Completing the Application, Underwriting, and Delivering the Policy Flashcards
Insurance is a _______ of risk of loss from an individual or a business entity to an
insurance company
Transfer
What is a contract?
A contract is an agreement between two or more parties enforceable by law
What are the 4 elements an insurance contract MUST have to be legally binding?
- Agreement — offer and acceptance;
- Consideration;
- Competent parties; and
- Legal purpose.
In insurance when is an offer made? And by whom?
the applicant usually makes the offer when
submitting the application
When does acceptance take place?
Acceptance takes place when an insurer’s underwriter
approves the application and issues a policy
What is consideration?
Consideration is something
of value that each party gives to the other
What is the consideration on part of the insured?
the payment of premium and the representations made in the
application
What is the consideration on part of the insurer?
the promise to pay in
the event of loss
What are competent parties?
must be capable of entering into a contract in the eyes
of the law. Generally, this requires that both parties be of legal age, mentally
competent to understand the contract, and not under the influence of drugs or
alcohol.
What is needed for a life insurance policy to have legal purpose?
insurable
interest and consent
What is a contract that is prepared by the insurer accepted or rejected by the other party?
contract of adhesion
A contract in which there is an exchange of unequal amounts or values is?
Aleatory contract
In what type of contract is only one of the parties legally bound to do anything?
Unilateral Contract-The insured makes no legally binding promises. However, an insurer
is legally bound to pay losses covered by a policy in force
What is a conditional contract?
a conditional contract 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
What is a warranty?
an absolutely true statement upon which the validity of the
insurance policy depends. Breach of warranties can be considered grounds for
voiding the policy or a return of premium. Because of such a strict definition,
statements made by applicants for life and health insurance policies, for
example, are usually not considered warranties, except in cases of fraud.
What are representations?
statements believed to be true to the best of one’s
knowledge, but they are not guaranteed to be true. For insurance purposes,
representations are the answers the insured gives to the questions on the
insurance application.
Untrue statements on the application are considered _____ and could void the contract.
Misrepresentations
A statement that if discovered, would alter the underwriting decision of the insurance company are?
Material Misrepresentations
If a material misrepresentation is intentional this is considered what?
Fraud
What is the starting point and basic source of information used by the company in the risk selection process?
The Application
What are the basic components that make up the application?
Part 1 - General Information Part 2 - Medical Information
What part of the application will contain the name, age, address, birth date, gender, income,
marital status, and occupation? It will also inquire about the existing policies and if
the proposed insurance will replace them
General Information
Medical information is?
prospective insured’s medical background, present health, any medical visits in
recent years, medical status of living relatives, and causes of death of deceased
relatives
Whose responsibility is it to make certain that the application is filled out completely, correctly, and to the best of the applicant’s knowledge?
The Agent’s
Who is the field underwriter?
the agent/producer
What is the purpose of the agent’s(producer’s) report?
t provides the agent’s personal observations
concerning the proposed insured. The insurer may inquire whether the agent
knows of any adverse information about the applicant, or ask the agent to express
an opinion about the applicant’s character, financial standing, and environment.
When an answer to a question on the application needs to be corrected, agents
have what two options?
correcting the
information and having the applicant initial the change, or completing a new
application. An agent should never erase or white out any information on an
application for insurance.
What should an insurer do if they receive an incomplete application?
the insurer must return it to
the applicant for completion
What happens 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. The insurer will not have the right to deny coverage based on any
information that the unanswered question might have contained.
What is a conditional receipt?
A receipt used only when an applicant submits a prepaid application. The conditional receipt says
that coverage will be effective either on the date of the application or the date of
the medical exam, whichever occurs last, as long as the applicant is found to be
insurable as a standard risk, and policy is issued exactly as applied for. Intended to provide proof of coverage on a date prior to when policy was received.
If an agent collects the initial premium from an applicant and gives the applicant a
conditional receipt, and the applicant dies the next day what will happen?
, the underwriting process
will proceed as though the applicant were still alive. If the insurer ends up
approving the coverage, then the applicant’s beneficiary will receive the death
benefit of the policy. If, on the other hand, the insurer determines that the
applicant was not an acceptable risk and declines the coverage, the premium will
be refunded to the beneficiary, and the insurer is not required to pay the death
benefit.
________ is a practice of terminating an existing policy or letting it lapse, and
obtaining a new one
Replacement
the risk and selection process is known as what?
Underwriting
What is underwriting?
the process in which an insurance
company determines whether or not a particular applicant is insurable, and if so,
what premium to charge.
What is insurable interest?
the policyowner must face the possibility of losing money
or something of value in the event of loss
When must insurable interest exist in life insurance? and between whom?
at the time of application
the policyowner and the insured
what are the 3 instances of insurable interest in life insurance?
