Chapter 1: Completing Application, Underwriting, and Delivering Policy Flashcards
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 a producer usually includes
Agents & brokers
Agents are agents of the
Insurer
A person applying for insurance
Applicant or proposed insured
Beneficiary
The person who receives the benefits of an insurance policy
Death Benefit
The amount paid upon the death of the insured in a life insurance policy
Fraud
Intentional misrepresentation or deceit with the intent to induce a person to part with something of value
Insurance Policy
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.
‘Insured’ definition
person covered by insurance policy; may or not be the policyowner
Insurer (principal)
The company who issues an insurance policy
Lapse
Policy termination due to nonpayment of premium
Life insurance
coverage on human lives
Policyowner
the person entitled to exercise the rights and privileges in the policy
Premium
Money paid to the insurance company for an insurance policy
A contract is
a legal agreement between two or more parties enforceable by law
4 elements of insurance legal contracts in order to be legally binding:
- Agreement: Offer & acceptance
- Consideration
- Competent parties
- Legal Purpose
There must be a definite offer by one party & the other party must
accept this offer in it’s exact terms
The applicant usually makes the offer when
submitting the application
_________ takes place when an insurer’s underwriter approves the application and issues a policy
Acceptance
The binding force in any contract is the
consideration
Consideration is
something of value that each party gives to one another
The consideration on part of the insured is the
payment of the premium and the representations made in the application
The consideration on part of the insurer is the
promise to pay in the event of loss
The parties of the contract must be capable of entering into a contract under the eyes of the law. That requires that both be
- Of legal age
- Mentally competent to understand contract
- Not under influence of drugs or alcohol
The purpose of contract must be legal and
not against public policy
To ensure Life insurance contracts are of legal purpose, they must have
insurable interest and consent
A contract without a legal purpose is
considered void
A contract of adhesion is
prepared by one of the parties (insurer) and accepted or rejected by the other party (insured).
Aleatory Contract
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
Unilateral Contract
only one of the parties is legally bound to do anything
Conditional Contract
Requires that certain conditions be met by the policy owner and the company in order for the contract to be executed
Warranty
An absolutely true statement upon which the validity of the insurance policy depends.
Representations
Statements on application believed to be true to the best of one’s knowledge, but not guaranteed to be true.
Misrepresentations
Untrue statements on the application & can void the contract
A Material Misrepresentation is
A statement that, if discovered, would alter the underwriting decision for company. If intentional = considered fraud
Basic Components to Insurance Application
- General Information
2. Medical information
General Information includes
General questions - name, age, address, birthdate, gender, income, marital status, occupation. Inquire about existing policies & if the proposed will replace.
Identifies the type of policy applied for and the amount of coverage, and usually contains information about beneficiary
General Information in Application
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.
Medical Information in Application
when amount of coverage is relatively small, agent and proposed insured will will complete all of medical information
Nonmedical application
In the application, it is the agent’s responsibility to ensure
The application is filled out completely, correctly, and to the best of one’s knowledge
A life insurance producer is the company’s
field underwriter
Field Underwriting Responsibilities
- Proper solicitation of applicants
- Helping prevent adverse selection
- Completing the Application
- Obtaining required signatures
- Collecting initial premium & issuing receipt, if applicable
- Delivering the policy
Required signatures
Both the applicant (proposed insured) and the agent must sign
When correcting an error on an application, the agent must never
erase or white out anything on the application form
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
the insurer waived its rights to have an answer to the question
The insurer ________ have the right to deny coverage based on any information that the unanswered questions may have uncovered.
DOES NOT
When the agent collects the premiums, the agent must issue a
premium receipt
The type of receipt issued will determine
when coverage will be effective
Used only when the applicant submits a prepaid application
conditional receipt
The conditional receipt says the coverage will be effective either
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.
_____________ means the applicant may be covered as early as the date of application
Conditional Receipt
________Is a practice of terminating an existing policy or letting it lapse and obtaining a new one
Replacement
The risk selection and classification process
Underwriting
_____ 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
Underwriting
To purchase insurance, the policyowner must face the possibility of
loosing money or something of value in the event of a loss
- 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
Insurable interest
Once the life insurance policy has been issued, the insurer must
pay the policy benefit, whether or not an insurable interest exists
A valid insurable interest may exist when insuring:
- 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
Insurable interest is not required of the
beneficiary
The policy owner must have insurable interest in the life of
the insured
An insurance application is the _______ to underwriters use for information about the applicant
key source
Investigative Consumer Report (Inspection)
- Supplemental to application
- from independent investigation firm
- Financial and moral information
Established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used.
Fair Credit Reporting Act
Protects consumers against the circulation of inaccurate or obsolete personal or financial information
Fair Credit Reporting Act
The acceptability of a risk is determined by checking my factors directly related to
risk of potential loss
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
Consumer Reports
The difference between the Consumer reports and the investigative consumer reports is that
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
Requirements of investigative consumer reports via Fair credit reporting act & rights of the consumer:
- 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.
Prohibited information in Consumer reports
- 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
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
Medical Information Bureau (MIB)
Systemic method for companies to compare the information they’ve collected on potential insured with information other insurers have discovered
Medical Information Bureau (MIB)
