Chapter 1: Completing the App, UW, and Delivering the Policy
All of the following are requirements for life insurance illustrations...
1) They must differentiate between guaranteed and projected amounts 2) They may only be used as approved 3) They must identify nonguaranteed values
What are the four elements of an insurance contract?
1. Agreement (offer & acceptance) 2. Consideration (cash) 3. Competent parties 4. Legal purpose
What two elements are necessary for a life insurance contract to have a legal purpose?
1. Insurable interest 2. Consent
What are the three types of risk rating classifications in life insurance?
1. Standard 2. Substandard 3. Preferred
If a consumer requests additional info concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?
5 days
What is policy replacement?
A new policy is issued while an existing policy is terminated or reissued with a reduction in cash value
Which of the following documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years?
A policy summary
The term "illustration" in a life insurance policy refers to...
A presentation or depiction that includes nonguaranteed elements of a policy over a period of years
Who is a field underwriter?
Agent/Producer
What is a warranty in an insurance contract?
An absolutely true statement upon which the validity of the policy depends
When must insurable interest exist in a life insurance policy?
At the time of application
When must the policy summary for a life insurance policy be delivered to the policyowner?
At the time of the policy delivery
When a change needs to be made on the application for insurance, which is the best method for correcting the information?
Complete a new application or ask the applicant to initial the correction on the original application
When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is...
Conditional
Health contracts are prepared by insurers and must be accepted by the insured on an as is basis. This describes what aspect of a health insurance contract?
Contract of adhesion
During which stage in the insurance process do insurers evaluate information that identifies adverse selection risks?
Underwriting
What is the name of the process that insurance companies use to determine whether or not an applicant is insurable?
Underwriting
In health insurance contracts, the insured is not legally bound to any particular action; however, the insurer is obligated to pay for losses covered by the policy. What contract element does this describe?
Unilateral
When would a misrepresentation on an insurance application be considered fraud?
When it is intentional and material
When would a misrepresentation be considered material?
When it may alter the underwriting decision
In insurance, when is the offer usually made on a contract?
When the insurance application is submitted
In forming an insurance contract, when does an acceptance usually occur?
When the insurer approves a prepaid application
When does an insurance policy go into effect?
When the policy is delivered and the premium is paid
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 type of report provides information about the applicant's hobbies, habits and financial status?
Investigative Consumer Report
At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?
Either on the date of the application or the date of the medical exam (whichever occurs last)
What do individuals use to transfer their risk of loss to a larger group?
Insurance
What entities make up the Medical Information Bureau?
Insurers
Fraud
Intentional misrepresentation or deceit with the intent to induce a person to part with something of value.
What report is used to assess risk associated with a health insurance applicant's lifestyle & character?
Investigative Consumer Report
What best describes the MIB?
It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance
What is the purpose of a conditional receipt?
It is intended to provide coverage on a date prior to the policy issue
Insurance is a contract that protects the insured from what?
Loss
Health insurance contracts are unilateral. What does this mean?
Only one party makes a legally enforceable promise
What is adverse selection?
People who are more likely to submit insurance claims are seeking insurance more often than preferred risks
How can health insurance policies be delivered to the insured?
Personally delivered by the agent or mailed
What document describes the specific information about a policy?
Policy summary
What risk classification would typically qualify for lower premiums?
Preferred risk
What term describes the fee a person pays an insurance company to receive coverage?
Premium
If an insurer needs to obtain info about the applicant from investigators, what is the insurer required to do?
Provide the applicant a Disclosure Authorization Notice
What is the best way to handle incomplete insurance applications?
Return the application to the applicant for completion
What is the main responsibility of a company's underwriting unit?
Risk selection
If an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do?
Send the application back to the applicant for signature
What law protects consumers from the circulation of inaccurate or obsolete information?
The Fair Credit Reporting Act
If an applicant does not receive a copy of the new insurance policy, who would be held responsible?
The agent
Whose responsibility is it to determine that all the questions on an insurance application are answered?
The agent's
What is the purpose of the agent's report during the application process?
The agent's report discusses the agent's personal observations about the proposed insured that may help in the underwriting process.
In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports?
The consumer's associates, friends, and neighbors provide the report's data
If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern?
The existence of insurable interest between the applicant and the insured
Who must have insurable interest in the insured?
The policyowner
What is insurance underwriting?
The process of risk selection and classification
How is the information obtained for an investigative consumer report?
Through interviews with the applicant's associates, friends and neighbors
Adverse Selection
insuring of risks that are more prone to losses than the average risk