Life Insurance Exam
Needs Approach
Human life value and is used to find the amount of insurance coverage an individual should buy. Instead of looking at finances; the survivors will face it if the individual dies. Survivors needs fall into two categories Cash needs and income needs
The Application (Parts)
1. General Information 2. Health Information 3. Underwriter Sources of Information
Insurance
A contract that transfers the risk of financial loss from an individual or business to an insurer; Insurer agrees to cover the individual or business for certain losses if they occur
Risk
Uncertainty about whether a loss will occur
Loss
Reduction in the value of an asset; To determine your loss, the value of the asset is measured before and after the loss
If insured dies before a policy is issued
Applicant continues under the normal underwriting process and the following occurs; If the deceased met the companies standard underwriting requirements and a policy would have been issued had they lived - death benefit would be paid to beneficiary If the insured found to be uninsurable or a substantial risk - no coverage would be paid and the premium that was collected with the application will be returned to the policy owner or beneficiary (in the case of death) ** can be determined after death
Elements of Insurable Risk (CANHAM)
1. Calculable: Premiums must be callable based upon prior loss statistics for that particular risk in order to predict future losses 2. Affordable: Transferring the risk should be affordable for the average consumer 3. Non-catastrophic: Insurance cannot insure events that cause widespread losses to large numbers of insureds at the same time. (ex. Peril of war is not insurable risk is too large for insurance company to pay) 4. Homogenous: Individual risks that insurer covers must be similar in regard to factors that affect the chance of loss 5. Accidental: Insurance is a method of handling risk - loss is certain = no risk 6. Measurable: Possible to estimate the loss as a dollar amount. Insurance covers the financial loss of unexpected death or medical bills from sickness
Authorized and Unauthorized Insurers
1. Certificate of Authority: States usually require companies to have a license to sell insurance in the state Admitted or Authorized - companies that have a license 2. Non-admitted, Unauthorized, or non approved - sell insurance to types of risks (surplus) without having a license
Completing the application (3):
1. Confidentiality: Information that the applicant shares will be kept out of sight of others except for company representatives and the information gathered should never be the subject of idle talk. 2. Accuracy: Producers must get and record the correct answer to every question on the application. The company underwriter is relying upon application accuracy to correctly assess and rate this business 3. Completeness: All the required info must be available for review by the underwriter before a policy can be approved and issued IF A POLICY APPLICATION IS INCOMPLETE: The underwriter waives its right to that information. If a claim arises, the company cannot deny it based on the fact that information was missing from the application
Fraud and False Statements (18 USC Section 1033 and 1034)
1. A person who transacts insurance in interstate commerce and who intentionally makes false material statements in connection with financial reports or documents presented to insurance regulators appointed to investigate the person and to influence the actions of officials subject to: Fine or Imprisonment for up to 10 yrs; or BOTH 2. Imprisonment up to 15 years if the false statements jeopardize the safety and soundness of an insurer and were a significant cause of the insurer being placed in conservation, rehabilitation, or liquidation 3. Officers, directors, agents, and employees of an insurance company who willfully embezzle or misappropriate funds are subject to the same consequence
Characteristics of Insurance Contracts
1. Adhesion: Provisions are written by only one party to the contract and the other party is required to adhere, or stick to them; Insurer writes contract terms = insured must adhere; Insurance policies are contract of adhesion 2. Aleatory: Value received from each party may be unequal; Insured pays a larger premium but may never gain funds b/c there has not been a loss; Insurer may have to pay a large amount that does not equate to the premium that an insured pays
Elements of a Legal Contact (CLOAC)
1. Consideration: Each party to the contract must give something valuable to the offer (exchange of value = Money) Insurance contract: Applicant - information (representations in the application and premium) Insurer - promise to pay if certain loss occurs 2. Legal Purpose: Legal purpose must not be contrary to public policy 3. Offer: Proposal made by one of the potential parties to the contract A client accepts an offer once the policy is issued AND the insured pays the premium. No payment = the offer is not accepted thus there is no agreement 4. Acceptance: Offer must be unconditional and unqualified If acceptance is qualified or conditional - no agreement has been reached - qualified acceptance is a rejection of the offer and considered a = Counter Offer 5. Competent Parties: Both parties must have legal capacity to make a contract (age 18 and mentally competent
