Xcel ch.6. Life Insurance underwriting

Substandard Risk

a high risk; requires special conditions to be included in the policy or issued a rated policy High Risk - Rated Up - Higher Premiums chronic conditions, insulin diabetes, heart disease

Binding Receipt

(temporary insurance agreement) provides coverage for the date of the application regardless of whether the applicant is insurable. Coverage usually lasts for 30 to 60 days, or until the insurer accepts pr declines the coverage. Rarely used in life insurance but are primarily used in homeowners insurance

Part III of the Application

- Agent Reports (Statement)- Agents personal observation of the applicant -Includes the applicants financial condition, character, background , purpose of sale, and how long the agent has known the applicant -Often called the Agent's report. This is where the agent reports personal observations about the proposed insured -Because the agent represents the interest of the insurance company , the agent is expected to complete this part of the application fully and truthfully

Part 1 of application: general information

-general information- Age, DOB, Sex, Address, Marital status, Occupation -Details about the request insurance coverage: type of policy amount of insurance name and relationship of the beneficiary -Other information personal information tabacco use hazardous hobby foreign travel aviation activity military service

Which of the following is a requirement for ANY change in an insurance application? Change must be initialed by the agent Change must be initialed by the applicant Change must be approved by the insurer Change must be notorized

Change must be initialed by the applicant

All of these are typically sources of underwriting information for life or health insurance EXCEPT Consumer reports Medical Information Bureau (MIB) reports Disclosure authorization response Attending physician's statement (APS)

Disclosure authorization response

An applicant intentionally lying to an insurance company on an application in order to obtain a cheaper premium is an example of what?

Fraud

Part ll of the application

Medical information: Health History Focuses on the proposed insureds health and asks a number of questions about health history Depending on the proposed policy, this section may or may not be all that is required in the way of medical information The individual to be insured may be required to take a medical exam/or provide a blood test or urine specimen

The principle of insurable interest, in regards to a life insurance contract, is accurately described in which statement? An agent establishes insurable interest An individual does not have insurable interest on his or her own life Insurable interest only pertains to business arrangements Insurable interest can be based on the love and affection of individuals related by blood or law

Insurable interest can be based on the love and affection of individuals related by blood or law

Effective date is important for two reasons:

It identifies when the coverage is effective and establishes the date by which future anneal premium is paid.

What is involved when a life insurance policy has been backdated?

Making the policy effective on an earlier date than the present

All of these are considered sources of information that can assist an underwriter in determining whether or not to accept a risk EXCEPT Agent's report Medical Information Bureau (MIB) Inspection reports National Association of Insurance Underwriters

National Association of Insurance Underwriters

Declined Risk

Not Insurable - Potential of Loss to Insurance Company is to High terminal illness, too many chronic conditions

Fair Credit Reporting Act (FCRA)

Regulates the way credit information is collected to protect the rights of the consumer for whom an inspection or credit report has been requested . Information regarding an individuals credit standing and general reputation is contained in a consumer report. It established producers for the collection and disclosure of information obtained on consumers through investigation and credit reports. Company requests a credit report - customer must be notified In writing -The applicant has the right to receives a copy of the report when an investigative consumer report is used in connection with an insurance application

USA Patriot Act

Requires insurance companies to establish formal anti-money laundering programs. Purpose of the act is to detect and deter terrosim Life insurance policy can be cash-surrender which can be an attractive laundering vehicle and allows criminals to launder dirty money and take out clean money

Which of the following describes a person who is NOT acceptable by an insurer at standard rates because of health history, occupation, or hobbies? Standard risk Preferred risk Unacceptable risk Substandard risk

Substandard Risk

What happens when an insurance policy is backdated?

The Policys effective date is earlier than the present.

Signatures

The agent and the applicant are required to sign the application. If the applicant is someone other than the proposed insured, except for a minor child, the proposed insured must also sign the application. This is considered third-party ownership. when the applicant makes a mistake in the information given to an agent in completing the application, the applicant can have the agent correct the information, but the applicant must initial the correction.

