Chapter 1: Completing The Application, Underwriting, And Delivering The Policy Flashcards
1
Q
Introduction to Chapter 1: Completing the Application, Underwriting, And Delivering The Policy
A
Accurate underwriting depends heavily on an application that is complete and representative of the potential risks. This chapter focuses on the producer’s first major role as a field underwriter: completing the application and delivering the policy. This section discusses the specific steps of the application process, which includes completing the form itself, collecting the premium, and delivering the policy. In general, this chapter helps you build a foundation of insurance concepts that make it easier for you to master the rest of the material in this course.
2
Q
Adverse Selection
A
Insuring of risks that are more prone to losses than the average risk.
3
Q
Agent/Producer
A
A legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer.
4
Q
Applicant or proposed insured
A
A person applying for insurance.
5
Q
Beneficiary
A
A person who receives the benefits of an insurance policy.
6
Q
Death benefit
A
The amount paid upon death of the insured in a life insurance policy.
7
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.
8
Q
Insured
A
Person covered by the insurance policy; may or may not be the policy owner.
9
Q
Insurer (principal)
A
The company who issues an insurance policy.
10
Q
Lapse
A
Policy termination due to nonpayment of premium.
11
Q
Life insurance
A
Coverage on human lives.
12
Q
Policyowner
A
The person entitled to exercise the rights and privileges in the policy.
13
Q
Premium
A
The money paid to the insurance company for the insurance policy.
14
Q
Insurance Transfers
A
Transfers the risk of loss from an individual or business entity to an insurance company, which in turn spreads the costs of unexpected losses to many individuals.
15
Q
Insurance Transaction
A
Includes any of the following (by mail or any means): Solicitations Negotiations Sale (effectuation of a contract of insurance) Advising an individual concerning coverage or claims
16
Q
Contract
A
is an agreement between two or more parties enforceable by law. Because of unique aspects of insurance transactions, the general law of contacts had to be modified to fit the needs of insurance.
17
Q
- Elements of a legal contract (In order for insurance contacts to be legally binding, they must have 4 essential elements):
A
- Agreement-offer and acceptance 2. Consideration 3. Competent parties 4. Legal purpose
18
Q
Offer
A
There must be a definite offer by one party, and the other party must accept this offer in its exact terms. In insurance, the applicant usually makes the offer when submitting the application.
19
Q
Acceptance
A
Acceptance takes place when an insurer’s underwriter approves the application and issues a policy.
20
Q
Consideration
A
Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application. The consideration on the part of the insurer is the promise to pay in the event of loss.
21
Q
Competent Parties
A
The parties to a contract must be capable of entering into a contract in the eyes of the law. Be of legal age Mentally competent to understand the contact And not under the influence of drugs or alcohol.
22
Q
Legal Purpose
A
Contract must be legal and not against public policy. To ensure legal purpose of a life insurance policy, it must have both: 1. Insurable interest 2. Consent
23
Q
Without legal purpose, the contact is..
A
-Void (cannot be enforced by parties)
24
Q
Contract of Adhesion
A
A contract of adhesion is prepared by the insurer and accepted or rejected by the insured. Insurance policies are not…. drawn up through negotiations; insured has little say about its provisions. IN other words, insurance contracts are offered on a “take-it-or-leave-it” basis by the insurer.
25
Aleatory Contract
Insurance contracts are aleatory - means there is an exchange of unequal amounts of value. The premium paid by the insured is small compared to the amount paid by the insurer in the event of loss.
26
Unilateral Contract
Means that only one of the parties to the Contract is legally bound to do anything. The insured makes no legally binding promises. However, an insurer is legally bound to pay losses covered by a policy in force.
27
Conditional Contract
requires that certain conditions be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations. Example: insured must pay premium and provide proof of loss in order for the insured to cover a claim.
28
Warranty
is an absolutely true statement upon which the validity of the insurance policy depends.
29
Breach of warranties can be considered...
grounds for voiding the policy or return of premium. Because of such a strict definition, statements made by the applicants for life and health insurance policies, for example, are usually not considered warranties, except in cases of fraud.
30
Representations
statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true. Representations are the answers that the insured gives to the questions on the insurance application.
31
Misrepresentations
Untrue statements given on the application. These could void the contract.
32
A material misrepresentation
statement that, if discovered, would alter the underwriting decision of the insurance company. If material representations are intentional, they are considered fraud.
33
Completing the application is...
the starting point and basic source of information used by the company in the risk selection process.