Insurance Company Location
1. Domestic: State where a company is incorporated 2. Foreign: Any state or US territory other than the state where incorporated -- Insurer that writes business in states other than where it domiciled 3. Alien: Incorporated in any country other than the USA. Insurer based in any other country than the US and US territories
Agent authority (three types of authority)
1. Express authority (contract/written): -Authority made explicit in a producer's written agency agreement with the insurer (company states) Explicitly tells the producer what they can and cannot do (ex. Writing a more expensive life insurance policy than clearly stated) 2. Implied authority: Not written but are the actions agents normally do to sell insurance The power that the agent believes he or she has in order for the agent to conduct business 3. Apparent authority: Actions the agent does that a reasonable person would assume as authority, based on the agent's actions and statements Agent must conduct appointments, make sales presentations, assist the customer with the application and collect premiums
Methods of marketing (4)
1. Independent insurance agents: Sell the insurance products of several companies and work for themselves or other agents/producers; Own the expirations of the policies they sell - the agent may place that business with another insurer upon renewal (if it is in the best interest of the client to do so); Agent represents the insured (client) 2. Exclusive or captive agents: Represent only one company - referred as career agents working from career agencies - are compensated by commission Agents represent the insurer (insurance company) 3. General agents (GA's) or managing general agents (MGAs): Hire, train, and supervise other agents within a specific geographical area; GAs and MGAs receive overriding commissions (overrides) on the business produced by the agents they manage 4. Direct-writing companies: Pay salaries to employees whose job function is to sell the company's insurance products for a company office. Producer is not paid a commission and the insurer owns all of the business produced
Three types of Hazards
1. Physical: (seen or determined): Physical identifiable using lab equipment that produces tangible evidence of its existence (ex. heart condition) 2. Moral: Arise from an individual's character Example: Dishonesty - increases the chance that an individual might lie on an insurance application or fake a loss 3. Morale: State of mind or careless attitude Example: Leaving the doors and windows unlocked when not at home - An unconscious change in a person's actions or behaviors
Types of Insures
1. Private Sector 2. Mutual Insurers 3. Fraternal Benefit Societies 4. Reciprocal Insurers 5. Risk Retention Groups (RRG) 6. Lloyd's Associations 7. Self Insurers
Methods of Handling Risk (STARR)
1. Sharing: two or more individuals agree to pay a portion of any loss incurred by any member in the group - ex. stockholders share the risk of profit 2. Transfer: Insurer agrees to pay if an individual or business has a loss; Individual has a cost in the form of a premium payment - Premium is a much smaller certainty and in contrast to the loss which is large and uncertain Risk management method of transfer - spread a risk of loss among thousands of insureds. The large number of insureds who do not have an accident pay for the losses of the few who do. 3. Avoidance: Risk avoidance means eliminating a particular risk by note engaging in a certain activity ex. individual who does not drive - avoids injuring someone in a collision 4. Reduction: lessening the chance that a loss will occur; lessening the extent of a loss that does occur ex. wearing a seatbelt 5. Retention: individual will pay for the loss if it occurs ex. person will pay the bill if they need hospitalization
Classification of Risks (4)
1. Standard: Average health and normal life expectancy and fall into the normal range anticipated by the company whe 2. Preferred: Represent excellent health. Favorable risks such as healthy lifestyle; clean medical history, low-risk occupation ,risks may be preferred or discounted rates 3. Substandard or rated: Below average life expectancy - high risk life insurance. Risk of loss is above average and therefore unfavorable to the company. Poor health, dangerous occupation, or risky habits. Risks are accepted only by charging insureds a higher rates Methods of charging: flat additional charge, charging applicants the standard premium for a higher attained age, or reducing the benefits provided by the policy 4. Declined: The insurers underwriting guidelines indicate that an applicant is not insurable at any price
