Completing the application, underwriting, and delivering the policy Flashcards
Application
An insurance form containing representations about the prospective insured’s medical history, occupation, hobbies, assets, and other personal information. The applicant completes the application. A doctor or guardian can be the applicant for an insured if the insured is a minor or incapacitated.
Warranty
Statements made by the insurer in the policy or rider guaranteed to be true.
Representation
Statements made by the applicant in the application are believed to be true (part of the insured’s consideration). Considered to be “substantially true”.
Conditional Receipt
Given by the producer to the policy owner when the first premium and application are received.
States that the insured is covered from the premium payment date or medical exam date (if necessary), whichever comes last, provided that the insured is a standard risk.
Provides interim coverage between the application date and the policy effective date. A conditional receipt provides coverage at the earliest possible time.
This is sometimes called a temporary insuring agreement giving the times and terms of coverage.
HIV Consent
If the insurer requires a blood specimen, the producer must have the proposed insured sign an HIV consent form. The producer must then leave a copy with the applicant and send a copy to the insurer with the application.
HIPPA (Health Insurance Portability and Accountability Act)
Federal Regulation designed to protect medical record privacy. Normally, underwriting life insurance is not subject to HIPAA regulations, but most life insurance companies choose to comply with notification requirements. Life insurance companies must comply if a life insurance policy has any long-term care benefits or disability income benefits. Compliance entails leaving a disclosure document with the applicant. This document outlines how medical information about the applicant may be used and discloses how the client can get access to the information.
Replacement
Applications must solicit information about existing life insurance policies on the proposed insured. If the applicant indicates a desire to terminate an existing policy, the producer must provide a disclosure form. This disclosure form explains the possible consequences of terminating a life insurance policy. The producer must submit a copy of the disclosure form, signed by the applicant and the producer, with the application.
Underwriting
The process of determining whether an applicant (for insurance) is an acceptable risk to the insurer. This is a critical step in determining insurability and obtaining insurance. Factors considered by the insurer in underwriting: Age, gender, F.V., moral hazards (risks other than health, e.g., bad driving record), occupation, hobbies, individual health, the health of family, and any difficulty of obtaining insurance in the past. The insurer may also request a medical exam (if not required the application process is considered non-medical).
Medical Information Bureau (MIB)
A non-profit trade organization that retains medical information on life insurance applicants. A report can be requested for new applicants. This protects current policyholders from fraud or concealment by new applicants.
Information is between member insurance companies. The MIB does not include any action taken by other insurers nor the amount of insurance requested.
The insurer should not refuse coverage solely based on the MIB report. The insurer should verify information obtained from the MIB from another source.(medical records, lab results, etc.).
MIB procedures require:
A written notice to the applicant that the insurer may report health findings to the MIB.
Permission by the applicant to obtain information from the MIB (and other sources).
Upon written request, the information contained in the MIB files must be disclosed to the applicant through the applicant’s physician.
Fair Credit Reporting Act Requirements
The insurer must inform the applicant that a consumer report may be required and the scope of that investigation (give the applicant a Notice Under the Fair Credit Reporting Act).
The insurer must inform the applicant of the name and address of the investigating agency.
The insured must be able to obtain a copy of the report and have the opportunity to refute any information.
This act ensures confidentiality and helps in underwriting accuracy, but does not guarantee it.
The investigating agency cannot report bad debts over 7 years old or bankruptcy over 10 years.
The insurer has 30 days to notify the customer of denial of coverage if denial is based on the report.
Investigative Consumer Report (a.k.a. Inspection Report): The Inspection Report is usually done by a private firm. The firm’s duty is to investigate the personal characteristics of the applicant, including habits, friends, and hobbies. Occupation, hobbies, avocations, and the relationship of the beneficiary and the insured all play an important part in the underwriting of a policy. This is used to determine an applicant’s personal characteristics and possible moral hazards. May be due to the Credit report.
Whats needed to begin coverage
Insurance coverage does not begin until the full initial premium is paid and the risk is accepted, either by the insurer (underwriter), or the insured. The effective date of coverage is present at the time of correct initial premium payment and acceptance.
Statement of Good Health
In certain situations, or with some states or insurers, upon delivering the policy the producer may need to obtain a “Statement of Continued Good Health,” signed by the applicant in order to have coverage. This is to attest that the applicant is in the same condition (health) as when the application was completed. The producer would then forward this statement to the underwriter to confirm issue.
