South Carolina Life Insurance Practice Exam

Which of the following best describes "underwriting" in life insurance?

1. The assessment of risk related to an applicant

2. The process of collecting premiums

3. The provision of policy information

4. The calculation of benefits

The correct answer is: The assessment of risk related to an applicant

Underwriting in life insurance is fundamentally concerned with the assessment of risk associated with an applicant for coverage. This process involves evaluating various factors, including the applicant's age, health status, lifestyle choices, and family medical history. The underwriter's goal is to determine the likelihood of the applicant filing a claim in the future and to assess whether the risk falls within the insurer's acceptable limits. The correct answer highlights that underwriting is not merely about collecting premiums or providing policy information, nor is it focused on calculating the benefits to be paid out. Instead, it serves as a critical first step in the policy issuance process, ensuring that the insurer has a clear understanding of the risk they are taking on when providing coverage to an individual. By effectively managing risk through underwriting, insurance companies can maintain financial stability and offer fair pricing for their policies.