Private Sector Insurers
1. Stock insurers: Business formed as a public or private corporation and owned by its stockholders/shareholders Board of directors chosen by stockholders/shareholders Profits from the insurance operation may be distributed to the stockholders as dividends; Issues non-par policies 2. Mutual insurers: Owned by policyholders/policyowners (customers); Board of directors chosen the policyholders Funds that remain after paying claims and operating costs may be distributed to the policyowners as dividends Mutual policy dividends are non-taxable return of excess premium; Issues participating (par) policies 3. Fraternal Benefit Societies: Exist for the benefit of its members and offer life insurance as one of the benefits of membership Fraternal provide social activities and charitable and benevolent causes Fraternal are under a lodge system and receive some income tax advantages Fraternal policies = certificates, and members who won life insurance = certificate holders Certificate holders may be assessed to pay additional charges if premiums are not sufficient to pay claims during a given period
Personal uses of Life insurance
1. Survivor Protection 2. Mortgage payoff 3. Estate Creation 4. Estate Conservation 5. Liquidity 6. Cash Accumulation
Hazard
Anything that increases the chance that a loss will occur (Hazards do not cause the loss) Something that becomes more dangerous and can make a loss more likely to happen
Type of Reasonable Expectations (Insurance Contacts)
1. Unilateral: Insurance policies are one sided contracts because only one party is legally bound to perform under the contract. Insurance company PROMISES to pay for a covered loss as long as the insurer chooses to keep the contract in force through payment of premiums 2. Personal: Property-casualty insurance policies are personal contracts (example: auto and homeowners) Life and health insurance policies are not 3. Conditional: Insurance policies are conditional contracts b/c they require certain conditions to be fulfilled in order to perform under the contact to be enforced Example: a death certificate 4. Indemnity: Contract is intended to restore the insured to the financial state he or she enjoyed prior to the occurrence of a loss - no more and no less Indemnification: restoring an insured to his or her pre-loss financial state Principle applies to health insurance NOT life insurance
Estoppel
A legal doctrine that prevents a party from denying an action if it had been accepted previously
Law of Agency
A relationship/consent of two people: one person is authorized to represent and the other person acts for another person or for a corporation Agent: person authorized to act on behalf of the other (sales representative) Principal: person on whose behalf the agent acts (insurer) Explained: Contracts made by the agent are considered to be contracts of the principal; Payments made to an agent within the scope of the agent's authority are considered to be received by the principal; Principal is liable for the statements and actions of the agents
Reporting and disclosure
A summary of marital modification that details changes in any plan description to each plan participant and the Dept. of Labor An annual return or report (Form 5500 or one of its variations) submitted to the IRS A summary annual report to each plan participant Any terminal; report to the IRS
Determining Amount of Life insurance Needed
Human life value - income replacement - annual income x # of years until retirement Needs approach - more detailed approach Cash needs (final expenses, debt, children's education, emergency fund) Income needs (ongoing living expenses)
Human Life Value
According to this term - the purpose of life insurance is to replace an individuals economic value and this begins with a straightforward calculation: The amount of the individual's annual income x the number of years until retirement Example: Dan is 35 years old, earns $50,000 yearly, and plans to retire in 30 years at age 65. Calculation: $50k x 30 = 1,500,000 is the amount of money Dan will earn by the end of this working years
Data Gathering
Acquire information required for the needs approach. This includes Names and birthdates of every member of the family to determine the length if the three income periods Sources and amounts of income available upon the death of the individual Debt, like home mortgage, that must be eliminated upon the death of an individual Existing assets that an be used to offset survivors' cash needs upon individual death Amounts of life insurance already owned including group life insurance obtained through an employee benefit kan Financial objectives such as the education level desired for the children and retirement income goals
Underwriters work with..