Which of the following statements is CORRECT regarding an individual applying for life or health insurance? The applicant waives all privacy rights The applicant's family medical history is always required The applicant's medical history is irrelevent The applicant's medical history may be analyzed and reported

The applicant's medical history may be analyzed and reported

Which of the following would be a valid reason why a policy premium would be higher than the standard premium? The insurer is not a member of the MIB The agent quoted the wrong price The insured does not have the necessary financial reserves The insured does not meet established underwriting requirements

The insured does not meet established underwriting requirements

Backdating

The process of predating the application a certain number of months, up to 6 months, in an attempt to achieve a lower premium. A lower age results in a lower premium. A backdated application results in a backdated policy effective date, if approved by insurer Process also called "saves age" , policy owners are required to pay all back-due premiums and the next premium is due at the backdated anniversary date Insurance contract is sent to the sales agent for delivery of the applicant, usually not sent out to policyowners because it should be explained to them by the agent

A change in an insurance application requires -an initial made by the producer -an initial made by the applicant -approval by the insurer -submitting a new application

an initial made by the applicant

Underwriters can acquire information from all of the following sources EXCEPT Medical Information Bureau (MIB) consumer reports attending physician's statements genetic testing

genetic testing

Personal Delivery

good practice as it allows the producer to explain coverage to the insured (such as the riders, provisions, and options). This builds trust and reinforces the needs for the coverage

Signatures for an insurance application MUST be obtained by the producer from all of the following sources EXCEPT the producer the insured the policyowner the beneficiary

the beneficiary

Upon policy delivery, which of the following must a producer have an applicant sign if no initial premium was collected with the life insurance application?

A good health statement

Preferred Risk

An insurance classification for applicants who have a lower expectation of incurring loss, and who, therefore, are covered at a reduced rate. Low Risk- Low Premiums. Lower risk tend to have lower premiums. Some of the following may result in a policy being issued with a preferred insurance premium: -Applicant is a nonsmoker and/or nondrinker -Good personal/family health history

Credit Reports

Applicants credit history is used for underwriting and to determine the likelihood of making premium payments. The Fair Credit reporting act requires the applicant be notified in writing if the credit report will be used. The applicant must also be notified if the premium is increased because of credit rating

Standard Risk

Average risk - No Extra Ratings or Restrictions standard terms and rates

In which of the following relationships would there NOT be an insurable interest? Parent to child Business partner to business partner Brother to sister Business owner to business customer

Business owner to business customer

Policy Issue and Delivery

Constructive Delivery, The statement of good health, and Personal delivery

Effective Date of Coverage

Coverage is not effective without collect of the initial premium, approval if the application, and policy issuance and delivery. If the initial premium does not accompany the application, the premium must be collected by the agent

Applicant Rating

Once all the information about a given applicant has been reviewed, the underwriter seeks to classify the risk that the applicant poses to the insurer. This is evaluation is known as risk classification.

Which of the following pertains to the analysis of an applicant's personal information and determining whether insurance should be issued or declined? Adverse calculation Underwriting Risk classification Actuarial determination

Underwriting

Special Questionnaires

are used for applicants involved in special circumstances, such as aviation, military service, or hazardous occupations or hobbies. The questionnaire provides details on how much of the applicant's time is spent in these activities.

Buyer's Guide

provides general information about the types of life insurance policies available, in language that can be understood by the average person.

Inspection Report

underwrite report provides information about the applicants character, lifestyle, and financial stability. Usually ONLY requested from larger coverages because they add expense to the underwriting process. Companies are allowed to obtain inspection reports under The Fair Credit Reporting

Most common sources of underwriting information include:

1.The application 2.The medical report 3.Attending physician's statement 4.The Medical Information Bureau 5.Special Questionnaires 6.Inspection Reports 7.Credit Reports

Privacy Notice

According to HIPPA, provides federal protection for an individuals health information and gives patients an array of rights with respect to individually identifiable health information, the an agent submits an application that reveals personal information regarding the applicant, the agent is responsible for providing the insurance applicant with privacy notice. Producer must also secure an HIV consent form form the applicant in applicable situations and communicate blood tests may be required with the the underwriting practice.

