Giglione Ackerman Agency American Income Life Insurance Study Guide

Question 1

Stock Insurers

Answer 1

Owned by people who own stock in the company(stockholders).

Question 2

Ownership rights include:

Answer 2

Receiving dividends, when declared, and voting rights.

Question 3

(Stock Insurers) Dividends

Answer 3

When the company earns a profit and elects to share these profits, they pay a dividend to their stockholders.

Question 4

(Stock Insurers) Voting Rights

Answer 4

Stockholders have the ability to vote for members of the company’s board of directors.

Question 5

Mutual Insurers

Answer 5

Owned by policyholders.

Question 6

If you purchase a policy from a mutual insurer, you are considered…

Answer 6

A part owner of the company.

Question 7

(Mutual Insurers) Dividends

Answer 7

When the company earns a profit and elects to share these profits, they pay a dividend to the policyholders.

Question 8

(Mutual Insurers) Voting Rights

Answer 8

Policyholders have the ability to vote for the members of the board of directors or governing body of the company.

Question 9

Domestic Insurer

Answer 9

An insurer that is incorporated in the SAME STATE that they are doing business in. (i.e. Prudential was incorporated in Newark, NJ)

Question 10

Foreign Insurer

Answer 10

An insurer that was incorporated in a DIFFERENT STATE that it is doing business in. (i.e. American Income Life was incorporated in Indiana, but its home office is in Texas, so in NJ and TX it is considered a foreign insurer [home office is irrelevant for these definitions])

Question 11

Alien Insurer

Answer 11

An insurer formed under the laws of a different country than where they are doing business (i.e. Sun Life Canada is an alien insurer in any state in America, etc.)

Question 12

So, an insurance company that was incorporated in a different state that it is doing business in and pays dividends to its’ policyholders is known as a ______________________________?

Answer 12

Foreign Mutual Insurer.

Question 13

Ceding Company (Originating Insurer)

Answer 13

The insurer that is transferring the risk.

Question 14

Reinsurer (Assuming Company)

Answer 14

The insurer that is accepting the risk.

Question 15

Social Insurance

Answer 15

Provided by the federal or state government

Question 16

Social Security

Answer 16

Provides various benefits such as disability income, lump sum death benefits, survivor and dependent income benefits, retirement income, and Medicare(which is health insurance). Also called OASDI: Old Age, Survivors and Disability Insurance.

Question 17

Medicaid

Answer 17

A state administered health insurance for the needy.

Question 18

Worker’s Compensation

Answer 18

An employer paid disability and health insurance coverage that covers job related illnesses and injuries.

Question 19

List of various life insurance programs for veterans of the armed services:

Answer 19

Veteran’s Group Life, National Service Life, and Servicemember’s Group Life.

Question 20

Questions that are asked about the insured usually include:

Answer 20

Age, Sex, Occupation, Hobbies(Avocations), Habits(Smoking, Drinking, Drug Use), Arrest History, Height, Weight and Health Conditions.

Question 21

True or False: The questions/ factors asked about the insured will be used to determine the premium and risk classification (of the insured).

Answer 21

TRUE.

Question 22

True or False: The application will act as the primary source information for the underwriting department (to determine insurability).

Answer 22

TRUE.

Question 23

True or False: It is NOT the agent’s job to make sure the application is completed properly, and all the necessary information is obtained.

Answer 23

FALSE.

Question 24

True or False: It is NOT the agent’s responsibility to obtain the missing information.

Answer 24

FALSE.

Question 25

If a change in the application is necessary, then the insurer requires that __________.

Answer 25

The applicant must always initial the change. (The agent, too, may also be required to initial the change).

Question 26

The agent must always _________.

Answer 26

Sign the application.

Question 27

What other signatures are required for the application?

Answer 27

The applicants’ (AKA the policyowners), and if the applicant is not going to be the insured, then the proposed insured’s signature is required.

Question 28

True or False: Beneficiaries are required to sign the application.

Answer 28

False. They are not, unless they are also the owner.

Question 29

What are the two types of receipts that an insurer may use?

Answer 29

A conditional receipt or a binding receipt.

Question 30

Conditional Receipt

Answer 30

Will state the term of coverage during the underwriting process. If the underwriting was completed on the insured and they are approved for the face amount, premium amount, and type of plan that they applied for, then the claim will be paid.

