Completing the Application, Underwriting, and Delivering the Policy

What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act?

$2,500

Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained?

3 days

If a consumer request additional information concerning a investigative consumer report, how long does the insurer or report agency have to comply?

5 days

What is a Conditional Contract?

A contract that requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations.

What is a Unilateral Contract?

A contract where only one of the parties to the contract is legally bound to do anything.

What is a Aleatory Contract?

A contract with an exchange of unequal/uneven amounts or values

If an individual who willfully violates the Fair Credit Reporting Act enough to constitute a general pattern or business practice will be subject to what?

A penalty of up to $2,500

What should be obtained by the agent when they deliver the policy to the insured?

A signed delivery receipt

What is a material misrepresentation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

What are the 4 elements of a insurance contract?

Agreement (offer and acceptance), Consideration, Competent Parties, and Legal Purpose

An insured pays $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does that describe?

Aleatory

Which of the following best describes the concept that the insured pays small amount of premium for a large amount of risk on the part of the insurance company?

Aleatory

What is Investor-Owned Life Insurance (IOLI)?

Another name for STOLI, where a third-party investor who has no insurable interest in the insured initiates a transaction designed to transfer the policy ownership rights to someone with no insurable interest in the insured and who hopes to make a profit upon the death of the insured or annuitant

What is the key source underwriters use for information about the applicant?

Application

When an insurer begins underwriting procedures for an applicant, what will be the main source for its underwriting information?

Application

When must insurable interest exist in a life insurance policy?

At the time of the application

What is prohibited information under the Fair Credit Reporting Act?

Bankruptcies more than 10 years old, civil suits, records of arrest or convictions of crimes, or any other negative information that is more than 7 years old

What does the buyer's guide provide?

Basic, generic information about life insurance policies that contains, and is limited to, language approved by the Department of Insurance. This document explains how a buyer should go about choosing the amount and type of insurance to buy and to compare costs

What can happen if a person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses?

Can be subject to a civil action. May also be fined and/or imprisoned for up to 2 years

When both parties to a contract must perform certain duties and follow rules to conduct to make the contract enforceable, the contract is....

Conditional

What report will provide the underwriter with the information about the insurance applicant's credit?

Consumer report

Contracts that are prepared by one party and submitted to the other party on take-it-or-leave-it basis are classified as...

Contracts of adhesion

What is NOT an example of valid insurable interest?

Debtor in the life of the creditor

What is a disclosure statement and when does it need to be given to the applicant?

Disclosure statements help the applicants to make more informed and educated decisions about their choice of insurance and must be given to the applicant no later than the time the application for insurance is signed.

What must a life insurance illustration do?

Distinguish between guaranteed and protected amounts, clearly state that an illustration is not part of the contract, and identify those values that are not guaranteed as such

An applicant is denied insurance because of information found on a consumer report. What requires that the insurance company supply the applicant with the name and address of the consumer report company?

Fair Credit Reporting Act

What is completed on Part 1 of the application?

General Information - questions regarding the applicant such as name, age, address, birthdate, gender, income, marital status, and occupation

What does HIPAA stand for and what is HIPAA?

Health Insurance Portability and Accountability Act is a federal law that protects health information

What is described as negative under the Fair Credit Reporting Act?

Information regarding a customer's delinquencies, late payments, insolvency, or any other form of default

What is misrepresentation?

Information that is not true. False information.

An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n)...

Inspection Report

Insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies, and habits. What type of a report is that?

Inspection Report

Stranger-originated life insurance policies are in direct opposition to the principle of...

Insurable interest

What must exist between the policyowner and the insured at the time of the application?

Insurable interest

A life insurance policy has a legal purpose if both of which of the following elements exist?

Insurable interest and consent

What do individuals use to transfer their risk of loss to a larger group?

Insurance

What must be done when an insurer request investigative consumer reports?

Insurance applicants must be notified in writing

Who makes up the Medical Information Bureau?

Insurers

When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will...

Issue the policy anyway and pay the face value to the beneficiary

What can happen if a warranty is breached?

It can be considered groups for voiding the policy or a return of premium

What does a policy have to have to have legal purpose?

It has to have both insurable interest and consent

What is a Investigative Consumer Report?

It is a general report of the applicant's finances, character, work, hobbies, and habits obtained through an investigation and interviews with associates, friends, and neighbors of the consumer

What is a Medical Information Bureau (MIB) report?

It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information individuals.

What is the insurer's consideration?

It is the promise to pay for the losses

In the underwriting process, it was determined that the applicant for life insurance is in poor health and has some dangerous habits. What would happen in regards to the policy premium?

It will likely be higher because the applicant is a substandard risk

What is completed on Part 2 of the application?

Medical Information - information on the prospective insured's medical background, present health, any medical visits in recent years, medical status on living relatives, and causes of death on deceased relatives.

