Completing the Application, Underwriting, and Delivering the Policy

Replacement

is a practice of terminating an existing policy or letting it lapse, and obtaining a new one

Buyer's Guide

provides basic, generic information about life insurance that contains and is limited to, language approved by the Department of Insurance; this document explains how a buyer should go about choosing the amount and type of insurance to buy, and how a buyer can save money by comparing the costs of similar policies

Which is the appropriate action by the insurer if a prospective insured submitted an incomplete application?

return the application to the applicant for completion

Which of the following types of risk will result in the highest premium?

Substandard risk

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is

Conditional

An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?

Material misrepresentation

What is a definition of a unilateral contract?

One-sided: only one party makes an enforceable promise

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will

Pay the policy proceeds only if it would have issued the policy

Substandard (High Exposure) Risk

applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits; referred to as "rated"

Which is the primary source of information used for insurance underwriting?

application

Most agents try to collect the initial premium for submission with the application. When an agent collects the initial premium from the applicant, the agent should issue the applicant a ?

premium receipt

Misrepresentation

untrue statements on the application and could void the contract

Illustration

a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years

Risk or Rating Classification

is used in deciding whether or not the applicant should pay a higher or lower premium

Agreement

offer and acceptance

Insured

person covered by the insurance policy; may or may not be the policy owner

Consideration

something of value that each party gives to the other

What are the three risk or rated classifications?

standard, substandard, or preferred

Representations

statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true

Which of the following will be included in a policy summary? - - - -

Premium amounts and surrender values

An underwriter may obtain information on an applicant's hobbies,financial status, and habits by ordering a(n)

Inspection Report

If only one party to an insurance contract had made a legally enforceable promise, what kind of contract is it?

Unilateral

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

When an insurer's underwriter approves coverage

Life Insurane

coverage on human lives

Who make up the Medical Information Bureau?

insurers

Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information contained in his or her report, the reporting agency must

Respond to the consumer's complaint

In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT -Applicant's present occupation -Applicant's past income -Applicant's past medical history -Applicant's present physical condition

Applicant's past income

Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives?

Application Part 2 - Medical Information

Which of the following best describes the aleatory nature of an insurance contract?

Exchange of unequal values

An applicant is denied insurance because of information found on a consumer report. Which of the following requires that the insurance company supply the applicant with the name and address of the consumer reporting company?

Fair Credit Reporting Act

Which is generally true regarding insureds who have been classified as preferred risks? -They can decide when to pay their monthly premiums -They keep a higher percentage of an interest earned on their policies -Their premiums are lower -They can borrow higher amounts off of their policies

Their premiums are lower

What is the purpose of the buyer's guide?

To allow the consumer to compare the costs of different policies

If a policy includes a free-look period of at least 10 days, the Buyer's Guide must be delivered to the applicant

With the policy

Insurance policy

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

Contract

an agreement between two or more parties enforceable by law

In insurance, an offer is usually made when?

an applicant submits an application to the insurer

Life Settlement

an arrangement that allows the policyowner sell their existing life insurance policy to a third party for compensation

An insurer wants to being underwriting procedures for an applicant. What source will it consult for the majority of its underwriting information?

application

Preferred Risk

are those individuals who meet certain requirements and qualify for lower premiums than the standard risk; these applicants have a superior physical condition, lifestyle, and habits

The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective?

as of the application date

When must insurable interest exist?

at the time of application

Investigative Consumer Report (Inspection)

general reports of the applicant's finances, character, work, hobbies; subject to rules an regulations outlined in Fair Credit Reporting Act.

Consumer Reports

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

Material Misrepresentation

is a statement that, if discovered, would alter the underwriting decision of the insurance company

Field underwriter

is known as the Agent and is the company's front line

Contract of Adhesion

is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured); take-it-or-leave-it basis

Underwriting

is the risk selection and classification process; determines whether or not a particular applicant is insurable, and if so, what premium to charge

Unilateral Contract

only one of the parties to the contract is legally bound to do anything

Lapse

policy termination due to nonpayment of premium

Death benefit

the amount paid upon the death of the insured in a life insurance policy

Legal purpose

the purpose of the contract must be legal and not against public policy; must have both: insurable interest and consent

Statement of Good Health

this must be signed by the insured, and verifies that the insured has not suffered injury or illness since the application date

Competent parties

those entering into the contract must be of legal age and must be mentally competent to understand the contract, and not under the influence of drugs or alcohol

USA Patriot Act

to address social, economic, and global initiatives to fight and prevent terrorist activities

What are the four elements of an insurance contract?

agreement - offer and acceptance; consideration; competent parties; and legal purpose

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 -Consideration -Legal purpose -Offer and acceptance -Conditions

Conditions

When is the earliest a policy may go into effect?

