Chapter 1 - Completing the Application, Underwriting, and Delivering the Policy

What is policy replacement?

A new policy is issued while an existing policy is terminated or reissued with a reduction in cash value.

What are the four elements of an insurance contract?

Agreement (offer and acceptance), consideration, competent parties, and legal purpose.

What is a warranty in an insurance contract?

An absolutely true statement upon which the validity of the insurance contract is based.

When must insurable interest exist in a life insurance policy?

At the time of application.

When must the policy summary for a policy summary be delivered to the policy owner?

At the time of policy delivery.

When a change needs to be made on the application for insurance, which is the best method for correcting the information?

Complete a new application or ask the applicant to initial the correction on the original application.

Health contracts are prepared by insurers and must be accepted by the insured on an 'as is' basis. This describes what aspect of a health insurance contract.

Contract of adhesion.

At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?

Either on the date of the application or the date of the medical exam (whichever comes last)

What two elements are necessary for a life contract to have a legal purpose?

Insurable interest and consent.

What do individuals use to transfer their risk of loss to a larger group?

Insurance.

What entities make up the Medical Information Bureau?

Insurers.

What are the three main instances when insurable interest exists in life insurance.

Insuring your own life, the life of a family member, or the life of a business partners or someone who has a financial obligation to the policy owner.

What report is used to assess risk associated with a health insurance applicant's lifestyle and character?

Investigative Consumer Report

What type of report provides information about the applicant's hobbies, habits, and financial status?

Investigative consumer report.

Insurance is a contract that protects the insured from what?

Loss.

Health insurance contracts are unilateral. What does that mean?

Only one party makes a legally enforceable promise.

What is adverse selection?

People who are more likely to submit insurance claim are seeking insurance more often than preferred risks.

How can health insurance policies be delivered to the insured?

Personally delivered by the agent or mailed.

What document describes the specific information about a policy.

Policy summary.

What risk classification would typically qualify for lower premiums?

Preferred risk.

What term describes the fee a person pays an insurance company to receive coverage?

Premium.

If an insurer needs to obtain information about the applicant from investigators, what is the insurer required to do?

Provide the applicant a Disclosure Authorization Notice.

What is the best way to handle incomplete insurance applications?

Return the application to the applicant for completion.

What is the main responsibility of a company's underwriting unit?

Risk selection.

If an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do?

Send the application back to applicant for signature.

What are the three types of risk rating classifications in life insurance?

Standard, substandard, and preferred.

Who is a field underwriter?

The Agent/Producer.

What law protects consumers from the circulation of inaccurate or obsolete information?

The Fair Credit Reporting Act.

What is the purpose of the agent's report during the application process?

The agent's report discusses the agent's personal observations about the insured that may help in the underwriting process.

Whose responsibility is it to determine that all the questions on an insurance application are answered?

The agent's.

If an applicant does not receive a copy of the new insurance policy, who would be held responsible?

The agent.

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern.

The existence of insurable interest between the applicant and the insured.

Who must have insurable interest in the insured?

The policy owner.

What is insurance underwriting?

The process of risk selection and classification.

How is the information obtained for an investigative consumer report?

Through interview with applicant's associates, friends and neighbors.

During which stage in the insurance process do insurers evaluate information that identifies adverse selection risks?

Underwriting

What is the name of the process that insurance companies use to determine whether or not an applicant is insurable?

Underwriting.

In health insurance contracts, the insured is not legally bound to any particular action; however, the insurer is obligated to pa for losses covered by the policy. What contract element does this describe?

Unilateral

When would a misrepresentation on an insurance application considered fraud?

When it is intentional and material.

When would a misrepresentation be considered material?

When it may alter the underwriting decision.

In insurance, when is the offer usually made on a contract?

When the insurance application is submitted.

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

When the insurer approves a prepaid application.

When does an insurance policy go into effect?

When the policy is delivered and the premium is paid.