Chapter 2 Introduction of Life Insurance

What must occur if the initial premium is not paid with the application?

When the initial premium is not paid with the application, the producer must collect the premium before coverage can begin. The producer must also obtain a signed Statement of Good Health from the applicant/insured at the time of policy delivery

Which of these modes would result in the insured paying the least annual outlay for life insurance? A. Quarterly B. Monthly automatic bank draft C. Annual D. Semi-annual payroll deduction

Annual Paying premiums on an annual basis is always the least costly premium mode. Paying premiums monthly is usually the most expensive mode. Although some insurers may offer a discount for automatic monthly bank drafts, not all do, so this is not an acceptable choice. Payroll deduction is not a "mode."

Life Insurance

is a product that is sold primarily to protect against financial and economic loss in the event of unexpected and/or untimely death. -In short, life insurance provides peace of mind and security.

Death Benefit

proceeds can help cover the cost of final expenses and funeral costs, pay off outstanding debts such as a mortgage, loss of income to a survivor, and even future educational expenses for dependents

Which of the following signatures would not be considered valid on an application for insurance? A. The licensed producer B. The policyowner C. A guardian applicant D. A minor insured

A minor insured -Both the producer or agent and the applicant/insured must sign the application unless the guardian is signing for a minor.

In a replacement transaction, the insurer that is having its policy replaced is known as the _______ insurer. A. Conserving B. Insolvent C. Existing D. Replacing

Existing -The existing insurer is the insurer who has a policy subject to replacement.

The term 'mode' refers to the: A. Frequency of premium payments B. Method used in policy delivery C. Rate the underwriters apply to the policy D. Claims process

Frequency of premium payments -Mode refers to the frequency of premium payment, such as monthly or annually.

Expenses

The amount charged to cover each policy's share of expenses of operation (salaries, commission, premium taxes, and cost of doing business) is called expense loading. This can vary from company to company based on its operations and efficiency.

Does the policyowner have to be the insured in life insurance?

The policyowner may be the insured, but it is not necessary. If the policy is owned by a person other than the insured, it is referred to as a third-party ownership. For example, policies may be owned by a spouse, parent, or even an employer of the insured.

Rating Applicants

Upon receipt of the information, such as the application, medical exam, blood and urine test results, etc., underwriters analyze the information and determine if the applicant is an acceptable risk. If acceptable, underwriters then determine the classification to be used in the calculation of the premium.

Agent's Report

is a personal statement submitted by the producer, to the insurer, regarding the applicant's financial condition, any personal knowledge of the applicant, etc. -This information remains confidential between the producer and the insurer, and it does not become part of the entire contract.

Statement of Good Health

verifies that the insured has remained in the same health status continuously since the time of the application. If the applicant is not in good health, the policy should be returned to the insurer for further underwriting.

Classification of Risks

-Rating Applicants -Risk Classifications

Liquidity

Immediate funds available upon death to pay creditors, taxes and final expenses as well as cash values available for policy loans, withdrawals, and full surrenders.

Completing the Application

-Completing Application and Field Underwriting -Required Signatures -Changes in Application -Consequences of an Incomplete Application

An insurable interest must exist between the _______ and the ________ at the time of application for life insurance to be valid. A. Insured/Beneficiary B. Applicant/Insured C. Applicant/Owner D. Owner/Beneficiary

Applicant/Insured -The insurable interest relationship must exist between the applicant and insured, at the time of application and policy issuance, in order for the contract to be valid.

A life insurance policy is being applied for on Z's life. In order for the contract to be valid, all of the following have an insurable interest and could be the owner of the policy, except: A. Z's business partner B. Z C. Z's neighbor D. Z's spouse

C. Z's neighbor Insurable interest is defined as having a relationship which would result in a financial or economic loss if the insured dies. A neighbor is not an example of a party that meets this definition.

Upon the completion of this chapter, you will be able to:

Distinguish between the terms policyowner, insured, and beneficiary Determine when a conditional receipt is issued Identify the primary information source for underwriting Differentiate between standard, preferred, and substandard risks Determine when coverage becomes effective Identify the producer's responsibilities during replacement

When an insurer requires that an insured be subjected to a medical examination, who pays for the medical exam? A. The producer B. The insured C. The insurer D. The applicant

The insurer -The insurer pays for any medical exam it orders.