34
Applications have the same basic components, which are....
Part 1 - General Information Part 2 - Medical Information
35
Part 1 - The general information of the application includes these 8 questions such as what?...
1. Name 2. Age 3. Address 4. Birth date 5. Gender 6. Income 7. Marital Status 8. Occupation
36
Part 1 - The general information of the application will also inquire about what?...
the existing policies and if the proposed insurance will replace them.
37
Part 1 of the application (the General Information) identifies what?...
the type of policy applied for and the amount of coverage, and usually contains information concerning the beneficiary.
38
Part 2 - Medical Information of the application includes 5 information components on the prospective insured's.... What are they?
1. Medical background 2. Present health 3. Any medical visits in recent years 4. Medical Status of living relatives 5. Causes of death of deceased relatives
39
When will the insured have to complete the medical examination and when will the insured not have to complete one?
If the amount of the insurance is relatively small, the agent and proposed insured will complete all of the medical information which is considered a non-medical application. For larger amounts, the insured will usually require some sort of medical examination by a professional.
40
What is the agent's responsibility in terms of the application?
Making certain that the application is filled out completely, correctly, and to the best of the applicant's knowledge.
41
When must the agent probe beyond the stated questions on the application?
If he or she has reason to believe the applicant is misrepresenting or concealing information, or does not understand the specific questions asked.
42
What may delay the issuance of the policy?
Any information that is misleading, inaccurate or illegible on the application.
43
What must the agent do if he/she feels that there could be misrepresentation?
Inform the insurance company.
44
To avoid mistakes and unanswered questions, what do some insurers require?
For the agent to complete the application.
45
Field underwriter
is the agent who is the company's front line.
46
Why is the agent referred to as the field underwriter?
because the agent is usually the one who has solicited the potential insured.
47
What are the field underwriters' 6 important responsibilities during the underwriting process and beyond?
1. Proper solicitation of applicants 2. Helping prevent adverse selection 3. Completing the application 4. Obtaining the required signatures 5. Collecting the initial premium and issuing the receipt, if applicable 6. Delivering the policy
48
Who is considered the most important source of information available to the company underwriters?
The field underwriter or agent
49
What is an agent's report?
An agent's report provides the agent's personal observations concerning the proposed insured.
50
Does the agent's report become part of the entire contract?
No. But it is part of the application process.
51
1. Required Signatures: Who must sign the insurance application?
Both the agent and the proposed insured (usually the applicant) must sign the application.
52
1. Required Signatures: When are their 3 signatures to an application?
If the proposed insured and the policyowner are not the same person, such as a business purchasing insurance on an employee. In this case, the policyowner must also sign the application.
53
1. Required Signatures: When is there an exception to the proposed insured signing the application?
In the case of an adult, such as a parent or guardian applying for insurance on a minor child.
54
2. Changes in the application: What are the two options that an agent can do when an answer to a question on an application needs to be corrected?
1. Initialing the change 2. Completing a new application.
55
2. Changes in the application: What must the agent never do in the case of correcting information on an application?
The agent should never white out or erase any information on an application for insurance.
56
3. Consequences of Incomplete Application: What must an insurer do if it receives an incomplete application?
Return the application to the applicant for completion because before a policy is issued, all questions on the application must be answered.
57
3. Consequences of Incomplete Applications: How is a contract interpreted if a policy is issued with questions left unanswered?
The contract will be interpreted as if the insurer waived its right to have an answer to the question.
58
3. Consequences of Incomplete Applications: The insurer will not have the right to do WHAT based on any information that the unanswered question might have contained?
Deny coverage
59
4. Collecting the Initial Premium and Issuing the Receipt: When do most agents attempt to collect the initial premium?
During the application process.
60
4. Collecting the Initial Premium and Issuing the Receipt: What increases the chance that the applicant will accept the policy once its issued?
Collecting the premium at the time of the application process.
61
What must the agent issue when collecting premiums?
A premium receipt
62
A premium receipt issued will determine what?
When coverage will be effective.
63
4. Collecting the Initial Premium and Issuing the Receipt: What is a conditional receipt?
A conditional receipt is the most common type of receipt and is used only when the applicant submits a prepaid application.
64
4. Collecting the Initial Premium and Issuing the Receipt: When does the conditional receipt say that the coverage will be effective?
It says that the coverage will be effective wither on the date of the application or on the date of the medical exam, whichever occurs last.