What are the 3 key factors of premium determination on a life insurance policy?

Mortality, interest, and expense

Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives?

Part 2 - Medical Information

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will...

Pay the policy proceeds only if it would have issued the policy

Most agents try to collect the initial premium for submission with the application. When an agent collects the initial premium from the application, the agent should issue the applicant a...

Premium receipt

What is the appropriate action by the insurer if a prospective insured submitted an incomplete application?

Return the application to the applicant for completion

1. The insurer discovered that one of the applications for life insurance missed a couple of questions on the application. What must the insurer do with the application?

Return to the applicant for completion

Insurance is the transfer of....

Risk

1. What best details the underwriting process for life insurance?

Selection, classification, and rating of risks

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT...

Signed waiver of premium

What does insurance transactions include?

Solicitation, Negotiations, Sale (effectuation of a contract of insurance), and/or advising an individual concerning coverage or claims

What does a agents report provide?

The agent's personal observations concerning the proposed insured

If an individual who unknowingly violates the Fair Credit Reporting act, what are they liable for?

The amount equal to the loss of the consumer, as well as any reasonable attorney fees incurred in the process

1. What is NOT an example of the consideration in a policy?

The application given to a prospective insured

In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports?

The customer's associates, friends, and neighbors provide the report's data

If an insurer requires a medical examination of an applicant in connection with the application for life insurance, who is responsible for paying the cost of the examination?

The insurer

Who is the insurance companies field underwriter?

The life insurance producer

When does the coverage being if the full premium was submitted with the application?

The policy coverage would generally coincide with the date of the application if no medical exam is required. If a medical exam is required, it will coincide with the date of the exam

When does coverage begin if the initial premium is not paid with the application?

The policy does not go into effect until the premium has been collected.

If an insurer issued a policy based on the application that has unanswered questions, what will happen?

The policy will be interpreted as if the insurer waived its right to have an answer on the application

What is the insured's consideration?

The premium and statements on the application

What does the consumer have the right to in regards to reports under the Fair Credit Reporting Act?

They have the right to know what was in the report and the identity of anyone who has received a copy of the report during the past year.

What is the purpose of a disclosure statement in life insurance policies?

To explain features and benefits of a proposed policy to the consumer

Why should the producer personally deliver the policy when the first premium has already been paid out?

To help the insured understand all aspects of the contract

True or False : Every applicant for a life insurance policy must be given a written disclosure statement that provides basic information about the cost and coverage of the insurance being solicited.

True

True or False : If the premium is not paid with the application, the agent must obtain the premium and a statement of good health at the time of the policy delivery.

True

True or False : Insurers cannot refuse coverage solely on the basis of adverse information on an MIB report?

True

True or False : NO premium = NO coverage

True

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe?

Unilateral

What is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

Warranty

In forming an insurance contract, when does acceptance usually occur?

When an insurer's underwriter approves change

An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issues. When will coverage begin?

When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health

When is the earliest a policy must go into effect?

When the application is signed, and a check is given to the agent

When must a agent issue a premium receipt?

Whenever the agent collects premiums

If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about...

Whether an insurable interest exists between the individuals

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant no later than...

With the policy

What is Stranger-Originated Life Insurance (STOLI)?

a life insurance agreement in which a person with no relationship to the insured (a "stranger") purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies.

Who is a Attending Physician's Statement (APS) completed by?

a medical practitioner who treated the applicant for a prior medical problem

Who is a paramedical report completed by?

a paramedic or a registered nurse

What is a conditional receipt?

a premium receipt which is used only when the applicant submits a prepaid application. This also means the applicant may be covered as early as the date of the application.

What is an illustration?

a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years.

What is a policy summary?

a written statement describing the features and elements of the policy being issued. It provides specific information on the policy being issued.

What describes the aleatory nature of an insurance contract?

a. Exchange of unequal values

What is adverse selection?

insuring of risks that are more prone to losses than the average risk

What is considered fraud is life insurance?

intentional misrepresentation or deceit with the intent to induce a person to part with something of value

What is a warranty?

it is an absolute true statement upon which the validity of the insurance policy depends.

What is a Contract of Adhesion?

it is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured). this is take it or leave it policy

What does a lapse mean?

policy termination due to nonpayment of premium

What is a consumer report?

reports that include written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources

What are representations?

statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true

What does the Fair Credit Reporting Act protect consumers from?

the circulation of inaccurate or obsolete personal or financial information

What is replacement?

the practice of terminating and existing policy or letting it lapse, and obtaining a new one

What is underwriting?

the risk selection process

What is a material misrepresentation?

these are misrepresentations that are intentional and can be considered fraud

What does the Fair Credit Reporting Act used for?

to establish procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used