Free 5-question sample test with instant feedback. See how ready you are.
Question 1
What is the primary purpose of underwriting in insurance?
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?
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?
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?
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?
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.