What does the term "underwriting" refer to in insurance?

Underwriting in insurance is a critical process that involves evaluating the risk associated with insuring a person or entity and determining the terms of the insurance policy based on that assessment. This process is essential because it helps insurers decide whether to accept an application for coverage, how much premium to charge, and the specific exclusions or limitations to place on the policy.

During underwriting, various factors such as an applicant's health history, lifestyle, occupation, and the potential risks of the insured item are examined. This thorough evaluation ensures that the insurer can provide appropriate coverage while managing their financial risk effectively. The determination of policy terms, including premium rates and coverage conditions, stems directly from this risk assessment.

The other choices describe processes that are not aligned with the definition of underwriting. Cancelling a policy, investigating fraudulent claims, and selling insurance are distinct functions that serve different purposes in the insurance industry. Each of those roles is important, but they do not encompass the primary goal of underwriting, which centers on risk assessment and policy formulation.