lesson 7: life insurance underwriting and policy issue
27. the uderwriting process - inspection report
investigators or inspector may interview: 1. employees 2. neighbors 3. associates of the applicant 4. applicant applicant has the right to receive a copy of the report
2. quiz - martial status
is not considered a key factor in underwriting life insurance
3. quiz - the insurers signature
is not required on an individual's insurance application
17. review - risk classification
substandard risk - substandard risk are people who are not acceptable at standard rates because of: 1. physical condition 2. personal or family history of disease 3. occupation 4. dangerous habits - substandard risk policies also referred to as "rated" because they could be rated up, resulting in a higher premium
7. the purpose of underwriting
there are two basic questions an underwriter seeks to answer about an applicant: 1. is the applicant insurable? 2. if the applicant and insured are two different people, does an insurable interest exist between the two of them?
8. review - underwriting process
- Part II - Medical information this section of the application includes information on prospective insured's medical background: 1. present health 2. recent medical visits 3. the medical status of living relatives 4. the causes of death of relatives
5. quiz - the scenario where a life insurance policy would exclude coverage would be
- an individual who has a hobby racing cares once a month
12. - review - consumer reports
- consumer reports include written and oral information regarding a consumer's: 1. credit 2. character 3. reputation 4. habits - collected by a reporting agency from employment records, credit reports and other public sources
25. field underwriting procedures - policy effective date
- if either a conditional or binding receipt was issued in exchange for payment of an initial premium deposit, the date of the receipt will generally be noted as the policy effective date in the contract
18. the uderwriting process - Medical Report
- if the applicants medical section raises questions to a specific to particular medical condition the underwriter may also request an attending physician's statement aka APS from the doctor who has treated the applicant - a request for an APS must be accompanied by a signed authorization - when competed the medical report is forwarded to the ins co's medical director or a designated associate
12. field underwriting procedures - changes in the application
- if the company finds a mistake it returns the application to the agent - agent corrects the mistake with the applicant and has the applicant initial the change
11. review - medical information bureau
- in addition to an attending physician's report the underwriter will usually request a medical information bureau report - the medical information bureau aka MIB is a nonprofit trade organization which receives adverse medical information from ins co and maintains confidential medical info on individuals - it is a way ins companies can compare the information they have collected on potential applicants
13. field underwriting procedures - initial premium and receipts
- initial premium paid with the application is in the best interest of both the proposed insured and the agent
6. the principle of insurable interest in regards to a life nsurance contact is accurately described in the following statement
- insurable interest can be based on the love and affection of individuals related by blood.
13. review - investigative consumer reports
- investigative consumer reports are similar to consumer reports in that they also provide information on a consumer's: 1. character 2. reputation 3. habits - the primary difference is that the information is obtained through an investigation and interviews with: 1. associates 2. friends 3. and neighbors
18. review - preferred risks - risk classifications
- preferred risks - preferred risks are people who meet certain requirements. the applicants are in superior physical condition with healthy lifestyles and habits. - qualify for lower premiums than standard risks
16. field underwriting procedures - initial premium and receipts
- recall that one of the requirements for a valid contract is consideration - in the case of an ins contract the consideration is the first premium payment plus the application - insurer will not allow an applicant to possess a policy without receipt of the initial premium
22. review - backdating
- sometimes it is possible to lower the premium rate by backdating an application of insurance - if the applicant chooses to do this the policy may be backdated for no more than 6 months - the only reason an application may be backdated is to lower the premium
16. review - risk classifications
- standard risk - standard risks are people who according to the company's underwriting standards are entitled to insurance protection without extra rating or special restrictions. they are considered an average risk
20. review - field underwriting procedures
- the agent is the company's front line and is referred to as a field underwriter because the agent is usually the one who has solicited the potential insured - as a field underwriter the agent has many important responsibilities during he underwriting process and beyond, including the following: 1. proper solicitation of applicants 2. helping prevent adverse selection 3. completing the application 4. obtaining the required signatures 5. collecting the initial premium 6. delivering the policy 7. issuing the receipt
21. review - conditional receipt
- the most common receipt is the conditional receipt - with the conditional receipt, the applicant is covered by the insurance co as of the date of the application providing that the insurance company approves them for insurance - example: if an agent collects the initial premium from an applicant and gives the applicant a conditional receipt and the applicant dies the next day the underwriting process will proceed as though the applicant were still alive. if the ins co. ends up approving the coverage then the applicant's beneficiary will receive the death benefit of the policy if on the other hand the insurer determines that the applicant was not an acceptable risk and declines the coverage the premium will be refunded to the beneficiary and the insurer is not required to pay the benefit
