Aflac- Life Insurance

Changes on Application

When an answer to a question needs to be corrected, agent can correct information and have applicant initial change -can also complete new application -agent should never erase or white out information

Premium Determination

When applicant is determined insurable, an appropriate policy premium must be established -premium is used to cover costs and expenses to keep policy in force -premiums are paid in advance

Level

Premiums remains the same throughout duration of contract

Limit of Liability

face amount - (outstanding policy loan + loan interest) = Limit of Liability

Advantages of Personal Delivery

-is opportunity to explain to the policyowner (insured) what he or she has purchased and why; -reinforces personal relationship with agent and company; policyholder is more likely to give referrals to agents they trust and with whom they have a personal relationship; -gives agent the opportunity to assess future needs of additional insurance or provide other needed products; -If the paperwork or information gathered in underwriting was incomplete or contradictory, insurer may require agent to revisit client when delivering a policy to also get a signed confirmation that a condition does or does not exist in order to properly cover the client.

Unfair Underwriting for Risk of HIV or AIDS: Guidelines to Avoid Unfair Underwriting

- if test were performed correctly, insurers may decline potential insured for coverage after 2 different tests -can also be declined if previously diagnosed with AIDS/HIV -test paid by insurer -informed consent includes supplying client with info concerning HIV/AIDS counseling from third party sources -information must be handled correctly and in compliance with confidentiality requirements by authorized personnel -if insured correctly obtains coverage but later dies due to AIDS or related conditions, coverage cannot be limited or denied -informed, written consent must be obtained in event of HIV testing; insured should have duplicate copy --> info included: details on tests performed, their purses and uses, and how results will be returned to insured --> form asks for physicians name and address

Uses of Life Insurance

-Insured pays premium to company and in return, company assumes risk of that person dying prematurely -premium (small certain loss) is exchanged for a large uncertain loss -spreading risk of premature death among a large group Life insurance has value like property: -valuable part of individuals estate, providing immediate cash to pay debts and financial security to insured's survivors -cash value of life insurance policy can be used as collateral to secure a loan -may be paid for in manageable installments called premiums -used to pay inheritance taxes and federal estate taxes

Limited Pay

-Level annual premium -designed so premiums will be completely paid before age 100 Common Versions: -20 pay life: coverage completely paid for in 20 years -Life paid up at 65 (LP-65): paid for by age 65 -shorter duration = higher premium

Life Settlement Disclosures

-explanation of possible alternatives, including accelerated benefits -some or all proceeds of life settlement contract may be taxable -proceeds of contract may be subject to claims of creditors -receipt of proceeds may adversely affect recipients eligibility for public assistance -proceeds will be sent to owner within 3 days after provider has received acknowledgment that ownership has been transferred -entering into life settlement contract may cause other benefits under policy to be forfeited by owner -total amount paid by life settlement provider and net amount to be paid to owner -date funds will be available -life settlement provider is required to furnish to owner a consumer info booklet -insured may be contacted by provider or broker to determine insureds health status to verify address --> contact limited to once every 3 months if insureds life expectancy is more than 1 year --> contact limited to no more than once a month if insured life expectancy is one year or less -life settlement providers name, business and email address, phone number -owner has right to rescind contract within 30 days after contract is executed by all parties -owner has right to rescind contract within 15 days the receipt of the settlement proceeds by owner

Unfair Underwriting for Risk of HIV or AIDS

-may not consider individuals gender, sexual orientations, marital status, living arrangements, occupation, zip code, other related demographic characteristics when determining to take application, provide coverage, or perform medical testing -insurer cannot ask about previous testing unless for insurance purposes -negligently disclosing confidential results or underwriting info to unauthorized third parties result in fine up to $1000 plus court costs --> may go up to $5000 plus costs for willful violations --> violations that cause economic, bodily or psychological harm to other party, may include misdemeanor charge, one year in jail and/or fine up to $10,000

