An underwriter sorts life insurance applicants into preferred, standard, substandard, and declined categories. Under 40 P.S. § 477a, that classification must rest on:

Why A is correct

40 P.S. § 477a permits risk classification and rate differentiation only when the distinctions rest on sound underwriting factors related to the expected claim experience, and it forbids unfair discrimination between applicants of the same class. Preferred, standard, substandard, and declined are legitimate actuarial categories when driven by health, occupation, and similar risk criteria. The Pennsylvania Insurance Department polices the line between fair classification and discrimination that has no actuarial basis.

Why the other options are wrong

• B) A premium bid is not a risk factor; class assignment follows the risk, not the applicant's pocketbook.
• C) Commission consequences are irrelevant to underwriting; classification must be risk-based under 40 P.S. § 477a.
• D) Arrival order has no relationship to mortality or morbidity and is not a lawful classification method.

Memory hook

Classify the risk, not the customer — sound factors only, says 40 P.S. § 477a.