5. review - underwriting process
- the person applying for insurance must submit an application to the insurance company - the application is one of the main sources of underwriting information for the company
14. review - fair credit reporting act
- under the fair credit reporting act if someone applying for insurance is declined or modified because of information contained in either a consumer or investigative report, the person has the right to know what was in the report and will be provided with the name and address of the reporting agency
2. the uderwriting process
- underwriters have several sources of underwriting info available to help them develop a risk profile on an applicant - the number of sources checks depends on several factors
3. review - purpose of underwriting
- underwriting is the process in which an insurance company determines whether or not a particular applicant is insurable and if so, what premiums to charge
15. review - risk classifications
- underwriting will look at the applicant's: 1. past medical history 2. present physical condition 3. occupation 4. habits 5. morals - if the applicant is acceptable the underwriter must then determine the risk or rating classification to be used in deciding whether or not the applicant should pay a higher or lower premium - an individual may be rated as one of the three classifications 1. standard 2. substandard 3. preferred
10. policy issue and deliver obtaining a statement of insured's good health
- upon receipt of signed statement and premium the agent submits them to the ins co. . because there can be no contract until the premium is pd the company has a right to know that the p/o has remained in reasonably good health from the time the p/o signed the application until receiving the policy. aka the co has the right to know if the p/o represents the same risk tot he co as when the application was first signed
8. field underwriting procedures - completing the - warranties
- warranties are statements that are guaranteed to be correct - warranty that is not literally true in every detail even if made in error, is sufficient to render a policy void - if an ins co reject a claim based on a representation it bears the burden of proving materiality - representations are considered fraudulent only when they relate to a matter material to the risk and when they were made with fraudulent intent
9. the purpose of underwriting - does insurable interest exists?
- we have pre-established that an insurable interest exists when the death of the insured would have a clear financial impact on the p/o - individuals are generally presumed to have an unlimited insurable interest in themselves - when applicant and proposed insured are the same insurable interest exists
3. the uderwriting process
- with special note the size of the requested policy and the risk profile developed after initial review of the application are paramount - the larger the policy the more comprehensive and diligent the underwriting research
35. the uderwriting process - preferred risk
1. good risk 2. reduced premiums 3. expectations of better to normal mortality or morbidity experience 4. characteristics : - not smoking - weight within an ideal range -not drinking
31. the uderwriting process - the fair credit reporting act of 1970
1970 congress enacted the fair credit reporting act to protect the rights of consumers for whom an inspection or credit report is requested
8. the uderwriting process - Part 1- General
Part I - General covers general questions about the proposed insured: 1. name 2. age 3. address 4. birth date 5. sex 6. income 7. marital status 8. occupation
7. review - underwriting process
Part I - General information: this section of the application includes the general questions about the applicant, such as: 1. name 2. age 3. address 4. birth date 5. gender 6. income 7. marital status 8. occupation
11. the uderwriting process - Part II Medical
Part II - Health - as the title indicates the focus is about the proposed insured health asking a number of questions about the health history and the health and health history of proposed insured's family
9. review - underwriting process
Part III - Agent's Report - This section of the report provides the agent's personal observations concerning the applicant - as a field underwriter, the agent can be considered the most important source of information available to the company underwriters - the agent's report does not become part of the entire contract although it is a part of the application process
14. the uderwriting process - Part III Agent's Report
Part III -Agent's Report additional info: 1. applicant's financial condition 2. applicant's character 3. applicant background 4. purpose of the sale 5. how long the agent has know the applicant 6. will this new policy be replacing a new policy
1. field underwriting procedures
agents play a key role in underwriting. initiating the process and responsible for many tasks: 1. proper solicitation 2. completing the application thoroughly and accurately 3. obtaining appropriate signatures 4. collecting the initial premium issuing a receipt
6. an insurer has a right to screen applicants for hiv by
blood test for HIV. an insurer can require a blood test for hiv
9. the uderwriting process - Part 1- General
details about the insurance coverage requested also appears in Part I-General: 1. type of policy 2. amount of insurance 3. name and relationship of the beneficiary 4. other ins the proposed insured owns additional ins applications the insured has pending
1. quiz - upon policy delivery a producer must have an applicant sign if no initial premium was collected with the life insurance applicantion
a good health statement
34. the uderwriting process - applicant ratings
underwriters guidelines list four possibilities risk classifications: 1. uninsurable - risk to great to insure 2. preferred risk 3. standard risk 4. substandard risk
5. the purpose of underwriting
underwriting is another term for risk selection
6. the purpose of underwriting
underwriting or risk select is the process of reviewing the many characteristics that make up the risk profile of an applicant to determine if the applicant is insurable and if so will it be standard or substandard rates.
