Kaplan - Unit 2

Question 1

Underwriting

Answer 1

The process of evaluating a risk to determine if it is acceptable based on established insurance company guidelines.

Question 2

Changes in the Application

Answer 2

Must be initialed by the applicant

Question 3

Backdating

Answer 3

Some insurers allow an application to be backdated so the premium can be based on an applicant’s earlier age and lower the cost of the premium. Up to SIX months.

Question 4

Required Signatures

Answer 4

The application form - signed by the applicant and the producer/agent.
+ The proposed insured must sign if the applicant is not the insured.
+ A company officer must sign a corporation owned policy.
+ A parent or legal guardian signs a juvenile policy for the minor.

Required Signatures:
-Insured
- Producer/Agent
Applicant, owner (if not the insured)

Question 5

Producer’s Report (Producer’s Statement)

Answer 5

The producer records information that pertains to the proposed insured including the producer’s relationship to the proposed insured and anything the producer knows about the proposed insured’s financial status, habits, and character.
It is completed by the producer and not attached to policy at all. It is also never seen by the client.

Question 6

Conditional Receipt

Answer 6

• Premium paid with application
  -Insurance effective - later of
  + Date application completed and signed
  + Medical exam (if required)
• Must be standard or preferred risk
  + Can be determined after death

Question 7

Binding Receipt

Answer 7

Effective for 30 to 60 days from the date of application even if the applicant is found to be uninsurable.
They are temporary and not common in life insurance.

Question 8

The Application

Answer 8

3 parts to an application:

• Part 1 - General Information
• Part 2 - Health Information
• Part 3 - Producer’s Report

Question 9

Attending Physician’s Statement (APS)

Answer 9

An underwriter may ask the proposed insured’s regular doctor for an APS to find out about the applicant’s current condition and medical history with the physician.

Question 10

AIDS Considerations

Answer 10

The applicant’s sexual orientation cannot be used in the underwriting process or to determine insurability. However, specific questions about being diagnosed with AIDS or ARC to determine a medical condition can be asked.

Question 11

Medical Information Bureau (MIB)

Answer 11

A non-profit insurance trade association that maintains underwriting information on applicants.

Question 12

Investigative Consumer Reports

Answer 12

Reports containing information obtained by interviewing individuals who know something about the consumer such as associates, friends, and neighbors. Also known as inspection reports.

Question 13

Underwriting Sources of Information

Answer 13

+ Application - primary source
+ Medical exams & testing
+ Attending physician statement (APS)
+ AIDS testing
- Applications may not ask about sexual orientation
- Testing not based on geographical location
- Requires insured’s written consent
+ Medical Information Bureau
- Application cannot be denied solely on MIB information
- Insured must be informed of MIB
- MIB gets its information from insurance companies
+ Consumer reports
- Insured must be informed
+ Investigative reports
- Insured must give consent

Question 14

Classification of Risks

Answer 14

There are generally for classifications:
- Standard
- Preferred
- Substandard or rated
- Declined

Question 15

Standard Risk

Answer 15

Average health and normal life expectancy and fall into the normal range of anticipated by the company when it established its premiums.

Question 16

Preferred Risk

Answer 16

Represent excellent health. A risk of loss that is below average and therefore favorable to the company. Factors include such things as healthy lifestyle, clean medical history, or low-risk occupation.

Question 17

Substandard Risk

Answer 17

Represent below average life expectancy, high-risk life insurance. Factors include poor health, dangerous occupation, or risky habits. Substandard risks are sometimes referred to as being rated up (shortened to just rated).
Methods of charging a relatively higher rate for substandard risks include adding a flat additional charge, charging applicants the standard premium for a higher attained age, or reducing the benefits provided by the policy.

Question 18

Declined

Answer 18

Insurer’s underwriting guidelines indicate that an applicant is not insurable at any price.

Question 19

Selection Criteria and Unfair Discrimination

Answer 19

Race, religion, national origin, and place of residence are considered unfair discrimination. Most states prohibit unfair discrimination against individuals who are blind, or victims of domestic violence.

Question 20

Personal Delivery

Answer 20

Agent Delivery
- Will usually get a signed receipt on delivery to the policyowner

Question 21

Statement of Good Health

Answer 21

Attesting that the policyowner’s health is the same as when they applied for the policy. Required if no premium with application and if health changed, the agent can’t deliver the policy.

Question 22

Effective Date of Coverage

Answer 22

• Terms of conditional receipt is issued
• Substandard and pays additional premium - date of policy delivery
• No receipt - policy delivery date if premium paid at delivery.

Question 23

Fair Credit Reporting Act (FCRA)

Answer 23

• Third party information
• Notice to applicant REQUIRED
• Consumers have rights and can dispute information on files
• Penalty; fines (max of $5,000) and/or imprisonment (one year)

Question 24

Errors and Omissions Situations

Answer 24

Producers make mistakes and may be liable

Question 25

Stranger-Owned Life Insurance (STOLI) or Investor-Owned Life Insurance (IOLI)

Answer 25

Banned in most states. Investors are named as beneficiaries.

Question 26

USA PATRIOT ACT

Answer 26

Designed to prevent and detect money laundering and financing of terrorism. Report suspicious activity

Question 27

Employee Retirement Incomer Security Act (ERISA)

Answer 27

Much of the law deals with qualified pension plans, but some sections also apply to group insurance.
It protects participants in employee benefit plans.