Actuaries, risk managers and claim managers to protect the company from potential claims They determine which new risks are profitable and existing clients are worth retaining
Counter offer
Agrees to issue policy but with higher premium or restrictions/exclusions Insured either accepts the condition or withdraws her application
Business Insurance
Among business partners Between corporations and their officers and directors Between any type of business and its key employees
Collecting the Premium
An 'offer to buy' insurance when the first premium is submitted with the life insurance application. No premium submitted - the application coverage is elated until the premium is paid for the issued policy. If the insured becomes uninsured or dies between the time when the application is submitted and the first premium is collected, the policy will pay no benefit
Fraud
An intentional act designed to deceive an induce party to part with something of value Involve misrepresentation, concealment, or both Voids the policy
AIDS Consideration
Applicants sexual orientation cannot be used in the underwriting process or determine insurability AIDS (Acquired Immune Deficiency Syndrome) or ARC (AIDS-related complex) to determine a medical condition AIDS testing can be required with the applicant's written consent if the reports are positive, a report is sent to the Medical Information Bureau (MIB) that an individual has abnormal blood test results Results are AIDS positive: A report is sent to MIB stated that the individual has abnormal blood test results; The presence of aids is never revealed, reported, or shared. The info can only be released to persons designated by the applicant such as a particular physician. If no provider is designated then it will be shared with the Dept. of Health
Underwriter Sources of Information
Application (primary source); Medical exam and Testing; APS (attending physician statement); AIDS testing; Medical Information Bureau; Consumer reports; Investigate reports
Peril
Cause of loss - what was the cause of loss: Death; Accidents and/or sickness; Property & Casualty - Fire, Lightning, etc Insurer agrees to cover losses by a specified peril Example: Peril for life insurance for life = death ; Peril of health insurance = accidents or illness ; Peril for house burning down = fire
Definition of classification of risks
Company will look at an applicant's personal medical history, smoker status, height/weight profile, medical exam results, family history, motor vehicle record and any hazardous activities. After applicants are evaluated they are classified into groups according to level of risk.
Consumer rights
Consumers can dispute the information a te reporting agencies may be required to reinvestigate and correct or delete information
Income needs
Created by ongoing living expenses such as food, clothing, utilities and a mortgage. Three distinct neds periods: Family Dependency - during this period the surviving children are too young to themselves and depend on the surviving parent for their needs Retirement - at this point the children have grown up and become and self -supporting, but the surviving spouse has not yet reached retirement age Retirement - now the surviving spouse is no longer earning an income
Conditional Receipt
Date of the application (effective date - the applicant is found to be insurable under the company's standard underwriting rules: date of the application OR the date a required medical examination - whichever is the latest date)
PATRIOT ACT (Anti-money laundering provisions)
Deter terrorist activity - both globaly and in the US in particular - through prevention, detection, and prosecute intenrational money laundering and financin of terrorism Insurer's anti money laundering must be a program headed by a compliance officer, ongoing training of appropriate individuals within the company, independently tested to assure effectiveness. Types of suspicious activity : Receipt of cash payment in excess of $10,000; Purchase of insurance that is not consistent with the customer's need; Request to have refund or surrender proceeds or other benefits paid to a part not clearly related to the purchaser; Greater interest in the early termination features of a product rather than its potential performance; Fictitious identification or reluctance to provide identification; and maximum borrowing against product's value after it is purchased
Company Underwriting
Each insurance company has its own underwriting guidelines to help the underwriter determine whether or not the company should accept the risk To determine risk
Binding receipt
Effective for 30 to 60 days from the date of application even if the applicant is found to be uninsurable. Often used with auto or homeowners insurance and rarely with life insurance (in the case of life insurance - that is called = temporary insurance agreements - the insurer could either issue a policy or cancel the binder before the end of the stated period)
ERISA (Employee Retirement Income Security Act)
Enacted to protect the interests of participants in employee benefit plans as well as the interests of the participants' beneficiaries. ERISA mandates very detailed standards for fiduciaries and other parties 0n0 interest of employee welfare benefit plans, including group insurance plans. -- Anyone in charge of plan management or plan assets must discharge fiduciary duty solely in the interests of the plan participants and their beneficiaries. Strict penalties apply to those who do not fulfill this responsibility
