Which two types of risks are primarily assessed in life insurance underwriting?

In the context of life insurance underwriting, assessing both mortality risk and morbidity risk is fundamental to determining the potential financial exposure of the insurer.

Mortality risk refers to the risk of death associated with the insured individual. Underwriters evaluate factors such as age, health conditions, family history, and lifestyle choices to gauge the likelihood of death during the policy term. This assessment helps insurers set appropriate premiums and ensure they can cover the claims that may arise.

Morbidity risk, on the other hand, relates to the risk of illness or disability that may affect the insured individual. This is important because a policyholder who experiences a serious health issue may require benefits from a life or disability policy, impacting the insurer's financial obligations. Underwriters analyze medical histories and potential future health risks to estimate the likelihood and cost of such events occurring.

Both mortality and morbidity risk assessments are crucial for insurers as they directly influence the pricing and structuring of life insurance products. Understanding these risks allows insurers to create better products and pricing strategies while managing their overall risk exposure effectively.