chapter 6

Substantial risk classification

(Impaired Risk): Substandard risk, also known as impaired risk, 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 (i.e., scuba diving, skydiving, etc.).

Conditional Receipt

A Conditional Receipt is a form customarily required to be signed by the agent and given to the prospective owner at the time a new application is completed. The issuing of a receipt is subject to individual company rules. Most 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 conditional receipt, no coverage is in force until the policy is issued, delivered, and accepted with the initial premium paid.

Consumer Reports

A consumer report or investigative consumer report is 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 there is no invasion of privacy present. A common type of consumer report involves a credit report.

Investigative Consumer Report

An inspection report is 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.

Insurable Interest

Any financial interest in life or property such that, if the life or property were lost or harmed, the insured would suffer financially.

preferred risk Classification

Preferred risk 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 compared to other applicants of the same age.

risk classification

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

Fair Credit Reporting Act

The Fair Credit Reporting Act is 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 for insurance must be informed of the purpose of the report. Suppose coverage is declined due to information in the report. In that case, the insurer must provide the name and address of the reporting agency so that the applicant can secure a copy of the information in the report.

Medical Information Bureau (MIB)

The Medical Information Bureau is a service organization that collects medical data on life and health insurance applicants for member insurance companies.

Field Underwriter

The field underwriter is the agent or producer completing the applicant's application for insurance.

Underwriting

Underwriting is 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 a higher premium, or declined.

Backdating

Usually no more than 6 months. Backdating is the practice of making the effective date of a policy earlier than the application date. Backdating is 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. Backdating is not allowed in variable contracts due to the nature of the investment.

Standard Risk Classification

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.