Chapter 1: Completing the Application, Underwriting, and Delivering the Policy Flashcards
______ is a transfer of risk of loss from an individual or a business entity to an insurance company, which, in turn, spreads the cost of unexpected losses to many individuals.
Insurance
Insurance is the ______ of risk. Insureds’ losses are ______ over to the insurer.
- Transfer
2. Transferred
A(n) ______ is an agreement between two or more parties enforceable by law.
Contract
In order for insurance contracts to be legally binding, they must have 4 essential elements:
- ______ - offer and acceptance
- ______
- ______
- ______
- Agreement
- Consideration
- Competent Parties
- Legal Purpose
There must be a definite ______ by one party, and the other party must ______ this offer in its exact terms.
- Offer
2. Accept
In insurance, the applicant usually makes the ______ when submitting the application. ______ takes place when an insurer’s underwriter approves the application and issues a policy.
- Offer
2. Acceptance
The binding force in any contract is the ______, which is something of value that each party gives to the other.
Consideration
The ______ on the part of the insured is the payment of premium and the representations made in the application. The ______ on the part of the insurer is the promise to pay in the event of loss.
Consideration
The ______ must be capable of entering into a contract in the eyes of the law, generally meaning that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.
Parties to a Contract
The purpose of the contract must be ______ and not against public policy. A contract without a(n) ______ is considered void, and cannot be enforced by any party.
- Legal
2. Legal Purpose
A(n) ______ is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured). Insurance contracts are offered on a take-it-or-leave-it-basis by an insurer; any ambiguities in the contract will be settled in favor of the insured.
Contract of Adhesion
Insurance contracts are ______, which means there is an exchange of unequal amounts of values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss.
Aleatory
In a(n) ______, only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises but the insurer is legally bound to pay losses covered by a policy in force.
Unilateral Contract
A(n) ______ requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations. For example, the insured must pay the premium and provide proof of loss for the insurer to cover a claim.
Conditional Contract
A(n) ______ is an absolutely true statement upon which the validity of the insurance policy depends. Breach of ______ can be considered grounds for voiding the policy o a return of premium.
- Warranty
2. Warranties
______ are statements believed to be true to the best of one’s knowledge, but they are not guaranteed to be true. Insured’s statements on the application are ______.
Representations
Untrue statements on the application are considered ______ and could void the contract. A(n) ______ is a statement that, if discovered, would alter the underwriting decision of the insurance company; if intentional, they are considered ______.
- Misrepresentations
- Material Misrepresentations
- Intentional
______ - ______ of the application includes the general questions about the applicant, such as name, age, address, birth date, gender, income, martial status, and occupation.
Part 1 - General Information
The agent is the company’s front line, and is referred to as a(n) ______ because the agent is usually the one who has solicited the potential insured.
Field Underwriter
The ______ has many important responsibilities during the underwriting process and beyond, including:
- Proper solicitation of applicants.
- Helping prevent adverse selection.
- Completing the application.
- Obtaining the required signatures.
- Collecting the initial premium and issuing the receipt, if applicable.
- Delivering the policy.
Field Underwriter
The ______ provides the agent’s personal observations concerning the proposed insured and can be considered the most important source of information available to the company underwriters.
Agent’s Report
The ______ provides the agent’s personal observations concerning the proposed insured and can be considered the most important source of information available to the company underwriters.
Agent’s Report
Both the agent and the proposed insured (usually the applicant) must ______ the application.
Sign
An agent should never erase or white out any information a(n) ______ for insurance.
Application
Whenever the agent collects premiums, the agent must issue a(n) ______.
Premium Receipt
The most common type of receipt is a(n) ______, which is used only when the applicant submits a prepaid application. It says that coverage will be effective either on the date of the ______ or the date of the ______, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and the policy is issued exactly as applied for.
- Conditional Receipt
- Application
- Medical Exam
If a policy is issued with questions left ______, the contract will be interpreted as if the insurer waived its right to have an answer to the question.
Unanswered
______ means the applicant may be covered as early as the date of the application.
Conditional Receipt
______ is a practice of terminating an existing policy or letting it lapse, and obtaining a new one.
Replacement
______ is the risk selection and classification process. It involves a careful analysis of many different factors to determine the acceptability of applicants for insurance, ultimately determining whether or not a particular applicant is insurable, and if so, what premium to charge.
