Page 30 - Life Insurance underwriting Ebook IC 22

CHAPTER –4

1. Understand the meaning, purpose, objectives and key principles of financial
underwriting

1.1 Meaning of financial underwriting

Financial underwriting is the process of determining the amount of insurance coyer
that is justified for a person with regards to his / her income and his needs

Role of financial underwriting

The role of the financial underwriting is to make sure that the amount of insurance
applied for by an individual is justified based on the potential economic loss that will be
suffered in the event of death of the individual. If the amount applied for, is in excess of
the potential economic loss, then it will lead to adverse selection (also termed as anti-
selection).

Even proposal for insurance should be financially underwriting to ensure that the
amount of insurance applied for ill adequately compensate the beneficiary in the event
of an untimely loss. This is best determined if the u insurance is well established and
the relationship with the beneficiary is logical.

1.2 Purpose of financial underwriting

The overall purpose of financial underwriting is to:

a) ensure that the insured or their beneficiaries are not put in a better financial
Posting by the occurrence of an insured event c not put in a better financial
b) minimize 'moral' risk; whereby the effecting of an insurance policy in itself
increases the chance of an insured event happening
c) minimize the risk of lapse and / or early surrender of the policy by ensuring
both - that the insurance is appropriate and that the premiums are affordable

1.3 Objectives of financial underwriting

Good financial underwriting accomplishes the following objectives:

 Minimizes fraudulent claims
 Minimizes the early lapse and surrender due to the insured not being able to
 pay the premium
 Reduces anti-selection at issue and on renewal

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