Chartered Life Underwriter Practice Exam 2026 - Free CLU Practice Questions and Study Guide

The primary purpose of underwriting in life insurance is to manage risk based on health and lifestyle factors. Underwriting is a crucial process that helps insurers assess the likelihood of a policyholder making a claim. By evaluating various factors such as an applicant's medical history, age, occupation, and lifestyle choices (like smoking or engaging in risky hobbies), underwriters determine the risk level associated with insuring that individual.

This assessment allows insurers to set appropriate premium rates, ensuring they can cover potential claims while remaining financially stable. By effectively managing risk, the underwriting process helps balance the interests of both the insurance company and policyholders, leading to a sustainable insurance market.

Other options focus on objectives that are secondary or tangential to the central role of underwriting. While increasing company profits can be an outcome of effective underwriting, the primary aim remains risk assessment. Similarly, while limiting the number of policies issued could be a factor of managing risk, it is not the direct purpose of underwriting. Making insurance affordable for all is an admirable goal but is not the main function of underwriting, which is primarily concerned with evaluating and managing the risk associated with potential policyholders.