Question 1

What is the primary purpose of underwriting in insurance?

Accepted Answer

Underwriting is the process of evaluating and selecting risks to determine whether an applicant is insurable and at what premium rate, ensuring the insurer maintains a profitable and balanced risk pool.

Question 2

Who is ultimately responsible for the underwriting decisions made by an insurance company?

Accepted Answer

The insurance company (insurer) is ultimately responsible for underwriting decisions, though agents may perform field underwriting by gathering information and screening applicants before submission.

Question 3

What is 'field underwriting' and who performs it?

Accepted Answer

Field underwriting is the initial screening and evaluation of applicants performed by the insurance agent, who gathers information and avoids submitting clearly uninsurable risks to the home office.

Question 4

What are the three possible underwriting decisions an insurer can make on a life insurance application?

Accepted Answer

An insurer can (1) accept the applicant at standard rates, (2) accept the applicant at substandard (rated) rates or with exclusions, or (3) decline (reject) the application entirely.

Question 5

What is the concept of 'adverse selection' and why do underwriters work to prevent it?

Accepted Answer

Adverse selection occurs when individuals with higher-than-average risk are more likely to seek insurance, which can skew the risk pool and increase losses; underwriters use selection criteria to prevent this imbalance.

Underwriting & Premiums – Life and Health Insurance License Exam

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