Medical Examinations and Lab Tests

-medical exams conducted at company's expense -not usually required; more common with life insurance -common for insurers to require HIV test with applicant applying for larger amount of coverage or any increased and additional benefits Laws and regulations to protect insureds privacy for HIV test: -insurer must disclose use of testing to applicant and obtain written consent from applicant on approved form -insurer must establish written policies and procedures for internal dissemination of results among producers and employees to ensure confidentiality

Factors in Premium Determination

3 Primary Factors: Mortality: ratio of number of deaths in specific population over certain amount of time versus number of living in that population -rate of death within a specific group --> Mortality Tables: indicate number of individuals within a specified group of individuals starting at certain age, who are expected to be alive at a succeeding age ---> tables help insurers predict the expectation of life and probability of death for a given group Interest: insurance companies invest the premiums in an effort to earn interest on these funds --> primary factor in lowering premium rate Expense/Loading Charge: insurers have various operating expenses, so each premium must carry a proportionate share of these operating costs --> insurers largest expense is commissions paid to agents --> other ongoing expenses include payroll, rent, and taxes

Required Signatures

Agent and proposed insured must sign application -if prospect and policyowner are not the same person, then policyowner must also sign application -exception is adult applying for minor child

Consequences of Incomplete Applications

All questions must be answered to issue policy -application returned to applicant if not completed -if policy is issued with unanswered questions, contract will be interpreted as if insurer waived right to have an answer -insurer will not have right to deny coverage based on unanswered question

Life Settlement

Any financial transaction in which owner of life insurance policy sells a life insurance policy to third party for some form of compensation -requires absolute assignment of all right to policy from original policyowner to new -policyowners may choose to sell their policies bc they feel they no longer need coverage or premium cost has grown too high -life settlement transactions are offered to seniors who may have life threatening illness and short life expectancy

Declined Risks

Applicants who are rejected -risks that underwriters assess as not insurable For example: -no insurable interest -applicant is medically unacceptable -potential for loss is so great it does not meet definition of insurance -insurance is prohibited by public policy or is illegal

Attachment of Application of Policy

Application must be attached to policy if application is taken at time of purchase and a policy is issued -policy and application constitute entire contract between parties; no additional documents may be incorporated -statements made by insured in application are considered representations and not warranties

Underwriting Information Sources and Regulations

Application: application is one of main sources of underwriting information Agent's Report: allows agent to communicate with underwriter and provide info about applicant known by agent Investigative Consumer Report (Inspection): underwriter may order inspection report from independent investigating firm or credit agency -covers financial and moral info -they are general reports of applicants finances, character, work, hobbies, and habits -rules and regulations outlined in Fair Credit Reporting Act Fair Credit Reporting Act: established procedures that consumer reporting agencies must follow to ensure records are confidential, accurate, relevant and properly used -law protects consumers against circulation of inaccurate or obsolete personal or financial info -underwriters sometimes request more info about particular risk from: Consumer Reports and Investigative Consumer Reports -can only be used by someone with legitimate business purpose Consumer Reports: include written and/or oral info regarding consumers credit, character, reputation, or habits collected by reporting agency from employment records, credit reports, and more

Business Continuation Plan

Arrangement between business owners that provides for shares owned by any one of them who dies or becomes disabled to be sold to, and purchased by, the other co-owners or the business

Executive Bonuses

Arrangement where employer offers to give employee wage increase in the amount of the premium on a new life insurance policy on employee -employee owns the policy and has total control -Since the employer treated the premium payment as a bonus, that amount is tax deductible to the employer and income taxable to the employee.

Needs Approach

Based on predicted needs of family after premature death of insured -some factors: amount of debt (including mortgage), investments, other ongoing expenses

Business Uses

Businesses use life insurance for same reason as individuals: creates immediate payment upon death of the insured Most common use by businesses is as employee benefit: serves as protection for employees and their beneficiaries other forms of life insurance: -funding business continuation agreements -compensating executives -protecting business against financial loss resulting from death or disability of key employees

Approval Conditional Receipt

Coverage begins only when pre-paid application is approved by insurer (but before policy is delivered) -there is no coverage during initial underwriting process -this type of receipt is rarely used

