UNDERSTANDING INSURANCE - UNDERWRITING

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This page contains dozens of short articles that will help you quickly understand international insurance. For example, terminology, purchasing details and managing your insurance coverage are topics that are all covered within these articles. Choose an Article From the Topics Below

UNDERWRITING - WHAT IS IT?

Underwriting is no more than a process to determine if you are an insurable risk. The people who do the research and make the decisions about your insurability are called underwriters. In a sense all of us do underwriting every day, for it is no more than an evaluation of risk. Every time you cross a street, you underwrite the situation first by determining if you can get across without being struck by a car. In other words, you determine if there is any risk involved.

Insurance is a business with a bottom line. When a person applies for insurance, and has a medical condition, i.e., bone cancer in his left foot that the medical profession has been treating for ten years at a cost of $3,000 a month, will an insurance company insure him with a premium of $100? The underwriter will look at the records, and if good reason indicates that medical treatment will continue at $3,000 a month, the insurance company would be foolish to insure the individual. By so doing they would lose at least $35,000 a year. If they insured many cases like that, they would go bankrupt or have sky-high premiums.

As a rule the companies with the tightest underwriting guidelines have the best rates and are the best companies to insure you. Because they are careful who they insure, they will remain stable and be able to keep their rates lower than average.

The underwriter has one task--to determine risk, to determine what possible financial outlay may be necessary to care for a person's medical condition. If they calculate the possible outlay as excessive, the applicant is declined medical coverage. You wouldn't insure a burning building; likewise, underwriters make sure that their companies do not insure us if it is certain that we have a medical condition that might cause the company to lose money.

When they do insure us, and we then develop medical problems, they are required by law to cover our expenses. But the underwriters made a decision before the medical condition arose (or with the knowledge of a present medical condition), that we were an insurable risk.

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