Plain version: if an insurer sold disability income coverage at one price to anyone who asked, the people most likely to become disabled would be the first in line. Premiums would not cover claims. That is adverse selection, and underwriting exists to prevent it.
Underwriting has two jobs:
Prevent adverse selection by people likely to claim.
Classify risks properly, so each applicant pays a fair price. Preferred risks are better than average and may earn a lower rate. Standard risks are average. Substandard risks are above average but still insurable.
Typical responses to a substandard risk: an extra premium, an exclusion rider (for example, excluding a back condition), or reduced terms.
The agent as field underwriter: the agent is the insurer's first screen of the risk, before and during the application. The agent's report is where the agent passes on what he or she personally observed. If something does not match an answer, for example a pilot's logbook on the desk of an applicant who answered "no" to aviation, the agent asks about it and reports it. The applicant gives and corrects her own answers; the agent never rewrites them, and staying silent fails the agent's duty to the insurer.
HIV (CA Ins. Code §799.02): a life or disability income insurer may not decline an applicant based solely on a positive HIV test, no matter when or at whose direction the test was done. It may still refuse, limit coverage or charge a different rate when that is based on sound actuarial principles and actual or reasonably anticipated experience. HIV status is neither an automatic decline nor completely off limits.
Genetic characteristics (§§10147(b), 10148): a gene or chromosome, or an alteration of one, that is known to cause a disease or disorder (or is linked to a statistically increased risk of one) and is presently not associated with any symptoms. Insurers may not unfairly discriminate based on genetic tests:
A test requires the applicant's written informed consent, and the insurer pays for it.
Agents' and brokers' fees or commissions may not differ because of a person's genetic test.
Once a disease shows symptoms, it is a manifestation and may be underwritten like other conditions.