applicant's health and longevity. This process is crucial because it helps insurance companies maintain financial stability by pricing policies appropriately based on the risk they are assuming. By accurately setting premiums, insurers can effectively manage their risk exposure and ensure that they can cover claims made by policyholders.