Chapter 1: Field Underwriting Procedure

In insurance, an offer is usually made when?

- An applicant submits an application to the insurer (The offer is usually made by the applicant in the form of the application)

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

- Insurable interest and consent (To ensure legal purposes of a life insurance policy, it must have both insurable interest and consent)

Personal

-between insurer and insured -it is not transferable to the people

Representation (application statement)

-statements that are true to the best of applicants knowledge -not guaranteed to be true

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? A.) 5 days B.) 7 days C.) 10 days D.) 3 days

A - 5 days (Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information)

Unique Aspects of the Contract

Aleatory, personal, adhesion, unilateral, conditional

What is the term used for a written request for an insurer to issue an insurance contract based on provided information?

Application

What entities make up the Medical Information Bureau (MIB)?

Insurers

Competent Parties

Legal age, mentally competent, and not under the influence of drugs or alcohol (agreement cannot be legal without competent parties)

What is the best way to make a change on an application for insurance?

Start over with a fresh application

Whose responsibility is it to inform an applicant for health insurance about the insurer's information gathering practices?

The agent

If an insurer decided to obtain medical information from different sources in order to determine the insurability of an applicant, who must be notified of the investigation?

The applicant

In health insurance, the policy itself and the insurance application form what?

The entire contract

Legal purpose

cannot break the law (not against public policy and must have insurable interest and consent)

consent

permission to do something

premium

the money paid to the insurance company for the insurance policy

policyowner

the person entitled to exercise the rights and privileges in the policy

insurable interest

the policyowner facing the possibility of losing something of value in the event of a loss

Attending Physician Statement (APS)

-greater risk -need to obtain specific medical information or for accurate information -helps determine likelihood of claims -less expensive than medical exam -usually request a medical information bureau (MIB) report

An insured is upset that her new health insurance policy was delivered to her by certified mail and not through her agent. Which of the following is true? A.) The policy will not be legal until it is delivered by an agent B.) There is nothing wrong with this form of policy delivery C.) The insured should complain to the insurer D.) The insured should ask for a new policy to be delivered

B - There is nothing wrong with this form of policy delivery (Although it is advisable for an agent to personally deliver a policy, in order to answer any questions and insure delivery, it is legal for a policy to be effectively delivered without the presence of an agent. It is legal to deliver a policy through some types of mail.)

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What characteristics does this describe? A.) Conditional B.) Personal C.) Adhesion D.) Unilateral

C - Adhesion (A contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as it is written)

On a health insurance application, a signature is required from all of the following individuals EXCEPT A.) The policyowner B.) The agent C.) The spouse of the policy owner D.) The proposed insured

C - The spouse of the policyowner (Every health insurance application requires the signature of the proposed insured, the policyowner (if different than the insured), and the agent who solicits the insurance)

Insurer's "BLANK" is the promise to pay for loses; insured's "BLANK" is the premium and statement of application

Consideration

What is the best way to change an application? A.) Erase the previous answer and replace it with the new answer B.) White-out the previous answer C.) Draw a line through the incorrect answer and insert the correct one D.) start over with a fresh application

D - Start over with a fresh appliction (Most companies require that the app be filled out in ink. The agent might make a mistake when filling out the app or the applicant might answer a question incorrectly and want to change it. There are 2 ways to correct an application. The first and best is to simply start over with a fresh application. If that is not practical, draw a line through the incorrect answer and insert the correct one. The applicant must initial the correct answer)

Whose responsibility is to determine if all the questions on an application have been answered? A.) The insurer B.) The applicant C.) The beneficiary D.) The agent

D - The agent (Its the responsibilty of the agent to make sure that the application has been properly signed and that all questions have been answered correctly)

Which of the following is not a consideration in a party? A.) Something of value exchanged between parties B.) The premium amount paid at a time of application C.) The promise to pay covered loses D.) The application given to a prospect insured

D.) The application given to a prospective insured (Consideration is something of value that is transferred between 2 parties to form a legal contract)

If an agent makes a correction on the application for health insurance, who must initial the correct answer?

The applicant

What is the entire contract in health insurance underwriting?

The application and the policy issued

Who must sign a health insurance application?

