Alabama Property and Casualty Practice Exam

Question: 1 / 400

What does the term "underwriting" refer to in insurance?

The process of assessing risk and determining policy terms

The term "underwriting" in insurance refers specifically to the process of assessing risk and determining policy terms. Underwriters evaluate various factors related to the applicant's situation, including their health, age, occupation, and any previous claims history, to decide whether to accept or decline the risk associated with insuring the individual or entity. They also determine the appropriate premiums and conditions for the policy based on this risk assessment.

Understanding underwriting is crucial, as it directly impacts the insurer's ability to manage risk and maintain financial stability. This process ensures that policies are issued to applicants who meet the insurance company's criteria, balancing the need for coverage with minimizing potential losses. Other processes like marketing, settling claims, and policy cancellation, while important in the insurance domain, do not define what underwriting is.

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The method of marketing insurance policies

The procedure of settling insurance claims

The act of canceling an insurance policy

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