Mortality

are used to give the company a basic estimate of how much money it will need to pay for death claims each year -a life insurer can determine the average life expectancy for each age group, based on the year of birth. The higher the age group, the higher the mortality rate—translating to a higher premium. The Mortality Table also show that males have a higher mortality rate than females. Based on this statistic, males will pay a higher rate than females.

Factors in Premium Determination for Life Insurance

-Expected Mortality -Interest -Expenses

J buys a life insurance policy specifically intending for the death benefit to be used to cover estate taxes. What is the correct term for using life insurance in this way? A. Preneed planning B. Estate creation C. Survivor protection D. Estate conservation

Estate conservation -Using life insurance proceeds to pay estate taxes is a means of "conserving" the estate for the heirs.

What occurs if policy is not approved?

If a policy is not approved as applied for and is issued as substandard, the insurer may make a "counteroffer" to the applicant. The insurer may issue a policy with a surcharge (higher rating) or exclusions to the policy. -The producer must hand-deliver the policy to the applicant to collect any additional premium, explain any substandard rating or changes in coverage and premium, and reinforce the value of the contract. Since the policy issued is considered a counteroffer, the applicant must accept the policy as issued for a legal contract to exist. Coverage does not apply until this occurs.

Sources of Underwriting

include: -the application -medical exams -an Attending Physician's Statement -the Medical Information Bureau (MIB) -an inspection report, and the agent's report

Attending Physician Statement (APS)

is used in cases in which the individual application and/or medical reports reveal conditions for which further information is necessary to determine insurability. (The insurer is responsible for all costs associated with the completion of the APS.)

If the MIB coded reports are inconsistent with the information provided by the applicant,

underwriters are required to conduct a further investigation to obtain more information about the reported medical histories or conditions prior to making an underwriting decision. -Because the MIB information is general, the MIB alone cannot be used to decline an applicant for insurance.

Beneficiary

In life insurance, the policyowner has the right to name a beneficiary who will receive the policy proceeds, or death benefits, under the contract if the insured dies while the policy is in force -It is very likely that if the policyowner is not the insured, the owner will be the beneficiary. However, the insured cannot be the named beneficiary.

Application consists of two parts:

Part I contains general questions about the applicant, such as sex/gender, marital status, residence, date of birth, occupation, and past and present life insurance Part II contains questions pertaining to medical background, past and present health, any medical visits, medication, height/weight, hospitalizations, or surgeries in recent years, medical status of immediate family members, including their ages and causes of death

Producer's responsibilities when there's a policy replacement

-Completing a Notice Regarding Replacement which must be signed by the applicant and producer -Obtaining information regarding any existing policies, including the names of the existing insurers and policy numbers (this must be provided to the replacing insurer) -Providing copies of the Notice Regarding Replacement and any sales proposals to the applicant and replacing insurer

The Replacing Insurer's responsibilities when there's a policy replacement

-Notifying the existing insurer of the planned replacement upon receiving proper notification with the new application -Maintaining copies of the information regarding replacement for a specified period of time

Producer Responsibilities and Required Disclosures

-Producers are the initial point of contact for most insurance transactions -Disclosure at Point of Sale -4 Phases

A Consumer Investigative Report is not completed by ___________. A. A third party provider B. The insurer C. A producer D. A company that regularly conducts inspection reports

A producer -A Consumer Investigative Report. This can be completed by the insurer or a third-party provider.

Existing insurer

is the insurer that issued the current policy to be replaced.

Underwriting

is the process of selection, classification, and rating. -In other words, it is the process of determining if someone is insurable, classifying the risk, and determining the rate or premium to be charged.

A producer provided a conditional receipt to an applicant on May 5 at the time of an application based on a standard risk. The insurer required a routine medical exam, which was completed on May 15. The policy was issued based on a substandard risk on May 20 and the producer delivered the policy on May 22. The effective date of coverage is: A. May 15 B. May 5 C. May 20 D. May 22

May 22 Since the policy was not issued as applied for, coverage is not effective until the producer delivers the policy on May 22 and explains the changes in coverage or increased premium due to a substandard risk. The applicant must accept the counteroffer.

