Chapter 3 - Underwriting Life And Health Flashcards
What is an underwriter?
They select the people they want to insure and they classify the risk.
Produces are often called field underwriters as you have the best opportunity to detect fraud.
What is an actuary?
A mathematician who uses data on particular groups of people to analyze risk via death, sickness or having an accident. They use mortality (death) tables and morbidity (sickness and accident) tables.
Factors in the underwriting process
Age, Gender, Occupation, Health, Tobacco Use, Drugs and Alcohol, Aviation, Military, Hobbies, Reputation (credit, how much other insurance, do you hang out at bars?).
- Gender can be a factor in life policies, not the sole factor. Men are more expensive. Under the Affordable Care Act, gender is prohibited as a factor.
Gathered through an application and possibly taking a physical exam, consumer reports and MIB (Medical Information Bureau.
Nonmedical Policies: sell a high premium for life insurance without a physical exam.
Underwriters classification of who they insure
Adverse Selection - the tendency for high risk people to be more likely to apply for insurance than low risk people.
Substandard Risk: these people have a lifestyle that is more risky. They pay more in premiums. The industry uses the term RATING when assessing a greater premium. These people are usually offered RATED POLICIES.
Standard Risk: vast majority of people. Average risk and pay the advertised prices for insurance.
Preferred Risk: exemplary health or lifestyle and better than average insurance risks. They will pay lower premiums.
Declined Risk: too risky to insure
Calculating Premiums
Premium = RISK (Mortality/Morbidity charge, likeliness to pay claims) + EXPENSE (company expenses) - INTEREST (earned on the premium by the Insurance company)
Premium Mode
Annual, Semi annual, quarterly, monthly (most insurers wont let it be more frequently that’s monthly). The more frequently payments are made the higher the premium. Why? The insurance company earns less interest and additional collection expenses.
USA Patriot Act
Requires insurance company to establish anti-money laundering programs and file suspicious activity reports with 180 days with the Financial Crimes Enforcement Network.
Getting Cash from a life insurance policy prior to death…
Accelerated Death Benefit Rider: requires the insurer to pay 50% if the insured has a diagnosis that will likely lead to death within 12 months. Also for an admission to a long term care facility.
Viatical Settlements: the insured who has a serious illness might simply sell the policy to an investment group and collect the death benefit when the insured dies. Typically the investment group would give more than what the accelerated death benefit rider would give.
Stranger-Originated Life Insurance (STOLI) also known as Investor-Originated Life Insurance (IOLI): Basically an investor encourages someone to buy a life insurance policy who then buys it from them.
