Completing The Application, Underwriting, And Delivering The Policy Flashcards
Insuring of risks that are more prone to losses than the average risk
Adverse selection
A legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer
Agent/producer
A person applying for insurance
Applicant or proposed insured
A person who receives the benefits of an insurance policy
Beneficiary
The amount paid upon the death of the insured in a life insurance policy
Death benefit
Intentional misrepresentation or deceit with the intent to induce a person to part with something of value
Fraud
A contract between a policy owner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events
Insurance policy
Person covered by the insurance policy; may not be the policy owner
Insured
The company who issues an insurance policy
Insurer (principal)
Policy termination due to nonpayment of premium
Lapse
Coverage on human lives
Life insurance
The person entitled to exercise the rights and privileges in the policy
Policyowner
The money paid to the insurance company for the insurance policy
Premium
Is a transfer of risk of loss from an individual or a business entity to an insurance company, which in turn, spreads the costs of unexpected losses to many individuals. If this mechanism was not in place, the cost of loss would have be borne solely by the individual who suffered the loss.
Insurance
Insurance is the transfer of
Risk
Insureds’ losses are transferred over to the
Insurer
Is an agreement between two or more parties enforceable by law. Because of unique aspects of insurance transactions, the general law of contracts had to be modified to fit the needs of insurance.
Contract
Elements of a legal contract
- Agreement
- Consideration
- Competent parties
- Legal purpose
In order for insurance contracts to be legally binding, they must have 4 essential elements
- Agreement - offer and acceptance
- Consideration
- Competent parties
- Legal purpose
Offer and acceptance
Agreement
The applicant usually makes the _______ when submitting the application.
Offer
Takes place when an insurer’s underwriter approves the application and issues a policy.
Acceptance
The binding force in any contract is
Consideration
Is something of value that each party gives to the other.
Consideration
The consideration on the part of the insured is the
Payment of premium and the representations made in the application.
The consideration on the part of the insurer is the
Promise to pay in the event of loss
The parties to a contract 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
- Not under the influence of drugs or alcohol
The purpose of the contract must be legal and not against public policy. To ensure legal purpose of a life insurance policy, for example, it must have both
Insurable interest and consent
A contact without a legal purpose is considered void, and cannot be enforced by any party.
The purpose of the contract must be legal and not
Against public policy
In insurance, an offer is usually made when
An applicant submits an application to the insurer
The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does he policy coverage become effective?
As of the application date
No premium
No coverage
If the initial premium is not paid with the application, the agent will be required to collect premium
At the time of policy delivery
Which of the following would qualify as a competent part in an insurance contract?
The applicant is intoxicated at the time of application - No
The applicant is a 12-year old student - No
The applicant is under the influence of a mind-impairing medication at the time of application - No
The applicant has a prior felony conviction - Yes
A life insurance policy has a legal purpose if both of these elements exist.
Insurable interest and consent
If an agent fails to obtain an applicant’s signature on the application, the agent must
Return the application to the applicant for a signature
Which of the following statements is NOT true concerning insurable interest as it applies to life insurance?
A debtor has an insurable interest in the life of a lender - NOT
Business partners have an insurable interest in each other - Yes
A husband or wife has an insurable interest in their spouse - Yes
An individual has an insurable interest in his or her own life - Yes
What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act?
$2500
All of the following information about the applicant is identified in the General Information section of a life insurance application EXCEPT
Occupation - Yes
Education - No
Age - Yes
Gender - Yes
When would a misrepresentation on the insurance application be considered fraud?
If it is intentional and material
Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following EXCEPT
Conditions, Consideration, Legal Purpose, Offer and Acceptance
Conditions
Which of the following is the basic source of information used by the company in the risk selection process?
Agent’s report, Warranty, Consumer report, Application
Application
Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information contained in his or her report, the reporting agency must
Respond to the consumer’s complaint
When is the earliest a policy may go into effect?
When the application has signed and a check is given to the agent
If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it?
Unilateral
Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information?
The Fair Credit Reporting Act
This means there is an exchange of unequal amounts or values.
Aleatory
Insurance contracts are
Aleatory
The ______ paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss.
Premium
Only one of the parties to the contract is legally bound to do anything.
Unilateral 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.
Conditional contract
Is an absolutely true statement upon which the validity of the insurance policy depends.
Warranty
Are statements believed to be true to the best of one’s knowledge, but they are not guaranteed to be true.
Representations
For insurance purposes, representations are the answers the insured gives to the questions on the insurance application.
Representations are statements believed to be
True
Insured statements on the application are
Representations
Is the starting point and basic source of information used by the company in the
Risk selection process
Basic components of an application
Part 1 - General Information
Part 2 - Medical Information
The agent is the company’s front line, and is referred to as a _________ because the agent is usually the one who has solicited the potential insured.
Field underwriter
What are the responsibilities of the agent during the underwriting process?
- 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
A life insurance producer is the company’s
Field underwriter
This provides the agent’s personal observations concerning the proposed insured.
The agent’s (producer’s) report
Both the agent and the proposed insured (usually the applicant)
Must sign the application
Whenever the agent collects premiums, the agent must issue a
Premium receipt
The type of receipt issued will determine when coverage will be
Effective
The most common type of receipt is a _______ which is used only when the applicant submits a prepaid application.
Conditional receipt
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.
Conditional receipt means the applicant may be covered as early as the
Date of the application
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.
Underwriting
Is the process in which an insurance company determines whether or not a particular applicant is insurable, and if so, what premium to charge
Underwriting
The agent is the company’s front line, and is referred to as a
Field underwriter
The policy owner must face the possibility of losing money or something of value in the event of loss is called
Insurable interest
In life insurance, insurable interest must exist between the policyowner and the insured
At the time of application
A valid insurable interest may exist between the policyowner and the insured when the policy is insuring any of following:
- Policy owner’s own life
- The life of a family member (a spouse or a close blood relative)
- The life of a business partner, key employee, or someone who has a financial obligation to the policy owner (such as a debtor or creditor)
Insurable interest must exist at the
Time of application
The policyowner must have insurable interest in the
Life of the insured
Is the key source underwriters use for information about the applicant.
An insurance application
Established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used.
Fair credit reporting act
The law also _______ against the circulation of inaccurate or obsolete personal or financial information.
Protects consumers
The reports fall into 2 categories
Consumer reports
Investigative consumer reports
Both reports can only be used by someone with a legitimate
Business purpose
Insurance underwriting
Employment screening
Credit transactions
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
The information is obtained through an investigation and interviews with associates, friends and neighbors of the consumer.
Investigative consumer reports
The insurers cannot refuse coverage solely on the basis of adverse information on an
Medical Information Bureau (MIB) report
What are the two options when requesting a medical report?
Paramedical report
Attending physician statement (APS)
To ensure proper obtaining and handling of results, and to protect the insured’s privacy, states have enacted the following laws and regulations for insurers requiring an applicant to submit an HIV test:
Insurer must disclose the use of testing to the applicant, and obtain written consent
Insurer must establish written policies and procedures for the internal dissemination of test results
Another name for a substandard risk classification is
Rated