Underwriting
To purchase insurance, the policyowner must face the possibility of losing money or something of value in the event of loss; this is called ______.
Insurable Interest
In life insurance, insurable interest must exist between the policyowner and the insured at the time of ______; however, once a life insurance policy has been issued, the insurer must pay the policy benefit, whether or not an insurable interest exists.
Application
The policyowner must have ______ in the life of the insured.
Insurable Interest
A(n) ______ is the key source underwriters use for information about the applicant.
Insurance Application
The ______ established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used. The law also ______ against the circulation of inaccurate or obsolete personal or financial information.
- Fair Credit Reporting Act
2. Protects Consumers
______ 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.
Consumer Reports
______ provide information on the consumer’s character, reputation, and habits obtained through investigations and interviews with associates, friends, and neighbors of the consumer.
Investigative Consumer Reports
Investigate Consumer Reports cannot be made unless the consumer is advised in writing about the report within ______ of the date the report was requested. The consumers must be advised that they have a right to request additional information concerning the report, which must be shared within ______ of the request.
- 3 Days
2. 5 Days
Per the Fair Credit Reporting Act, a person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses may also be ______ and/or imprisoned for up to ______.
- Fined
2. 2 Years
An individual who ______ violates the Fair Credit Reporting Act is liable in the amount equal to the loss to the consumer, as well as any reasonable attorney fees incurred in the process.
Unknowingly
An individual who ______ violates the Fair Credit Reporting Act enough to constitute a general pattern or business practice will be subject to a penalty of up to ______.
- Willfully
2. $2,500
The consumer has the ______ to know what was in the consumer or investigative report and the identity of anyone who has received a copy of the report during the past year.
Right
Consumer reports cannot contain ______ if the report is requested in connection with a life insurance policy or credit transaction of less than $150,000. These include:
- Bankruptcies more than 10 years old
- Civil suits
- Records of arrest or convictions of crimes
- Other negative information that is more than 7 years old
Prohibited Information
In addition to an attending physician’s report, the underwriter will usually request a(n) ______ report.
Medical Information Bureau (MIB)
The ______ is 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.
Medical Information Bureau (MIB)
Insurers cannot refuse coverage solely on the basis of adverse information on a(n) ______ report.
Medical Information Bureau (MIB)
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(n) ______ of the insured.
Medical Examination
The insurer may only request a(n) ______ which is completed by a paramedic or a registered nurses.
Paramedical Report
The underwriter may require a(n) ______ from a medical practitioner who treated the applicant for a prior medical problem.
Attending Physician’s Statement (APS)
Medical exams are typically not required with regard to ______, thus stressing the importance of the agent in recording medical information on the application.
Health Insurance
The medical exam requirement is more common with ______ underwriting.
Life Insurance
It is common among insurers to require a(n) ______ when an applicant is applying for a large amount of coverage, or for any increased and additional benefits.
HIV Test
To ensure proper obtaining and handling of HIV test results, and to protect the insured’s privacy, the insurer must ______ the use of testing to the applicant and obtain ______. The insurer must also establish written ______ and ______ for the internal dissemination of test results to ensure confidentiality.
- Disclose
- Written Consent
- Policies and Procedures
Every applicant for a life insurance policy must be given a written ______ that provides basic information about the cost and coverage of the insurance being solicited. This document must be provided no later than the time the application for insurance is signed.
Disclosure Statement
When insurers plan to seek and use information from investigators, they must first provide the applicant/insured with a written ______, which states the insurer’s practice regarding collection and use of personal information. This document must be approved by the head of the Department of Insurance.
Disclosure Authorization Notice
The ______ is a federal law that protects health information, specifically the privacy of certain individually identifiable health information, referred to as ______.
- Health Insurance Portability and Accountability Act (HIPAA)
- Protected Health Information
Under the ______, 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 ______. This rule also allows disclosures without individual authorization to public health authorities.
- Privacy Rule
2. 6 Years
In classifying a(n) ______, the Home Office underwriting department will look at the applicant’s past medical history, present physical condition, occupation, habits, and morals.
