Minnesota Life Insurance License Practice Exam

Which of the following statements about life insurance underwriting is correct?

1. Underwriting is performed only after the policy has been issued

2. Underwriting evaluates the risk of policyholders

3. Underwriting is only concerned with health history

4. Underwriting decisions cannot be appealed

The correct answer is: Underwriting evaluates the risk of policyholders

Underwriting serves a crucial function in life insurance by evaluating the risk associated with insuring a particular individual. This process involves a thorough assessment of various factors, including the applicant's health history, lifestyle choices, family medical history, and sometimes even occupation. By analyzing these aspects, underwriters determine the likelihood of a policyholder making a claim and establish the appropriate premium rates for the insurance coverage. The role of underwriting is foundational in ensuring that the insurance company can remain financially viable by accurately assessing risk. When underwriting evaluates a potential policyholder, it is not limited to merely health history, as other personal factors play significant roles as well. By evaluating the overall risk, underwriters help maintain the balance necessary for the insurance pool and the company's profitability. Understanding the scope of underwriting is essential. It encompasses a broader evaluation beyond health alone and is performed prior to issuing a policy, thereby ensuring that the company's policies are only extended to those whom they can afford to insure based on the assessed risk. Thus, option B accurately reflects the critical aspect of underwriting in life insurance.