Unconditional (Binding) Receipt

Coverage beings immediately for specific length of time, even if applicant is later found to be uninsurable -usually stipulate that coverage is effective from date of application for only specified period of time or until company issues or declines coverage -rarely used in life insurance; binder commonly found in property insurance -binders are prohibited in life and disability policies

Key Person Insurance

Employee who has specialized knowledge, skills, or business contracts -business can suffer financial loss bc of premature death of key With this coverage, key employee is the insured, and business is all of the following: -applicant -policyowner -premium payer -beneficiary -in event of death of key, business uses the money for additional costs of running the business and replacing the employee -business cannot take tax deduction for expenses of premium; benefits paid to business are usually received tax free

3 Income Periods

Family Dependency Period: if insured dies prematurely, surviving spouse will have dependent children to support -income need will be greatest during this period Preretirement Period: after children are no longer dependent upon surviving spouse for support, but before surviving spouse qualifies for SS survivor benefits (Blackout Period) -income needs of surviving spouse lessen, but SS benefits not available until they turn 60 Retirement Period: surviving spouses working income ceases and SS benefits begin -standard of living does not lessen, so they require income comparable to preretirement period

HIPAA (Health Insurance Portability and Accountability Act)

Federal law that protects health information -Protected Health Information: regulations provide protection for privacy of certain individually identifiable health information --> such as: demographic data related to physical or mental health condition, payment info that can identify individual -Privacy Rule: patients have right to view their own medical records and right to know who has accessed those records over previous 6 years --> allows disclosures without individual authorization to collect info for purpose of preventing or controlling disease, injury or disability

Field Underwriting

Field Underwriter: company's front line -this agent is usually the one who has solicited the potential insured Responsibilities: -proper solicitation of applicants -helping prevent adverse selection -completing application -obtaining required signatures -collecting initial premium and issuing receipt -delivering policy

Information on Policy Title (Specification) Page

First page of life insurance policy -contains summary of benefits and coverages policy provides Following info is provided on title page: -type of policy purchased and amount of coverage it provides -premium amount and modal to be paid -name of insured, age, gender and name of policyowner -date policy will be effective -date of termination -premium payment period -if policy is a term policy, and renewability of policy -any optional provisions or riders attached and amount of premium to be paid for each

Fixed vs Flexible

Fixed: same amount paid periodically Flexible: policyowner is allowed to pay more or less than planned premium

Genetic Testing

Genetic Characteristics: any scientifically or medically identifiable gene or chromosome that is known to be a cause of disease or disorder -determined to be associated with a statistically increased risk of development of a disease or disorder -insurers cannot require test with presence of genetic characteristic for purpose of determining insurability -when genetic test is conducted, applicant must give written consent -insurer notifies applicant of result directly or through physician

Human Life Value Approach

Gives insured estimate of what would be lost to family in the event of premature death of insured -calculates individuals life value by looking at insured wages, inflation, number of years to retirement and time value of money Example: Let's assume that a 40-year-old insured earns $50,000 a year and is expected to earn the same amount until he retires at age 65. Out of his annual income, $40,000 is spent on family needs, and the remaining $10,000 goes to the insured's personal expenses. This means that the human life value of this insured to his family is $1,000,000 ($40,000 a year spent on family needs x 25 years to retirement). Based on this assumption, and taking interest and inflation into consideration.

Risk Classification

Home Office underwriting department will look at applicants past medical history, present physical condition, occupation, habits and morals -Risk or Rating Classification: used for accepted applicant to determine if they should pay higher or lower premium -Prospective insured may be rate as one of three classifications: standard, substandard, or preferred

Effective Date of Coverage

If initial premium is not paid with application, agent is required to collect premium at time of policy delivery -policy will not go into effect until premium is collected -agent required to get statement of good health from insured: must be signed and verifies that insured has not suffered injury or illness since application date If premium was submitted with application and policy was issued, coverage would coincide with date of application -if medical exam is required, date of coverage will coincide with date of exam