Cash Accumulation

An amount of cash accessible to the policyowner from within permanent life insurance policies

Disclosure at Point of Sale

Producer are required to provide all life insurance applicants with written disclosure regarding information to help applicants make a more informed decision when purchasing insurance. A copy of the following must be either provided to the applicant at the time of application or no later than policy delivery: -Buyer's Guide -Policy Summary

HIPAA's privacy rules are implemented to:

Protect the privacy of all individually identifiable health information -HIPAA's privacy rules require insurers to preserve and protect patient confidentiality when obtaining individually identifiable health information.

In a replacement sale all of the following are producer responsibilities, except: A. Provide copies of the notice regarding replacement and any sales proposals to the applicant and replacing insurer B. Obtain information regarding the in force policies including name and policy numbers C. Reimburse the applicant for any surrender charges that may be incurred as a result of the transaction D. Complete a notice regarding replacement with applicant and producer signatures

Reimburse the applicant for any surrender charges that may be incurred as a result of the transaction -Reimbursing the applicant for any surrender charges that may be incurred is not permitted, but may indicate an improper replacement.

Underwriting Process/Policy Delivery/Completing the Application---Statements? -Producer explains rating, premiums, coverages, and policy benefits -Conditional receipt may be issued -Constructive Delivery -Required signatures -Classification of risk and rating -Statement of Good Health -Insurability is determined -Formal Request for the insurer to issue a policy -MIB report may be requested

Underwriting Process: -Insurability is determined -MIB report may be requested -Classification of risk and rating Policy Delivery: -Producer explains rating, premiums, coverages, and policy benefits -Constructive Delivery -Statement of Good Health Completing the Application: -Required signatures -Conditional receipt may be issued -Formal request for the insurer to issue a policy

Conservation

is the act of saving or keeping the existing policy and preventing it from being replaced.

Does insurable interest have to exist in life insurance?

-In order for a contract to be valid, an insurable interest must exist between the owner (applicant) and insured before the policy will be issued. Insurable interest exists if the insured's death would result in a financial or economic loss by the owner. Examples of insurable interest include: a spouse, other immediate family members, business partners, or creditors of the insured. A person automatically has an unlimited insurable interest in his or her own self.

Changes in the Application

Once the application is complete, any changes that need to be made must be initialed by the applicant. -Depending on the severity of the changes, the producer could also choose to complete a new application. -The producer does not have the authority to make changes without the knowledge of the applicant.

Survivor Protection

Providing funds for surviving spouses and dependents

Constructive Delivery & Legal Delivery

Constructive Delivery occurs when the insurer issues the policy, as long as the premium was paid at the time of application. Once the insurer issues the policy, a legal contract has been formed since the policy becomes the acceptance. When the insurer mails the policy to the producer, it is considered constructively delivered by the insurer. Legal delivery occurs when the producer delivers the policy to the owner or insured. It is still the producer's responsibility to obtain delivery signatures and explain policy benefits to the policyowner/insured.

The Application is the primary source of underwriting. Process?

The underwriter will first confirm that insurable interest exists before continuing with the process. Once this has been determined, the underwriter will use the initial information in the application to either determine insurability, or if any other information needs to be requested.

In a replacement transaction, all of the following are insurer duties and responsibilities, except: A. Contact the client to assure that they understand the transaction B. Abide by the state required holding period for all replacement documentation C. Maintain copies of the information provided by the producer D. Notify the existing insurer

Contact the client to assure that they understand the transaction -The Replacing Insurer's responsibilities include: upon receiving proper notification with the new application, the replacing insurer must notify the existing insurer of the planned replacement, maintain copies of the information regarding replacement for a specified period of time as mandated by the state.

A person making application, for themselves or another, to be insured under an insurance policy is called the:

Applicant -One applying for coverage is always the applicant. Typically, the applicant is also both the insured and the owner, but not always, as in a third-party policy.

Premium Payment Mode

Mode is the frequency of payment. -Premium payments are made either monthly, quarterly, semiannually, or annually. -Payment modes other than annual may result in higher premiums to offset the lost interest earnings and increased administration costs. For this reason, the annual mode results in the lowest premium outlay while monthly premiums result in the highest. The more frequently the premiums are paid, the more expensive the mode of payment.

