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

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

1
Q

Adverse Selection

A

Risks that are more likely to suffer a loss

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2
Q

Agent/Producer

A

A legal representative of an insurance company (AKA broker of the insurer or field underwriter)

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3
Q

Applicant or Proposed Insured

A

The person applying for insurance

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4
Q

Beneficiary

A

A person who receives the benefits of an insurance policy

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5
Q

Fraud

A

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

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6
Q

Insurance policy

A

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

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7
Q

Insured

A

The person covered by an insurance policy (may or may not be the policyowner)

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8
Q

Insurer (Principal)

A

The company who issues an insurance policy

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9
Q

Lapse

A

Policy termination due to non payment of premium

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10
Q

Life insurance

A

Coverage on human lives

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11
Q

Policyowner

A

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

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12
Q

Premium

A

The money paid to the insurance company for the insurance policy

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13
Q

How does insurance work?

A

Insurance is the transfer of risk of loss from an individual or a business entity to an insurance company which spreads the costs of unexpected loss among the other insureds

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14
Q

Insurance transaction

A
  1. Solicitation
  2. Negotiations
  3. Sale
  4. Advising an individual concerning claims or coverage
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15
Q

Solicitation of Insurance

A

An attempt to persuade a person to buy an insurance policy (in writing or orally)

Example:
- Info about available products
- Describing policy benefits
- Recommendations for specific policies
- Trying to secure a contract between applicant and insurance company

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Illustrations

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16
Q

Illustration

A

Given to clients to help them understand the policy. It displays the guaranteed and the nonguaranteed benefits of the policy and how it’ll perform over the course of it’s coverage

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17
Q

Interest adjusted net cost method… What are the 2 types?

A

Considers the time value of money by applying an interest adjustment to yearly premiums and dividends.

  1. Surrender cost index
  2. Net payment cost index
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18
Q

Types of risk (2) … Which of the two can you ensure?

A

Pure risk (loss only) and speculative risk (loss or gain)

You can only insure pure risk

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19
Q

What is a hazard?

A

something that increases the possibility of a loss

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20
Q

Physical hazard

A

individual characteristics that increase the chances of the cause of loss

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21
Q

Moral hazard

A

tendencies towards increased risk (individual’s ethical code in question)

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22
Q

Morale hazard

A

state of mind that causes indifference toward loss (person relies too much on the insurance)

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23
Q

Peril

A

The cause of a loss

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24
Q

4 Elements of a Legal Contract

A
  1. Agreement - offer and acceptance
  2. Consideration
  3. Competent parties
  4. Legal purpose
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25
Q

Offer and Acceptance … who makes the offer and who makes the acceptance in insurance?

A

Applicant makes offer & insurer makes the acceptance

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26
Q

Consideration

A

Something of value that each parts gives to the other. The insured’s consideration is the premium payment. The insurers consideration is the promise to pay in the event of loss.

27
Q

Contract of Adhesion

A

Take it or leave it basis by insurer (insurer has more power; insured cant negotiate)

28
Q

Aleatory contract

John purchases life insurance policy for $50k. The premium is $100. His daughter is the beneficiary. John dies after 2 months into the policy. What happens?

A

Exchange of unequal amounts or values (Premium paid by insured < amount paid by insurer)

John pays $200 in premium while insurance company pays out $50k to his daughter (aka unequal exchange of values)

29
Q

Unilateral contract

A

Only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises.

30
Q

Conditional contract

A

Conditions must be met in order for contract to be executed. (Premium and proof of loss in order for insurer to cover the claim)

31
Q

What is a warranty? What happens in the case of a breach of warranties?

A

Absolutely true statement. Breach of warranties are grounds for voiding policy or return of premium

32
Q

Representations

A

Statements believed to be true to the best of ones knowledge but they are not guaranteed to be true

(AKA answers the insured gives to the questions on an insurance application)

33
Q

Misrepresentations

A

Untrue statements on the application

34
Q

What are the 2 parts to an application?

A
  1. General information
  2. Medical information
35
Q

Conditional receipt

A

Prepaid application.. so coverage begins on date of application or date of medical exam, whichever is last

36
Q

Underwriting

What is the purpose of underwriting?