Illustration Do's and Don'ts

Illustration used in the sale of life insurance policy must contain: -name of insurer -name and business address of producer or insurers authorized representative -name, age and sex of proposed insured, except when a composite illustration is permitted under this regulation -underwriting or rating classification upon which illustration is based -generic name of policy, company product name, and form number -initial death benefit -dividend option election or application of nonguaranteed elements -illustration date -label stating "Life Insurance Illustration" Insurer or producer may NOT do the following: -represent the policy as anything other than life insurance -describe nonguaranteed elements in manner that could be misleading -use illustration that depicts policys performance as being more favorable than it really is -provide incomplete illustration -claim premium payments will not be required for each year of policy in order to maintain the illustrated death benefits, unless it is fact -use term "vanish" or "vanishing premium" or similar term that implies policy becomes paid up -use an illustration that is not self supporting

Cost Indexes

Indexes measure and compare actual policy cost- comparisons include policy illustrations Traditional Net Cost Index: compares cash values available to buyers if they surrender policy in 10 or 20 years -does not take into consideration time value of money Interest Adjusted Net Cost Index: compares death benefits that are paid at death in 10 or 20 years, if insured died at the same time, and accounts for time value of money Term Life Insurance Monetary Value Index: commissioner must consider actual premiums and policy benefits and manner in which they are affected with the passage of time -by regulation, to be disclosed in all ads and policies for people 55 or older -must assume insured wants to retain coverage for at least 10 years

Personal Financial Planning

Information needed to be gathered: 1. Debt 2. Income 3. Mortgage 4. Expenses -these costs take into account final medical expenses of insured, funeral expenses, day to day expenses of maintaining a family (rent, car, utilities, groceries, etc) -other needs include estate taxes, day care, insurance premiums, etc

Debt Cancellation

Insurance may be used to create a fund to pay off debts such as home mortgage or auto loans

Education Funds

Insurance may be used to pay for childrens education so they can remain in school -surviving spouse who works at home to take care of child will need to receive education or training to re-enter job market -if they work outside of home, expense for day care to be considered

Retirement Fund

Insurance proceeds may be used as source or retirement income

Emergency Reserve Funds

Insurance proceeds may be used to assist in paying for sudden expenses following death of insured -travel expenses and lodging for family coming from a distance

Bequests

Insured may wish to leave funds for their church, school or other organization at their death

Company Underwriting

Insurer needs to obtain applicants background information and medical history to properly select and classify insurance risks

Buy-Sell Insurance/ Business Continuation Agreeent

Legal contract that determines what will be done with business in event that owner dies or becomes disabled Types of buy-sell agreements: -Cross Purchase: used in partnerships when each partner buys a policy on the other -Entity Purchase: used when partnership buys policies on the partners -Stock Purchase: used by privately owned corporations when each stockholder buys a policy on each of the others -Stock Redemption: used when corporation buys one policy on each shareholder

Methods for Policy Delivery and Delivery Receipt

Life and/or disability insurance policies must be signed and dated to remain valid and avoid conflict -California Code requires all life/disability contracts in the state to be signed and dated by policyowner the day they receive policy -nothing added after this date is considered part of entire contract, unless agreed upon; additions must be signed by each party and attached to original contract -statements made and incorporated into policy are considered representations Acceptable methods of delivery: -personal delivery with signed and dated written receipt -registered or certified mail (requires signature) -first class mail with signed and dated written receipt -other means determined by commissioner

Stranger-Originated Life Insurance (STOLI) - Fraudulent Life Settlements

Life insurance arrangement in which a person with no relationship to insured purchases a life policy on the insured's life with intent of selling policy to an investor and profiting financially until insured dies - ILLEGAL -STOLIs are financed and purchased solely with intent on selling them for life settlements -violates principle of insurable interest: in place to ensure that purchaser is interested in the longevity rather than death of insured -STOLIs are initiated for purpose of obtaining policy that benefits person with no insurance interest in the life of the insured -California law states anybody purchasing life insurance on another must have insurance interest on that person; otherwise it is void

Liquidation/Retention

Liquidation: selling assets is method of raising capital Retention: retaining of assets If the principal asset is the home, selling the home would require that the survivors then pay rent. Under the retention of capital approach, enough insurance is purchased so that when added to other liquid assets, there is enough to pay income benefits without invading the principal.

