Chapter 1 - Application, Underwriting, Delivering of Policy

Question 1

What is Adverse Selection?

Answer 1

Insuring of risks that are more prone to losses than the average risk.

Question 2

Agent/Producer

Answer 2

A legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer.

Question 3

What is the purpose of insurance?

Answer 3

To transfer of risk of loss.

Question 4

What is an insurer?

Answer 4

A person or company engaged as the principal party in the business of entering into insurance contracts

Question 4

What are stock companies?

Answer 4

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.

Question 5

What do you call a policy in which policy owners do not share in profits or losses?

Answer 5

Nonparticipating Policies

Question 6

What is a contract?

Answer 6

An agreement between two or more parties enforceable by law.

Question 7

What are the elements of a Legal Contract?

Answer 7

1. Agreement (offer and acceptance)
2. Consideration
3. Competend parties
4. Legal purpose

Question 8

When does acceptance take place?

Answer 8

After the insurer makes the offer when submitting the application.

Question 9

What does it mean if there are competent parties?

Answer 9

Both parties entering a contract are of legal age, mentally competent, not under the influence of drugs or alcohol.

Question 10

What is a contract of adhesion?

Answer 10

The contract is prepared by insurer and either accepted or rejected by applicant. There are no negotiations on the applicant’s behalf.

Question 11

What is an aleatory contract?

Answer 11

A contract where the exchange is of unequal amounts.

Question 12

What is a unilateral contract?

Answer 12

Uni= One | Only one of the parties (insurer) is legally bound to hold up their end of the contract.

Question 13

What is a conditional contract?

Answer 13

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.

Question 14

What is a warranty?

Answer 14

An absolutely true statement which the policy depends on

Question 15

Representations

Answer 15

Statements believed to be true to the best of one’s knowledge

Question 16

What is a field underwriter?

Answer 16

The producer/ agent

Question 17

What is the agent’s (producer’s) report?

Answer 17

Provides the agent’s personal observations concering the proposed insured.

Question 18

What is a premium receipt?

Answer 18

What the agent issues to the insured after the premium has been paid. It determines when the coverage will begin.

Question 19

What is a conditional receipt?

Answer 19

Used only when the applicant submits a prepaid application.

Question 20

What does replacement mean?

Answer 20

The practice of terminating an existing policy or letting it lapse and obtaining a new one.

Question 21

What is the agent’s report?

Answer 21

Allows the agent to communicate with the underwriter and provide information about the applicant known by the agent.

Question 22

Investigative Consumer Report

Answer 22

Underwriter can order a ICR from an independent investigating firm or credit agency which covers financial and moral information.

Question 23

Federal Credit Reporting Act

Answer 23

The FCRA esablished procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate relevant, and properly used.

Question 24

What is a consumer report?

Answer 24

Includes written and or/oral information regarding a consumer’s credit, character, reputation, etc

Question 25

Investigative Consumer Reports

Answer 25

Interviews with friends and family regarding consumer

Question 26

What is the Medical Information Bureau (MIB)

Answer 26

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

Question 27

What are the rating classifications?

Answer 27

Standard - Preferred Risk
Standard - Average Risk
Substandard - Higher risk and higher premium

Question 28

Standard Originated Life Insurance (STOLI)

Answer 28

when there is no insurance interest. This is illegal to do.

Question 29

What is a buyer’s guide?

Answer 29

Provides basic , generic info about life insurance policies that contains and is limited to language approved by the Department of Insurance.

Question 30

What is a policy summary?

Answer 30

A written statement describing the features of elements of the policy being issued.

Question 31

What does the term illustration mean?

Answer 31

Means a presentation or depiction that includes non-guaranteed elements of a policy of individual or group life insurance over a period of years

Question 32

The Gramm-Leach-Bliley Act

Answer 32

Stipulates that in general, an insurance company may not disclose nonpublic personal information to a nonaffiliated third party.

Question 33

USA Patriot Act

Answer 33

To prevent terrorist activities such as the anti-money laundering (AML) standards.