A

The risk selection process

To protect the insurer against adverse selection

37
Q

Insurable interest

A

The interest that someone has in something that can cause a loss if damaged or taken away - it must exist at the time of application

You depend on the person who’s life is being insured

38
Q

Consumer reports

A

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

39
Q

Investigative Consumer Reports

A

Information is obtained through an investigation and interviews with associates, friends and neighbors of the consumer

40
Q

What must happen in order for an investigative consumer report to take place?

A

The consumer must be advised in writing about the report within 3 days of the date the report was requested. The consumer must be advised that they have a right to request additional information concerning the report and the insurer or reporting agency has 5 days to provide the consumer with the additional information

41
Q

Consumer Reports cannot contain prohibited information if the report is requested in connection with a life insurance policy or credit transaction of what amount?

A

$150,000.000

42
Q

What is MIB?

A

Medical information bureau. It is a systematic method for companies to compare the information they collected on a potential insured with information other insurers may have discovered

43
Q

What is HIPAA?

What does it do?

A

Health Insurance Portability and Accountability Act

It protects health information

44
Q

Risk & Premium relationship

A

The higher the risk, the higher the premium

45
Q

What are the 3 risk classificiations?

A
  1. Standard - covered at standard rate; average risk of loss
  2. Substandard - covered an increased rate; increased risk of loss
  3. Preferred - covered at reduced rate; reduced risk of loss
46
Q

Premium Rated-Up

A

Higher premiums

47
Q

Declined risks

A

Applicants who are rejected due to being too risky for loss

48
Q

STOLI & IOLI

A

Stranger-originated life insurance: person trying to make money off of life settlements when they have no insurable interest in the insured

Investor-originated life insurance: Another name for STOLIs

49
Q

What are the three factors used in premium determination?

A
  1. Risk (Mortality)
  2. Interest earnings
  3. Expense (aka loading charge)
50
Q

Mortality

A

The rate of death within a specific group over a certain amount of time

51
Q

Net single premium (or Net Premium)

What is the equation for Net Premium?

A

The mortality and interest components necessary to keep the policy in force until maturity

Mortality - interest = net premium

52
Q

Gross Annual premium (or Gross Premium)

What is the equation for Gross Premium?

A

The one year cost for mortality plus the cost of operating the company (aka expense loading)

Net Premium + Expense (loading) = Gross Premium

53
Q

What is expense loading? Provide examples.

A

The cost of operating the company.

  • Commissions
  • Rent
  • Advertising
  • Taxes
54
Q

What is premium payment mode?

A

The frequency the policy owner pays the premium

55
Q

What is the relation between premium payment mode and premium amount?

A

Higher frequency = higher premium

If you pay monthly rather than yearly, your premium will be higher

Monthly > quarterly > semiannual > annual

56
Q

Statement of good health

A

A statement signed by the insured verifying that the insured has not suffered injury or illness since the application date

57
Q

Gramm Leach Bliley Act

A

Prohibits insurers from disclosing non public personal information to non affiliated 3rd parties

58
Q

Fair Credit Reporting Act

A

Protects consumers against circulation of inaccurate or obsolete personal financial information

59
Q

USA PATRIOT Act

A

The uniting and strengthening America by providing appropriate tools required to intercept and obstruct terrorism act

  • Fight and prevent terrorist activities
  • Anti money laundering (AML) standards
  • Suspicious Activity Report (SAR) For any transactions of $5000 or more if they raise suspicion
60
Q

5 ways of handling risk

A
  1. Avoidance
  2. Retention
  3. Sharing
  4. Reduction
  5. Transfer (insurance)
61
Q

Elements of insurable risk

A
  • Due to chance
  • Definite and measurable
  • Statistically predictable
  • Not catastrophic
  • Randomly selected/large loss exposure
62
Q

Buyer’s Guide

A

generic information about insurance policies used to help compare policies and costs; provided at time of application

63
Q

How far back can you backdate on a policy?

A

6 months at most

Life & Health Ins (2 decks)

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