If you’ve ever heard the term “underwriting” in reference to insurance, you may have wondered what it is and what it means. Simply put, underwriting is the process insurance companies go through to evaluate the risk of issuing insurance to a customer.
Underwriting can apply to different kinds of insurance such as medical, life, home or auto. Each of these types of insurance are backed by an insurance company and they will understandably want to know whether they should issue the insurance policy to the applicant or not.
What Goes Into Underwriting Insurance?
Although insurance underwriting is common in the markets mentioned above, when you hear the term, it may often be in reference to property insurance, whether a residential home or a commercial property. So what is involved in the process of underwriting for property insurance?
- Eligibility
The insurance company must first determine if you are eligible for insurance, according to the company’s standards. This analysis is usually completed by someone in the company who holds the position of underwriter.
- Risk
Even if you are deemed to be eligible to receive an insurance policy from the company, the level of risk must be evaluated. For instance, if the property you wish to insure is located in an area that’s considered a flood zone or prone to wildfires, then issuing a policy on that property would inherently present a greater risk.
- Cost
Once eligibility and risk have been assessed, these factors help to then determine what the cost of the policy would be, as in, what you as the customer would pay in order to receive the coverage. As an example, perhaps you have excellent credit and are considered eligible for insurance, but your home is in a coastal area, so the insurance company determines they are willing to issue you a policy, but it will be priced at a much higher rate because of the elevated risk they are assuming on the property.
Underwriting can also come into play with what’s known as title insurance, which is designed to protect property owners and lenders from fraudulent titles or other issues with the title such as liens, judgments or easements. If any issues do arise, such as a title that’s not “clean” or free and clear of any unknown claims or defects, title insurance can provide assurance to both the buyer and lender that no ensuing losses will occur.
Find Peace of Mind with Underwriting Insurance
There are many, many layers involved with becoming a property owner – whether it’s your first time or your 50th time, for your home or for your business. As such, there are also many layers where things can get complicated. When it comes to insurance, underwriting can help provide some peace of mind when insuring the property itself or for title insurance. At Express Title & Closing, we are here to make the purchase a smoother process and can help explain what underwriting insurance is. We offer title insurance as well as title searches and reports, in addition to our “anytime-anywhere” closing policy commitment to customers. Contact us today or call 423-434-9200 to learn more now.