Notice of Information Practices and Disclosure - Fair Credit Reporting Act (FCRA)

The insurance company must meet requirements under the FCRA when gathering information from a third party to use during underwriting. The applicant must be notified and give written consent for information to be received by a third party. This information is disclosed as part of the application. The signature on the application by the applicant serves as the notice of information practices. This gives the insurance company the right to obtain the various investigative, medical, and financial reports needed to complete the underwriting process.

Declined

This is not a rating classification, but a decision that the risk is one for which the insurer refuses to issue insurance. In this case the applicant is deemed uninsurable. Being declined by one insurance company does not mean a person will be declined by all other insurance companies.

Personal delivery will be accomplished by:

-Personal Delivery, with signed receipt of delivery -Registered or certified mail with a signed receipt of delivery

Substandard Risks (High Risk Exposure)

Individuals who are not acceptable at standard rates because of poor health, bad habits or occupational hazards. Individuals in this category are issued "rated policies," known as surcharges.

Estate Creation

Life insurance proceeds paid in a lump sum provide financial assets to create an immediate estate the insured can pass on to survivors.

What is the purpose and responsibility of underwriting?

The general purpose of underwriting is to detect adverse selection, unhealthy or high risk applicants, and to insure only those risks that meet certain criteria. The underwriter's responsibility to determine if an individual meets the underwriting requirements of the insurer.

Trial Application

is one submitted without a premium. -An insurance applicant may be concerned that he/she will not qualify for a policy and does not wish to pay the premium up front. ---If the applicant is considered an acceptable risk, coverage would not take effect until the policy is ultimately issued by the insurer, delivered by the agent, and the premium is paid. (This may also be referred to as C.O.D., or collect on delivery.)

The face page of the policy will contain the basic information, including the following:

-Name of the insurance company -Name of the insured and policyowner -Face amount of the policy -Basic description of the type of policy purchased -Policy number and anniversary date -The insurance company's promise to pay the death benefit (Insuring Clause) The face of the policy also includes signatures of the Executive Officers which binds the company to the terms of the contract.

Transacting insurance can involve any of four different phases in the sale of products:

-Solicitation -Negotiation -Execution of a contract -Handling matters subsequent to a contract

The mortality rate is based on mortality tables which show life expectancy and the death rate per _______ people living in the U.S. A. 10,000 B. 1,000 C. 100 D. 100,000

1,000 -Mortality tables show the death rate per 1,000, similar to how policy premiums are based on, a rate per $1,000 of coverage.

Policy Summary

A computer-generated illustration detailing the premiums (current and guaranteed) to be paid, current and guaranteed interest rates, guaranteed and non-guaranteed values, any projected dividends, and the producer/insurer's name and address.

Underwriting Factors

While marital status is not considered an underwriting factor, individual underwriting factors may include: -Age -Gender -Tobacco use (smoker/nonsmoker) -Occupation -Hobbies (avocation) -Physical condition (height and weight) -Health history

An application for insurance is completed and submitted to an insurance company. In order for coverage to be effective immediately, all of the following conditions must be met, except: A. The policy is issued at a higher risk than the standard risk applied for B. A conditional receipt is issued C. The initial premium is submitted with the application D. A medical exam is not required

The policy is issued at a higher risk than the standard risk applied for -In order for coverage to be effective immediately, the policy must be issued as applied for.

Policyowner

The purchaser of a life insurance policy -controls the policy and maintains the right to make all decisions regarding coverages. -is the applicant, or the person applying for insurance coverage, and is responsible for completing an application. -The insured is the individual whose life is covered under the policy. The death benefit proceeds are only payable upon death of the insured. The policyowner may be the insured, but it is not necessary.

Which of the following is NOT required to sign a completed application? A. Applicant B. Beneficiary C. Insured or guardian D. Producer

Beneficiary -The applicant, insured (or guardian if a minor) and the producer's signatures are all required in an application for insurance. The beneficiary is not required to sign the application.

Which of the following is used by an insurer to collect information from the applicant/insured for underwriting purposes? A. An amendment B. A rider C. A receipt D. An application

An application -A producer collects field underwriting information from the applicant/insured on an insurance application.

Which underwriting source is primarily used when an application reveals conditions for which more medical information is required? A. Agent's Report B. Attending Physician's Statement C. Medical Information Bureau Report D. Inspection Report

Attending Physician's Statement -The Attending Physician's Statement would be ordered by the underwriter to secure the additional medical information.