Income needs of the survivors - come from three places
Existing assets such as bank saving accounts and investment accounts or Individual retirement accounts (IRAs) Employer life insurance or retirement benefits payable to a surviving spouse Social security that an pay benefits to the surviving dependents
Sources of Information
Factors to classify risk must be: objective, clearly related to the likely cost of providing coverage, practical to administer, consistent with applicable law, and designed to protect the long-term viability of the insurer Application is the primary source of info
Responsibility to Applicants/Insureds
Fiduciary: A person in a position of financial trust. Agent must be knowledgeable about the features and provisions of various insurance policies and able to explain important features to the insured account for and pay the correct amount to the insured, insurer, or other agent entitled to money Keep separate from the agent's personal funds All premiums received by an agent are funds received and held in trust
HIPAA Disclosure
Health Insurance Portability and Accountability Act (HIPAA) imposes specific requirements on disclosure of insured's health information by medical providers, insurers, and producers. Health info must remain confidential to protect applicant's privacy If info is shared, applicant must be given full notice of: insurer's information-sharing practices; the right to maintain privacy; opportunity to refuse to have their info released
Liquidity
How easily an asset can be turned into cash without loss of value When insured dies, it turns into cash to pay the estate's expenses, avoiding the possibility that other estate assets will have to be sold at a loss
Agency Systems
Independent insurance agents - sell their product through insurance producers or agents
Reinsurance
Insurance for insurers = Insurance company (ceding company - wants to reduce its risk) pays a premium to another insurer (reinsurer - that assumes the risk) to transfer some or all of its risk
Surplus Lines Insurers
Insurance sold by unauthorized/non-admitted insurers - Can only be sold to certain high risk insureds Examples: gaming, casinos and entertainment, mining, and skyscrapers
Risk Retention Groups (RRG)
Insurer formed for the purpose of providing liability insurance to its policyholders. Liability insurance company created for policyholders from the same industry. Example: car dealers RRG - only car dealers can be policyholders
Medical Examinations and Testing
Insurers will underwrite applications on a non-medical basis when the death benefit applied for is below a certain level. Applications are evaluated on health information on the application Larger death benefit - insurer may require insured to take a medical examination Exams can be conducted by a registered nurse, paramedic, and some applicants must have a doctor test for EKG's, MRI's, etc. Death benefit determines the type of examination and testing required by the insurer Insurer pays: medical examination and testing required by the insurer; including AIDS testing
Waiver
Intentional and voluntary giving up a known right
Concealment
Intentional failure to disclose known facts. An insurer may be able to void the insurance contract (if intentional - coverage can be voided; if not intentional coverage cannot be voided)
Commungling
Mixing personal funds with the insured's or insurer's funds; Theft will be punished by law
Lloyd's Associations
NOT INSURANCE COMPANIES Hub for the exchange of information among member underwriters who actually transact the business of insurance Members are individually liable and responsible fo the contracts of insurance into which they enter Sold by surplus lines of intermediaries - Example: covers unusual risks - hair of athletes or body parts of athletes
Cash needs
Needs that can be met with a lump of money. Final expenses - funeral / burial costs and final medical bills Debt Payoff - home mortgage, credit cards, car loans, other installment loans, Children's education - a found to pay the future cost of colleague or trade school Emergency fund - unexpected expenses that can
Medical Information Bureau
Non-profit insurance trade association that maintains underwriting information on applicants Companies account for 99% of individual life insurance policies and 80% of health and disability policies issued in US and Canada Member companies discover unfavorable information about an applicant during their underwriting process - report to MIB using codes signifying certain conditions MIB files include: medical history, hazardous jobs or hobbies, and poor driving records
Cash Accumulation
Permanent life insurance policies have a cash value component that grows over time - living benefit Money can be used for: Emergencies to fix a heating system or repair a leaking roof; Opportunities; starting up a new business; An education fund for children or grandchildren; A supplementary retirement income
Law of large numbers
Principle that makes insurance possible - Larger the group - the more accurate losses can be predicted A prediction allows the insurer to charge each insured a premium, pooled together, cover all claims and operating costs
Classification of Insurers
Private Insurers and Government Insurers
Underwriting
Process of evaluating risk to determine if it is acceptable based on established insurance company guidelines. → producer/agent → when a decision to buy is made and the agent completes the application for insurance and submits it to the company underwriter.
