AD Banker Comprehensive Practice Exam

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Enhance your exam readiness with the AD Banker Comprehensive Exam guide. Includes flashcards and multiple-choice questions with explanations.

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

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What is the primary purpose of underwriting in life insurance?

To determine the premium rates
To assess the risk of insuring an applicant
To facilitate claims processing
To increase policyholder satisfaction

The correct answer is: To assess the risk of insuring an applicant

The primary purpose of underwriting in life insurance is to assess the risk of insuring an applicant. This process involves evaluating various factors such as the applicant's health, lifestyle, occupation, and family medical history to determine the level of risk they present to the insurance company. Underwriters use this information to make informed decisions about whether to offer coverage and under what terms, including premium rates. By accurately assessing risk, underwriters help ensure that the insurance company maintains its financial stability while providing fair coverage options. This risk evaluation is crucial because it directly impacts the pricing of policies and the overall sustainability of the insurance pool, balancing the premiums collected with the claims that will ultimately need to be paid out. Understanding this fundamental role of underwriting helps clarify how life insurance operates and the importance of risk assessment in the industry.