All of the following signatures would be required on a life insurance application for an adult, except that of the: A. Producer B. Applicant C. Insured D. Beneficiary

Beneficiary -Both the producer and the applicant / insured must sign the application. If the applicant is a minor, a guardian must sign the application.

Which of the following is not true about life insurance applications? A. May contain all the necessary information to determine insurability B. Primary source of underwriting C. Confidential communication between the agent and the insurer D. Contains two parts: General Information and Health History

Confidential communication between the agent and the insurer -A copy of the application will be included as part of the policy, and is therefore not confidential.

When producer Pete delivers a policy, he should also do which of the following? A. Demand the balance of the annual premium B. Collect at least 3 referrals C. Collect any amounts due for postage and handling D. Explain the policy fully

Explain the policy fully -It is the producer's or agent's responsibility to deliver the policy, verify the insured has remained in good health, and explain the policy to be sure the insured understands the benefits, including endorsements and riders.

Which of the following is included in Part II of a Life Insurance Application? A. Date of birth B. Marital status C. Gender D. Family member's age and cause of death

Family member's age and cause of death -Part II of the application contains questions pertaining to medical background, present health, any medical visits in recent years, medical status of family members and causes of death of deceased relatives.

The MIB obtains its information from which of the following? A. Insurers B. Hospitals C. Physicians D. Producer's agencies

Insurers -The primary purpose of the Medical Information Bureau (MIB) is to collect adverse medical information about an applicant's health that is known to insurers to which the applicant has previously applied for coverage.

Interest

Interest earnings are also used in calculating premium. Insurance premiums are paid in advance and insurance companies invest these premiums and assume a certain rate of interest will be earned. -Interest earnings reduce the amount of premium needed to fund the future liability of the policy death benefit.

Consequences of an Incomplete Application

It is the producer's responsibility to make certain the application is filled out completely, correctly, and to the best of the applicant's knowledge. ---The producer's primary underwriting role is to make sure the application provides proper information for the insurer. ---The underwriter will usually reject an incomplete application and return it to the producer for completion by the applicant. If a policy is issued even though the application is incomplete, it is assumed the missing information is not material to the issuance. However, by issuing the policy, the insurer waives the right to challenge a claim based on the incomplete application.

Collecting the Initial Premium and Issuing the Receipt

Whenever possible, a producer should collect the initial premium and submit it, along with the application, to the insurer; the policy will not go into effect until the first premium has been paid. If the premium is paid with a check that is not signed (or does not clear), it is not considered a valid payment and coverage is not effective. -Conditional Receipt -Binding (Unconditional) Receipt Trial Application

Insurance Producers

are tasked with educating consumers and helping them meet their needs. -Before taking an application for life insurance, the producer will need to assess the potential client's financial information, goals, and objectives to calculate the appropriate amount of insurance needed and recommend which type of policy should be applied for. Once this has been determined, the producer has responsibilities and disclosure requirements at the time of application.

Inspection/Investigative Report

is a general report of the applicant's finances, character, morals, work, hobbies, and other habits. -This is sometimes referred to as a Consumer Investigative Report. In general, an inspection report will confirm and elaborate on information provided on the application. ---Information is usually collected through a telephone interview of the applicant and may be extended to interview others who may serve as character references (neighbors or coworkers). ---Financial information may be requested and can be completed by a third-party provider if requesting a credit report. (The applicant must be made aware of any information gathering and has rights provided under the FCRA.)

Information from a third party collected by the insurance company in the application for insurance and during underwriting of the policy may be subject to the jurisdiction of which of the following?

Fair Credit Reporting Act -The Fair Credit Reporting Act has jurisdiction over information collected through a third-party for underwriting purposes.

Once the insured has received the hard copy of the policy, what must occur?

Once the insured has received the hard copy of the policy, it should be kept in a secure place where interested parties will have access to it.

Risk Classifications include:

-Standard Risks -Preferred Risks -Substandard Risks (High Risk Exposure) -Declined

Binding (Unconditional) Receipt

A binding receipt provides immediate coverage if the premium is paid at the time of application. This type of receipt is usually not allowable in connection to the sale of life insurance.

