Chapter 5: Life Insurance Underwriting and Policy Issue

Agent responsibilities during Underwriting Process

-Proper Solicitation of Applicants -Helping Prevent Adverse Selection -Completing the Application -Obtaining The Required Signatures -Collecting The Initial Premium -Delivering The Policy -Issuing the Reciept

Conditional Receipt(most common Receipt)

-the applicant is covered by the insurance company as of the date of the application, providing that the insurance company approves them for insurance.

3 Risk classifications

Standard substandard Preferred

Consumer Reports

Include written and oral information regarding a consumers credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.

Substandard Risk

People who are not acceptable at standard rates because of a physical condition, personal. or family history of disease, occupation or dangerous habits -These policies are also referred to as "rated" because they could be rated up, resulting in a higher premium.

Backdating

Sometimes it is possible to lower the premium rate by backdating an application for insurance -If the applicant chooses to do this, the policy may be backdated for no more than 6 months -The only reason that an application may be backdated is to lower premium

Under the USA Patriot Act, insurers are required to report receipt of cash payments in excess of a. 10,000 b. 7,500 c. 5,000 d. 2,500

a. 10,000

A student pilot can pay regular premium costs for her life insurance policy with the addition of while of the following? a. guaranteed insurability rider b. aviation exclusion c. impairment rider d. accidental death benefit rider

b. aviation exclusion

An applicant's medical information received from the Medical Information Bureau (MIB) may be furnished to the a. agent b. applicant's spouse c. National Association of Insurance Commissioners (NAIC) d. applicants physician

d. applicants physician

A life insurance application must be signed by all of these EXCEPT a. the policyowner b. the agent c. the insured (if an adult) d. beneficiary

d. beneficiary

Which parts of a life insurance policy are guaranteed to be true? a. rating b. representation c. statement d. warranty

d. warranty explanation: warranties are statements considers literally true

Fair Credit Reporting Act

-if someone applying for insurance is declined or modified because of information contained in either a consumer or investigative report, the person has the right to know what was in the report and will be provided with the name and address of the reporting agency.

Life Insurance Agents & Underwriting

Agents are involved first-hand in the underwriting process, and are often a source of underwriting information themselves -all agents should know and understand the purpose and process of underwriting

Medical Information Bureau

In addition to an attending physicians report, the underwriter will usually request a Medical Information Bureau report -The MIB is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical information on individuals -It is a way for insurance companies to compare the information they have collected to potential applicants

.. The producer delivered the policy on January 2 and collected the first premium when did the coverage become effective?

January 26.. coverage became effective on the date the policy was delivered and the first premium was collected

Preferred Risk

People who meet certain requirements. the applicants are in superior physical condition, with healthy lifestyle habits. -they qualify for lower premiums than standard risk

Standard Risk

People who, according to a company's underwriting standards, are entitled to insurance protection without extra rating or special restrictions. They are considered an average risk

Field Underwriting Procedures

The agent is the company's front line, and is referred to as a field underwriter because the agent i usually the one who has solicited the potential insured. -as a field underwriter, the agent has many important responsibilities during the underwriting process and beyond, including

Part 2: Medical Information

This section of the application include information on the prospective insured's medical background, present health, recent medical visits, the medical status of living relatives, and the causes of death of relatives.

Part 1: General Information

This section of the application includes the general questions about the applicant such as name, age, address, birth date, gender, income, marital status, and occupation

Part 3: The Agent Report

This section provides the agent's personal observations concerning the applicant -as a field underwriter, the agent can be considered the most important source of information available to the company underwriters -the agents report does not become part of the entire contract, although it is a part of the application process

Purpose of Underwriting

Underwriting is the process in which an insurance company determines whether or not a particular applicant is insurable, and if so, what premiums to charge. -the main things and underwriter will use includes the applicant's health, both current and past occupation, lifestyle, hobbies, and habits -the person applying for insurance must submit an application to the insurance company for approval -the application is one of the main sources of underwriting information for the company

Risk classifications

Underwriting will look at the applicants past medical history, present physical condition, occupation, habits, and morals -if the applicant is acceptable, the underwriter must then determine the risk or rating classification to be used in deciding whether or not the applicant should pay a higher or lower premium.

What would the Medical Information Bureau (MIB) identify? a. testing positive for marijuana from a previous screening b. existing life insurance coverage with other carriers c. credit scores d. primary physician

a. testing positive for marijuana use from a previous screening

An Underwriter determines that an applicant's risk should be recategorized due to a health issue. This policy may be issued with a(n) a. delayed effective date b. exclusion for the medical condition c. extended Contestable period d. Concealment clause

b. exclusion for the medical condition

M completes an application for life insurance but does not pay the initial premium. All of these actions must occur before M's policy goes into effect EXCEPT a. policy is delivered b. free-look period has expired c. insurance company issues policy d. initial premium is collected

b. free-look period has expired

What is being delivered during a policy delivery? a. a binding receipt to the proposed insured b. insurance contract to the proposed insured c. application and initial premium to the insurer d. policy summary sheet and disclosure material to the proposed insured

b. insurance contract to the proposed insured

In order for coverage on a non-medical insurance application to take effect the same day, the producer must collect a signed application and a. a Medical Information Report b. the initial premium c. forward it immediately to the insurer d. attending physician statement

b. the initial premium

Any changes made on an insurance application requires the initials of whom? a. insured b. agent c. applicant d. beneficiary

c. applicant

All of these are considered sources of underwriting information about an applicant EXCEPT a. inspection report b. credit report c. rating services d. medical information bureau

c. rating services

Which factors are taken into consideration when an insurance company determines the premium rate for a Whole Life policy on an applicant? a. Geographical location b. source of income c. risk classification d. marital status

c. risk classification

when does a life insurance contract become effective if the initial premium is not collected during the application process? a. after all medical and personal information has been evaluated b. when insurer receives initial premium from the producer c. when producer delivers policy and collects initial premium d. after application has been approved by the underwriters

c. when producer delivers policy and collects initial premium

Underwriting application 3 basic components

part 1: general information part 2: medical information part 3: the agent's report

Investigative Consumer Reports

similar to consumer reports in that they also provide information on the consumer's character, reputation, and habits -the primary difference is that the information is obtained through an investigation and interviews with associates, friends and neighbors.