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Life & Health Insurance > Chapter 1: Completing Application, Underwriting, and Delivering Policy > Flashcards

Chapter 1: Completing Application, Underwriting, and Delivering Policy Flashcards

1
Q

Adverse Selection

A

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

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2
Q

Agent/Producer

A

A legal representative of an insurance company

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3
Q

The classification of a producer usually includes

A

Agents & brokers

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4
Q

Agents are agents of the

A

Insurer

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5
Q

A person applying for insurance

A

Applicant or proposed insured

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6
Q

Beneficiary

A

The person who receives the benefits of an insurance policy

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7
Q

Death Benefit

A

The amount paid upon the death of the insured in a life insurance policy

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8
Q

Fraud

A

Intentional misrepresentation or deceit with the intent to induce a person to part with something of value

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9
Q

Insurance Policy

A

A contract between a policy owner (and/or insured) and an insurance company with agrees to pay the insured r the beneficiary or loss caused by specific events.

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10
Q

‘Insured’ definition

A

person covered by insurance policy; may or not be the policyowner

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11
Q

Insurer (principal)

A

The company who issues an insurance policy

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12
Q

Lapse

A

Policy termination due to nonpayment of premium

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13
Q

Life insurance

A

coverage on human lives

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14
Q

Policyowner

A

the person entitled to exercise the rights and privileges in the policy

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15
Q

Premium

A

Money paid to the insurance company for an insurance policy

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16
Q

A contract is

A

a legal agreement between two or more parties enforceable by law

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17
Q

4 elements of insurance legal contracts in order to be legally binding:

A
  • Agreement: Offer & acceptance
  • Consideration
  • Competent parties
  • Legal Purpose
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18
Q

There must be a definite offer by one party & the other party must

A

accept this offer in it’s exact terms

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19
Q

The applicant usually makes the offer when

A

submitting the application

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20
Q

_________ takes place when an insurer’s underwriter approves the application and issues a policy

A

Acceptance

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21
Q

The binding force in any contract is the

A

consideration

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22
Q

Consideration is

A

something of value that each party gives to one another

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23
Q

The consideration on part of the insured is the

A

payment of the premium and the representations made in the application

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24
Q

The consideration on part of the insurer is the

A

promise to pay in the event of loss

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25
Q

The parties of the contract must be capable of entering into a contract under the eyes of the law. That requires that both be

A
  1. Of legal age
  2. Mentally competent to understand contract
  3. Not under influence of drugs or alcohol
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26
Q

The purpose of contract must be legal and

A

not against public policy

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27
Q

To ensure Life insurance contracts are of legal purpose, they must have

A

insurable interest and consent

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28
Q

A contract without a legal purpose is

A

considered void

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29
Q

A contract of adhesion is

A

prepared by one of the parties (insurer) and accepted or rejected by the other party (insured).

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30
Q

Aleatory Contract

A

There is an exchange of unequal amounts or values. i.e. premiums are much smaller in relation to the amount paid by insurer in the event of loss

31
Q

Unilateral Contract

A

only one of the parties is legally bound to do anything

32
Q

Conditional Contract

A

Requires that certain conditions be met by the policy owner and the company in order for the contract to be executed

33
Q

Warranty

A

An absolutely true statement upon which the validity of the insurance policy depends.

34
Q

Representations

A

Statements on application believed to be true to the best of one’s knowledge, but not guaranteed to be true.

35
Q

Misrepresentations

A

Untrue statements on the application & can void the contract

36
Q

A Material Misrepresentation is

A

A statement that, if discovered, would alter the underwriting decision for company. If intentional = considered fraud

37
Q

Basic Components to Insurance Application

A
  1. General Information

2. Medical information

38
Q

General Information includes

A

General questions - name, age, address, birthdate, gender, income, marital status, occupation. Inquire about existing policies & if the proposed will replace.

39
Q

Identifies the type of policy applied for and the amount of coverage, and usually contains information about beneficiary

A

General Information in Application

40
Q

Includes information on the prospective insured’s medical background, present health, medical visits in recent years, medical status of living relatives, and cause of death for deceased relatives.