By what means does the client acknowledge that an insurer may use services and information provided by third parties to gather information during the underwriting process? A. By signing the application B. By signing the check given to the producer for the modal premium C. By verbally acknowledging that the producer informed him or her about the Fair Credit Reporting Act D. By accepting a copy of the Fair Credit Reporting Act brochure from the producer

By signing the application -The insurance company must meet requirements under the FCRA when gathering information about an applicant from a third party. The signature on the application acknowledges that the applicant has been given the required notice of information practices. The applicant has the right to request a copy of any prepared reports from a reporting agency. Any inaccurate or incomplete information found in any report may be challenged by the applicant.

Which of the following best describes a Statement of Good Health? A. It is what comes along with the policy at the time of delivery confirming the underwriting class the insured falls into if the policy was issued standard or better B. It is a sworn oral statement made by the insured at time of delivery which allows for coverage to come into effect C. It verifies that the insured has not suffered a serious illness or injury requiring surgery or hospitalization since the application date D. It is the producer's authority to raise the rate if the insured does not appear to be in good health at the time of policy delivery

It verifies that the insured has not suffered a serious illness or injury requiring surgery or hospitalization since the application date -Generally, this is used when the policy was issued with an outstanding premium requirement to assure the issuer that the health status of the insured has not significantly changed since the time of application.

The Attending Physician's Statement (APS) is completed by: A. The agent after the medical questions are answered by the applicant B. An applicant's physician to provide information about the applicant's medical history C. A physician providing a required medical exam at the time of application D. The Medical Information Bureau

An applicant's physician to provide information about the applicant's medical history -An Attending Physician's Statement (APS) is used in cases where the individual application and/or medical reports reveal conditions for which more information is required. The treating physician will provide information regarding the medical history of the applicant. An applicant must sign a written release to enable a release of the APS. The insurer pays for this.

Completing the Application and Field Underwriting

An application is a written formal request by an applicant to an insurer requesting the insurer issue a policy based upon information contained in the application. -It is the producer's responsibility to probe beyond the stated questions, which is known as field underwriting. The application is the primary source of information for an insurer underwriting a potential risk.

J is named in a policy as the individual who is entitled to receive the policy proceeds upon the death of T. Which of the following statements best applies to this scenario? A. J is the insured and beneficiary of the policy B. T is the insured in the policy and J is the named beneficiary C. J is named as the owner of T's policy D. T is the owner and beneficiary of the policy

B. T is the insured in the policy and J is the named beneficiary Based on the information provided, the only assumption that can be made is that T is the insured and J is the named beneficiary. The owner of the policy is not specified and could either be J or T.

Required Signatures

Both the producer and the applicant/insured must sign the application. -The applicant is representing that statements (representations) on the application are true to the best of his/her knowledge and that information necessary for underwriting is not being concealed. -If the applicant is not the insured, then both must sign the application. If the applicant is a minor, a guardian must sign the application.

Conditional Receipt

If the initial premium is paid at the time of application, the producer will issue a conditional receipt. -provides that coverage will become effective as of either the date of application, or the date of completion of any required medical exam, whichever is later, as long as the policy would have been issued as applied for or better (For purposes of the exam, assume all policies are applied for as a standard risk.) ---If a loss occurs prior to the policy's physical issuance, the insurer would have to prove they would not have issued the policy as requested to avoid paying a claim.

Standard Risks

Individuals who have the same health, habits, sex/gender, and occupational characteristics as those reflected in the mortality table. Individuals in this category have an average life expectancy.

Preferred Risks

Individuals who meet certain requirements and qualify for lower premiums because of ideal health, height and weight. Individuals in this category have a longer than average life expectancy.

What happens if an applicant discovers that there has been inaccurate or incomplete information in any report used during the underwriting process for life insurance? A. They can file an Errors and Omissions claim against the producer or insurer B. They can bring legal action against the producer or insurer C. The applicant has the right to challenge the inaccurate or incomplete information D. They have the right to apply for the same coverage through another carrier without any additional expense

The applicant has the right to challenge the inaccurate or incomplete information -Any inaccurate or incomplete information found in any report may be challenged by the applicant under the Fair Credit Reporting Act.

