Arizona Health Insurance Practice Exam

What is the primary purpose of insurance underwriting?

1. To determine policy premiums

2. To assess the risk of insuring an applicant

3. To establish policy benefits

4. To review claims history

The correct answer is: To assess the risk of insuring an applicant

The primary purpose of insurance underwriting is to assess the risk of insuring an applicant. This process involves evaluating various factors, such as the applicant's health status, lifestyle, and past insurance history, to determine the likelihood of a claim being made in the future. By understanding the risk involved, underwriters can make informed decisions about whether to provide coverage and what terms should be applied, including setting appropriate premiums that reflect the level of risk associated with each individual. This risk assessment is crucial because it helps maintain the financial stability of the insurance company while also ensuring that policyholders are treated fairly based on their individual risk profiles. While determining policy premiums and establishing policy benefits are important functions influenced by underwriting, they are secondary to the primary goal of assessing and managing risk effectively.