LIFE INSURANCE UNDERWRITING AND POLICY ISSUE

Question 1

the tendency of a disproportionate number of poor risks to seek or buy insurance or maintain existing insurance in force (i.e. selection against the insurance company) Sound underwriting reduces this

Answer 1

Adverse Selection

Question 2

the date halfway between birthdays when the applicant’s age changes to the next higher age. With some insurers, the age is based upon the applicant’s age at his nearest birthday. In others, it is based upon the age of his last birthday.

Answer 2

Age Change

Question 3

person completing the application to the insurance company for the insurance policy. In most cases, the applicant is also the proposed insured, but this is not always the case.

Answer 3

Applicant

Question 4

the statement of information given when a person applies for life, health, or disability 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.

Answer 4

Application

Question 5

Used when the application or medical examiner’s report reveals conditions or situations, past or present, about which more information is desired. Because of Physician/Patient confidentiality, the applicant must sign an authorization which allows the physician to release information to the insurance company underwriter

Answer 5

Attending Physician Statement (APS)

Question 6

the practice of making the effective date of a policy earlier than the application date. Used to make the issue age lower than an applicant’s real age in order to get a lower premium. State laws usually limit the time to which policies can be backdated to six months. Not allowed in variable contracts due to the nature of the investment

Answer 6

Backdating

Question 7

one of the types of receipts given by an insurance company upon the completion of an insurance application if the initial premium is collected 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

Answer 7

Binding Receipt (Unconditional Receipt)

Question 8

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. This guide makes information available to the consumer that helps them make an informed decision when purchasing insurance coverage

Answer 8

buyer’s guide

Question 9

a form customarily required to be signed by the agent and given to the prospective owner at the time a new application is completed. Most companies require that the agent collect an initial premium and, in turn, grant some level of limited coverage under special conditions before issuing the policy. Without a valid ______ _______, no coverage is in force until the policy is issued, delivered, and accepted with the initial premium paid.

Answer 9

Conditional Receipt

Question 10

a detailed background investigation that may include an interview with coworkers, friends, and neighbors about an applicant’s character, reputation, lifestyle, etc. Insurers can conduct a consumer report to obtain additional information as long as there is no invasion of privacy present. Also typically invovles a credit report

Answer 10

Consumer Report (investigative consumer report)

Question 11

summary of an insurance applicant’s credit history (credit score, debt levels, repayment history) made by an independent organization that has investigated the applicant’s credit standing

Answer 11

Credit Report

Question 12

describes an individual whose application for coverage was rejected by an insurance company

Answer 12

declined risk

Question 13

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

Answer 13

disclosure form

Question 14

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

Answer 14

Evidence of Insurability

Question 15

a federal law passed in 1970 that provides an insurer with the right to receive additional information with regard to applicants for insurance coverage. This law permits an insurer to conduct a consumer report on applicants and proposed insureds. An applicant must be informed of the purpose of the report. If coverage is declined due to the info in that report, insurer must provide the name and address of the reporting agency so that the applicant can secure a copy of the info in the report

Answer 15

Fair Credit Reporting Act

Question 16

the agent or producer completing the applicant’s application for insurance

Answer 16

field underwriter

Question 17

all life insurance policies must include at least a ten-day ____ ____ 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 _____ _____ period of at least 30 days

Answer 17

Free Look Period

Question 18

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

Answer 18

Inspection report

Question 19

describes the financial or emotional relationship between two or more parties justifying one owning a life insurance policy on the other. People are said to have an unlimited ________ ________ in their own life. May exist in another person’s life if there is a chance of a financial or emotional loss at that person’s death. Must exist at the time of policy issue.

Answer 19

Insurable Interest

Question 20

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

Answer 20

Medical Information bureau

Question 21

summarizes the basic terms of an insurance policy, including the conditions, coverage limitations, and premiums. Policy summaries are often used with life insurance, long-term health insurance, and annuities.

Answer 21

Policy Summary

Question 22

Describes 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 of other applicants of the same range

Answer 22

Preferred Risk

Question 23

person whose life is requesting to be insured. Typically, but not always, this is also the applicant

Answer 23

Proposed insured

Question 24

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

Answer 24

Rated Policy (rating up)

Question 25

A legal activity where a producer convinces a prospective client to lapse or surrender a life or health policy and purchase a new one. Producers must provide a “Notice Regarding Replacement” to the consumer when this activity may occur. The producer must also notify the insurer that a replacement is occurring as well

Answer 25

Replacement

Question 26

most state laws specify that the applicant’s statements on the application are considered representations and not warranties. It needs only to be substantially accurate to the best of the applicant’s knowledge. Generally considered to be fraudulent if it relates to a situation that would be material to the risk and that the applicant made with fraudulent intent

Answer 26

Representations

Question 27

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

Answer 27

Risk Classification

Question 28

describes an applicant who cannot qualify for a standard policy but may secure one with a rider waiving a payment for a loss involving certain health impairments. They may be required to pay a higher premium to accept a policy of a type other than the one for which he has applied

Answer 28

Special Class

Question 29

Describes a person who, according to a company’s underwriting standards, is considered an average risk and insurable at standard rates. High risk or low risk candidates may qualify for increased or discounted rates based on their deviation from the standard

Answer 29

Standard Risk

Question 30

describes an applicant whose physical condition does not meet the usual minimum standards If the substandard classification is due to adverse health, the application may be declined or written with a “rated up” premium. An applicant may be in excellent health but considered substandard due to their activities, hobbies or avocations

Answer 30

Substandard Risk (Impaired Risk)

Question 31

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 if so at what rate

Answer 31

underwriter

Question 32

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

Answer 32

underwriting

Question 33

most state laws specify that the applicant’s statements on the application are considered representations and not warranties. Must be absolutely and literally true. A breach of warranty may be sufficient to void the policy whether or not the warranty is material and whether or not such breach of warranty had contributed to the loss

Answer 33

Warranties