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Insurance Cert > Chapter 19 > Flashcards

Chapter 19 Flashcards

1
Q

What is Adverse Selection?

A

This is the tendency for a disproportionate number of poor risks to seek or buy insurance or maintain existing insurance in force. Sound underwriting reduces adverse selection.

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2
Q

What is Age Change?

A

This is the date that’s halfway between birthdays when the applicant’s age changes to the next higher age.

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3
Q

What is an Agent’s Report?

A

This report is where the agent records personal observations about the proposed insured. It’s a confidential way for the agent to provide relevant underwriting information to the insurance carrier.

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4
Q

Who is the Applicant?

A

This is the person who’s completing the application to the insurance company for the insurance policy.

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5
Q

What is an Application?

A

This is the statement of information given when a person applies for insurance. The underwriter uses this information to determine acceptance.

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6
Q

What is an Attending Physician Statement (APS)?

A

Insurers request an APS when underwriters need additional detail regarding a medical condition revealed on an application.

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7
Q

What is an Avocation?

A

This is a hobby or non-occupational activity. Some avocations don’t require additional underwriting, while others may.

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8
Q

What is Backdating?

A

This is the practice of making the effective date of a policy earlier than the application date to obtain a lower premium.

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9
Q

What is a Binding Receipt?

A

This is given upon the completion of an insurance application and payment of the initial premium, making insurance effective on the receipt date.

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10
Q

What is a Buyer’s Guide?

A

This is a pamphlet that compares various forms of life or health insurance and describes key characteristics of the policy type.

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11
Q

What is Claims Experience?

A

This is an insured’s history of claims or rate of loss. The greater the claims experience, the higher the required premium.

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12
Q

What is Community Rating?

A

Insurance carriers generally base community ratings on their overall claim experience and healthcare costs in a geographical area.

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13
Q

What is a Conditional Receipt?

A

This type of receipt is issued when agents collect the initial premium with an application, providing temporary guarantees of coverage.

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14
Q

What is Constructive Delivery?

A

This occurs when an insurance carrier gives up all control of a policy and releases it for unconditional delivery.

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15
Q

What is a Consumer Report?

A

This is a detailed background investigation that may include interviews about an applicant’s character, reputation, and lifestyle.

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16
Q

What is a Counter-Offer?

A

This is when an insurer declines a paid application for insurance but offers a ‘rated’ or substandard policy requiring a higher premium.

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17
Q

What is a Credit Report?

A

This is a summary of an applicant’s credit history as determined by an independent organization.

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18
Q

What is a Declined Risk?

A

This describes an individual whose application for coverage was rejected by an insurance company.

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19
Q

What is a Delivery Receipt?

A

This is required as proof of delivery and designates the start of the policy’s free-look period.

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20
Q

What is a Disclosure Form?

A

This is a comparison form required by state regulatory agencies for policy owners replacing an existing policy.

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21
Q

What is Earned Premium?

A

This is a pro-rated amount of paid-in-advance premiums allocated to the portion of the policy term that has already elapsed.

For example, if a policy’s term is 12 months and the first three months have elapsed, 25% of the premium would be earned.

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22
Q

What is an Effective Date?

A

This date identifies when coverage is actually in force and establishes the date for future premium payments.

23
Q

What is Evidence of Insurability?

A

This represents a statement or proof regarding a person’s current health status and history qualifying them for coverage.

24
Q

What is an Expense Factor?

A

This factors in the insurer’s operating expenses into the premiums, including commissions and administrative costs.

25
Q

What is the Fair Credit Reporting Act?

A

This federal law provides insurers the right to receive additional information about applicants and requires disclosure of the report’s purpose.

26
Q

Who is a Field Underwriter?

A

This is the agent or producer who completes the consumer’s insurance application.

27
Q

What is Field Underwriting?

A

This process involves the producer determining which risks are desirable and submitting those to the underwriting department.

28
Q

What is a Free-Look Period?

