2.3 - Completing the Application

Question 1

Completing the Application and Field Underwriting

Answer 1

An application is a written formal request by an applicant, to an insurer, requesting the insurer issue a policy based upon information contained in the application. It is the consumer making an offer to the insurer. It is the producer’s responsibility to probe beyond the stated questions, which is known as field underwriting. The application is the primary source of information for an insurer underwriting a potential risk. In fact, a copy of the application, if attached to the policy, becomes part of the entire contract.

Question 2

Required Signatures

Answer 2

Both the producer and the applicant/insured must sign the application. The applicant is representing that statements on the application are true. If the applicant is a minor, a guardian must sign the application.

Question 3

Changes in the Application

Answer 3

Whenever an answer to a question needs to be corrected, the applicant or producer makes the correction and the applicant initials the change, or the producer can complete a new application.

Question 4

Consequences of incomplete Applications

Answer 4

It is the producer’s responsibility to make certain the application is filled out completely, correctly, and to the best of the applicant’s knowledge. The producer’s primary underwriting role is to make sure the application provides proper information for the insurer. The underwriter will return an incomplete application to the producer for completion by the applicant. If a policy is issued with questions unanswered, it is assumed the information is not material to the issuance and the insurer waives the right to challenge a claim based on the incomplete application.

Question 5

Collecting the Initial Premium and Issuing the Receipt

Answer 5

A producer should attempt to collect the initial premium and submit it, along with the application, to the insurer because the policy will not go into effect until the first premium has been paid. If the premium is paid with a check that is not signed (or does not clear), it is not considered paid, and coverage is not effective. The types of receipts that can be issued when the premium is submitted with the application are:

• Conditional Receipt: If the premium is paid, coverage will be in effect on the date of application or completion of the medical exam, whichever is later, as long as the policy would have been issued as applied for.
• Binding (Unconditional) Receipt: If the premium is paid, coverage will begin immediately, for a specific length of time, regardless of whether the applicant is ultimately approved by the insurer. This may also be referred to as a temporary insurance agreement.
• Acceptance (Approval) Conditional Receipt: The coverage becomes effective once the application is approved. If the company doesn’t approve the application, coverage never goes into effect.

Question 6

Trial Application

Answer 6

A trial application is one submitted without a premium. The policy does not take effect until the policy is issued by the insurer, delivered by the agent, and the premium is paid.

Question 7

Notice of Information Practices and Disclosure – Fair Credit Reporting Act (FCRA)

Answer 7

The insurance company must meet requirements under the FCRA when gathering information from a third party to use during underwriting. The applicant must be notified and give consent for information to be received by a third party. This information is disclosed as part of the application. The applicant’s signature on the application serves as the notice of information practices. This gives the insurance company the right to obtain the various investigative, medical, and financial reports needed to complete the underwriting process. If the insurer declines coverage, the applicant will have the right to obtain a copy of all reports from the reporting agency. This is referred to as a post application consumer review.

Question 8

Disclosure at Point of Sale – Issues Relating to AIDS

Answer 8

Insurers must avoid making or permitting unfair discrimination in underwriting between individuals of the same class for the risks of Acquired Immune Deficiency Syndrome (AIDS). Insurers must also require that strict confidentiality is maintained regarding personal information obtained through testing. They must require informed consent before testing for HIV. The HIV Consent Form specifies which individuals may receive the test results.

Insurance companies may refuse to issue a policy to individuals based on positive HIV test results. However, applicants must consent to be tested for HIV and be informed that testing for HIV may determine insurability.

Question 9

Errors and Omissions

Answer 9

This type of insurance covers the liability of a producer or agency, typically written with a deductible to reduce the frequency of claims. Claims are filed due to client reports (complaints) and for a number of other reasons.

Two common complaints are:

1. Inadequacy – Failing to obtain proper type or amount of coverage for a client.
2. Negligence – Quoting inflated information, misrepresenting a plan of coverage, or neglecting to reveal the effect information might have on the client at a later date. The producer may be guilty of negligence whether the mistakes are intentional or unintentional.