4. quiz - a life insurance policy typically becomes effective
when initial premium is collected and policy is issued
8. the purpose of underwriting - does insurable interest exists?
without the requirement of insurable interest people could purchase ins and the policy would be no more than a wagering contract
26. the uderwriting process - inspection report
inspection report purpose - provide a picture of an applicant's: 1. general character and reputation 2. mode of living 3. finances 4. exposure to abnormal hazards
17. the uderwriting process - Medical Report
larger face amt policies may require medical reports to provide underwriters additional info
23. field underwriting procedures - binding
like the conditional receipt, a binding receipt typically stipulates a maximum amt that would be payable during the special protection period
10. the uderwriting process - Part 1- General
other information sought: 1. possible exposure to a hazardous hobby 2. foreign travel 3. aviation activity 4. military service 5. smoker
25. the uderwriting process - special questionnaires
special questionnaires may be required to provide underwriters more detailed info relating to: 1. aviation or avocation - most common questionnaire required of any applicant who spends a significant amt of time flying 2. foreign residence 3. finances 4. military service or occupation
20. the uderwriting process - Medical information bureau
- Medical Information Bureau aka MIB will also identify life ins in force with other carriers as well as lifestyle habits such as drug use - formed by more than 700 member ins co
12. the uderwriting process - Part II Medical
- Part II - Medical must be completed in its entirety - depending on the proposed policy face amt this section may or may not be all that is required in the way of medical information - the proposed insured by be required to: 1. take a medical exam - if required by the insurer are expenses of the insurer 2. provide blood tests 3. urine specimen
13. the uderwriting process - Part III Agent's Report
- Part III - Agent's Report is made from personal observations about the proposed insured - the agent represents the interest of the company and is required complete this section fully and truthfully
24. the uderwriting process - USA Patriot Act
- USA Patriot Act enacted in 2001 requiring ins co to establish formal anti-money laundering programs - purpose is to detect nd deter terrorism
24. the uderwriting process - USA Patriot Act
- a life ins policies that can be cash-surrendered is an attractive money laundering vehicle - because it allows criminals or terrorists to put dirty money in and take clean money out in the form of an ins co check
1. policy issue and deliver -
- after the underwriting is complete and the co has decided to issue the policy other offices in the company assume the responsibility for issuing the policy - once issued the policy is sent to the agent for delivery to the applicant - policy not usually sent directly to the p/o as it should be explained by the sales agent to the p/o
3. field underwriting procedures - proper solicitation
- agent is to deliver to the applicant prior to accepting the initial premium, a life insurance buyer's guide and policy summary
7. policy issue and deliver - explaining the policy and ratings to clients
- agents sometimes may have a chance to prepare applicants in advance when it appears that policies may be rated as substandard, which normally requires an extra premium.
