Health Insurance Underwriting Flashcards
Adverse Selection
Adverse Selection is the tendency of a disproportionate number of poor risks to seek or buy insurance or maintain existing insurance in force (i.e., the selection against the insurance company).
Sound underwriting reduces adverse selection.
Age Change
The date halfway between birthdays when the applicants age changes to the next higher age.
Some insurers base insurance policy age on the applicants nearest birthday; others base it on the insureds last birthday.
Agents Report
Also called an agents statement.
The agents report is where the agent records personal observations about the proposed insured.
It is a confidential way for the agent to provide relevant underwriting information to the insurance carrier.
Applicant
The person completing the application to the insurance company for the insurance po9licy.
In most cases, the applicant is also the proposed insured, but this is not always the case.
Application
The statement of information given when a person applies for insurance.
The insurance company’s underwriter uses this information as a basis in determining whether the applicant qualifies for acceptance under the company’s guidelines.
Applications are attached to and made a part of all individual contracts.
Attending Physician Statement (APS)
Insurers request an attending physicians statement when underwriters need additional detail regarding a medical condition revealed on an application.
Also known as an APS, these reports from the applicants attending physician may elaborate on a past condition or something that currently impact the prospective insured’s health.
Because of the need to respect physician/patient confidentiality, the applicant must sign an authorization, which allows the physician to release information to the insurance company’s underwriter.
Avocation
Hobbies or non-occupational activities.
Some avocations, such as fishing or studying chess, do not require additional underwriting because they do not measurably increase risk.
Other activities such as sky diving or mountain climbing could require more scrutiny during the underwriting process in the form of a SPECIAL QUESTIONNAIRE.
Backdating
The practice of making the effective date of a policy earlier than the application date.
Backdating is used to make the issue age lower than an applicants real age in order to get a lower premium.
State laws usually limit the length of time an insurer may backdate a policy to six months.
Backdating is not allowed in variable contracts due to the nature of the investment.
Binding Receipt (unconditional receipt)
One of the types of receipts given by an insurance company upon the completion of an insurance application when the applicant pays the initial premium with the application.
Insurance becomes effective on the receipt date and continues for a specified period of time or until the insurer declines the application.
Buyer’s Guide
A pamphlet that describes and compares various forms of life or health insurance.
This guide must be provided to a consumer by the producer when the latter is attempting to solicit insurance.
A buyer’s guide describes the key characteristics of the policy type being purchased.
This information helps consumers make an informed decision when purchasing insurance coverage.
Claims experience
An insured’s history of claims or rate of loss.
The greater the claims experience, the higher the required premium.
Community Rating
Insurance carriers generally base community ratings on their overall claim experience and healthcare costs in a geographical area.
Conditional Receipt
Insurers issue conditional receipts when agents collect the initial premium with an application.
Agents leave signed receipts as proof of payment and temporary guarantees of coverage as long as a specific condition is satisfied.
Coverage can conditionally begin on the date specified in the receipt – on the date of application or date or a required medical exam, whichever is later.
Coverage commences if the proposed insured demonstrates insurability.
If the applicant proves to be uninsurable, no coverage takes effect, and the premium is refunded.
With out a valid receipt, no coverage is in force until the policy is issued, delivered, and accepted with the initial premium paid.
Constructive Delivery
Occurs when an insurance carrier gives up all control of a policy and releases it for unconditional delivery to someone acting for the policyholder, including the company’s own agent.
Consumer Report (Investigative Consumer Report)
A detailed background investigation that may include an interview with coworkers, friends, and neighbors about an applicants character, reputation, lifestyle, etc.
Insurers are allowed to conduct a consumer report to obtain additional information as long there is no invasion of privacy present.
A common type of consumer report involves a credit report.
Counter-offer
The legal description of what happens when an insurer declines a paid application for insurance with a standard rate classification but is willing to offer a “rated” or substandard policy that will require a higher premium.
The insurer rejects the initial paid offer and makes a counter-offer in reply.
Credit Report
A summary of an insurance applicant’s credit history (credit score, debt levels, repayment history, and assumed creditworthiness, etc.), made by an independent organization that has investigated the applicants credit standing.
Credit reports are typically obtained from one of the three major credit bureaus (Experian, Equifax, and TransUnion).
Declined Risk
Describes an individual whose application for coverage was rejected by an insurance company.
Delivery Receipt
Insurance companies require producers to obtain signed delivery receipts as proof of delivery.
The delivery receipt is important because it can designate the start of the policy’s free-look period.
Disclosure Form
A comparison form required by various state regulatory agencies to be given to every policyowner when replacing an existing policy with another.
Earned Premium
A pro-rated amount of paid-in-advance premiums allocated to the portion of the policy term that has already elapsed.
For example, let us assume that a policy’s term is 12 months, and the first three months have elapsed. Twenty-five percent of the policy term is in the past. That portion of risk has been covered. If the premium were $1000, then $250 or 25% would be earned.
Effective date
The effective date of an insurance policy identifies when coverage is actually in force, and it establishes the date by which the policyowner must pay future annual premiums.
Evidence of Insurability
Means a statement or proof regarding a person’s current health status and history that qualify him for coverage.
Expense Factor
Also known as the LOAD, or LOADING FACTOR, factors the insurers operation expenses into the premiums.
Some of these expenses include commissions, administrative costs, overhead, profits, and regulatory reserves.
Fair Credit Reporting Act
A federal law passed in 1970 that provides an insurer with the right to receive additional information about insurance applicants.
This law permits an insurer to conduct a consumer report on applicants and proposed insureds.
An applicant for insurance must be informed of the purpose of the report.
When the insurance company declines coverage due to information in the report, the insurer must provide the name and address of the reporting agency so that the applicant can secure a copy of the information in the report.
Field Underwriter
The agent or producer completing the consumers insurance application.
Field Underwriting
During this process, the producer determines which risks are desirable and submits those to the underwriting department for approval.
The producer provides any required disclosure of information practices to an applicant, such as a notice regarding replacement, a buyers guide, an outline of coverage, or a policy summary.
Free-look period
All life insurance policies must include at least a ten-day free-look period in a life insurance contract.
This period begins when the producer delivers the insurance policy.
If the policy owner decides to return the contract to the insurer during this period, they will receive a full premium refund.
Mail order or direct response insurers must include a free-look period of at least thirty days.
