binding & conditional receipts

pro rata

100% of unearned premium

renewal/ non renewal

Renewal - continuation of a policy beyond its original term. every 1 year from first purchase term . non renewal - not renewing a policy for another term once it reaches the end of its term .

effective date disclosure

applies to individual disability and health insurance policies . at the time of app , agent must provide insurer/ applicant with: • effective date of coverage ( If known ) or • circumstances under which coverage will be effective

exposure unit/rate/premium

exposure unit - fixed unit of insurance coverage ( usually $100 or $1,000 ) used for pricing. exposure rate- price of insurance for each exposure unit . exposure premium - # of exposure units X rate $100,000 ÷ $1,000 =100 exposure units × 2 = premium = $200 annual premiums.

conditional receipt

initial period must be paid . • provides coverage from date of app ONLY if application is ultimately approved by the underwriter. under a conditional receipt , a death claim will NOT be paid if the application is declined by the underwriter .

binding receipt

initial premium must be paid • provides immediate coverage for stated period. • coverage applies even if underwriter declines the application.

short rate

less than 100% of unearned premium penalizes policy owner for early termination

frequency

number of times losses occur over a specific of time ( How Many?)

earned premium

portion of premium that represents coverage already provided and that belongs to insurer.

limitation on pre- & post selection

pre selection - • agent only collects information requested on the application • must not withhold any pertinent information from underwriter agent ( field U/W) post selection - • underwriter uses information on application • may use other underwriting tools ( MIB, medical exams , APS, questionnaires, inspection reports , etc.) to evaluate and classify risk . underwriter

binders

written agreement issued by F&C insurer providing temporary coverage ( 90 days or less ) whole an application is being underwritten binder deemed a valid insurance policy . binders are NOT used in life and disability insurance. if an agent lacks authority from the insurer named on the binder, commissioner may suspend or revoke license .

unearned premium

portion of premium that represents the unexpired part of the policy period .

high retention rates

agents - renewal commissions insurers - profitability policy owners - dividends reduced premiums

lapse

termination of a policy due to nonpayment of premium .

cancellation

termination of a policy during it's term can be initiated by insured or insurer . cancel before term is over .

interest adjusted indices

advantages - TVM taken into consideration • treats all payments as if deposited into interest beating account ( usually 5% annual rate assumption disadvantages - dividends used in projection are only assumptions.

net cost method .

net cost method = advantages- • east to understand • east to calculate disadvantages - • do more time value of money ( TMV) • gives equal weight to payments that may be separated by 10 or 20 years • after 20 years , net cost is usually negative, implying insurance was rec for free • illegal method to use in many states

Severity

dollar amount of a loss ( How much?)

refunding unearned premium

unearned premium must be refunded within 25 business days after insurer received notice of cancellation.

binding receipt example

under the binding receipt a death claim will be paid whether or not the applicants application is approved by the underwriter.