Policy Issues

-Happens when the insurer "approves" the application, they are "issuing the policy" -Technically a policy could be ISSUED and not delivered for days or weeks later

Medical Information Bureau (MIB)

A nonprofit trade organization which maintains medical information about individuals. Information from this is used by life and health insurers, this helps insurance companies from adverse selection by applicants Detects misrepresentation, helps identify fraudulent information, and controls the cost of insurance Information received and released will be to the proposed insured's physical Insurance Company would NOT notify the MIB if an application is declined

Premiums and Receipts

Agents should make every effort to collect the initial premium with the application. However, if premium is not collected with the application the policy will not be valid until the initial premium is collected The agent issues the applicant a premium receipt upon collecting the initial premium . The only time a customer will receive a receipt is if they pay their initial premium at the time of the application. No receipt will be given any other time. There are two types of premium receipts that determine when coverage will begin and that is conditional and binding receipts

Which of the following would be considered an underwriting duty of an agent? Requesting medical information from the Medical Information Bureau (MIB) Completing all applications and collecting initial premiums Accepting or declining an application Assigning a risk classification

Completing all applications and collecting initial premiums

An insurance company needs to obtain personal information from a third party concerning an applicant. Which law do all insurers and their producers need to comply with?

Fair Credit Reporting Act

All of these are considered key factors in underwriting life insurance EXCEPT Tobacco use Health history Age Marital status

Marital Status

Constructive Delivery

Policy delivery may be accomplished without physically delivering the policy into the policy owner's possession Occurs when insurance company intentionally relinquishes all control over the policy and turns it over to someone acting for the policyowner, including the companys own agents Mailing the policy to the agent for unconditional delivery to the policyowner also constitutes as this delivery, or even not personally delivering the policy Know: If the company instructs the agent not to deliver the policy unless the applicant is in good health, there us no constructive delivery .

Classification of Risk

Preferred Standard Substandard Declined

Conditional Receipt

The producer issues a conditional receipt to the applicant when the application and premium are collected. This denotes that coverage will be effective once certain conditions are met. If the insurer accepts the coverage as applied for, the coverage will take effect from the date of the application or medical exam, whichever is later There are two types of conditional receipts: insurability and approval.

What guarantees that the statement supplied by an insurance applicant are true?

Warranty

When does a life insurance policy typically become effective? When the policy is issued When initial premium is collected and policy is issued When the application is completed and signed When the completed application is signed and initial premium is collected

When initial premium is collected and policy is issued

Field Underwriting Procedures

completed by the agent. Unlike the insurer, the agent has face-to-face contact with the applicant which can aid the insurer in risk selection. As field underwriters, agents help reduce the chance of adverse selection, assure that the application is filled out completely and correctly, collect the initial premium, and deliver the policy. Other duties include: • Forwarding the application to the insurer in a timely manner • Seeking additional information about the applicant's medical history if requested • Notifying the insurer of any suspected misstatements in the application -Assuring the application is filled out -Collecting initial premiums Upon policy delivery, agents must deliver the life insurance buyer's guide and policy summary to the applicant. A life insurance producer may also be required to obtain a signature on a statement of good health at the time of policy delivery.

