Define "risk classification" in the context of life insurance.

Risk classification in the context of life insurance refers to the process of categorizing applicants based on their specific risk factors for mortality. This is a crucial aspect of underwriting as it allows insurance companies to assess the likelihood of an applicant making a claim during the policy's duration.

By examining factors such as age, health history, occupation, lifestyle choices, and family medical history, insurers can determine the relative risk an applicant poses. This classification helps in the calculation of premiums, ensuring that individuals who present a higher risk for premature death pay correspondingly higher premiums compared to those considered lower risk.

Proper risk classification is essential for maintaining the financial stability of the insurance pool, allowing insurers to collect adequate premiums to cover expected claims while also facilitating fair pricing for applicants.