Chapter 1: Completing the Application, Underwriting and Delivering Policy

Who must sign the application?

-the agent and the proposed insured -if the proposed insured and the policy owner are not the same, then policy owner must sign too

-mortality -interest -expense

3 key factors for life insurance

-standard -substandard -preferred

3 types of risk

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

When an insurer's underwriter approves coverage In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

When does acceptance of a policy occur?

When an insurer's underwriter approves the application and issues a policy

if the premium is not paid with the application, the agent must obtain the premium and a statement of continued good help at the time of policy delivery

effective date of coverage

-Agreement -Consideration -Competent parties -Legal Purpose

elements of a legal contract

protects consumers against inaccurate or obsolete information

fair credit reporting act

-application (completed and signed) -agents report (agents observations about the applicant that can assist with the underwriting) -premiums with application and conditional receipts

field underwriting (by agent)

-must exist at time of application -insuring ones own life, family member, or business partner

insurable interest

Transfers the risk from an individual to an insurer

insurance

based on the principle of indemnity

insurance

based on the spreading of risk (risk pooling) and the law of large numbers

insurance

the more frequently the premium is paid, the higher the premium

mode

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

unilateral contract

If an applicant for a life insurance policy and person insured by the policy are two different people, the underwriter would be concerned about

whether an insurable interest exists between the individuals. An insurable interest must exist at the time the policy is issued. Some relationships are automatically presumed to qualify as an insurable interest. EX. spouses, parents, children and certain business relationships.

Duties and responsibilities of producers at the time of application

*Check to make sure there are no unanswered questions on the application *Explain the nature and type of any receipt the producer is giving to the applicant *Probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information **ANY changes to information on an application must be initialed by the applicant**

According to the Fair Credit Reporting Act, negative information about a consumer includes:

*information regarding customer delinquincies *late payments *insolvency or any other form of default

Which of the following documents delivered to the policy owner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years?

A policy summary A policy summary usually includes information about premium amounts, cash values, surrender values and death benefits for specific policy years

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

Adverse Selection

Contract in which there is an exchange of unequal amounts

Aleatory contract

USA Patriot Act

Anti Money laundering

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

As of the application date. If the full premium was submitted with the application and the policy was issued as requested, the policy coverage effective date would generally coincide with the date of the application.

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?

Consideration Consideration is something of value that each party gives the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

Consideration The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

A contract where one party has more power than the other (insurance company has more power) Offered on a "take it or leave it" basis

Contract of adhesion

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as

Contracts of Adhesion Insurance policies are written by the insurer and submitted to the insured on a take-it-or-leave-it basis. The insured does not have any input into the contract, but simply adheres to the contract.

When would a misrepresentation on the insurance application be considered fraud?

If it is intentional and material

A life insurance policy has a legal purpose if what exists?

Insurable interest and consent

What is the definition of a unilateral contract?

One-Sided: Only one party makes an enforceable promise An insurance contract is unilateral in that only one of the parties to the contract is legally bound to do anything.

The Federal Fair Credit Reporting Act

Regulates Consumer Reports Consumer Reports/Consumer Investigative Reports/ Credit Reports

Upon policy delivery, the producer may be required to obtain any of the following except

Signed waiver of premium The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a statement of good health from the applicant at the time of the policy delivery. Waiver of the premium is a rider that can be added to a life insurance policy and not something to be obtained from the applicant.

Which of the following is NOT the consideration in a policy?

The application given to the prospective insured Consideration is something of value that is transferred between the two parties to form a legal contract

An individual applied for an insurance policy and paid for the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date?

The date of the medical exam If the company acknowledges receipt of the premium with a conditional receipt, the policy is in effect on the date of the application or the date of the medical exam (whichever is later), provided that the applicant is found insurable at the rate applied for.

Contract where only one party is legally bound to do anything

Unilateral Contract

An absolutely true statement on which the validity of the contract depends

Warranty

When is the earliest a policy may go into effect?

When the application is signed and a check is given to the agent. The policy can be effective as early as the date of the application, if the premium is submitted with the application and the policy is issued as applied for.

When does the offer portion of a policy occur?

When the application is submitted

offer and acceptance

agreement

contract with the exchange of unequal amounts

aleatory contract

premiums and representations on the part of the insured; payment of claims on the part of the insurer

consideration

-adhesion -aleatory -conditional -unilateral

contract characteristics

one party creates the contract and the other party must accept as is

contract of adhesion

-3 key factors for life insurance-mortality, interest and expense -mode-frequency of premium payment

premium determination

Conditional Contract

requires both the insurer and policy owner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer o

-proper solicitation of applicants -helping prevent adverse selection -completing the application -obtaining the required signatures -collecting the initial premium and issuing the receipt -delivering the policy

responsibilities of the field underwriter (agent)