What is the purpose of the underwriting process?

• A. Determine whether requested insurance will be issued and at what premium
• B. Determine only the premium
• C. Determine if the insurer should cancel an existing policy
• D. Determine the claims handling procedure

Answer: (A)

Underwriting is the process of evaluating a risk to decide if coverage will be issued and at what price. It weighs the applicant’s information—such as health, lifestyle, driving history, or other risk factors—against the insurer’s standards to determine insurability and set the premium that reflects that risk. That dual outcome—whether to issue the policy and what premium to charge—is exactly what the option states.

The other ideas aren’t the primary function of underwriting. It’s not limited to setting a premium alone, because deciding on issuance is central to underwriting. It also isn’t about canceling an existing policy—the decision to cancel or nonrenew comes from policy management or claims history, not underwriting. And it doesn’t determine how claims will be handled; claims procedures are part of the claims department, not underwriting.