Underwriting Process

involves reviewing and evaluating information about the applicant and establishing individual against the insurers standards and guidelines for insurability and premium rates. The larger the policy the more comprehensive and diligent the underwrite process

All of the following acts can be considered means of delivery:

mailing a policy to an agent; mailing the policy to the applicant ; and the agent personally delivering policy

underwriting Policies below a certain face amount such as $50,000 or even $100,000 will

not require additional medical information, other than provided by the application. However, they require a medical report for further information

Policy Summary

provides specific information about the policy purchased, such as the premium and benefits. ex. mom calls you excited about the knew health insurance she bought. This allows you to quickly see what "health insurance" specifically did she buy Suitability Form Ensures that the customer is best suited for the policy they are purchasing. Prevents unnecessary insurance .

Representation

statements made by applicants that are substantially true to the best of their knowledge, but not warrantied as exact in every detail

Warranty

statements that are guaranteed to be true. If this is not literally true in every detail, even if made in error, is sufficient to render a policy void

When an investigative consumer report is used in connection with an insurance application,

the applicant has the right to receive a copy of the report. However company rules vary as to the sizes of policies that require a report by an outside agency. Companies are allowed to obtain inspection reports under The Fair Credit Reporting Act of 1970 (FCRA). This act regulates the way credit information is collected and used to protect the rights of the consumers for whom an inspection or credit report has been requested. It established procedures for collection and disclosure of information obtained on consumers through investigation and credit reports. Provides the same information as an inspection report

Insurable Interest exists in the application when

the death of the insured would have a clear financial impact on the policyowner

Application

the starting point ad basic source of imformation used by the insurance company in the risk selection. Although applications differ from company to company they all have the following same components . Insurable Interest must exist between the policyowner and insured at the time when the application is made

A field underwriter's main task is assign a risk classification to the insured report medical information to the Medical Information Bureau (MIB) to ensure an applicant's medical information is accurate and complete to approve or decline an applicant

to ensure an applicant's medical information is accurate and complete

Medical Reports

used for underwriting policies with higher face amounts. If the information in the medical section warrants further investigation into the applicants medical conditions, the underwriter may need an attending physician statement (APS)

The Statement of good health

verifies that the insured has not become ill, injured or disabled during the policy approval process (time between submitting application and delivery of the policy), or did not submit the initial premium with the application. Used when the applicant did not submit the initial premium with the application and when you are REINSTATING a policy.

What is the purpose of the Medical Information Bureau (MIB)?

To help underwriters evaluate risks

Application Errors

- If an agent realizes that a applicant as made an error on an application, the agent must correct the information and have the applicant initial the changes -An incomplete application will be returned to the agent - The agent can NEVER change the application without the customer present to initial the changes

Which of these is considered to be a document that describes the critical segments of a life insurance policy? Buyer's guide Policy summary Consumer report Buyer's summary

Policy summary

An attending physician's statement would be appropriate for which life insurance purpose? Attending physician's statements are mandatory during the application process At the request of the applicant to assist in the underwriting decision At the request of the producer to assist in the underwriting decision At the request of the insurer to assist in the underwriting decision

At the request of the insurer to assist in the underwriting decision

Which of the following does a life insurance policy summary normally include? The policy's cash value Agent's report Policyowner's MIB report Stated beneficiary

The policy's cash value

Purpose of Underwriting

Underwriting: is another term for risk selection. It is the process used by an insurance company to determine whether or not an applicant is insurable and if so how much to charge for premiums. The underwriter will utilize several different types of information determining the insurability of the individual. This is called risk classification. Material facts can affect an applicant being accepted or rejected KNOW: Main responsibilities of underwriter is to protect the insurer against adverse selection also to - ensuring adequate policyholders' surplus - enforcing underwriting guidelines

An individual most likely will have an insurable interest in insuring a person's life if an economic interest exists for the continuance of the insured's life a financial interest exists at the time of insured's death there is any blood relationship with the insured a business relationship exists

an economic interest exists for the continuance of the insured's life

An insurance producer is often responsible for field underwriting during the application process. All of these are possible field underwriting roles EXCEPT providing disclosure information to the applicant collecting initial premium policy delivery providing commission information to the applicant

providing commission information to the applicant