Underwriting

April 7, 20222 min read
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When taking out a loan or acquiring debt, an underwriter will assess and determine the level of risk each person or applicant carries. The underwriting process is generally a check to see if a borrower will be able to repay the loans, what they can offer as collateral, if needed, and determining the repayment schedule that’s adjusted to both the loan and the borrower.

Why is underwriting important?

The underwriting process is an important facet of the financial system, as it ensures that a person is fit enough to undergo a loan or debt.

More so, the underwriting process helps to establish a truthful, transparent, and accurate assessment of every applicant.

Finally, an underwriter is an experienced and trained professional that helps to ease the entire process and provides assistance where a person requires it.

What are the types of underwriting?

  1. Loans: The most common being a debt or loan underwriter, a professional who reviews an applicant’s credit history, financial wellbeing, financial records, and the collateral they offered to secure the loan.
  2. Insurance: If a person applies for insurance, either health or life insurance, perhaps medical insurance, an underwriter will assess different aspects of the applicant or policyholder. These may include age, gender, family health history, personal health conditions, lifestyle, or any other factors determined by the underwriter.
  3. Securities: If either an investor or investment firm is looking to purchase stocks on the open market, an underwriter will help to assess and determine the possible risks and liabilities. Furthermore, the underwriter could also work to determine the Initial Public Offering or IPO to ensure both investors and the company offering the IPO will raise the needed capital.

Ultimately, we see that the underwriter determines the number of risks involved with either borrowing or lending money. An underwriter works on both ends of the financial spectrum and ensures a transparent and secure transaction is completed.