California Life and Health Insurance Practice Exam

When evaluating life insurance, what does underwriting primarily assess?

1. Claim history

2. Applicant's health status

3. Insurer’s profit margins

4. Market trends

The correct answer is: Applicant's health status

Underwriting in life insurance is a critical process that primarily involves evaluating the applicant's health status. This assessment allows the insurer to determine the level of risk associated with insuring the applicant. By examining medical records, lifestyle habits, and family health history, underwriters can gauge the likelihood of the applicant living for an extended period, which directly impacts the risk profile for the insurance policy. Understanding the applicant's health is crucial because it influences the determination of premium rates and policy eligibility. Healthier individuals are typically viewed as lower risks, which can lead to lower premiums, while those with significant health issues may face higher premiums or may even be denied coverage altogether. The other options entail important factors in the insurance landscape, but they do not play a primary role in the underwriting process. Claim history is more relevant in the context of managing existing policies rather than assessing new applicants. The insurer’s profit margins and market trends provide insights into the financial and business environment of the insurance industry but are not directly tied to individual underwriting assessments. Thus, the core focus of underwriting remains on the applicant's health status.