Risk
If the applicant is acceptable, the underwriter must then determine the risk or ______ to be used in deciding whether or not the applicant should pay a higher or lower premium.
Rating Classification
A prospective insured may be rated as one of the three classifications:
- ______
- ______
- ______
- Standard
- Substandard
- Preferred
______ 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.
Preferred 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.
Standard Risks
______ applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits.
Substandard (High Exposure) Risk
Substandard policies are also referred to as “______” because they could be issued with the premium ______, resulting in a higher premium.
- Rated
2. Rated-Up
Applicants who are rejected are considered ______.
Declined Risks
A(n) ______ 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.
- Insurance is prohibited by public policy or is illegal.
Risk
______ 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.
Stranger-Originated Life Insurance (STOLI)
STOLIs violate the principle of ______, 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.
Insurable Interest
______ 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.
Investor-Owned Life Insurance (IOLI)
______ of the policy allows the agent an opportunity to make sure that the insured understands all aspects of the contract.
Personal Delivery
A(n) ______ provides basic, generic information about life insurance policies that contains, and is limited to, language approved by the Department of Insurance.
Buyer’s Guide
Insurers must provide a(n) ______ to all prospective policy applicants prior to accepting their initial premium.
Buyer’s Guide
A(n) ______ is a written statement describing the features and elements of the policy being issued and must be provided when the policy is delivered.
Policy Summary
A(n) ______ provides generic information on various types of policies. A(n) ______ provides specific information on the policy being issued.
- Buyer’s Guide
2. Policy Summary
If the initial premium is not paid with the ______, the agent will be required to collect the premium at the time of policy ______. The policy does not go into effect until the premium has been collected.
- Application
2. Delivery
The agent may be required to get a(n) ______ from the insured, which must be signed, and verified that the insured has not suffered injury or illness since the application date.
Statement of Good Health
If the premium was received at time of application, the start of coverage begins on the date of ______. If the premium was received at the time of delivery, the start of coverage begins on the date of ______.
- Application
2. Delivery
A(n) ______ application is usually returned; however, should the underwriter approve it as is, coverage begins. In this instance, the company gives up some of its ability to contest a claim.
Incomplete
Statements of an applicant on an insurance application are considered ______ and not ______.
- Representations
2. Warranties
An absolute guarantee of truth is called a(n) ______.
Warranty
Although a(n) ______ may be issued, coverage does not begin until the applicant meets all of the conditions and the application is approved.
Conditional Receipt
Although the ______ must sign the application, he or she is not a party to the contract.
Producer
______ must exist at the time of the application, but not necessarily at the time of a claim.
Insurable Interest
______ may be based on economics or family relationships.
Insurable Interest
HIPAA’s ______ protects all individually identifiable health information, calling this information ______.
- Privacy Rule
2. Protected Health Information
______ includes health data, name, address, SSN, and birth date.
Protected Health Information
An insurer must have written pre-authorization to pull the applicant’s ______.
Credit Report
______ and ______ are outlawed in many states. These occur when the investor potentially profits upon the death of the insured.
- Stranger-Originated Life Insurance (STOLI)
2. Investor-Originated Life Insurance (IOLI)
______ (______) may be accomplished by using a rate charge for a higher age, a different sex, a flat fee, or a percentage adjustment to the manual rate.
- Surcharges
2. Rate-Ups
A surcharge is an example of a(n) ______. There is no coverage until the applicant accepts the policy at the higher rate and pays the increased premium.
Counteroffer
The underwriter determines the final ______, not the producer.
Rating Classification
A(n) ______ is one with an average life span.
Standard Risk
A(n) ______ is one issued to a substandard risk.
Rated Policy
Marital status IS / IS NOT an allowable underwriting factor in life insurance.
IS NOT
Avocation (hobby) IS / IS NOT an allowable underwriting factor in life insurance.
IS
Coverage can never begin unless the ______ has been paid. Moreover, even when paid, coverage will not start until the applicant has satisfied all of the conditions of the ______, if any.
- Premium
2. Conditional Receipt
The earliest that coverage could start would be the day of ______, assuming the applicant paid the first premium, had no conditions to fulfill, and was found insurable.
Application
It is the responsibility of the ______ to explain the policy provisions, riders, and exclusions to the policyowner and/or insured.
Producer
