Chapter 1 - Application, Underwriting, Delivering of Policy Flashcards
What is Adverse Selection?
Insuring of risks that are more prone to losses than the average risk.
Agent/Producer
A legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer.
What is the purpose of insurance?
To transfer of risk of loss.
What is an insurer?
A person or company engaged as the principal party in the business of entering into insurance contracts
What are stock companies?
They re owned by stockholders who provide the capital necessary to establish and operate the insurance company and who also shares in any profits or loss.
What do you call a policy in which policy owners do not share in profits or losses?
Nonparticipating Policies
What is a contract?
An agreement between two or more parties enforceable by law.
What are the elements of a Legal Contract?
- Agreement (offer and acceptance)
- Consideration
- Competend parties
- Legal purpose
When does acceptance take place?
After the insurer makes the offer when submitting the application.
What does it mean if there are competent parties?
Both parties entering a contract are of legal age, mentally competent, not under the influence of drugs or alcohol.
What is a contract of adhesion?
The contract is prepared by insurer and either accepted or rejected by applicant. There are no negotiations on the applicant’s behalf.
What is an aleatory contract?
A contract where the exchange is of unequal amounts.
What is a unilateral contract?
Uni= One | Only one of the parties (insurer) is legally bound to hold up their end of the contract.
What is a conditional contract?
Requires that certain conditions must be met by policyowner and the company in order for the contract to be executed. Ex: Premium must be paid and provide proof of loss in order for the insurer to cover a claim.
What is a warranty?
An absolutely true statement which the policy depends on
Representations
Statements believed to be true to the best of one’s knowledge
What is a field underwriter?
The producer/ agent
What is the agent’s (producer’s) report?
Provides the agent’s personal observations concering the proposed insured.
What is a premium receipt?
What the agent issues to the insured after the premium has been paid. It determines when the coverage will begin.
What is a conditional receipt?
Used only when the applicant submits a prepaid application.
What does replacement mean?
The practice of terminating an existing policy or letting it lapse and obtaining a new one.
What is the agent’s report?
Allows the agent to communicate with the underwriter and provide information about the applicant known by the agent.
Investigative Consumer Report
Underwriter can order a ICR from an independent investigating firm or credit agency which covers financial and moral information.
Federal Credit Reporting Act
The FCRA esablished procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate relevant, and properly used.
What is a consumer report?
Includes written and or/oral information regarding a consumer’s credit, character, reputation, etc
Investigative Consumer Reports
Interviews with friends and family regarding consumer
What is the Medical Information Bureau (MIB)
Membership corporation owned by member insurance companies. It is a nonprofit trade organization who’s purpose is to collect, maintain, and make available to insurance companies important info for underwriting
What are the rating classifications?
Standard - Preferred Risk
Standard - Average Risk
Substandard - Higher risk and higher premium
Standard Originated Life Insurance (STOLI)
when there is no insurance interest. This is illegal to do.
What is a buyer’s guide?
Provides basic , generic info about life insurance policies that contains and is limited to language approved by the Department of Insurance.
What is a policy summary?
A written statement describing the features of elements of the policy being issued.
What does the term illustration mean?
Means a presentation or depiction that includes non-guaranteed elements of a policy of individual or group life insurance over a period of years
The Gramm-Leach-Bliley Act
Stipulates that in general, an insurance company may not disclose nonpublic personal information to a nonaffiliated third party.
USA Patriot Act
To prevent terrorist activities such as the anti-money laundering (AML) standards.