7. field underwriting procedures - completing the application - representations
- an applicant's statements are considered representations - representations are statements an applicant makes as being substantially true to the best of the applicant's knowledge and belief, but which are not warranted to be exact in every detail - representations must be true only to the extent that they are material to the risk
19. field underwriting procedures - conditional receipts - example
- applicant dies between the dates of application or medical exam and the date the insurer actually approves the application - the coverage is retroactively effective, as long as the applicant proves to be insurable on the specified date -
1. black box info
- applicants who pay a premium deposit with the application are entitled to premium receipt. - it is the type of receipt given that determines exactly when and under what conditions an applicant's coverage begins. - the two major types of receipts are: 1. conditional receipt 2. binding receipts
30. the uderwriting process - credit reports
- applicants with questionable credit rating can cause an ins co to lose money - applicants with poor credit likely to allow their policies to lapse within short period of time - ins co can loose money on a policy that is quickly lapsed because expenses to acquire the policy cannot be recovered in a short period of time - possible underwriters will refuse to insure those who have failed to pay their bills or who appears to be applying for more life ins than they reasonable can afford
22. field underwriting procedures - binding
- because the underwriting process can take several weeks, even months, the ins co is at risk - binding receipts are reserved for an ins cos most experienced agents
4. field underwriting procedures - proper solicitation
- buyer's guide is general publication that explains life ins in laymen's terms that do not speak of specific products or policies being considered
2. policy issue and deliver - constructive delivery
- constructive delivery is accomplished technically if he ins co intentionally relinquishes all control over the policy and turns it over to someone acing for the p/o, including the company's own agent. - mailing the policy to the agent for unconditional delivery to the p/o also constitutes constructive delivery, even if the agent never personally delivers the policy - if the co instructs the agent not to deliver the policy unless the applicant is in good health there is no constructive delivery
9. field underwriting procedures - completing the application
- each application requires the signature of: 1. proposed adult insured 2. p/o if different from the insured 3. the agent who solicits the application - the agent's signature is required to represent that the statements on the application are true to the best of the applicant's knowledge - by reading and signing the application the applicant should realize that any false statements on an insurance application could lead to loss of coverage
24. field underwriting procedures - policy effective date
- effective date important for two reasons: 1. not only does it identify when the coverage is effective 2. it also establishes the date by which future annual premiums must be paid
6. policy issue and deliver - explaining the policy and ratings to clients
- explaining the policy and how it meets the p/o specific objectives helps avert: 1. misunderstandings, 2. policy returns, 3. potential lapses
14. field underwriting procedures - initial premium and receipts
- for agent this will usually help solidify the sale and may accelerate the payment commissions - proposed insured benefits because the protection becomes effective immediately - there may become important restrictions
22. the uderwriting process - Medical information bureau
- helps to hold down costs of live ins for all p/o through misrepresentation and fraud - info rec'd may be released to proposed insured's physician
20. field underwriting procedures - conditional receipts - example con't
- however, with the conditional insurability receipt, if the applicant proves to be uninsurable as of the date of application or of the medical exam, no coverage takes effect and the premium is refunded
26. field underwriting procedures - policy effective date
- if a premium deposit is not given with the application the policy effective date is usually left to the discretion of the insurer - however the policy will not be effective until: 1. the policy itself is delivered to the applicant 2. the first premium is pd 3. Statement of Continued Good Health is obtained
15. field underwriting procedures - initial premium and receipts
- if initial premium not paid with application the agent is to still send the application to insurance company - the policy will not become valid until the initial premium is collected
14. the purpose of underwriting - does insurable interest exists?
- important - with life ins an insurable interest must exist only at the policy inception - insurable interest does not necessarily have to exist when the policy proceeds are actually pd - thus a p/o could assign a life policy to someone who has no insurable interest in the insured and the assignment would nonetheless be valid
9.policy issue and deliver - obtaining a statement of insured's good health
- in cases where the agent delivers the policy and then the premium is paid, common co practice requires that before leaving the policy, the agent must collect the premium and obtain from the insured a signed statement attesting to the insured's continued good health
36. the uderwriting process - standard risk
- insurer's guidelines for policy issue without special restrictions or additional rating - meet the same conditions as the tabular risks on which the insurer's premium rates are based
1. review
- life insurance agents are involved first hand in the underwriting process and are often a source of underwriting information themselves
28. field underwriting procedures - backdating
