Chapter 9 - Life Insurance Underwriting

binding receipt

Given by a company upon an applicant's first premium payment. The policy, if approved, becomes effective from the date of the receipt.

buyer's guides

Informational consumer guide books that explain insurance policies and insurance concepts; in many states, they are required to be given to applicants when certain types of coverages are being considered.

What two signatures are found in the insuring clause?

President and secretary.

credit report

A summary of an insurance applicant's credit history, made by an independent organization that has investigated the applicant's credit standing.

What MUST appear on the application?

1) Insurance company name 2) Agent's name 3) Agent's license number

There are three part to the application:

1) Part one is general. What is in part one? What would be general? Name, rank, serial number, do you have any other insurance? Do you have any insurance pending? Have you applied for any? Do you smoke? Those general types of questions. 2) Part two is the medical report. Now, for a young person, let's say you are 24. For a 24-year-old, let's assume you are not on any medication, you are in good health. She may be able to get up to a $100,000 of insurance with out an exam. Each company will determine their own limits. They have their own underwriting limits. But if she needs a dollar amount above that, that might trigger an exam. The insurance company pays for the exam. The application is not ever complete until the exam has been completed, if one was required. 3) Agent's report. In this important section, the agent provides firsthand knowledge about the applicant's financial condition and character.

What 3 signatures are required on the applications:

1) Proposed insured 2) Policy owner 3) Agent

There's three things listed in every application, what are they?

1) The agent's name, 2) His ID number, and 3) The company name

The Fair Credit Reporting Act was designed to protect rights of people for whom a credit report was going to be conducted. You have certain rights:

1) You have to be notified within three days that the report has been requested 2) You must be provided with the names of all the people contacted during the preceding six months 3) If, based on the inspection report, you are rejected, the insurance company must provide you the name and address of the consumer reporting agency that supplied the report 4) If requested by the applicant, they have the right to know what's in there. Supplied by the reporting agency, not the insurance company 5) You have the right to have any corrections made, that kind of stuff. That just protects consumers.

Now, a binding receipt-it's on the exam-a binding receipt binds you. The company binds you until the company:

1) accepts the offer, 2) rejects the offer, or 3) counteroffers.

What is the minimum age to sign an insurance application?

15 years of age to sign

Medical Information Bureau. The MIB is a nonprofit central information agency that was started a long time ago by how many member companies?

700. Its purpose is to keep insurance premiums down through the prevention of misrepresentation and fraud.

field underwriter procedure

A field underwriter is the agent going out soliciting business

preferred risk

A risk whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity for unimpaired lives of the same age.

Medical Information Bureau, M.I.B.

A service organization that collects medical data on life and health insurance applicants for member insurance companies. OR It is a non-profit organization whose purpose is to keep premiums down through the prevention of misrepresentation and fraud.

back dating

The practice of making a policy effective at an earlier date than the present.

Constructive Delivery

Accomplished if the insurance company intentionally relinquishes control over the policy and turns it over to somebody acting on behalf of the client, including the company's own agent. Even mailing the policy constitutes "constructive delivery".

At what time would you obtain a statement of an insured's good health?

At the time of delivery of the policy. When an applicant fills out the application but has not given you money, then you collect that at the time of policy delivery. But only if he gave you no money with the application. If they give us the application and money together, what happens after that is none of our business

Why would we do a credit report?

Because a credit report could show bad moral hazard. Some people get a credit card, and they think they've had an increase in pay

conditional receipt

Characteristic of an insurance contract in that the payment benefits is dependent on or a condition of the occurrence of the risk insured against. I give you a conditional receipt. You are covered conditionally. What's the condition? If you die before we issue the policy, the condition is this: Would we have issued the policy had you lived, as applied for? And if the answer is yes, we will pay your beneficiary. If the answer is no, we won't pay the beneficiary.

How will we find out how many hours a pilot has logged? From the Federal Aviation Authority (FAA) or the aviation questionnaire?

From the aviation questionnaire.

special questionnaires

Forms used when, for underwriting purposes, the insurer needs more detailed information from an applicant regarding aviation or avocation, foreign residence, finances, military service or occupation. The most common type of questionnaire is the aviation questionnaire.

With a binding receipt, you're covered. What if he needed an exam?

He's not covered.

proper solicitation

High professional standards that require an agent to identify himself or herself properly, that is, as an agent soliciting insurance on behalf of an insurance company.

