What does it mean to "underwrite" an insurance policy?

Underwriting an insurance policy refers to the process by which an insurance company evaluates the risk associated with insuring a person or entity and determines the terms and conditions of coverage. This process typically involves assessing various factors such as the applicant's health status, driving records, business operations, or property conditions, depending on the type of insurance being considered.

The underwriter's primary aim is to ensure that the insurance company is taking on risks that are manageable and appropriately priced. By evaluating these factors, the underwriter is able to decide whether to accept the application for coverage, what type of coverage is appropriate, and how much the applicant will pay in premiums. This critical process ultimately helps to maintain the financial health of the insurance company while providing coverage to policyholders.

Other options like filing a claim, cancelling a policy, or approving claims do not involve the assessment of risk or the establishment of terms, and instead relate to different stages of the insurance process. Each of those actions occurs after a policy has been underwritten and issued.