65
4. Collecting the Initial Premium and Issuing the Receipt: With a conditional receipt, as long as the policy is found to be what is the policy issued exactly as applied for?
Insurable as a standard risk. This rule will not apply if a policy is declined, rated, or issued with riders excluding specific coverages.
66
What is replacement?
a practice of terminating an existing policy or letting it lapse, and obtaining a new one.
67
To make sure that replacement is appropriate and in the best interests of the policyowner, what must an insurance company do?
Take special underwriting measures to help policyowners make informed decisions.
68
What is underwriting?
Underwriting is the risk selection process.
69
What are the underwriter's 2 responsibilities?
1. Selecting only those risks that are considered insurable. 2. Making sure that the insurable meets the insurer's underwriting standards.
70
The purpose of underwriting is to....
Protect the insurer against adverse selection (risks which are more likely to suffer a loss).
71
What are the 4 primary criteria that an underwriter will use in accessing the desirability of a particular candidate for life insurance?
1. Applicant's health (current and past). 2. Occupation 3. Lifestyle 4. Hobbies or habits
72
What is Insurable Interest?
The policyowner must face the possibility of losing money or something of value in the event of loss, to purchase insurance.
73
Explain Insurable interest at the time of application:
Insurable interest must exist at the time of application, however, once a life insurance policy has been issued, the insurer must pay the policy benefit, whether or not an insurable interest exists.
74
A valid insurable interest may exist between the policyowner and the insured when the policy is insuring which of the 3 following:
1. Policy Owner's own life 2. The life of a family member (a spouse or close blood relative) 3. The life of a business partner, key employee, or someone who has a financial obligation to the policyowner (such as a debtor to a creditor).
75
Is insurable interest required of beneficiaries? Why not?
No, insurable interest is not required of beneficiaries because the beneficiary's well-being is dependent upon the insured, their life is not being insured, and the beneficiary doesn't have to show an insurable interest for a policy to be purchased.
76
In order to properly select and classify insurance risks, what does the insurer need?
To obtain the applicant's background information and medical history.
77
What sources of underwriting information is available to underwriters?
1. The application 2. The agent's report 3. (Inspection) or Investigative Consumer Report 4.
78
What does an investigative consumer report reveal?
Financial and moral information about the applicant's finances, character, work, hobbies, and habits.
79
Companies that use inspection reports are subject to the rules and regulations of which Act?
The Fair Credit Reporting Act
80
What is the Fair Credit Reporting Act?
It establishes procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used.
81
The Fair Credit Reporting Act also protects consumers against what?
Circulation of inaccurate or obsolete personal or financial information.
82
What are 3 business purposes that a consumer report and investigative report can be used for?
1. Insurance writing 2. Employment screening 3. Credit transactions
83
What does a consumer report include?
written and/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.
84
What is the primary difference between a consumer and investigative consumer report?
that the information is obtained through an investigation and interviews with associates, friends and neighbors of the consumer.
85
Which type of report cannot be made unless the consumer is advised in writing about the report within 3 days of the date that the report was requested?
Investigative Consumer Report. Also, the consumers must be advised that they have a right to request additional info concerning the report, and the insurer or reporting agency has 5 days to provide the consumer with the additional info.
86
A person can be fined and/or imprisoned for up to 2 years if they do what?
knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretences.
87
An individual who UNKNOWINGLY violates the Fair Credit Reporting Act is liable for what?
The amount equal to the loss of the consumer,0 as well as any reasonable attorney fees incurred in the process.
88
An individual who WILLFULLY violates the Fair Credit Reporting Act enough to constitute a general pattern or business practice will be subject to a penalty of up to how much?
$2,500
89
The consumer must be provided with what, under the Fair Credit Reporting Act, if a policy is declined/modified due to a consumer or investigative report?
The name and address of the reporting agency.
90
Explain what the consumer has the right to know when their consumer reports are accessed...
Consumer has the right to know the identity of any who received a copy of the report during the past year. If consumer challenges the report, reporting agency must reinvestigate and amend it, if warranted. If inaccurate and is corrected, agency must send corrected info to all parties that had the inaccurate info within the last 2 years.
91
Explain prohibited information...
Consumer reports cannot contain certain types of information if the report is requested in connection with life insurance policies or credit transactions of less than $150,000. PROHIBITED INFORMATION includes bankruptcies more than 10 years old, civil suits, records of arrest or convictions of crimes, or any negative information that is more than 7 years old.
92
As defined by the Fair Credit Reporting Act, NEGATIVE INFORMATION inludes what?