- many insurers are willing to let an applicant backdate aka save age a policy - before this step can be taken there are some important conditions that must be met: 1. insurer must allow backdating 2. co will usually impose a time limit on how far back a policy can be backdated (usually 6 months) 3. most important the p/o is required to pay all back-due premiums and the next premium is due at the backdated anniversary
3. policy issue and deliver -constructive delivery
- mere possession of a policy by the client does not actually establish delivery if all conditions have not been met. - example - a policy may be left with an applicant for inspectionand and an inspection receipt obtained to indicate that the policy is neither in force during the inspection period nor will it be in force until the initial premium has been pd
4. policy issue and deliver - explaining the policy and ratings to clients
- most applicants will not remember everything they should about their policies after they have signed the application. - this is another reason agents should delivery policies in person - only by personally delivering a policy does the agent have a timely opportunity to review the contract and its provision, exclusions and riders - some states and most insurers insist on the policies delivered in person
18. field underwriting procedures - conditional receipts
- most common type of receipt is a conditional receipt - conditional receipts indicates that certain conditions must be met in order for the ins coverage to go into effect - conditional receipts provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable either on the date the application was signed or the date of the medical exam
8. policy issue and deliver - explaining the policy and ratings to clients
- occasionally, both agent and p/o may be surprised when the policy is issued as a rated contract is issued as a rated contract - in either case the agent usually can stress reasons why the insured has an even greater need for insurance protection because of the physical impairment or condition - it may be he p/o last chance to purchase such coverage because a worsening of the condition responsible for the rating could render the person completely uninsurable
33. the uderwriting process - applicant ratings
- once info obtained and reviewed underwriters seek to classify the risk that the applicant poses to the insurer - this evaluation is called risk classification
37. the uderwriting process - substandard risk
- one below insurer's standard or average risk guidelines - possible reasons to be rated substandard: 1. poor health 2. dangerous occupation 3. attributes and habits that could be hazardous - some rejected outright - others accepted but with increased policy premiums
5. field underwriting procedures - proper solicitation
- policy summary addresses specific products being presented for sale -i.d.s 1. agent 2. insurer 3. policy 4. each rider 5. premium info 6. dividends 7. benefit amts 8. cash surrender values 9. policy loan interest rates 10 life ins cost indexes of the specific policy being considered
27. field underwriting procedures - backdating
- premium required to support a life ins policy are determined in part by the insured's age - if an applicant can be treated b the ins company as being a year younger the result can be a lifetime of slightly lower premiums - the purpose of backdating a life ins policy is to use premiums based on an earlier age - thus it is understandable that applicants might want to backdate a policy, making it effective at an earlier date than the present
2. field underwriting procedures - proper solicitation
- representative of the insurer - agent has duty and responsibility t solicit good business - soliciting and prospecting efforts should focus within underwriters guidelines and represent profitable business to the insurer - represent self with high professional standards to the ins-buying public
12. the purpose of underwriting - does insurable interest exists?
- sentimental attachment alone is not sufficiently to establish insurable interest - the burden is placed upon the applicant to show that an insurable interest exists
5. policy issue and deliver - explaining the policy and ratings to clients
- the agent deliver the policy is especially important. it helps to: 1. reinforce the sale and 2. preventing a potential lapse 3. lead to future sales by building the client's trust and confidence in an agents ability
6. field underwriting procedures - completing the application
- the application is the most important sources of underwriting info - it is up to the agent to see it competed fully and accurately - ins co will return incomplete applications to the agent - statements made in he application are used by insurer to evaluate risk and decide whether or not to insure the life of the applicant
4. review - purpose of underwriting
- the main things an underwriter will use includes: 1. the applicant's health 2. both current and past occupation 3. lifestyle 4. hobbies 5. habits
6. the uderwriting process - the applicant
- thorough evaluation of the application will be used as the first source of info used by the underwriter - the agent needs to make sure all questions on the applicant are fully and accurately recorded
21. field underwriting procedures - binding receipts
- under binding receipt, coverage is guaranteed until the insurer formally rejects the application - even if the proposed insured is ultimately found uninsurable coverage is still guaranteed until rejection of the application
25. the uderwriting process - inspection report
- usually obtained by ins co on applicants who apply for large amounts of life ins - reports contain info to be reviewed to determine their insurability - info obtained from national investigative agencies or firms and may be obtained by a telephone call to the proposed insured
11. field underwriting procedures - changes in the application
- when an applicant makes a mistake on an ins app they can have the agent correct it - the applicant must initial any corrections
2. black box
