PSI Life Exam 2025 – 400 Free Practice Questions to Pass the Exam

Underwriting in the context of life insurance is fundamentally about evaluating the risk associated with insuring an individual and determining the appropriate policy premiums that reflect that risk. Underwriters assess various factors, including the applicant's health history, lifestyle choices, occupation, and other relevant information, to gauge the likelihood of the insurer having to pay a claim in the future.

This evaluation process enables insurance companies to make informed decisions about whether to accept a risk and under what terms. By accurately assessing risk, the insurer can set premiums that are commensurate with the degree of risk involved, ensuring both the company's financial stability and the appropriateness of coverage for the policyholder.

Other options, such as the process of paying out claims or calculating cash value, do not relate directly to the initial assessment stage in the insurance lifecycle. Similarly, selling insurance policies pertains more to the distribution aspect rather than the evaluation of risk that underwriting entails. Therefore, option B clearly captures the essence of the underwriting function within life insurance.