What is Underwriting?
Underwriting is the evaluation process insurance companies employ to determine whether to accept an insurance applicant and on what terms. In the context of life insurance, underwriting involves analyzing the applicant’s health, lifestyle, and other risk factors to calculate the likelihood of a claim and set appropriate premiums.
For term life insurance, underwriters review medical records, lifestyle choices, age, and other factors. The objective is to establish a fair premium that aligns with the risk the insurer is assuming. Underwriting can involve a range of assessments, from simple questionnaires to comprehensive medical exams, depending on the policy type and coverage amount.
In final expense insurance, underwriting is often simplified. Many policies rely on a few health-related questions, offering coverage to a broader group of applicants. However, this simplified approach often results in higher premiums because insurers accept more risk without extensive health evaluations.
Through underwriting, insurers can balance their financial risk while offering fair and customized insurance coverage for each individual’s needs.