A

Medical Information in Application

41
Q

when amount of coverage is relatively small, agent and proposed insured will will complete all of medical information

A

Nonmedical application

42
Q

In the application, it is the agent’s responsibility to ensure

A

The application is filled out completely, correctly, and to the best of one’s knowledge

43
Q

A life insurance producer is the company’s

A

field underwriter

44
Q

Field Underwriting Responsibilities

A
  • Proper solicitation of applicants
  • Helping prevent adverse selection
  • Completing the Application
  • Obtaining required signatures
  • Collecting initial premium & issuing receipt, if applicable
  • Delivering the policy
45
Q

Required signatures

A

Both the applicant (proposed insured) and the agent must sign

46
Q

When correcting an error on an application, the agent must never

A

erase or white out anything on the application form

47
Q

If insurer receives application with unanswered questions, agent must return to proposed insured for completion of answers. If the policy is issued with questions left unanswered, the contract will be interpreted as if

A

the insurer waived its rights to have an answer to the question

48
Q

The insurer ________ have the right to deny coverage based on any information that the unanswered questions may have uncovered.

A

DOES NOT

49
Q

When the agent collects the premiums, the agent must issue a

A

premium receipt

50
Q

The type of receipt issued will determine

A

when coverage will be effective

51
Q

Used only when the applicant submits a prepaid application

A

conditional receipt

52
Q

The conditional receipt says the coverage will be effective either

A

on the day of the application or the date of the medical exam, whichever occurs last. As long as the insurable is standard risk & policy is issued exactly as applied for.

53
Q

_____________ means the applicant may be covered as early as the date of application

A

Conditional Receipt

54
Q

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

A

Replacement

55
Q

The risk selection and classification process

A

Underwriting

56
Q

_____ is the process in which an insurance company determines whether or not a particular applicant is insurable, and if so, at what premium to charge

A

Underwriting

57
Q

To purchase insurance, the policyowner must face the possibility of

A

loosing money or something of value in the event of a loss

58
Q
  • the policyowner must face the possibility of loosing money or something of value in the event of a loss
  • must exist at the time of application
A

Insurable interest

59
Q

Once the life insurance policy has been issued, the insurer must

A

pay the policy benefit, whether or not an insurable interest exists

60
Q

A valid insurable interest may exist when insuring:

A
  • Policyowners life
  • Life of a family member (spouse or close blood relative)
  • Life of a business partner, key employee, or someone with financial obligation to the policyowner
61
Q

Insurable interest is not required of the

A

beneficiary

62
Q

The policy owner must have insurable interest in the life of

A

the insured

63
Q

An insurance application is the _______ to underwriters use for information about the applicant

A

key source

64
Q

Investigative Consumer Report (Inspection)

A
  • Supplemental to application
  • from independent investigation firm
  • Financial and moral information
65
Q

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

A

Fair Credit Reporting Act

66
Q

Protects consumers against the circulation of inaccurate or obsolete personal or financial information

A

Fair Credit Reporting Act

67
Q

The acceptability of a risk is determined by checking my factors directly related to

A

risk of potential loss

68
Q

Written and/or oral information regarding a consumer’s credit, character, reputation, or habits collected by a reporting agency from employment records, and other public resources

A

Consumer Reports

69
Q

The difference between the Consumer reports and the investigative consumer reports is that

A

Investigative consumer reports are based on credit, character, reputation, and habits but obtained from an investigation via interviews with associates, friends, and neighbors of consumer

70
Q

Requirements of investigative consumer reports via Fair credit reporting act & rights of the consumer:

A
  • Consumer must be notified in writing within 3 days of the report being requested
  • Consumers must be notified they have a right to request more information
  • Insurer/reporting agency has 5 days to provide the consumer with additional information
  • Consumer has the right to know what is in the report
  • The identities of those who accessed the report within the last year.
71
Q

Prohibited information in Consumer reports

A
  • Requested in connection with life insurance policy or credit transactions of less than $150,000
  • Bankruptcies more than 10 years old
  • civil law suits
  • records of arrest or convictions of crimes
  • any other negative information more than 7 years old
72
Q

Membership corporation owned by member insurance companies. It is a non-profit trade organization that receives adverse medical information from insurance companies & maintains confidential information on individuals

A

Medical Information Bureau (MIB)

73
Q

Systemic method for companies to compare the information they’ve collected on potential insured with information other insurers have discovered

A

Medical Information Bureau (MIB)

Life & Health Insurance (1 decks)

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