chapter 1 Flashcards
what are the elements of a legally binding contract?
four elements :
ACCL
agreement (offer & acceptance) - applicant (insured) makes an offer when submitting the application, acceptance is when the insurer’s underwriter approves the application and issues a policy
consideration (value) - premiums and representations on the part of the insured; payment of claims on the part of the insurer
competent parties - of legal age, sound mental capacity, and not under the influence of drugs or alcohol
legal purpose - not against public policy
what are the distinct characteristics of an Insurance Contract?
CACAU
Contract of Adhesion (take it or leave it) — one party prepares the contract; the other party must accept it as is
Conditional Contract — certain conditions must be met
Aleatory Contract (uneven) — exchange of unequal amounts
Unilateral Contract — only one of the parties to the contract is legally bound to do anything
what is the Medical Information Bureau?
when should insurable interest exist?
it is a nonprofit owned by member insurance companies for insurers to compare info on applicants.
Insurers cannot refuse coverage solely on the basis of adverse information on an MIB report.
insurable interest MUST EXIST AT THE TIME OF APPLICATION - POLICYOWNER MUST HAVE INSURABLE INTEREST IN THE LIFE OF THE INSURED.
what does a buyer’s guide provide?
what does a policy summary provide?
A buyer’s guide provides generic information on various types of policies.
A policy summary provides specific features / elements /information on the policy being issued.
what is the Gramm-Leach-Bliley Act?
Prohibits insurers from disclosing personal information to nonaffiliated third parties
The Gramm-Leach-Bliley Act requires 2 disclosures to a customer (a consumer who has an ongoing financial relationship with a financial institution):
what is the Fair Credit Reporting Act?
Protects consumers against circulation of old personal financial information
In an insurance contract — what is the insurer’s consideration? what is the insured’s consideration?
Insurer’s consideration is the promise to pay for losses; insured’s consideration is the payment of premium and statements on the application.
adverse selection
replacement
adverse selection - risks which are more likely to suffer a loss
Replacement is a practice of terminating an existing policy or letting it lapse, and obtaining a new one.
lapse - policy termination due to nonpayment of premium
agent / producer
principal
agent / producer - both are legal reps of the insurance company; agent is a FIELD UNDERWRITER of the insurer & producer can mean agents and brokers
principal - the insurer (company who owns insurance policy)
warranty
representations
material misrepresentation
A warranty is an absolutely true statement upon which the validity of the insurance policy depends.
Representations are statements BELIEVED TO BE TRUE (insured statements on the application ARE REPRESENTATIONS) to the best of one’s knowledge, but they are not guaranteed to be true.
A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.if material misrepresentations are intentional, they are considered fraud.
underwriting
insurable interest
preferred vs standard vs substandard vs declined risk
Underwriting is the risk selection process
insurable interest - possibility of losing money or something of value in the event of loss. a financial stake in an item, event, or action that could cause financial loss or other hardship.
Preferred risks are those individuals who meet certain requirements and qualify for lower premiums than the standard risk.
Standard risks (average) are persons are entitled to insurance protection without extra rating or special restrictions. Standard risks are representative of the majority of people at their age and with similar lifestyles. They are the average risk.
Substandard (High Exposure) risk applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits. These policies are also referred to as “rated” because they could be issued with the premium rated-up, resulting in a higher premium.
Applicants who are rejected are considered declined risks. Risks that the underwriters assess as not insurable are declined. For example, a risk may be declined for one of the following reasons:
There is no insurable interest;
The applicant is medically unacceptable;
The potential for loss is so great it does not meet the definition of insurance; or
Insurance is prohibited by public policy or is illegal.
what is a conditional receipt and when is it received?
how does timing of premium payment play into coverage?
when an applicant submits an app and pays premium w submission, they receive a conditional receipt. Coverage w a conditional receipt will start on the date of the application or the date of the medical exam - whichever comes last
if an applicant submits an application but pays upon delivery, they must submit a statement of continued good health and coverage starts on the day of policy delivery
describe the difference between consumer reports and investigative consumer reports.
what is the timeline / actions that must be taken for investigative reports and how customers must be alerted?
consumer reports and investigative consumer reports both cover character, reputation and habits.
consumer reports are collected by a credit reporting agency (regulated by the fair credit reporting act), and investigative consumer reports are based off of investigation with associates, friends and neighbors.
consumer must be alerted within 3 days about investigative report request and insurer must provide any additional requested information within 5 days
what is a STOLI / IOLI?
stranger/investor originated life insurance policy — this is when the policyowner has no insurable interest in the insured and is prepared to sell the policy for profit once the insured dies