Modified Pay

Lower premium charge in first few policy years (3-5), then higher level premium for remainder of insureds life -were developed to make purchase of whole life insurance more attractive to those starting out with limited financial resources

Medical Information Bureau (MIB)

Membership corporation owned by member insurance companies -nonprofit trade organization which receives adverse medical info from insurance companies and maintains confidential medical impairment info -systematic method for companies to compare info they have collected on potential insured with info other companies have discovered -can only be used as aid to help insurers know areas of impairment that they need to investigate further

Premium Payment Mode

Mode: frequency the policyowner pays the premium -rates are based on assumption that premium will be paid annually at beginning of policy year and company will invest in premium for a full year BEFORE paying claims -if policyowner chooses to pay premium more frequently, there will be an additional charge -can be paid annually, semi annually, quarterly or monthly higher frequency = higher premium monthly > quarterly > semi annual > annual -if insured dies during period which premium has been paid, insurer must refund any unearned premium

Premiums with the Application

Most agents attempt to collect initial premium to submit with application -collecting initial premium at time of application increases chance that applicant will accept policy once issued - when agent collects premiums, agent must issue premium receipt -type of receipt issued will determine when coverage will be effective

Conditional Receipt

Most common type of receipt -used when applicant submits prepaid application -says that coverage will be effective either on date of application or date of medical exam, whichever occurs last as long as applicant is found to be insurable as standard risk and policy is issued exactly as applied for -this rule will not apply if policy is declined, rated, or issued with rider excluding specific coverages Example: If an agent collects the initial premium from an applicant and gives the applicant a conditional receipt, and the applicant dies the next day, the underwriting process will proceed as though the applicant were still alive. If the insurer ends up approving the coverage, then the applicant's beneficiary will receive the death benefit of the policy. If, on the other hand, the insurer determines that the applicant was not an acceptable risk and declines the coverage, the premium will be refunded to the beneficiary, and the insurer is not required to pay the death benefit.

Nonmedical Application and Required Medical Examinations

Nonmedical Application: medical portion of application which accepts a health questionnaire completed and signed by applicant and agent -does NOT require medical examination -amount of insurance must be relatively nominal For larger amounts of insurance: insurer requires medical exam by professional

Policy Delivery

Note: Without written and signed proof of delivery, the burden of proof of delivery falls on the insurer and its agent in any legal dispute. Without a signature and date, it is difficult to establish when the appropriate free-look period or right of rescission started. If a loss should occur during this time, it needs to be clear whether a claim should be paid and whether the client accepted or rejected the policy. It is also good practice to get a signed and dated receipt/note when a client rejects a policy in case he/she passes away shortly thereafter (and the family expects an incorrect death benefit).

Explaining the Policy

Personal delivery allows agent to make sure that insured understands all aspects of the contract -review of contract involves pointing out provisions or riders that may be different than anticipated and explaining effect they have on contract -agent should explain rating procedure especially if they're rated differently -explain other choices and provisions available to policyowner

Single Premium

Policyowner makes one lump-sum payment to create a policy -single premium whole life policy will generate immediate cash value -most companies require minimum premium of $5000 of more

Limitations on Post-Selection

Post-Selection Process by in house underwriters: after producer has elected to complete and submit application -underwriter investigates clients complete risk profile -after careful consideration, underwriter label client as standard, substandard or uninsurable -Substandard: offered opportunity to obtain coverage under a higher than standard premium After given authorization for disclosure of information, underwriter investigates using following sources: -MIB (Medical Information Bureau): centralized information database in which insurers provide information from applications and claims (insurers use this to gather info on client) -Department of Motor Vehicles: poor driving record can result in rating of declination -Physical/medical facility record: APS (attending physician statement) enables insurer to receive complete medical treatment history of client -Additional medical testing/Current physical: insurer can request applicant be examined by physician --> blood, urine, or saliva samples to check for nicotine or other drugs and presence of HIV -Financial Reports: to detect whether client has history of financial malfeasance -Personal Interviews: coworkers, neighbors, relatives, acquaintances can be contacted by phone -Hazardous activity questionnaire: separate questionnaire to determine applicants risk classification --> includes questions regarding hobby aviation, scuba diving, auto, boat, motorcycle racing or mountain climbing

