Chapter 7

Constructive delivery

deemed to occur when the insurer mails a policy to its producer for actual delivery to the policyowner because the insurer has issued the policy and released it for delivery. However, a legal delivery has not yet occurred if the insurer requires personal delivery for verification of good health at the time of delivery or if the policy is being provided to the applicant merely to review and inspect at that time and not necessarily to buy.

If replacement is involved, the producer is required to:

o List all existing life insurance policies to be replaced o Give the applicant a Notice to Applicants Regarding Replacement of Life Insurance o Give the insurer a copy of any proposals made and the name of the insurer of the policy that is to be replaced.

What is an agent required to deliver to the applicant

1. A Life Insurance Buyer's Guide 2. A Policy Summary

Payment Less than Face Amount: Life insurance is generally paid for the full face amount of the policy. There are 3 exceptions.

1. When there is an outstanding loan against the cash value of a policy. 2. When a premium payment is due. 3. When there is an error made in determining the age or gender of the insured when the policy was issued.

An application is complete and submitted without an initial premium on July 1. A medical exam is required and complete on July 12. The company issues the policy as a standard issue on August 1 and the producer hand delivers the policy on August 4. When is coverage effective?

Coverage is effective August 4, after the premium is paid and the statement of good health is signed.

If the initial premium is paid at the time of the application on May 1, the company issues the policy as a standard issue on May 30, and the producer delivers the policy to the owner on June 5, a conditional receipt was given and there was no medical exam required. When is the coverage effective?

May 1

Once the underwriting process is complete and the applicant has been approved, the life insurance policy will be issued by the insurance company.

The coverage is not effective until the policy is delivered and the initial premium has been paid.

Handling a Claim

When proof of the death of the insured arrives at the insurer's claims department, the records are checked to make sure the policy was in force at the time of death and that the person to whom the policy proceeds are to be paid is indeed the rightful beneficiary. The agent should complete any proof of death form the company requires, have it signed by the necessary parties, and forward it to the company as soon as possible along with a death certificate. Once a company has been given the proper forms, there is usually little or no delay in payment of the claim. In most states, life insurance companies are required to pay death claims within a specified period after proper notification is received (usually 60 days).

Inspection Receipt

When the proposed insured wants to examine the policy before actually purchasing it. The policy owner does not pay the first full premium at the time the application is completed. The policy owner signs an inspection receipt for the policy, examines the policy, and then pays the first full premium.

Policy Summary

addresses the specific product being presented for sale. It identifies the agent, the insurer, the policy, and each rider. It includes information about premiums, dividends, benefit amounts, cash surrender values, policy loan interest rates, and life insurance cost indexes.

Binding Receipt

also known as an unconditional receipt makes the company liable for the risk from the date of application, regardless of the applicant's insurability. This coverage lasts for a specified time or until the insurer issues the policy. Rarely used for Life Insurance, commonly used for auto or homeowners insurance.

Temporary Insurance Agreement

provides the applicant with immediate life insurance coverage whether or not the individual is found to be insurable, while the underwriting process is taking place. Claims incurred during the underwriting period will be paid whether or not the application ultimately would have been approved.

Amendments

the insurer may amend the policy's terms depending on the results of the underwriting process. The applicant is not obligated to accept the amended policy and may withdraw the application.

Replacement

the purchase of one life insurance policy to replace another.

Conditional Receipt

usually makes the coverage effective as of the date of application, if the applicant is found to be insurable under the company's general underwriting rules. Some conditional receipts make coverage effective on the date of application, or the date of a required medical examination, whichever is later.

Statement of Good Health

when the initial premium is not paid until the policy is delivered, the agent must also obtain a statement signed by the insured attesting to the insured's continued good health before leaving the policy with the insured.

Effective Date of coverage

• If a receipt (either conditional or binding) was issued in exchange for the payment of an initial premium deposit, the date of the receipt will generally be the policy effective date. • If a premium deposit is not given with the application, the policy effective date is usually the date the policy is issued by the insurance company. However, the policy will not be truly effective until it is delivered to the applicant, the first premium is paid, and a Statement of Good Health is obtained.

Reasons that a new replacement policy might not be in the insured's best interest:

• New insurance requires the applicant to prove insurability • Premiums may be higher for a new policy • New policy provisions will have to be complied with. • The existing policy's provisions may be more liberal than a new policy • Generally, a new policy will not have current cash values.