Producer's Report /Producer's Statement
Producer records information that pertains to the proposed insured including the producer''s relationship to the proposed insured and anything the producer knows about the proposed insure's -financial status, habit, and character *the proposed insured/client does not see the producer's report - it is not attached to the policy and the application when it's issued - producers report will be signed only by the producer
Errors and omissions situation
Producers are liable for their mistakes (misstatements and promises of coverage). MUST follow established procedures Taking applications; explaining coverages; collecting premiums; amending policies; submitting claims
Warranty
Promise: statement that is guaranteed to be true - Promise made by the insurance company; If promise is broken - insured may have no coverage
Fiduciary Trust
Promptly send premiums to insurer Knowledge of products Comply with laws and regulations No commingling
Calculating Insurance Premiums
Rate multiplied by the number of exposure units; Example: life insurance rate is $32 per $1,000 of death benefit, the premium for a $100,000 policy = $32 x $100 = $3,200
Purpose of MIB
Reduce instances of misrepresentation and fraud Insurers may not make use info from MIB to reject insured Insurers do not report underwriting decisions to MIB (prevent acceptance or rejection) An applicant must be given written notice that info is going to be reports to MIB Applicants must be notified that applying for insurance or filing a claim with another company may trigger the release of MIB information
Financial ratings of Insurers
Report card of company; Independent rating agencies: all have different criteria of evaluation - insurers loss experience, reserves investment performance, management, and operating expenses AM Best, Inc. (A+); Standard & Poor's Insurance (AAA), Moody's Investors Service Duff (Aaa) & Phelps Credit Rating Company and Weiss Ratings (AAA)
Misrepresentation
Representation that is false (intentional or unintentional) Material misrepresentation False information that determines factor in the insured's acceptance of the risk (voids contract)
Fair Credit Reporting Act (FCRA)
Requires consumer reporting agencies to adopt reasonable procedures for exchanging information on credit, personnel, insurance and other subjects in a manner that is fair and equitable to the consumer with respect to the confidentiality, accuracy, relevancy, and proper use of information All insurers and producers must comply with FCRA regarding info obtained from a third-party concerning applicant Reports on consumers are prohibited unless consumer is made aware of the report Notice to applicant - to all applicants for life and health insurance Notice must be given no later than three days after a report was requested Consumer may write a written request for a complete disclosure of the nature and scope of investigation underlying report Disclosure must be made in writing within five days after the date on which the consumer's request was received
Suitable Considerations
Responsibility to make purchase recommendations that are appropriate for a client's needs, objectives, and circumstances Agent gives thought to how a products features and benefits will address the applicants situation
Self Insurers
Retaining risk - A business that pays its own claims Set aside savings to cover losses in advance and may even have a claim system like an insurance company
Exposure
Risk assumed by an insurer and the amount that the insurer is responsible to pay out at any given time
Adverse Selection
Risks that have a greater than average chance of loss To avoid adverse selection insurers make an extensive evaluation of information related to the particular risk = Underwriting Insurer may charge a higher rate to insure the risk, limit the amount of coverage, or refuse the application for insurance all together
Examples of government insurers
Social security benefits; Military life insurance benefits; Federal employee compensation benefit; Various Retirement Benefit programs; Unemployment insurance; Worker's compensation insurance; Disability insurance; Medical insurance for the needy; Insurance programs: catastrophic risks - war risks, flood, and crop losses
Back Dating
Some insurers allow an applicat's premium oy be based on an applicant's earlier age and lower the cost of their premium (up to six months) To receive a less expensive premium, the applicant must pay any additional premium that would have been paid from the backdate
Relationships that create insurable interest
Spouses and domestic partnerships Parents and children Among other close family members
Disclosure Notification