Limitations on Pre-Selection

Pre-Selection: agent or broker is able to accomplish good pre-selection by a complete, accurate and thorough completion of application -applications asks for information to do effective post-selection underwriting -during application process, agent is in position to terminate if they find client poses an untenable risk to insurance company, or explain to client why their risk may be higher than normal -producer not allowed to collect info not asked for on application, but can seek details for those that appear (ex: extent of involvement in hazardous activities) -necessary to emphasize responsibility of producer not to withhold from the principal any info which may be negative to clients risk

Preferred Ratin

Preferred Risks: those who meet certain requirements and qualify for lower premiums than standard -have superior physical condition, lifestyle and habits

Process of Issuing a Life Insurance Policy: Illustrations

Presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years -agent may use illustrations that have bee approved and may not change them Illustration must do the following: -distinguish between guaranteed and projected amounts -clearly state that an illustration is not part of the contract -identify values that are not guaranteed

Process of Issuing a Life Insurance Policy: Solicitation and Sales Presentations

Process of issuing life insurance policy begins with solicitation -Solicitation of insurance: an attempt to persuade a person to buy an insurance policy and it can be done orally or in writing -includes: providing information about available products, describing policy benefits, making recommendations about specific type of policy, trying to secure a contract between the applicant and insurance company -any sales presentations by insurers or agents with public must be accurate and complete

Investigative Consumer Reports

Provide info on consumers character, reputation and habits -info obtained through an investigation and interviews with associates, friends, and neighbors of consumer -cannot be made unless consumer is advised in writing about report within 3 days of date the report was requested -consumers must be advised they have right to request additional information concerning report; insurer has 5 days to provide this -under Fair Credit Reporting Act: knowingly and willingly obtaining info from consumer report under false pretenses will be fined and/or imprisoned for up to 2 years -Unknowingly violating Fair Credit Reporting Act is liable in amount equal to loss to consumer and attorney fees -willfully violating Act to constitute general pattern or business practice is subject to penalty of up to $2500 -consumer has right to know what was in the report; if consumer challenges any info on report, reporting agency must reinvestigate and amend report -prohibited information that is connected with life insurance policy or credit transaction of less than $150,000: bankruptcies more than 10 years old, civil suits, records of arrest or convictions of crimes, other negative info over 7 years old --> Negative Information: info regarding customer's delinquencies, late payments, insolvency

Agent's Report

Provides agents personal observations concerning proposed insured -does not become part of entire contract -part of application process

Buyer's Guide

Provides basic, generic information about life insurance policies that contains and is limited to language approved by Department of Insurance -explains how buyer should go about choosing amount and type of insurance and how they can save money by comparing costs of similar policies -insurers must provide guide to all prospective policy applicants prior to accepting initial premium

Immediate Estate

Purchase of life insurance creates immediate estate -estate creation is important for young families getting started but have not had time to accumulate assets -once first premium is paid, insured has estate of at least that amount -life insurance may be used to accumulate specific amounts of monies for specific needs with guarantees that the money will be available when needed -as a result of cash accumulation feature, some policies provide "liquidity": cash values can be borrowed at any time and used for immediate needs

Underwriting

Risk selection process Responsibilities of underwriter: selecting only risks that are considered insurable and meet underwriting standards -purpose is to protect insurer against adverse selection (risks which are more likely to suffer a loss) Primary criteria underwriter will use to assess desirability, applicants: health (current and past), occupation, lifestyle, hobbies or habits -underwriting requirements differ by insurers

Business Overhead Expense (BOE)

Sold to small business owners who must continue to meet overhead expenses following a disability -expenses such as rent, utilities, employee salaries, installment purchases, etc -policy reimburses the owner for actual overhead expenses while totally disabled -does not reimburse owner for their own salary, compensation, or other form of income that is lost -elimination period of 15 to 30 days -benefits limited to one or two years -premiums paid are tax deductible as a business expense -benefits received are taxable to business as received