Info regarding a consumer's delinquencies, late payments, insolvency or any other form of default.
93
What is Medical Information Bureau (MIB)?
a membership corporation owned by member insurance companies. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.
It is a systematic method for companies to compare the information they have collected on a potential insured with information other insurers may have discovered. The MIB can be used only as an aid in helping insurers know what areas of impairment they might need to investigate further.
94
Can an applicant be refused simply because of information discovered through MIB?
No.
95
When is a medical examination required of the insured?
For policies with higher amounts of coverage or if the application raised additional questions concerning the prospective insured's health, the underwriter may require a medical examination of the insured.
96
What are the two options, depending on the reason, for medical examinations?
1. The insurer may only request a paramedical report which is completed by a paramedic or a registered nurse; and
2. The underwriter may require an Attending Physician's Statement (APS) from a medical practitioner who treated the applicant for a prior medical problem.
97
Who are medical examinations conducted by and how are they paid for?
Medical examinations, when required by the insurance company, are conducted by physicians or paramedics at the insurance company's expense. Usually such exams are not required with regard to health insurance, thus stressing the importance of the agent in recording medical information on the application. The medical exam requirement is more common with life insurance underwriting. If an insurer requests a medical examination, the insurer is responsible for the costs of the exam.
98
When an applicant is applying for a large amount of coverage, it is common among insurers to require what type of test?
An HIV test
99
What laws and regulations is set for the insurers to ensure proper obtaining and handling of HIV results for an applicant?
**The· insurer must disclose the use of testing to the applicant, and obtain written consent from the applicant on the approved form;**
The insurer must establish written policies and procedures for the internal dissemination of test results among its producers and employees to ensure confidentiality.
100
What must be given to every applicant for a life insurance policy and when must it be given?
Every applicant for a life insurance policy must be given a written disclosure statement that provides basic information about the cost and coverage of the insurance being solicited. This disclosure statement must be given to the applicant no later than the time the application for insurance is signed.
101
A written disclosure Authorization Notice must be given when insurers plan to do what? What will this notice state? How must it be written? Who must it be approved by?
When insurers plan to seek and use information from investigators, they must first provide the applicant/insured with a written Disclosure Authorization Notice. It will state the insurer's practice regarding collection abd use of personal information. The disclosure authorization form must be written in plain language, and must be approved by the head of the department of Insurance.
102
What is HIPAA?
The Health Insurance Portability and Accountability Act (HIPAA) is a federal law that protects health information.
103
HIPAA regulations provide protection for what? What is this protection called?
HIPAA regulations provide protection for the privacy of certain individually identifiable health information (such as demographic data that relates to physical or mental heallth condition, or payment information that can identify the individual, referred to as **protected health information**.
104
What is the Privacy Rule in regards to HIPAA?
Under the **Privacy Rule**, patients have the right to view their own medical records, as well as the right to know who has accessed those records over the previous 6 years. The Privacy Rule, however, allows disclosures without idividual authorization to public health authorities authorized by law to collect or receive the information for the purpose of preventing or controlling disease, injury, or disability.
105
What will the Home Office underwriting department look at (on the applicant) to classify the applicant's risk?
In classifying a risk, the Home Office underwriting depart ment will look at the applicant's past medical history, present physical condition, occupation, habits and morals. If th e applicant is acceptable, the underwriter must then determine the risk or rating classification to be used in deciding whether or not the applicant should pay a higher or lower premium.
106
What are the three risk classifications?
A prospective insured may be rated as one of the three classifications: **standard, substandard, or preferred.**
107
What is Preferred Risk?
**Preferred risks** are those individuals who meet certain requirements and qualify for lower premiums than the standard risk. These applicants have a superior physical condition, lifestyle, and habits.
108
What are Standard Risks?
**Standard risks** are persons who, according to a company's underwriting standards, are entitled to insurance protection without extra rating or special restrictions. Standard risks are representative of the majority of people at their age and with similar lifestyles. They are the *average risk*.
109
What are Substandard (High Exposure) Risk applicant's?
Substandard (High Exposure) risk applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits. These policies are also referred to as ''rated" because they could be issued with the **premium rated-up**, resulting in a higher premium.
110
What are **declined risks**? What are the four reasons that a risk may be declined?
Applicants who are rejected are considered **declined risks.** Risks that the underwriters assess as not insurable are declined. For example, a risk may be declined for one of the following reasons:
* There is no insurable interest;
* The applicant is medically unacceptable;
* The potential for loss is so great it does not meet the definition of insurance; or
* Insurance is prohibit ed by public policy or is illegal.