State law requires applicants to be given advance notice stating who is authorized to disclose personal information, the kind of information that may be disclosed, and the reason it is being collected. When signing the disclosure form, the applicant aggress to allowing the insurer to gather and disseminate information as described in the notice
Representation
Statement that is believed to be true
STOLI / IOLI
Stranger-Owned Life Insurance (SOLI) or Investor-Owned Life Insurance (IOLI) transactions are life insurance arrangements that involve investors who persuade seniors to take out a new life insurance policy with the investors named as the beneficiary Seniors receive financial inducement for this arrangement - upfront payment, a loan or a small continuing interne in the policy death benefit Banned in most states - has become a method of fraud
Penalties
Violators of the fair reporting act may be subject to fines and imprisonment, pay actual damages suffered by consumers, punitive damages awarded by court, reasonable attorney fees, etc. Maximum penalty for obtaining consumer reports under false pretenses is $5000, imprisonment for one year or both
Breakout period
The Social Security Administration provides benefits for surviving spouses with children under 16. When the youngest child turns 16, benefits stop and do not resume until the surviving person Social security pays - survivor benefits during the family dependency and retirement periods. However - preretirement - called blackout period, payments are suspended
Statement of Good Health
The agent/producer must collect first premium if it was not paid at the time of application Policy Owner must sign a statement of good health attesting that their health is the same as when they applied for the policy. If health changed - agent can't deliver policy
Required Signatures
The application form Signed by the applicant and the producer/agent Proposed insured - must sign if the applicant is not the insured A company officer must sign if the applicant is not the insured A parent or legal guardian signs a juvenile policy for the minor
Why is underwriting important?
The information that is gathered enables insurance companies to properly classify and determine premiums for prospective insureds Underwriters determine the amount of risk an applicant poses for the company and whether the company wants to accept or decline that risk
Information Practices
The life insurance producer must notify applicants about the insurers privacy policy as it relates to the personal information collected during the application process and how it would be used
Third Party Ownership
The owner of the life insurance policy is someone other than the insured To have a policy issued on someone else's life, the applicant must have an insurable interest in that person Insurable interest: the person applying for the policy must be at risk of suffering a significant loss if the insured dies. The loss may be: Emotional: based on love and affection; or Economic: based on financial dependency such as insured's income
Policy Review
The producer will review with the policyowner the policy, riders, exclusions, and other details to make sure they understand it
Treaty
The reinsurer accepts the transfer of risk according to an agreement called a treaty
Basics of Life Insurance
To protect family when a family member dies, protect a business, transfer wealth from one generation to another, provide retirement income, and serve as a source of financing
Attending Physician's Statement (APS)
Underwriters can ask the proposed insureds regular doctor for an APS to find out the applicant's current condition and medical history with the physician. Also can ask for copies of medical records
Reciprocal Insurers
Unincorporated groups of people that agree to insure each other's losses under a contract Members are assessed the amount they have to pay if a loss to any member of the group occurs Run by an attorney-in-fact (An advisory committee of subscribers) Subscribers - members of the reciprocal group: each subscriber has an account where premiums are paid and earned interest is tracked. Each subscriber's account is assessed an equal amount to be covered by the reciprocal insurance agreement. Each subscriber is assessed and shares an equal amount of paying the claim.
Selection criteria and Unfair discrimination
Use of any of the following is considered discrimination: Race, religion, national origin, place of residence
Personal delivery
When a policy is issued it must be delivered to the policy owner in person. If misled, producers must obtain a receipt from the policy owner acknowledging that the policy was delivered and the date. = Agent delivery
Receipts
When the first premium is submitted - the producer must provide the applicant with a receipt The effective date of coverage will depend on the type of receipt issued
Facultative
the reinsurer evaluates each risk before allowing the transfer