The policyowner, insured (if different), and the agent

insurance policy

a contract between a policyowner (and/or insured) and an insurance company who agrees to pay the insured or the beneficiary for loss caused by specific events

Conditional

certain conditions must be met

Consumer report

information collected from employment records, credit reports, and other public sources

Insured

person who is covered by the insurance policy; may or may not be the policyowner

insurer (principle)

the company who issues an insurance policy

Completing the application

-completeness and accuracy -signatures -changes in the application -premiums with the application

Agents responsibility

-explain the policies benefits and provisions -explain any changes or amendments -obtain insured's signature acknowledging amendments

Under the Privacy Rule for HIPAA, protected information includes all individually identifiable health information A.) Held in a computer format B.) held or transmitted in paper form C.) Held or transmitted in any form D.) Transmitted electronically only

C - Held or transmitted in any form (Under the Privacy Rule for HIPPA, protected information includes all individually identifiable health information held or transmitted by a covered entity or its business associate in any form or media, whether electronic, paper, or oral. This is called protected health information (PHI))

Which of the following entities can legally bind coverage? A.) Federal Insurance Board B.) Agent C.) Insurer D.) The insured

C - Insurer (Only insurers, not agents, can bind coverage)

Replacement

-terminating existing policy -obtain new policy -Never cancel the old one until the new one is issued

Elements of a legal contract (Legally binding, 4 elements)

1. Agreement 2. Consideration 3. Competent Parties 4. Legal Purpose

The insurance policy, together with the policy application and any added riders form what is known as a(n) A.) Certificate of coverage B.) Contract of adhesion C.) Blanket policy D.) Entire contract

D - Entire contract (When a policy is issued, a copy of application, any riders and amendments are attached to the back of the policy and become part of the entire contract)

The Medical Information Bureau was created to protect A.) Insurance departments from lawsuits by policyowners B.) Insureds from unreasonable underwriting requirements by the insurance companies C.) Medical examiners that perform insurance physical examinations D.) Insurance companies from adverse selection by high risk persons

D - Insurance companies from adverse selection by high risk persons (The MIB makes information available to underwriter to assist them in the underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals)

In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports? A.) They provide additional information from an outside source about a particular risk B.) They provide information about a customer's character and reputation C.) The customer has no knowledge of this action D.) The customer's associates, friends, and neighbors provide the report's data

D - The customer's associates, friends, and neighbors provide the report's data (Both consumer reports and investigative consumer reports provide additional information from an outside source about a customer's character and reputation, and both types of reports are used under the Fair Credit Reporting Act. The main difference is that the information for investigative consumer reports is obtained through an investigation and interviews with associates, friends and neighbors of the consumer)

If an underwriter requires extensive information about the applicants medical history, what report will best serve this purpose?

- Attending Physician's Statement (APS, will be sent to the applicant's doctor to be completed. Who treated the applicant for a prior medical problem. In addition to APS, the underwriter will usually request a MIB report)

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

- When an insurer's underwriter approves coverage (Acceptance takes place when an insurer's underwriter approves the application and issues a policy)

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT A.) Offer and acceptance B.) Conditions C.) Consideration D.) Legal Purposes

B - Conditions (Conditions are part of the policy structure. Consideration is an essential pert of a contract)

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it? A.) Conditional B.) A legal (but unethical) contract C.) Unilateral D.) Adhesion

C - Unilateral (In a unilateral contract, only one of the parties to the contract is legally bound to do anything)

Which of the following includes information regarding a person's credit, character, reputation, and habits? A.) Consumer history B.) Insurability report C.) Agent's report D.) Consumer report

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

When would a misrepresentation on the insurance application be considered fraud? A.) Never: statements by the applicant are only representations B.) When the application is incomplete C.) Any misrepresentation is considered fraud D.) If it is intentional and material

D - If it is intentional and material (A misrepresentation would be considered fraud if it is intentional and material. Fraud would be grounds for voiding the contract)

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract? A.) Concealment B.) Indemnity C.) Representation D.) Warranty

D - Warranty (A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties but representations. Representations are statements that are true to the best of the applicant's knowledge)

Adhesion

"take it or leave it" - you have to stick to the terms of the contract, you cannot change the provisions of a contract

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promise to pay $10,000 for a covered loss. What characteristics of an insurance contract does this describe? A.) Aleatory B.) Good health C.) Adhesion D.) conditional

A - Aleatory (In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price)

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following EXCEPT A.) Conditions B.) Consideration C.) Legal purpose D.) Offer and acceptance

A - Conditions (Conditions are part of the policy structure. Consideration is an essential part of the contract)

When should an agent obtain a Statement of Good Health from the insured?