All of the following statements regarding sources of underwriting are correct, except: A. A medical exam may be requested based on the amount of coverage being applied for B. The agent's report is confidential between the producer and the insurer C. A consumer investigative report may include a credit report D. The applicant may be denied coverage based solely on the MIB report

The applicant may be denied coverage based solely on the MIB report -The applicant may not be denied coverage based solely on the MIB report. This report is used as an alert for the insurer to gather additional information and to help detect fraud.

Policy Delivery

When the insurer determines that an applicant is an acceptable risk, the insurer will send the policy to the producer for delivery to the insured. -It is the producer's responsibility to deliver the policy and collect any premiums (if not paid at the time of application). -The producer is expected to explain the policy to ensure the policyowner/insured understands the benefits, including any ratings, endorsements, exclusions, and riders.

What is the agent report's purpose?

These reports have only one purpose: to provide information in order for the insurer to determine insurability.

MIB's coded reports represent

general medical information and other conditions (typically hazardous hobbies and adverse driving records) affecting the insurability of the applicant.

Medical Information Bureau (MIB)

is primarily used to collect adverse medical information about an applicant's health and act as an information exchange. -is a member-owned corporation that operates on a not-for-profit basis. -are used exclusively by member life and health insurance companies to assess an individual's risk and eligibility during the underwriting of life and health policies. -These services "alert" underwriters to fraud, errors, omissions or misrepresentations made on insurance applications, and the MIB may help lower the cost of life and health insurance for consumers.

Replacing Insurer

is the insurer responsible for issuing the new policy that will replace the existing policy.

Buyer's Guide

A generic brochure developed by the NAIC to assist prospective buyers of life insurance. Descriptions of all basic types of life insurance as well as comparative costs of each are included.

A producer provided a conditional receipt to an applicant on May 5th at the time of an application based on a standard risk. The insurer required a routine medical exam, which was completed on May 15th. The policy was issued based on a standard risk on May 20th and the producer hand-delivered the policy on May 22nd. When is the effective date of coverage in this case?

May 15th

Policy Replacement

Replacement is any transaction in which a new life policy or annuity is to be purchased, and the producer knows, or should know, that existing contract(s) will be: -Lapsed, forfeited, surrendered, or terminated -Reduced in value -Amended with a reduction in benefit or term -Reissued with a reduced cash value -Subjected to borrowing

K meets with an insurance producer, completes an application, and writes a check for the initial premium. The producer submits the application and the premium to the insurer, and a policy is issued and mailed to the producer. Two weeks later, K has neither shown up to pick up the policy nor returned the producer's calls. Which of the following statements is correct? A. The policy is not in force--the policy must be physically handed to K for coverage to begin B. The policy is in force--coverage began when the producer accepted K's check C. The policy is in force--coverage began when the insurer sent the policy D. The policy is in force--coverage began when the policy arrived at the producer's office

The policy is in force--coverage began when the insurer sent the policy -Since the initial premium has been paid and the policy was issued as applied, legal delivery occurs when the policy is issued by the insurer. It is at this point that a legal contract exists, since the check accompanying the application is the offer, and the issued policy is the acceptance of the offer.

XYZ Insurer has decided to issue a policy to a particular applicant. What is the next step in this insurance transaction? A. XYZ will send the policy to the producer for delivery to the insured B. XYZ will mail a certificate of insurance to the applicant C. The applicant will have to send a premium check to XYZ D. XYZ will notify the applicant by mail that a policy is on its way

XYZ will send the policy to the producer for delivery to the insured -After a policy is issued, it must be sent to the producer, who will then deliver it to the insured.

HIPPAA Privacy Rules

all individually identifiable health information obtained on an applicant during the underwriting process must remain confidential and the applicant's privacy must be protected. -Before an insurer can share any medical information, the applicant must be notified of the treatment of the information, rights to maintain privacy, and an opportunity to refuse the dissemination of information. -Insurers must avoid making or permitting unfair discrimination between individuals of the same class in the underwriting for the risks of HIV Acquired Immune Deficiency Syndrome (AIDS).

Medical or Physical Examination

are conducted by a licensed medical professional, such as a registered nurse or paramedic, who provides the results of an examination and information regarding the applicant's present health directly to the underwriter.

Estate Conservation

provides money to pay any estate taxes or loans which must be satisfied upon the death of the estate owner preserving the insured's estate