| General
Insurance Questions
Q: What do I give
up by not using an agent to purchase insurance?
A: The disadvantage
of not using an agent to purchase insurance is that the policyholder
does not receive as much, or often any, personal service. An agent
with whom there is direct contact can be vital when purchasing a
product and absolutely necessary when filing a claim.
Q: What kinds of
questions should I be expected to answer when I am applying for
an insurance policy? Why do insurers ask all of these questions?
A: When you apply
for an insurance policy, you will be asked a number of questions.
For example, the agent might ask you your name, age, sex, address,
etc. In addition, you will be asked a number of other questions
which will be used to determine what type of risk you are.
For example, when
an insurance company is deciding whether or not to offer automobile
insurance to a potential policy owner, it will want to know about
the person's previous driving record, whether there have been any
recent accidents or tickets, what type of car is to be insured.
All of this information
will be used for two purposes:
- Based upon the
responses to these questions, the insurance company will decide
whether the profile of the applicant is consistent with the type
of risks the insurer is trying to attract. Some insurers specialize
in offering insurance to very safe drivers and therefore will
only accept applications only from people who fit the profile
of a safe driver.
- Once the insurer
has decided that your risk profile is consistent with the types
of risks it accepts, the answers to the questions will be used
to determine which rate to charge you. For example, the insurance
company will decide whether you should be offered insurance at
the high-risk driver rate or the low-risk driver rate.
Collectively, this
entire process is known as the underwriting process. The primary
function of the underwriting department in an insurance company
is to decide whether or not to offer insurance to a person who has
completed an application.
If the answer is "yes",
then the underwriting department seeks to determine the "quality"
of that risk so that the proper premium can be charged. That is,
high-risk people should pay more than low-risk people.
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