- When the premium was paid upon delivery and not at the time of application (In cases where a premium did not company the application, upon delivery, the agent must collect the premium and obtain a statement of good health)

An insurance contract must contain all of the following to be considered legally binding EXCEPT A.) Beneficiary's Consent B.) Offer and acceptance C.) Consideration D.) Competent parties

A - Beneficiary's consent (The four essential elements of all legal contracts are offer and acceptance, consideration, competent parties, and legal purposes)

What is a material misrepresentation? A.) Any misstatement by the producer B.) Concealment C.) A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company D.) Any misstatement made by an applicant for insurance

C - A statement by the applicant that, upon delivery, would affect the underwriting decision of the insurance company (A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company)

Which of the following would qualify as a competent party in an insurance contract? A.) The applicant has a prior felony conviction B.) The applicant is intoxicated at the time of application C.) The applicant is a 12-yr-old student D.) The applicant is under the influence of a mind-pairing medication at the time of application

A - The applicant has a prior felony conviction (When an insurer and insured enter into a contract, bot parties must be of legal age and mentally competent. It is legal for a person convicted of a prior felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12-yr-old student is considered underage in most states, and a person under mind-pairing medication is not mentally competent.)

Policy delivery

-personal delivery is best -mail is acceptable -delivery receipt is advisable once the delivery is made, the free-look period begins -In cases where a premium did not accompany the application, upon delivery, the agent must collect the premium and obtain a statement of good health before releasing the policy

investigative consumer reports

-similar to consumer reports, but additional information is obtained through an investigation and interview with associates, friends, or neighbors of the consumer (insured). If there isn't enough information from the consumer report -consumer must be advised in writing about the report within 3 days of request

Aleatory

-unequal exchange -premiums are always smaller than what the insurance claim payouts would be -an insured may pay $200 in premiums, $100 each month for two months, then something happens and the insurance company has to pay the claim

To comply with the Fair Credit Reporting Act, when must a producer notify an applicant that a credit report may be requested? A.) At the time of application B.) When the applicant's credit is checked C.) When the policy is delivered D.) At the initial interview

A - At the time of application (A notice to the applicant must be issued to all applicants for health insurance coverage)

What documents describes an insured's medical history, including diagnoses and treatments? A.) Attending Physician's Statement B.) Physicians review C.) Individual medical summary D.) Comprehensive medical history

A - Attending Physician's statement (An APS is the best way for an underwriter to evaluate an insured's medical history. The report includes past diagnoses, treatments, length of recovery time, and prognoses)

Which of the following would provide an underwriter with information concerning an applicant's health history? A.) The inspection report B.) The Medical Information Bureau C.) A medical examination D.) The agent's report

B - The Medical Information Bureau (An agent's report and inspection report provide personal information. Medical exams provide information on current health. Only MIB will provide information about an applicant's medical history)

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? A.) Conditional B.) Unilateral C.) Unidirection D.) Aleatory

B - Unilateral (In a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy)

Which of the following is NOT an essential element of an insurance contract? A.) Legal Purpose B.) Counteroffer C.) Consideration D.) Agreement

B - Counteroffer (In order for insurance contracts to be ;egally binding, they must have four essential elements: agreements (offer and acceptance), Consideration, Competent parties, and legal purpose. Counteroffer is not required)

When an insured makes truthful statements on the application for insurance and pays the required premium it is known as what?