111
What is stranger-originated life insurance (STOLI)?
Stranger-originated life insurance (STOLI) is a life insurance arrangement in which a person with no relationship to the insured (a "stranger") purchases a life policy on the insured 's life with the intent of selling the policy to an investor and profiting financially when the insured dies. In other words, STOLIs are financed and purchased solely with the intent of selling them for life settlements .
112
What violates the **principle of insurable interest**? And what are principle of insurable interest in place to do?
STOLIs violate the **principle of insurable interest**, which is in place to ensure that a person purchasing a life insurance policy is actually interested in the longevity rather than the death of the insured. Because of this, insurers take an aggressive legal stance against policies they suspect are involved in STOLI transactions.
113
What do life settlement transactions result from? What are STOLIs intiated for the purpose of obtaining?
Note that lawful life settlement contracts do not constitute STOLls. Life settlement transactions result from existing life insurance policies; STOLis are initiated for the purpose of obtaining a policy that would benefit a person who has no insurable interest in the life of the insured at the time of policy origination.
114
What is (IOLI) Investor-owned life insurance?
**Investor owned life insurance (IOLI)** is another name for a STOLI, where a third-party **investor who has no insurable interest in the insured** initiates a transaction designed to transfer the policy ownership rights to someone with no insurable interest in the insured and who hopes to make a profit upon the death of the insured or annuitant.
115
Information on delivering the insurance policy....
Once the underwriting process has been completed and the company issues the policy, the agent will deliver it to the insured. Although personal delivery of the insurance policy is the best method of finalizing the insurance transaction, mailing the policy directly to the policyowner is acceptable. When the insurer relinquishes control of the policy by mailing it to the policyowner, policy is considered legally delivered.
However, it is advisable to obtain a signed **delivery receipt.**
116
Explaining the Policy and its Provisions , Riders, Exclusions , and Ratings to the Client:
Personal delivery of the policy allows the agent an opportunity to make sure that the insured understands all aspects of the contract. Review of the contract with the insured involves pointing out provisions or riders that may be different than anticipated, and explaining what effect they have on the contract. In addition, the agent should explain the rating procedure to the client, especially if the policy is rated differently than applied for. The agent should also explain any other choices and provision available to the policyowner that may become active at this time.
117
What is a **buyer's guide**?
A **buyer's guide** provides basic, **generic** information about life insurance policies that contains, and is limited to, language approved by the Department of Insurance. This document explains how a buyer should go about choosing the amount and type of insurance to buy, and how a buyer can save money by comparing the costs of similar policies. Insurers must provide a buyer's guide to all prospective policy applicants prior to accepting their initial premium. If the policy contains an unconditional refund provision of at least 10 days (free-look period), a buyer's guide can be delivered with the policy.
118
What is a **policy summary**?
A policy summary is a written statement describing the features and elements of the policy being issued. It must include the name and address of the agent, the full name and home office or administrative office address of the insurer, and the generic name of the basic policy and each rider. A policy summary will also include premium, cash value, dividend, surrender value and death benefit figures for specific policy years. The policy summary must be provided when the policy is delivered.
119
What is **Illustration**?
The term illustration means a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years. A life insurance illustration must do the following:
* Distinguish between guaranteed and projected amounts;
* Clearly state that an illustration is not a part of the contract;
* Identify those values that are not guaranteed as such.
An agent may only use the illustrations of the insurer that have been approved, and may not change them in any way.
120
What is the agent required to collect at the time of the policy delivery **if the initial premium is not paid with the application?**When then does the policy go into effect?
**If the initial premium is not paid with the application**, the agent will be required to collect the premium at the time of policy delivery. In this case, the policy does not go into effect until the premium has been collected.
121
What is a **statement of good health**?
The agent may also be required to get a statement of good health from the insured. This statement must be signed by the insured, and verifies that the insured has not suffered injury or illness since the application date.
122
When coverage begins explained further...
**If the full premium was submitted with the application** and the policy was issued as requested, the policy coverage would generally coincide with the date of application.
123
What is the **USA Patriot Act**?
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, also known as the **USA PATRIOT Act** was enacted on October 26, 2001. The purpose of the Act is to address social, economic, and global initiatives to fight and prevent tehorist activities. The Act enabled the Financial Crime Enforcement Network (FinCEN) to require banks, broker-dealers, and other financial institutions to establish new **anti-money laundering (AML)** standards. With new rules in place, FinCEN incorporated the insurance industry into this group.