Process of Issuing a Life Insurance Policy

Solicitation and Sales Presentations --> Underwriting: Field and Company --> Premium Determination --> Policy Issue and Delivery -every applicant is given a written disclosure statement that provides basic information about cost and coverage of insurance solicited -statement must be given no later than time the application is signed -statements help applicants make informed and educated decisions

Standard Rating

Standard Risks: person who are entitled to insurance protection without extra rating or special restrictions -representative of majority of people at their age with similar lifestyles -they are average risk

Application

Starting point and basic source of information -all have same basic components Part 1- General Information: -includes general questions such as name, age, address, birth, gender, income, marital status, occupation -inquire about existing policies and if proposed insurance will replace them -identifies type of policy applied for and amount of coverage -contains information concerning beneficiary Part 2- Medical Information: -includes info on prospects medical background, present health, medical visits in recent years, medical status of living relatives, causes of death of deceased relatives -nonmedical application: small insurance amounts; agent and prospect will complete all medical information -larger amounts: require medical examination by professional -agents responsibility to make certain that application is filled completely, correctly, and to the best of applicants knowledge -agent must probe beyond stated questions if they have reason to believe applicant is misrepresenting or concealing; agent must inform insurer if they feel this happens -misleading, inaccurate, illegible info will delay issuance -some insurers require agent watch applicant complete it, others require agent to fill it out themselves

Substandard (High Exposure) Rating

Substandard risk: not acceptable at standard rates because of physical condition, personal or family history of disease, occupation or dangerous habits -referred to as "rated" because they could be issued with "premium rated-up" = higher premium

Guaranteed at Initial Level vs Initial and Maximum Premiums

Term policies and most permanent policies have premiums guaranteed at initial levels -insurer overcharges insured in policys early years and applies excess in the later years to fund increased mortality costs Premium Tables: insurers use to determine cost of insurance based on insureds age and other underwriting factors -can be used to compare initial premiums and maximum premiums charged by 2 types of policies for specific class of insured Example: Premium Estimates for $500,000 of Term Life Insurance Coverage Year-Level Premium Term-Annually Renewable Terms 1 $400 $300 2$400 $315 3$400$325 4$400$345 5$400$380 6$400 $455 7$400 $525 8$400$600 9$400$725 10$400$850 11$400$1,000 12$400$2,225 13$400$2,350 14$400 $2,540 15$400 $2,625 TOTAL $6,000 $15,560 These rates are calculated for a 35-year-old male, nonsmoker. These are sample rates only; actual rates may vary due to other underwriting factors

No "Standard" Life Policy

There are no "standard" life insurance policies

Medical Information and Consumer Reports

Two options for underwriter requiring additional medical examination: 1. insurer may only request paramedical report, completed by paramedic or registered nurse 2. underwriter may require Attending Physicians Statement (APS) from medical practitioner who treated applicant for prior medical problem

Temporary (or Interim) Insurance Agreement

Used to bridge gap between applicants request for immediate coverage and insurers need for thorough underwriting -requires payment of first premium at time of application but does not guarantee policy will be issued 3 types: -conditional receipt (most commonly used) -30 day interim term receit -acceptance form of receipt Temporary term: protection period offered by binding receipts -during this time, insurance company is liable for maximum amount guaranteed under binding receipt/temporary insurance agreement

Use and Disclosure of Insurance Information

When insurers plan to seek and use info from investigators, they must provide applicant wit written Disclosure Authorization Notice -state insurers practice regarding collection and use of personal info -must be written in plain language -must be approved by head of Department of Insurance

Policy Issue and Delivery

When underwriting process is complete and company issues policy, agent will deliver it to insured -personal delivery of policy is best method -mailing policy directly to policyowner is acceptable; considered legally delivered -advisable to obtain signed Delivery Receipt

Policy Summary

Written statement describing features and elements of policy being issued Must include: -name and address of agent -full name and home office or admin office address of insurer -generic name of basic policy and each rider -premium -cash value -dividend -surrender value -death benefit figures for specific policy years -summary must be provided when policy is delivered