- Consideration (Consideration is something of value that each party gives to the other. The consideration on part of the premium and the representations made in the application)

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated? A.) Good Faith B.) Representation C.) Adhesion D.) Consideration

D - Consideration (The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representation made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss)

Notice to the applicant

-Agent provides the applicant with a "notice to the applicant" and leaves it with the applicant -The notice informs that credit report will be pulled -The insurance company wants to look at the credit history so they know you are paying your bills

Consumer reports and Investigative consumer reports

-Inspection report on the applicant from an independent investigating firm or credit agency that cover financial and medical information (Credit history, Nature of character, Employment records, Hobbies, Habits)

Premiums with the application

-Premium receipt: the type of receipt issued when premiums are collected with the application -Conditional receipt: states that coverage will be effective either on the date of application or the date of the medical exam, whichever occurs last, as long as the policy is issued as applied for. Will not be issued unless premium has been paid

HIPPA privacy

-Protected Health Information (PHI): all individually identifiable health information held or transmitted by a coverage entity or its business associate (Paper, Electronic, Oral, Media, etc) -A covered entity must obtain the individuals written authorization to disclose information that is not for treatment, payment, or healthcare operations -A way to protect your privacy

Required Signatures

-Required signatures; agent + applicant + owner (if not applicant) -Minimum two signatures are required (Agent, and Proposed insured buying insurance on themselves) -If the owner is different (wife buys insurance on her husband), then three signatures are needed: (Agent, Wife (owner), and Husband (proposed insured))

Warranty(ies) (Application Statement)

-absolutely true statements -breach of warranties can void the policy or a return of premium

Sources to determine the eligibility of the applicant

-attending physician statement (APS) -medical exams -consumer reports (rules for using these sources fall under HIPPA and fair credit reporting act)

Misrepresentation

-is untrue and the truth is available (misspoke, forgot) -lying on purpose = intentional misrepresentation

Insurable Interest

Valid insurable interest must exist between the POLICYOWNER AND THE INSURED when the policy is insuring and of the following: -policyowner's life -the life of a family member -the life of a business partner, key employee, or someone who has a financial obligation to the policyowner (Valid insurable interest in life insurance MUST EXIST AT THE TIME OF APPLICATION)

agent/producer

a legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer

applicant or proposed insured

a person applying for insurance

Completeness and accuracy

-Application = main source of underwriting -Agents job to ensure the application is -Complete -Correct -Best of the applicants knowledge

Who is responsible for paying the cost of a medical examination required in the process of underwriting?

Insurer

Medical Information Bureau (MIB)

-nonprofit trade organization compromised of member insurance companies -stores and shares medical information among member insurers helps uncover misrepresentation and prevent concealment - purpose of MIB -adverse medical information from MIB cannot be sole reason to denial of coverage

Which of the following best describes the Medical Information Bureau (MIB)?

- It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance (The Medical Information Bureau (MIB) is a nonprofit organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals)

Changes in the application

-Best way to handle an error: (Start fresh with new application) -Second option: (Draw a line through the error, and have the applicant initial the change) *Never erase or use white out on an error; agent does not initial change*

Material misrepresentation

-info that was misrepresented that would have change the decision of the insurance company (premium, policy type of coverage could be different) -If intentional, it is considered fraud -Age is an example

What information are the members of the Medical Information Bureau (MIB) required to report?

Adverse medical information about the applicants or insured

Agreement

An agreement is made when one party presents an offer, and another party accepts it - offer: customer submits an application for insurance - acceptance: insurance company provides the acceptance, underwriter approves the application and issues a policy

Consideration

An exchange of value, the applicant gets what they want and the insurance company gets what they want -Insurance company: promise to pay claims -Policyowner/insured: statements of the application, premium payment

If an insurance company wishes to order a consumer report on an applicant to assist in the underwriting process, and if a notice of insurance information practices has been provided, the report may contain all of the following EXCEPT the applicant's A.) Prior Insurance B.) Ancestry C.) Credit History D.) Habits

B - Ancestry (The Fair Credit Reporting Act regulates what information may be collected and how the information may be used. Consumer reports include written and/or oral information regarding a consumer's credit, characteristics, reputation, and habits collected by a reporting agency from employment records, credit reports, and other public sources. Ancestry is not a relevant factor assessed in these reports)

Policy + application =

entire contract (application is the written request to an insurance company to issue a policy)

Unilateral

one-sided promise, only the insurance company is legally bound to do anything