124
To secure the goals of the USA Patriot Act, FinCen has implemented an AML Program that requires what?
To secure he goals of the Act, FinCEN has implemented an AML Program that requires the monitoring of all financial transactions and reporting any suspicious activity to the government, along with prohibiting correspondent accounts with foreign shell banks. A comprehensive customer identification and verification procedure is also to be set in place.
125
What minimum requirements does the AML program consist of?
The AML program consists of the following minimum requirements:
* Assimilate policies, procedures and internal controls based on an in-house risk assessment, including:
1. Instituting AML programs similar to banks and securities lenders; and
2. File suspicious activity reports (SAR) with Federal authorities;
* Appointing a qualified compliance officer responsible for administering the AML program;
* Continual training for applicable employees, producers and other; and
* Allow for independent testing of the program on a regular basis.
126
What do the SAR rules state?
Any co mpa y that is subject to the AML Program is also subject to SAR rules. SAR rules state that procedures and plans must be in place and designed to identify activity that one would deem suspicious of money laundering terrorist financing and/or other illegal activities. Deposits, withdrawals, transfers or any other business deals involving $5,000 or more are required to be reported if the financial company or insurer "knows, suspects or has reason to suspect" that the transaction:
* Has no business or lawful purpose;
* Is designed to deliberately misstate other reporting constraints;
* Uses the financial institution or insurer to assist in criminal activity;
* Is obtained using fraudulent funds from illegal activities; or
* Is intended to mask funds from other illegal activities.
127
What are some "red flags" to look for in suspicious activity?
Some "red flags" to look for in suspicious activity:
* Customer uses fake ID or changes a transaction after learning that he or she mpst show ID;
* Two or more customers use similar IDs;
* Customer conducts transactions so that they fall just below amounts that require reporting or recordkeeping;
* Two or more customers seem to be working together to break one transaction into two or more (trying to evade the Bank Secrecy Act (BSA) requirements); or
* Customer uses two or more money service business (MSB) locations or cashiers on the same day to break one transaction into smaller transactions (trying to evade BSA requirements).
Relevant SAR reports must be filed with FinCEN within 30 days of initial discovery. Reporting takes place on FinCEN Form 108.
128
Chapter Recap: Bullet points of **Insurance**...
* Transfers the risk of loss from an individual to an insurer
* Based on the principle of indemnity
* Based on the spreading of risk (risk pooling) and the law of large
129
Chapter Recap: Bullet points of **Insurable Interest**...
* Must exist at the time of application
* Insuring one's own life, family member, or a business partner
130
Chapter Recap: Bullet points of **Elements of a Legal Contract**...
* Agreement - offer and acceptance
* Consideration - premiums and representations on the part of the insured; payment of claims on the part of the insurer
* Competent parties - of legal age, sound mental capacity, and not under the influence of drugs or alcohol
* Legal purpose - not against public policy
131
Chapter Recap: Bullet points of **Contract Characteristics**...
* Adhesion - one party prepares the contract; the other party must accept it as is
* Aleatoru - exchange of unequal amounts
* Conditional - certain conditions must be met
* Unilateral - only one of the parties to the contract is legally bound to do anything
132
Chapter Recap: Bullet points for Field **Underwriting** (by agent)...
Field Underwriting (by agent)
* Application - completed and signed
* Agent's report - agent's observations about the applicant that can assist in underwriting
* Premiums with application and conditional receipts
133
Chapter Recap: Bullet points for **Company Underwriting**...
Company Underwriting
* Multiple sources of information: application, consumer reports. MIB
* Risk classification - 3 types of risks: standard, substandard, preferred
134
Chapter Recap: Bullet points for **Federal Regulations**....
Federal Regulations
* Fair Credit Reporting Act: protects consumers against circulation of inaccurate or obsolete information
* USA PATRIOT Act/Anti-money Laundering (AML) and Suspicious Activity Reports (SARs) Rules
135
Chapter Recap: Bullet Points for **Premium Determination**...
* 3 key factors for life insurance: mortality, interest, and expense
* Mode - the more frequently premium is paid, the higher the premium
136
Chapter Recap: Bullet Points for **Policy Issue and Delivery**....
* Effective date of coverage - if the premium is not paid with the application, the agent must obtain the premium and a statement of continued good health at the time of policy delivery
