Life Insurance Underwriting and Policy Issue

Question 1

adverse selection

Answer 1

tendency of a disproportionate number of poor risks to seek or buy insurance or maintain existing insurance in force; sound underwriting reduces this

Question 2

age change

Answer 2

the date halfway between birthdays when the applicant’s age changes to the next higher age. Based upon the age of his last birthday

Question 3

applicant

Answer 3

the person completing the application to the insurance company for insurance policy; most of the time is the insured, but not always

Question 4

application

Answer 4

statement of information given when a person applies for life, health or disability insurance. The insurance company’s underwriter uses this info as a basis in determining whether the applicant qualifies for acceptance; are attached to and made a part of ALL individual contracts

Question 5

attending physician statements (APS)

Answer 5

used when the application or medical examiner’s report reveals conditions about which more information is desired; must get application’s signature on release of info for underwriter

Question 6

backdating

Answer 6

making the effective date of a policy earlier than the application date. This is used to make issue age lower than applicant’s real age in order to lower premiums. —-state laws limit this to 6 months

Question 7

binding receipt (unconditional receipt)

Answer 7

receipt given by the insurance company upon application completion if the initial premium is collected with application.
-insurance becomes effective on receipt date and continues until period of time or if application is denied

Question 8

buyer’s guide

Answer 8

pamphlet that describes and compares various forms of life or health insurance. MUST be provided to consumer upon soliciting insurance

Question 9

conditional receipt

Answer 9

required to be signed by the agent and given to the owner at the time a new application is complete; the issue of this receipt is subject to company rules; without this receipt, no coverage is in force until the policy is issued, delivered, and accepted with the initial premium paid

Question 10

consumer report

Answer 10

detailed background investigation that may include an interview with coworkers, friends, and neighbors about an applicant’s character, reputation, lifestyle, ect. Consumers can conduct this as long as no invasion of privacy is present. common type is a credit report

Question 11

credit report

Answer 11

summary of an applicant’s credit history

Question 12

declined risk

Answer 12

individual whose application for coverage was rejected by the insurance company

Question 13

disclosure form

Answer 13

comparison form required by various state regulatory agencies to be given to every policyowner when replacing an existing policy with another

Question 14

evidence of insurability

Answer 14

describes a statement or proof of a person’s health history and current health status that qualifies that person for coverage

Question 15

Fair Credit Report Act

Answer 15

passed in 1970 (federal law) that provides an insurer with the right to receive additional information with regard to applicants for insurance coverage. applicants must be informed of the purpose of the report.

Question 16

field underwriter

Answer 16

agent or producer completing the applicant’s application for insurance

Question 17

free-look period

Answer 17

at least 10 days; begins when the producer delivers the insurance policy. if policy owner decides to return the contract, they will receive full premium refund;

Question 18

inspection report

Answer 18

report that contains general info regarding the health, habits, finances, and reputation of an applicant. developed by a firm that specializes in this type of service

Question 19

insurable interest

Answer 19

describes the financial or emotional relationship between 2+ parties justifying owning a life insurance policy on the other. it must exist at the time of policy issue

Question 20

Medical Information Bureau

Answer 20

organization that collects medical data on life and health insurance applicants for member insurance companies

Question 21

policy summary

Answer 21

summarizes the basic terms of a policy, including conditions, coverage limitations, and premiums.

Question 22

preferred risk

Answer 22

an applicant who represents the likelihood of risk lower than that of the standard applicant, typically due to better than average physical condition, occupation, mode of living, and other characteristics compared to other applicants of the same age

Question 23

proposed insured

Answer 23

the person whose life is requesting to be insured. typically is the applicant, but not always

Question 24

rated policy (rated up)

Answer 24

the basis for an additional charge to the standard premium because the person insured is classified as a higher than average risk. usually result from impaired health or hazardous occupation

Question 25

replacement

Answer 25

legal activity where a producer convinces a prospective client to lapse or surrender a policy and purchase a new one. must produce a “notice regarding replacement” to consumer. must also notify the insurer.

Question 26

representation

Answer 26

state laws specify applicant’s statements on the application are representations, not warranties. only need to be SUBSTAINTIALLY accurate to the best of applicant’s knowledge

Question 27

risk classification

Answer 27

describes the underwriting category into which risk is placed depending upon the applicant’s susceptibility to injury, illness, or death

Question 28

special class

Answer 28

an applicant who cannot qualify for a standard policy, but may secure one with a rider waiving the payment for a loss involving a certain existing health impairment

Question 29

standard risk

Answer 29

a person who, according to the underwriting standards, is considered an average risk and insurable at standard rates

Question 30

substandard risk (impaired risk)

Answer 30

an applicant whose physical condition does not meet the usual minimum standards

Question 31

underwriter

Answer 31

a person who identifies, examines, and classifies the degree of risk represented by a proposed insured in order to determine whether or not coverage should be provided and at what rate

Question 32

underwriting

Answer 32

analysis of info obtained from various sources pertaining to an applicant and determination of whether or not the insurance should be issued as requested, offered a higher premium, or declined

Question 33

warranties

Answer 33

must be absolutely and literally true, unlike representations. a breach of warranty may void the policy whether or not the warranty is material and whether or not such breach of warranty had contributed to loss

Question 34

participating

Answer 34

policyholders participate in receiving dividends and elect board directors