7. Application, underwriting and ownership

Question 1

Describe the application process including legal terms (5)

Answer 1

1. Provider marketing - invitation to treat
2. Consumer completes application - offer
3. Provider assess by underwriting
4. Provider issues acceptance letter - counter-offer
5. Consumer pays premium - acceptance + consideration

Question 2

When must insurable interest be in place?

Answer 2

When contract is made - not necessarily thereafter including when a claim is made

Question 3

What are the 3 types of consumer misrepresentation and what are the insurer remedies for each?

Answer 3

Honest & reasonable - claim must be paid

Deliberate/reckless - treat as if contract never existed, refuse claim and retain premiums

Careless - assessment whether provider would have contracted if full facts were known
- if not, refuse claim but return premiums
- if yes, different terms are applied e.g lower cover. If premiums would have been higher, reduce claim accordingly

Question 4

Describe the 5 documents issued during the application process

Answer 4

Key features illustration; tailored key features incl premium + cover
Key features document; generic details
Acceptance letter; issued after underwriting, containing tailored T&Cs
Cancellation notice; consumer’s rights
Policy document; confirms all details

Question 5

What are the 4 sources of medical information for underwriting?

Answer 5

• proposal form
• personal medical attendant’s report; proposer’s GP
• medical examiner’s report; medical examination (independent)
• additional medical examinations

Question 6

What are the 4 classes of occupations for underwriting?

Answer 6

Class 1; low risk - office
Class 2; small risk - hairdresser
Class 3; moderate risk - farmer, electrician
Class 4; highest risk - heating engineer

Question 7

In what 3 ways can premiums be set higher than the standard rate?

Answer 7

Fixed loading; fixed monetary amount for whole/limited term

Percentage loading; x%

Added years / rated-up age; treat life assured as if they were x years older than they are

Question 8

Describe how a lien can be applied to a claim?

Answer 8

A reducing deduction from the claim

e.g £100k sum assured with £50k lien reducing over 5yrs

Claim payouts:
Yr1 = 100 - 50 = 50
Yr2 = 100 - 40 = 60 etc

Question 9

Key features of Married Women’s Property Act (2)

Answer 9

Beneficiaries can only be settlor’s spouse or children
Only single-life own-life policies permitted

Question 10

Key features of absolute/bare trust (2)

Answer 10

Beneficiary entitles to assets @ 18
Inflexible; beneficiaries cannot be changed

Question 11

Key features of flexible trust (2)

Answer 11

Settlor specifies potential beneficiaries at outset
Trustees appoint actual beneficiaries - power of appointment

Question 12

Key features of discretionary trust (2)

Answer 12

Settlor specifies potential beneficiaries at outset, as a group e.g children, business partners
Trusteed have discretion on how/when to distribute assets

Question 13

Key features of interest in possession / life interest trust (3)

Answer 13

Beneficiary has immediate right to income / use of property
If entitlement is for life = life tenant
Upon death or other specified event, assets pass to remaindermen

Question 14

Key features of accumulation and maintenance trust (2)

Answer 14

Type of discretionary trust
Trusteed accumulate income within trust until paid to beneficiaries (before 25yo)

Question 15

Key features of will trust (3)

Answer 15

Created in will but not in force until death
Can be revoked if will revoked
Executor automatically becomes trustee unless otherwise specified

Question 16

What is a deed of assignment? (2)

Answer 16

Transfers ownership of a policy
Notice of assignment sent to provider

Question 17

What documentation is required for a death claim? (4)

Answer 17

Proof of age; birth certificate, passport
Marriage certificate if name changed
Proof of death incl cause; death certificate
Proof of title; policy document

Question 18

To whom can proceeds from a life policy be paid? (4)

Answer 18

Policyholder if alive
Policyholder’s estate - executors/administrators
- require grant of probate / letter of administration
Assignees if assigned
Trusteed if written into trust

Question 19

What is a policy endorsement?

Answer 19

Changes to a policy during its term

Question 20

What documentation is required for a sickness/disability claim (2) and additional requirements for income protection (2)?

Answer 20

Proof of title; policy document
Proof of illness/disability; certified by doctor - provider may require independent examination

IPI:
Evidence of income prior to illness/disability
Details of any other insurances/benefits