- when attached to the ins policy, the application becomes part of the legal contract between the insurer and the insured - consequently, the general rule is that no alterations of any written application can be made by any person other than the applicant without the applicant's written permission
10 field underwriting procedures - completing .the application
- where required by state law the agent also must sign a form attesting that disclosure statement has been given to the applicant - a form signed by prospective insured and agent as witness, authorizing the ins co to obtain: 1. investigative consumer reports 2. medial info form investigative agencies 3. physicians 4. hospitals 5. other sources - the form must have: 1. agent's name 2. name of ins co 3. license id no. and may be printed typed stamped or handwritten if legible
6. review - underwriting process
- while applications differ from company to company they all still have the same basic components: Part I - General Information Part II - Medical Information Part III - The Agent's Report
15. the purpose of underwriting - is the applicant insurable
-after the underwriter determines that insurable interest exists the next question is - is the applicant insurable? - this is determined in the underwriting process
29. the uderwriting process - credit reports
-based on info obtained before policy issue some applicants may prove to be poor credit risks - credit reports obtained from: 1. retail merchants' 2. associations 3. other sources
2. review
all agents should know and understand the purpose of underwriting
4. the purpose of underwriting
each applicant for ins is individually reviewed by a co underwriter to determine if the applicant meets the standards established by the company to qualify
3. the purpose of underwriting
each insurer sets it own standards as to what constitutes an insurable risk versus an uninsurable risk
28. the uderwriting process - inspection report
if an insurance company obtains an inspection report on a prospective insured it must inform the prospect that it is permitted to do so under the fair credit reporting act
15. the uderwriting process - Part III Agent's Report
if the new policy will be replacing an old policy states demand that certain procedures be followed to protect the rights of consumers when policy replacement is involve
13. the purpose of underwriting - does insurable interest exists?
insurable interests exists when : 1. an individual has an insurable interest in his or her life 2. husband or wife has an insurable interest in a spouse 3. parents have an insurable interest in their children 4. a child has an insurable interest in a parent or grandparent 5. a business has an insurable interest in the lives of its officers, directors, and key employees 6. business partners have an insurable interest in each other 7. creditor has an insurable interest in the life of a debtor but only to the extend of debt
1. the purpose of underwriting
issuing an ins policy to someone who is uninsurable is an unwise business decision and can easily mean a financial lose for the company
21. the uderwriting process - Medical information bureau
medical information bureau MIB purpose is a reliable source of medical info concerning applicant. helping to disclose: 1. forgotten or concealed pertinent underwriting info 2. submission of erroneous or misleading medical info with fraudulent intent 3. lifestyle habits like drugs, drinking, overeating and smoking
23. the uderwriting process - Medical information bureau
medical information bureau works: 1. ins co finds an applicant has a physical ailment or impairment listed by the MIB 2. co is pledged to report the info to the MIB in the form of a code number 3. by having this info underwriters will know of a past problem existing should same applicant apply for life ins at a later date with a member co. 4. info available to to member cos only and may only be used for underwriting and claims purposes.
19. the uderwriting process - Medical Report
medical reports must be completed by a qualified person and many companies accept reports that are completed by: 1. paramedic 2. registered nurse
16. the uderwriting process - Medical Report
most co.s have set nonmedical limits, meaning that for policies below a certain face amt (perhaps 50,000 or 100,000) will not require any additional medical information other than what is provided on the application
5. the uderwriting process
most common sources of underwriting info are: 1. the application 2. medical report 3. an attending physician's statement 4. the Medical Information Bureau 5. special questionnaires 6. inspection reports 7. credit reports
2. the purpose of underwriting
one main responsibility of an underwriter is to protect the insurer against adverse selection
3. black box
rarely are two policies so closely alike that a true "apples to apples" comparison can be made (for example, one company may provide a free waiver of premium provision)
4. the uderwriting process
regardless of the policy size, if the applicant triggers questions in the mind of the underwriter a review of other sources in info may be warranted
11. the purpose of underwriting - does insurable interest exists?
relationships that are automatically considered to qualify as insurable interests: - spouse - parents - children - certain business relationships
10. the purpose of underwriting - does insurable interest exists?
third-party contract is when the applicant is not the insured
32. the uderwriting process - the fair credit reporting act of 1970
this federal law applies to financial institutions that request these types of consumer reports of which insurance companies fall under this category
7. the uderwriting process - the applicant
three basic parts to a typical life ins application: 1. Part I - General 2. Part II - Medical 3. Part III - Agent's Report
1. the uderwriting process
to accomplish the underwriting process: 1. reviewing and evaluating info about the applicant 2. applying what is known about the applicant against the insurer's standards and guidelines for insurability and premium rates