When the application is signed and a check is given to the agent

Applicant or proposed insured

a person applying for insurance

Adverse Selection

insuring of risks that are more prone to losses than the average risk

Agent's Report

provides the agent's personal observations concerning the proposed insured; this does not become part of the entire contract

Conditional Contract

requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations

Insurer (principal)

the company who issues an insurance policy

The term "illustration" in a life insurance policy refers to

a presentation of nonguaranteed elements of a policy

When does an insurance policy go into effect?

when the policy is delivered and the premium is paid

If an applicant for a life insurance policy and the person to be insured are two different people, what would be the underwriter's main concern

whether an insurable interest exists between the individuals

Which of the following is NOT an example of insurable interest? -Employer in employee -Child in parent -Debtor in creditor -Business partners in each other

Debtor in creditor

What is consideration on the part of the insurer?

a promise to pay in the event of a loss

What is insurance?

a transfer of risk of loss from an individual or a business entity to an insurance company, which, in turn, spreads the costs of unexpected losses to many individuals

Policy Summary

a written statement describing the features and elements of the policy being issued; must include the name and address of the agent, the full name and home office or administrative office address of the insurer, and the generic name of the basic policy and each rider; it will also include premium, cash value, dividend, surrender value and death benefit figures for specific policy years

Warranty

an absolutely true statement upon which the validity of the insurance policy depends

Conditional Receipt

is used only when the applicant submits a prepaid application and means that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for

Application

basic source of information used by the company in the risk selection process; basic components; Part 1 - General Information and Part 2 - Medical Information

Paramedical Report

completed by a paramedic or a registered nurse

Anti-Money Laundering (AML)

monitoring of all financial transactions and reporting an suspicious activity to the government

Part 1 - General Information

includes general questions about the applicant such as name, age, address, birth date, gender, income, marital status, and occupation; it will also inquire about the existing policies; identifies the policy applied for an the amount of coverage, and usually contains information concerning the beneficiary

Part 2 - Medical Information

includes information on the prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives

Health Insurance Portability and Accountability Act (HIPAA)

is a federal law that protects health information; provide protection for the privacy of certain individually identifiable health information (such as demographic data that relates to physical or mental heath condition, or payment information that can identify the individual), referred to as protected health information

Stranger-Originated Life Insurance (STOLI)

is a life insurance arrangement in which a person with no relationship to the insured (a stranger) purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies; are financed and purchased solely with the intent of selling them for life settlements

Standard Risks

persons who, according to a company's underwriting standards, are entitled to insurance protection without extra rating or special restrictions; representative of the majority of people at their age and with similar lifestyles; average risk

Suspicious Activity Report (SAR) Rules

state that procedures and plans must be in place and designed to identify activity that one would deem suspicious of money laundering, terrorist financial and/or other illegal activities

Premium

the money paid to the insurance company for the insurance policy

What is consideration on the part of the insured?

the payment of premium and the representations made in the application

Policyowner

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

Insurable Interest

the possibility of losing money or something of value in the event of loss

Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process? -Policy Summary -Illustrations -Buyer's Guide -Insurance Index

Buyer's Guide

A producer agent must do all of the following when delivering a new policy to the insured EXCEPT -Explain the policy provisions, riders, and exclusions -Collect any premium due -Explain the rating procedures if the policy is rated differently than applied for -Disclose commissions earned from the sale of the policy

Disclose commissions earned from the sale of the policy

According to the Fair Credit Reporting Act, all of the following would be considered negative information about a consumer EXCEPT -Failure to pay off a loan -Disputes regarding consumer report information -Tax delinquencies -Late payments

Disputes regarding consumer report information

Which of the following best details the underwriting process for life insurance?

Selection, classification, and rating of risks

Who is required to sign an application for life insurance?

The agent and the proposed insured

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

Medical Information Bureau (MIB)

a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals; a systematic method for companies to compare the information they have collected on a potential insured with information other insurers may have discovered

Beneficiary

a person who receives the benefits of an insurance policy

A life insurance illustration must do the following:

distinguish between guaranteed and projected amounts; clearly state that an illustration is not a part of the contract; and identify those values that are not guaranteed as such

Fair Credit Reporting Act

established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant and properly used; this law also protects consumers against the circulation of inaccurate or obsolete personal or financial information

Premium Receipt

given to the applicant by the producer or insurer, as proof of a premium payment.

Investor-owned life insurance (IOLI)

where a third party investor who has no insurable interest in the insured initiates a transaction designed to transfer the policy ownership rights to someone with no insurable interest in the insured and who hopes to make a profit upon the death of the insured or annuitant

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

Insurable interest and consent

Aleatory Contract

exchange of unequal amounts or values

Attending Physician's Statement (APS)

from a medical practitioner who treated the applicant for prior medical problem