Underwriting Individual health insurance

Question 1

In health and life insurance underwriting, what is the difference between unfair discrimination and acceptable discrimination?

Answer 1

Unfair = factors that do not impact the applicants risk -race,sex,religion,etc.
Acceptable discrimination= necessary for proper underwriting and uses factors directly related to the applicants risk.-health history,lifestyle,etc.

Question 2

What are the 5 sources used for underwriting information?

Answer 2

1.Agent/Producer report
2.Attending Physician Statement
3.The MIB
4. Credit/consumer reports
5.Medical exams and lab tests

Question 3

Why do Insurers share underwriting information with the MIB?

Answer 3

It helps prevent adverse selection by uninsurable applicants who shop around for insurance.

Question 4

What is the purpose of the Fair Credit Reporting Act (FCRA)?

Answer 4

It insures the privacy and accuracy of consumer data when an insurance agency requests a credit report on an applicant.

Question 5

Does the FCRA require insurance companies to provide applicants with copies of any inspection/credit reports obtained during the underwriting process?

Answer 5

No they do not have to provide actual copies of the report, but if requested they do have to provide a report summary if it affected the underwriting decision.

Question 6

Is the insurer required to notify the applicant if they order a consumer/credit report on the applicant?

Answer 6

Yes the applicant MUST be notified if insurer orders a credit report, but they do NOT have to provide actual copy of said report.

Question 7

What are the 4 risk classifications used by underwriters?

Answer 7

1. Preferred (Low risk)
2. Standard (Normal risk)
   3.Substandard (Rated or High risk)
   4.Declined. (uninsurable)

Question 8

What rider may be added to a policy issued on a substandard risk, to limit coverage?

Answer 8

An impairment rider

Question 9

Which risk classification has the lowest premium and which risk classification has the highest premium?

Answer 9

preferred=lowest premium
Substandard= highest premium/rated policy

Question 10

Insurance premiums depend on what 3 things?

Answer 10

1.Morbidity charge
2.Interest credit
3.Expense load

Question 11

What two things comprise the NET premium?

Answer 11

The morbidity charge and the interest credit

Question 12

What is added to the NET premium to create the GROSS premium?

Answer 12

The expense load

Question 13

What is the Morbidity charge of a health insurance premium?

Answer 13

The cost of insurance. Based on applicants morbidity risk (chance of person suffering disabling illness/injury)

Question 14

What is the “interest credit” component of a health insurance premium?

Answer 14

Returns on invested premiums
offsets the morbidity charge.
Interest credit combined with morbidity charge makes up the net premium

Question 15

What is the “expense load” component of a health insurance premium?

Answer 15

It covers the insurer’s expenses.
The expense load is added to the net premium to make up the GROSS premium.

Question 16

Which underwriting source collects medical information about insurance applicants? Collects information ONLY that the applicant provided in their insurance application.

Answer 16

The MIB (Medical Information Bureau)

Question 17

With individual Disability income insurance underwriting, there are two definitions of “disability”. ANY occupation and OWN occupation.
-Which definition applies to applicants in blue collar type occupations?

Answer 17

blue collar-any occupation

Question 18

What is the definition OWN occupation mean?

Answer 18

The disabled is unable to perform his/her own actual job.
**(Doctors or lawyers)

Question 19

To discourage exaggerating or faking an illness to avoid work, DI policies limit what?

Answer 19

they limit benefits to LESS than the insured’s income.

Question 20

Under the ANY occupation definition, a person is TOTALLY disabled, ONLY if the person cannot perform ANY occupation that he/she is reasonably suited by education or experience.
-Why is a person less likely to qualify for benefits under this definition?

Answer 20

B/C the definition is broad and a person is more likely to find some sort of occupation that he/she is able to do from prior experience or education.

Question 21

What are two alternatives to a DI policy?

Answer 21

Social security and a professional starter policy

Question 22

Debbie owns a non-cancelable individual disability income policy. She receives benefits for one year and then returns to work. As long as Debbie pays her premium the Insurer must do what?

Answer 22

Insurer must renew the policy

Question 23

With a non-cancelable DI policy; Can the insurer cancel the policy, increase the premium, or reduce the benefits?

Answer 23

NO -as long as the premium is paid, the insurer must renew the policy.

Question 24

Group medical insurance policies are issued on what two types of basis?

Answer 24

Experience-rated basis or community-rated basis

Question 25

What is experience-rated basis?

Answer 25

Premiums are based on the individual group’s make-up and claims experience. Plans can be customized.

Question 26

What is Community-rating basis?

Answer 26

based on the community or region where the group exists. Plans are standardized with little to no flexibility. Same plan is offered to similar groups within the community.

Question 27

What is the term for when people who need insurance the most (multiple risks), and are most likely to apply for insurance?

Answer 27

Adverse selection

Question 28

What is the main difference for underwriting procedures in group health insurance versus individual health insurance?

Answer 28

with group health insurance the insurer considers the risk the the “group” presents, not the individuals alone.

Question 29

Is a medical exam (to prove insurability) required for participants applying for group insurance?

Answer 29

No-not for group insurance.
-One exception it may be required, is if the group is so small that there is a risk for adverse selection.

Question 30

What Law prohibits GROUP insurance plans from excluding individual members for any reason?

Answer 30

HIPPA

Question 31

Do group members have to provide evidence of insurability to get group coverage?

Answer 31

NO