Insurance life Health CHPT 1

insurance

- transfers the risk of loss from an individual to an insurer - Based on the principle of indemnity

What 3 parts make up a life insurance policy

1 general info, 2 medical info, 3 agents report

Elements of a Legal Contract

1. Agreement - offer and acceptance 2. Consideration - premiums and representations on the part of the insured; payment of claims on the part of the insurer 3. Competent parties - legal age, mentally sound, not under influence 4. Legal purpose - not against public policy

Insured

A person covered by an insurance policy

beneficiary

A person who receives the benefits of an insurance policy.

Replacement

A practice of terminating an existing policy or letting it lapse, and obtaining a new one. Insurance producers and companies must take special underwriting measures to help policy owners make informed decisions.

Material Misrepresentation

A statement that, if discovered, would alter the underwriting decision of the insurance company. If made intentionally they are considered fraud.

Agent's Report

A written report from the agent submitted to the insurer along with the application disclosing what the agent knows, observed, or learned about the proposed insured's risks. Is not a part of the contract but is part of application process.

Fair Credit Reporting Act

Act that protects privacy of background information and ensures that information supplied is accurate.

Warranty

An absolutely true statement - breach of these warranties can void policy

Application statements

- Representations - Warranties

Business relationship

- between business partners - employers may ensure employees - creditors may insure debtors

Medical Information Bureau (MIB)

An information database that stores the health histories of individuals who have applied for insurance in the past. Most insurance companies subscribe to this database for underwriting purposes. -Insurers cannot refuse coverage solely on the basis of adverse information on an MIB report.

Prohibited investigation info

Bankruptcy is more than 10 years old, civil suits, records of arrests and convictions, negative information that is more than seven years old. Negative information includes information regarding a customers delinquencies late payments etc

Required Signatures

Both the agent and the proposed insured (usually the applicant) must sign the application. If a company (policy owner) insurers an employee (proposed insured) then the policy owner must sign the application.

Disclosure of insurance

Every applicant for life insurance must be given a written disclosure statement that provides basic information about the cost and coverage of the insurance being solicited. The disclosure statement must be given to the applicant no later than the time the application for insurance is signed. Helps the applicant make more informed and educated decisions.

Coverage starts

If premium was collect same day as application then coverage will start on application day If premium not collected then they have to collect premium, get a statement of good health, then coverage starts.

Fraud

Intentional misrepresentation or deceit of material fact.

Concealment

Intentional withholding of information of a material fact that is crucial in making a decision.

Underwriting

Is the process in which an insurance company determines whether or not a particular applicant is insurable and if so what premium to charge.

Consequences of incomplete application

Must return it to applicant for completion. If a policy is issued with questions left unanswered the contract will be interpreted as if the insurer waived it's right to have an answer to the question. The insurer will not have the right to deny coverage based on any information that the unanswered question might have contained.

Contract of Adhesion

One party prepares the contract the other party must except it as is. Take it or leave it.

Unilateral Contract

One sided, only 1 party is legal bound. The insured makes no legally binding promises. However an insurer is legally bound to pay loss covered by a policy in force.

medical examination

Paramedical report Attending physicians statement APS

Policy owner

Pays premium Controls policy

Conditional Contract

Requires that certain conditions must be met by the policy owner and the company in order for the contract to be executed. The insured must pay the premium and provide proof of loss in order for the ensure to cover a claim.

Investigative Consumer Report

Similar to consumer reports in that they also provide information on the consumer's character, reputation, and habits. But the info is obtained through investigation and interviews with associates friends and neighbors. The consumer must be advised and provided with the name and address of the reporting agency. The consumer has the right to know what was in the report.

HIV consent

Special permission is needed to administer a test which detects HIV

Death Benefit

The amount payable upon the death of the person whose life is insured.

Conditional Receipt

The insurance company agrees to start coverage on the later of either the date of application or the date of the medical exam IF the proposed insured is found to be insurable on that date. This Rule will not apply for policies that are declined.

Utmost Good Faith

The insured is Expected to provide accurate information on the application for insurance. The insurer must clearly and truthfully describe the policy features, benefits and must not conceal/ mislead pertinent information

Insured's Consideration

The payment of (or the promise to pay) the premium.

Underwriting

The process of risk selection and classification

Insurer's Consideration

The promise to pay claims as specified in the contract, conditioned on the occurrence of covered losses.

Consumer report

To supplement the information on the application the underwriter may order an inspection report which covers financial and moral information. Companies that use inspection reports are subject to the rules and regulations outlined in the fair credit reporting act.

Attending Physician's Statement (APS)

Underwriters ask applicants doctors for most recent years paperwork of their medical history. More complete medical history.

Aleatory Contract

Unequal exchange contract. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of a loss.

Misrepresentations

Untrue statements on the application and could void the contract.

Changes in the Application

Whenever an answer to a question needs to be corrected, the applicant or producer makes the correction and the applicant initials the change, or the producer can complete a new application. Never white out or erase.

Investor-owned life insurance (IOLI)

a STOLI (or IOLI) arrangement is considered to be a scam because it involves inducing an elderly individual into agreeing to purchase a life insurance contract with the intention of naming the investor as the contract's beneficiary in exchange for 'free' insurance and future compensation.

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

Agent/Producer/field writer

a legal representative of an insurance company. The company's field underwriter. -helping prevent adverse selection -The proper solicitation of applicants -completing the application -obtaining the required signatures -Collecting the initial premium and issuing the receipt if applicable -delivering the policy

Applicant/Proposed insured

a person applying for insurance

Collecting the Initial Premium and Issuing the Receipt

a producer should attempt to collect the initial premium and submit it along with the application because the policy will not go into effect until the first premium has been paid. If premium is collected a Premium receipt must be issued.

Policy Summary

a written statement describing the features and elements of the policy being issued -name and address of agent -name/address of administrative office -generic of basic policy and each rider -premium, cash value, and death benefit for policy years Must be provided when policy is delivered.

Premium

an amount to be paid for an insurance policy.

Law of Large Numbers

as the number of policyholders increases, the more confident the insurance company is that its prediction will prove true.

Life insurance

coverage on human lives

Buyer's Guide

generic information about insurance policies. Helps compare policies. Provided at time of app.

Insurer

insurance company

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. Violates the principle of insurable interest.

HIPPA (Health Insurance Portability and Accountability Act)

law that protects privacy of resident's health information and identifies certain health information that must be kept private and confidential. Which is called 'protected health information. Privacy Rule- patients have the right to view their own medical records and know who's had access to those over the previous six years

Lapse

policy termination due to nonpayment of premium

risk classification

preferred risk- have a superior physical condition lifestyle and habits, qualify for lower premiums. Standard risk- Representative of the majority of people their age with similar lifestyles, they are the average risk. Substandard risk- not acceptable at standard rates because physical condition, personal or family history disease, occupation, dangerous habits. Referred to as 'rated' because they could be issued with the 'premium rated up' resulting in a higher premium. Declined Risk- applicants who are rejected. Reason why ie... no insurable interest, the applicant is medically unacceptable..

Representations

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

Insurable Interest

that you must have a financial interest or risk of loss in whatever it is you are insuring. It's a legal requirement for any valid insurance policy. You cannot buy insurance on something or someone if you don't have insurable interest. MUST exist at time of application. 'Blood or business'

Adverse Selection

the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction