What is the primary purpose of risk appraisal in a life insurance company?

The primary purpose of risk appraisal in a life insurance company is to prevent anti-selection. Risk appraisal involves assessing an applicant's health, lifestyle, and other relevant factors to determine their risk profile. By understanding the risks associated with an applicant, the insurance company can make more informed decisions about policy approvals, premium pricing, and the overall protection they can offer.

Preventing anti-selection is crucial because it occurs when individuals who are at a higher risk of claims are more likely to seek insurance coverage, while those at lower risk may opt out. If the company cannot accurately assess and manage these risks, it can lead to an imbalance where claims outstrip premiums collected, jeopardizing the financial stability of the insurance provider. Through effective risk appraisal, companies can create a balanced pool of insured individuals, ensuring that premiums collected are sufficient to cover the claims made, thus maintaining the insurer's viability and sustainability.

The other options, while related to business practices, do not encompass the fundamental objective of risk appraisal. Maximizing profits, increasing premiums, and promoting market competition are all secondary outcomes that can stem from effective risk management but are not the direct intent of the risk appraisal process itself.