What is meant by "underwriting" in the context of life insurance?

Underwriting in the context of life insurance refers to the assessment of risks to determine appropriate premiums. This process involves evaluating various factors related to the applicant, such as age, health, lifestyle, and family medical history, to gauge the risk the insurance company takes on when issuing a policy. By analyzing these factors, underwriters can classify the applicant into risk categories. This classification plays a crucial role in establishing the premium rates—higher-risk applicants may face higher premiums due to the increased likelihood of a claim being filed, while lower-risk individuals may qualify for more favorable rates.

This task is integral to the insurance process, as it ensures that the insurer manages its financial risk effectively and remains solvent while providing appropriate coverage to its policyholders. Understanding the underwriting process is essential for both insurers and applicants, as it directly affects policy availability and affordability.