Underwriting is another term for risk selection:

It's a process of reviewing the many characteristics that make up the risk profile, and then to determine whether he's standard or substandard.

signed statement of the insured's good health

Lebanon gives me money and an application, and he's in great health. When I deliver the policy to him he has tubes hanging out of every orifice. What am I to do to that policy? His health has obviously changed. Do I give it to him? Yes. When he gives me money and the application, after that point in time, as long as he didn't need an exam he's covered He gives me an application but no money. He's in great health. I show up and he's got tubes hanging out of every orifice. What am I to do?Take the application back. He gave me an application but no money, and his health had changed. I'm to take that application and haul butt. He gives me an application and no money. He's in great health. When I show up with the policy, he is appears to still be in great health. I am to obtain from him what? A check. And a statement attesting to his continued good health. We have a right to know that his health has not changed from the time he gave me the application up until the time he gave me money.

Does everybody get rated? Does everyone get underwritten?

No, and yes.

Now, what if a guy needed an exam died before the exam was completed? Is he covered?

No. His application isn't complete without the exam.

classification

Occupational category of a risk.

Where's the insurance clause found?

On the cover of the policy.

What's the shortest type of term policy that you can buy?

One-year

When must insurable interest exist?

Only at the inception of the policy. Prevents wagering

substandard risk

Person who is considered an under-average or impaired insurance risk because of physical condition, family or personal history of disease, occupation, residence in unhealthy climate or dangerous habits.

standard risk

Person who, according to a company's underwriting standards, is entitled to insurance protection without extra rating or special restrictions.

underwriting

Process through which an insurer determines whether, and on what basis, an insurance application will be accepted. OR another term for risk selection, is the process of evaluating and selecting risks. n other words, everybody is going to be evaluated, everybody is going to be looked at, and we might rate you if you bring to the bargaining table a degree of risk that's higher than somebody else.

inspection report

Report of an investigator providing facts required for a proper underwriting decision on applications for new insurance and reinstatements. They might drive out to your house, call your neighbors. They're might come to your business. Only if the policy is large enough. We want to know what kind of guy he is. The purpose is to find out about his general character & reputation, mode of living, finances, etc...

interim term insurance

Term insurance for a period of 12 months or less by special agreement of the company; it permits a permanent policy to become effective at a selected future date.

What if there is an error made in the application? Let's say the agent asked the applicant about drug use. The applicant said "no" but the agent mistakenly marked "yes" on the application.

The agent makes the change in the application, the correction, but the applicant initials it.

What's the first source of insurability information?

The application

The Underwriting Process

The more insurance you buy, the more comprehensive and diligent the underwriting process. In other words, if you are older, even a small amount of insurance is going to trigger an exam. If you are younger and you want a whole lot of insurance, it's going to trigger some exams. So the more insurance, or the older you are, or even when you are older if you're buying a smaller amount of insurance, that can trigger exams and extensive research into the background to determine whether we're going to insure the guy.

There are two kinds of receipts what are they?

There's conditional receipts and there are binding receipts.

If a binding receipt is issued is the person covered even if he needed an exam?

With a binding receipt, if death occurs accidentally within 30 days of the receipt, he's covered even if he needs an exam. It's a binding receipt. If death occurs accidentally, within 30 days of the agreement, we'll pay, even though the exam wasn't complete. There are limits on the amount, $100,000 and for not longer than 60 days.

Will you get a receipt if you don't provide a premium?

You always have to pay the premium. I am not going to give you a receipt unless you give me a premium.

If you applied for a standard policy and died before it was issued you may be eligible to receive the benefits only if:

You applied for a standard policy, and this is what you are considered for. Remember from Chapter 3, the "O" in CLOC stood for "offer and acceptance." When you give me an application and money, when you give me consideration, you are making an offer to buy. The company will either accept it, reject it, or counteroffer. If you don't qualify for the STANDARD then you aren't eligible for the benefits. he point is we did not accept her offer as applied for, but would have counter offered with a policy for a different amount.

Representation are considered fraudulent ONLY when they relate to what?

a material fact

So at the time when I collect the check is when I get what?

a statement of the insured's good health.

What do you have to give the buyers at the time you collect the premium payment?

a uyers guide

If you give me an application and money, the policy effective date will be as of the date that you...

gave me the money. That's important, because that's the anniversary date of the policy. That's when the cash values increase and the dividends kick in.

HIPPA, what is that?

it's a federal law designed to protect your privacy concerning your medical records and the sharing of this information.This information must be protected and if it accidentally gets out, insurance companies and medical providers must mitigate any harm to consumers. Your clients can refuse permission to share this information but then everything comes to a halt.

declined a policy

not going to issue you the policy

Once you give me the money I give you a binding receipt. With a binding receipt:

you are covered until the company accepts it, rejects it, or counter offers. You are covered immediately or at the time the exam is completed, if required.