Question 31

Pete applied for a $100,000 term life insurance policy and was quoted a monthly premium of $50 per month. On March 1st, he paid his agent the initial premium of $50 and was given a conditional receipt. Pete completed his medical exam on March 15th, and the underwriting department approved the policy on March 20th for $100,000 term life at $50 month. When the agent went to deliver the policy on March 30th, he learned that Pete died the previous day. Since the policy was approved for the premium ($50/mo.), the face amount ($100,000) and type of plan (term) Pete applied for, and he completed his exam, then the insurer will pay the claim.

Answer 31

Example 1 of a conditional receipt. In Example 1, the policy effective date would be March 1st.

Question 32

Pete applied for a $100,000 term life insurance policy and was quoted a monthly premium of $50 per month. On March 1st, he paid his agent the initial premium of $50 and was given a conditional receipt. Pete completed his medical exam on March 15th, and the underwriting department approved the policy on March 20th for $100,000 term life, however, they had to raise his premium to $75 per month because he is a diabetic. When the agent went to deliver the policy on March 30th, he learned that Pete died the previous day. Since the policy was not approved for the premium he applied for, the insurer will deny the claim and refund the initial premium paid.

Answer 32

Example 2 of a conditional receipt. In Example 2, if Pete (the insured) was alive when the agent went to deliver the rated policy, the agent would have to explain the additional rating and collect the difference of $25. If Pete died after he agreed to and paid the rating, then his claim would be paid. In Example 2, the policy effective date would be the day Pete paid the additional premium.

Question 33

Binding Receipt

Answer 33

If issued to an applicant after they pay their initial premium, then any claim that may occur during the underwriting process will be paid, without any conditions having to be met. However, if the underwriting department determines that they are not going to issue a policy, then they will notify the applicant and return the initial premium to them. Up until that point though, the applicant has the coverage.

Question 34

The application serves as ______________.

Answer 34

The primary source of insurability information.

Question 35

True or False: An insurer may NOT require the agent to complete an agent’s statement or agent report.

Answer 35

FALSE.

Question 36

The agent report is where the agent may list any additional information about the insured such as the following:

Answer 36

habits, financial status, character or anything that may be pertinent for the underwriting department to determine the risk involved.

Question 37

Additional Requirements to the underwriting process may be, the following:

Answer 37

Physical examination, Attending Physician Statement(APS), Medical Information Bureau(MIB), and Consumer Reports.

Question 38

Physical Examination

Answer 38

The insurer may require a physical examination be conducted on the insured. This is usually done at the insurer’s expense by a qualified professional. Tests may include blood, saliva, urine samples; blood pressure, EKG, height and weight.

Question 39

Attending Physician Statement(APS)

Answer 39

This is usually provided by the insured’s personal physician. This could either be a form the insurer has the doctor complete or it can be a copy of the insured’s medical records that the doctor has for the insured.

Question 40

Medical Information Bureau

Answer 40

This is an electronic database of previously submitted life and health insurance applications to insurers who are members of the MIB. An insurer can use this report to compare information on their application to information submitted to other insurers.

Question 41

Consumer Reports

Answer 41

Sometimes called Inspection Reports and their main purpose is to assess the insured’s personal characteristics. These can be oral or written reports regarding the insured’s credit history, moral character or habits. This can also include interviews with the insured’s family, friends, neighbors or business associates.

Question 42

What are the two federal laws that the agent and the insurer must adhere to with the application process?

Answer 42

HIPAA (Health Insurance Portability and Accountability Act of 1996) and FCRA (Fair Credit Reporting Act).

Question 43

HIPAA

Answer 43

One of the main purposes of this law was to protect the privacy and confidentiality of a person’s health and medical information. This kind of information is necessary for an insurer’s underwriting department and, according to the law, it cannot be obtained without the insured’s written consent and they also must be notified how any tests results and medical information will be used or disclosed. For example, if an insurer wants to conduct an HIV test, they must obtain written consent from the insured and notify them how the results will be reported.

Question 44

FCRA

Answer 44

This law is intended to protect consumers about information reported to third party consumer reporting agencies (such as credit bureaus or MIB). The Notice to Applicant must be given to all applicants for insurance to let them know that a consumer report may be requested by the insurer. This gives consumers the right to refute any adverse information. The law also states that if an applicant is denied for insurance, they must be informed of the source of information the insurer used to base their decision on. Reasons for denial will only be provided to the applicant’s physician if the applicant requests it.