A

This is a minimum 10-day period during which a policy owner can return the contract for a full premium refund.

29
Q

What is a Health Insurance Premium?

A

The formula for a health insurance premium is (morbidity - interest + expenses).

30
Q

What is the Information and Privacy Protection Act?

A

This act requires insurers to conform with privacy laws and prohibits decisions based solely on previous adverse underwriting.

31
Q

What is an Inspection Receipt?

A

This documents the temporary release of a new policy to the prospective policy holder without payment.

32
Q

What is an Inspection Report?

A

This report contains general information regarding the health, habits, finances, and reputation of an applicant.

33
Q

What is Insurable Interest?

A

This describes the financial or emotional relationship between parties, indicating a potential loss if the insured incurs medical expenses.

34
Q

What is Interest?

A

This represents the income that insurance companies earn from investing the paid premiums.

35
Q

What is an Issue Date?

A

This is the date on which the insurance company finishes underwriting a risk exposure and generates the insurance contract.

36
Q

What are Reserves?

A

These are funds set aside to pay future claims, some of which are required by state statute.

37
Q

What is Risk Classification?

A

This describes the underwriting category into which a risk exposure is placed based on the applicant’s susceptibility to injury or illness.

38
Q

What is a Special Class?

A

This describes an applicant who cannot qualify for a standard policy but may secure one with a rider waiving payment for certain existing health impairments.

39
Q

What is a Special Questionnaire?

A

This form gathers detailed information about a non-medical aspect of an applicant’s life, typically about a higher-than-average risk activity.

40
Q

What is a Standard Risk?

A

This risk describes a person considered an average risk and insurable at standard rates.

41
Q

What is a Substandard Risk?

A

This describes an applicant whose physical condition fails to meet typical minimum standards.

42
Q

What is a Statement of Continued Good Health?

A

This is required when insurers deliver policies to applicants who included the initial premium with their applications.

43
Q

What is a Temporary Insurance Agreement?

A

This is another term for a Binding Receipt.

44
Q

What is a Trial Application?

A

This is an application submitted without the initial premium, used to solicit an offer from the insurer.

45
Q

Who is an Underwriter?

A

This is a person who identifies, examines, and classifies the degree of risk represented by a proposed insured.

46
Q

What is Underwriting?

A

This is the process of selection, classification, and rating risks to determine if coverage should be provided.

47
Q

What is Unearned Premium?

A

This is a pro-rated amount of a paid-in-advance premium that’s not yet been ‘earned’ by the insurer.

48
Q

What is underwriting?

A

Underwriting is the process of selection, classification, and rating risks. Underwriters analyze information from various sources regarding an applicant for insurance to determine whether to decline the application, issue a policy, or offer a modified policy with restrictions or a higher premium.

49
Q

What is unearned premium?

A

Unearned premium is a pro-rated amount of a paid-in-advance premium that has not yet been ‘earned’ by the insurer.

For example, if a policy term is 12 months and 3 months have elapsed, 75% of the premium remains unearned.

50
Q

Why do unearned premiums appear as a liability?

A

Unearned premiums appear as a liability on an insurance company’s balance sheet because the insurer must repay any unearned premiums if it cancels an insurance policy.

51
Q

What does it mean for a loss exposure to be uninsurable?

A

A loss exposure is uninsurable if the risk of covering it is so great that an insurance carrier cannot do so profitably. An application may be rejected if the applicant is considered uninsurable or if the level of risk is unknown.

52
Q

What is the USA PATRIOT Act?

A

The USA PATRIOT Act is anti-terrorism legislation that also addresses anti-money laundering provisions.

53
Q

What are warranties in insurance applications?

A

Most state laws specify that an applicant’s statements on an application are considered representations and not warranties. A warranty must be absolutely and literally true.

54
Q

What happens if a warranty is breached?

A

Breaching a warranty may be sufficient to void the policy regardless of whether the warranty is material or the breach contributed to the loss.

Insurance Cert (20 decks)

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