California Life and Health Insurance Practice Exam

What is the process called by which an insurer determines whether to issue a policy when an applicant applies for insurance?

1. Subrogation

2. Underwriting

3. Endorsement

4. Activation

The correct answer is: Underwriting

The process by which an insurer evaluates an applicant's risk profile to determine whether to issue a policy is referred to as underwriting. Underwriting involves assessing various factors such as the applicant’s health history, lifestyle choices, financial situation, and the specifics of the coverage being requested. This thorough analysis allows the insurer to make informed decisions regarding policy issuance, determine appropriate premium rates, and set any necessary exclusions or conditions within the policy. Subrogation, which involves the insurer seeking reimbursement from a third party responsible for a loss, is unrelated to the application process. Endorsements refer to modifications or additions to an existing insurance policy, often used to change coverage details or add additional insureds. Activation does not typically refer to any formal insurance process but could imply making a policy active after it has been issued, which is distinct from the evaluation and selection process performed during underwriting.