Question 45

Replacement Rules and Regulation

Answer 45

Whenever an applicant for life insurance, health insurance or an annuity is going to replace an existing policy already in force with the one they are applying for, certain rules will apply.

Question 46

What does risk classification determine?

Answer 46

The premium of the policy.

Question 47

What are the three types of common risk categories?

Answer 47

Preferred Risk, Standard Risk, and SubStandard Risk.

Question 48

Preferred Risk

Answer 48

Means that the insured has the lowest chance of loss and therefore will be charged the lowest premium.

Question 49

Standard Risk

Answer 49

Most applicants fall into this category and are charged the standard premium rate, which is usually the same rate that they were quoted when they applied.

Question 50

Substandard Risk

Answer 50

The insured placed into this category will have a higher chance of loss (shorter life expectancy) and would be charged a higher premium. The additional premium is called a rating or a rate-up, and the policy is called a rated policy. The reasons for a rating may be a person’s health condition, occupations, hobbies (avocations), habits, or moral character. This change in premium will be discussed by the agent, with the applicant, when they deliver the policy. Coverage will not begin until the applicant pays the rating.

Question 51

Insurable Interest means _________________.

Answer 51

The person purchasing insurance on another person (the applicant/owner) must have a direct and identifiable interest in that person’s life (the insured) as well as financial interest.

Question 52

The Doctrine of Insurable Interest is used to prevent what?

Answer 52

Buying life insurance on someone to earn a profit.

Question 53

True or False: Insurable Interest must exist between the applicant and insured at the time of the application, but not after that.

Answer 53

TRUE. So, if a person purchases a policy on their spouse and they later divorce, they can keep the policy on them.

Question 54

True or False: The types of relationships that are NOT usually accepted as having insurable interest are parents taking policies on children, children taking policies on parents, husbands and wives taking policies on one another, and business relationships, such as business partners taking out policies on one another.

Answer 54

FALSE. These relationships are accepted. Other types of relationships may not be acceptable to the insurer, unless an explanation, with documented proof, is provided to the insurer.

Question 55

When the applicant/owner is not the insured, it is called _____________.

Answer 55

Third-party ownership. Therefore, insurable interest must exist with third-party ownership applications.

Question 56

The beneficiary does not need to have insurable interest in the insured _________________.

Answer 56

Unless they are also the owner.

Question 57

An insurer can deny a claim if __________________________.

Answer 57

They prove that insurable interest did not exist at the time of application.

Question 58

When an applicant’s policy is approved ________________.

Answer 58

The agent should deliver the policy to them.

Question 59

What are the reasons that why a policy may need to be delivered in person?

Answer 59

Statement of Continued Good Health, Explain and collect any ratings, Explain any Riders or Exclusions, Explain the policy and its’ provisions, Explain when coverage begins, and Free Look Period.

Question 60

Statement of Continued Good Health

Answer 60

If the applicant did not pay an initial premium at the time of application, then a Statement of (Continued) Good Health may be required at the time of policy delivery. An initial premium would be collected at this time as well. The purpose of this form is for the insured to indicate any changes in their health that may have occurred since their time of application.

Question 61

Explain and Collect any Ratings

Answer 61

If the policy was approved with a rating, or for whatever reason, any additional premiums are required, the agent will collect them when they deliver the policy. The agent will also explain the reasons for the rating.

Question 62

Explain any Riders or Exclusions

Answer 62

If the underwriting department excludes coverage for a family member or excludes coverage for an ailment (such as issuing an Impairment Rider on a disability income policy), this would be explained by the agent at the time of policy delivery. Usually, the applicant’s signature is required on a form to acknowledge any changes.

Question 63

Explain the policy and its’ provisions

Answer 63

Often the applicant will not remember everything that was explained to them at the time of application, so by delivering the policy, the agent can now show them where in the policy certain things are explained.

Question 64

Explain when coverage begins

Answer 64

If the applicant paid an initial premium with their application, and the policy was approved exactly as it was applied for, then the coverage went into effect when they paid the initial premium. If no initial premium was paid, or if the policy was rated, then the policy would go into effect when the premium or the rating is collected.

Question 65

Free Look Period

Answer 65

When the policy is delivered to the applicant, the free look period begins. This period (typically 10, 20, or 30 days) provides for an unconditional refund of any premiums paid should the applicant change their mind about buying the policy.