Insurance is now becoming very important not because many accidents are happening but for the protection of people. For instance most of he states don't allow a person to drive his car on the road without car insurance. Due to this fact, the insurance business is a high competition business. Before the Insurance policy is given the insurance companies perform a process known as underwriting or risk classification. This process is carried out to find out how much risky it is to give you the insurance coverage and how much to charge you. For instance if we take the example of auto insurance, the safe drivers who have driver ratings, passed tests and have run into no or very few accidents pay less premiums then the amateur and teen drivers. Similarly a person that smokes is a higher risk than t a person who is a non smoker and that's why a smoker will pay low premiums.

Factors Considered For Underwriting

At the time of application there are several factors a company takes into account for calculation of risk. These factors are as follows. A persons medical history, his health and fitness level, his habits such as smoking or alcohol consumption, his hobbies such as cliff climbing which is high risk and his vocation such as a banker with very less commuting is less risk then a race driver. Age is also a factor that affects the premium. If the age is high then the premium charged is also high. The sates that practice unisex have lower rates for women then men because women have longer life expectancy then men

How Information is Processed

The information from a person based on the above factors is then processed by a trained underwriter. He develops a risk profile which is based on the risk of death of a person and his life expectancy. The importance of this risk profile is that the premium charged from the person is on the basis of this risk analysis. By law each company must keep this information confidential.

Classification of Risks

The underwriting standards developed by each company can be unique to it but the most common classification of risk is as follows.

Preferred

A person that is in good health, is young and has no dangerous activities is a low risk and has a higher life expectancy. So an insurer places him in its preferred list and will provide low premium rates.

Standard

The standard list with standard rates comprises of people who are average risk to the insurer.

Rated

If a person is indulged in any activities which are hazardous to health such as smoking or having dangerous hobbies or have a health problem such as blood pressure then that person is at an above average risk level. The insurance company will charge you higher premiums.

Declined

If a person is a huge risk then the insurance company may decline completely to give him any coverage. In case you get declined or get a rating not because of a serious health problem, then you can stop yourself from doing those high risk hobbies or bad habits. Become low risk for the insurer that will get you a reasonable premium rate.