- Policyowner’s own life;
- The life of a family member (a spouse or a close blood relative); or
- The life of a business partner, key employee, or someone who has a financial
obligation to the policyowner (such as debtor to a creditor)
What is the main source of underwriting information for the company?
application
_________ allows the agent to communicate with the underwriter and
provide information about the applicant known by the agent that may assist in the
underwriting process.
Agent’s Report
what law was it that established procedures that consumer-reporting
agencies must follow in order to ensure that records are confidential, accurate,
relevant, and properly used and also protects consumers against the
circulation of inaccurate or obsolete personal or financial information?
Fair Credit Reporting Act
________ 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
How is the information attained for an Investigative consumer report?
the information is obtained through an investigation and
interviews with associates, friends and neighbors of the consumer
Which reports cannot be made unless the consumer is advised
in writing about the report within 3 days of the date the report was requested?
Investigative Consumer reports
The
consumers must be advised that they have a right to request additional
information concerning the report, and the insurer or reporting agency has _ days
to provide the consumer with the additional information.
5
A person
who knowingly and willfully obtains information on a consumer from a consumer
reporting agency under false pretenses may also be fined up to _____ and/or imprisoned for
up to _______
$2,500
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
Under the Fair Credit Reporting Act, if a policy of insurance is declined or modified
because of information contained in either a consumer or investigative report, the
consumer must be advised and provided with?
the name and address of the
reporting agency
If a report is found to be inaccurate and is
corrected, the agency must send the corrected information to all parties to which
they had reported the inaccurate information within the last ________
2 Years
As defined by the Act, _____ ______ includes information regarding a customer’s delinquencies, late
payments, insolvency or any other form of default.
Negative information
Consumer reports cannot contain certain types of information if the report is
requested in connection with a life insurance policy or credit transaction of less
than $150,000. The prohibited information includes bankruptcies more than 10
years old, civil suits, records of arrest or convictions of crimes, or any other
negative information that is more than _________
7 years
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)
True or False?
Insurers cannot refuse coverage solely on the basis of adverse
information on an MIB report.
True
Medical examinations, when required by the insurance company, are conducted
by physicians or paramedics at whose expense?
The insurer’s
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.
These laws and regulation have been enacted for insurer’s requiring an applicant to submit to what type of test?
HIV
When must disclosure statements be given?
And what are their purpose?
1.no later than the time the application for insurance is signed
2.help the applicants to make more informed and educated
decisions about their choice of insurance.
When insurers plan to seek and use information from investigators, they must
first provide the applicant/insured with a written _____ _______ ______
Disclosure Authorization Notice
what does HIPAA stand for?
Health Insurance Portability and Accountability Act
A prospective insured may be rated as one
of the three rating classifications
standard, substandard, or preferred
The higher the ____, the higher the _______
risk, premium
individuals who meet certain requirements and qualify
for lower premiums than the standard risk. These applicants have a superior
physical condition, lifestyle, and habits
Prefered risks
persons who are entitled to insurance protection without extra rating or special
restrictions. They are representative of the majority of people at their
age and with similar lifestyles. They are the average risk
Standard Risks
____________ 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 “_____” because they
could be issued with the premium rated-up.
Substandard (High exposure).
rated
Applicants who are rejected are considered ________
declined 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 what principle?
the principle of insurable interest
another name for a STOLI is?
Investor-owned life insurance (IOLI)
Who will deliver the policy to the insured?
The Agent
what ways are acceptable to deliver the policy?
personal delivery and Mailing
when is a policy considered legally delivered?
When the insurer relinquishes control of the policy by mailing it to the policyowner.
what does personal delivery allow for?
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, or has been modified or amended in any other
way. The agent should also explain any other choices and provisions available to
the policyowner that may become active at this time.
What does a buyer’s guide provide?
basic, generic information about life insurance policies and 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
when must a buyer’s guide be delivered?
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.
What is a policy summary?
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
When must a policy summary be provided?
The policy summary must be provided when the policy is
delivered.
A buyer’s guide provides _____ information on various types
of policies. A policy summary provides ______ information on the policy
being issued.
generic, specific
If the initial premium is not paid with the application when is the agent required to collect?
at the time of policy delivery
If premium is paid at the time of delivery when does the policy go into effect?
the policy does not
go into effect until the premium has been collected
what must the agent collect at time of policy delivered, if the premium was not submitted at application?
premium, and a statement of good health
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 the application was submitted if no medical exam was required or on the date of the medical exam if required
what is the purpose of the Uniting and Strengthening America by Providing Appropriate Tools Required
to Intercept and Obstruct Terrorism Act, also known as the USA PATRIOT Act
to address social,
economic, and global initiatives to fight and prevent terrorist activities
