Completing Application, Underwriting, & Delivering Policy

Insurer

(principle) the company who issues an insurance policy

Required Signatures

- agent - policy owner - insured (unless a minor)

Field Undewriters must...

- appropriately solicit - prevent adverse selection - complete application - obtain required signatures - collect initial premium and issue receipt - deliver policy

"Red Flags" for SARs

- customer uses fake ID or changes transition when learns they need to show ID - two or more customer uses similar ID - conducts transactions so they fall just under amount that requires reporting or record keeping - two or more costumers seem to be working together to break one transaction into two or more - customer uses two or more MSB locations to break one transaction into smaller transactions

Medical Examinations

- may only request a paramedical report (by paramedic or RN) and must be covered by insurer - may require an attending physician's statement (APS) from a physician who had treated applicant for a prior medical problem - can test for HIV ONLY if insurer discloses use of test and obtains written consent and establishes written policies and procedures of internal decimation of results to ensure confidentiality

Mutual Companies

- participating policies - owned by policy owners - possibility of nontaxable dividends

Insurance Contracts must have...

1) agreement - offer & acceptance 2) consideration 3) competent parties 4) legal purpose

Premium Determination

3 key factors for life insurance; mortality, interest, expense mode --> more frequently premium is paid, the higher the premium

HIPPA

Health Insurance Protection & Accountability Act - regulates privacy of protected health information

MIB Report

Medical Information Bureau is an information database that stores the health histories of those who have applied for insurance in the past; it is a membership corporation owned by membership insurance companies acting as a nonprofit trading organization that receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals *used only to compare and discover areas of impairment for further investigation; applicants may not be denied due to adverse info from MIB

USA PATRIOT Act

Uniting and Strengthening America by Protecting Appropriate Tool Required to Intercept and Obstruct Terrorism Act, 2001 - enabled FinCEN to incorporate insurance industry into the Anti-money Laundering (AML) --> assimilate policies based on in-house risk assessment including instituting AML programs and filing SARs, appointing qualified compliance officers to administer AML programs, continual training for employees and producers, and allow for independent testing on regular basis

Agent / Producer

a legal representative of an insurance company; the classification of a producer usually includes agents and brokers; agents are the agents of the insurer

Beneficiary

a person who receives the benefits of an insurance policy

Investigative Consumer Report (Inspection)

a supplement to application; agent may order a report from an independent investigation firm or credit agency to discover moral and financial information through interviews and inspection *companies must adhere to regulations stated in the 1970 Fair Credit Reporting Act and must tell consumer in writing within 3 days of ordering the report; consumer must know that they can request additional info concerning report and insurer must provide it within 5 days

Warranty

absolutely true statement on which the validity of insurance policy depends; if breached, can be grounds for voiding policy or return o premium - statements from applicants are not considered warranty except in the case of fruad

Agent's Report

agent is most important source of information to company underwriters; a report provides the agent's observations concerning the proposed insured (not a part of contract, but for consideration)

Stranger-originated Life Insurance

aka, IOLI financed and purchased solely with the intent of selling them for life settlements; violates the insurable interest policy

Investor-originated Life Insurance

aka, STOLI third-party investor who has no insurable interest in the insured initiates a transaction designed to transfer the policy ownership rights to someone with no insurable interest in the insured an hopes to make a profit upon the death of insured or annuitant

Changes in Application?

an agent can either make changes on previous application and receive applicants initials OR complete a new application

Unauthorized/Nonadmitted

an insurance company that has not met state department of insurance standards --> may not transact business in state - except through licensed excess or surplus line brokers

Authorized/Admitted

an insurance company that has received a license or a Certificate of Authority from state department of insurance and met federal financial and surplus requirements --> may transact business in state

Agreement

applicant usually makes OFFER when submitting application and ACCEPTANCE occurs when an insurers underwriter approves app and issues policy

Declined Risks

applicants who are rejected and uninsurable; may be declined for one of the following reasons... - no insurable interest - medically unacceptable - potential for loss is so great, it does not meet definition of insurance - insurance is prohibited by public policy or is illegal

Start of Coverage

application completed & signed-> premium paid-> policy issued -> DATE OF APPLICATION application completed & signed-> premium not paid-> policy issued -> premium collected with statement of health at delivery of policy-> DATE OF DELIVERY

Incomplete Application?

application must be wholly completed: if not, insurer can send back application or move on with policy and waive rights to the answers in which they can not legally hold insured responsible

Alien Insurer

based on domicile of insurer, when the insurer is operating in a different country than they are incorporated in (out of US)

Foreign Insurer

based on domicile of insurer, when the insurer is operating in a different state than they are incorporated in

Domestic Insurer

based on domicile of insurer, when the insurer is operating in the same state they are incorporated in

Disclosure Statement

basic information regarding cost and coverage of insurance being solicited *must be given to applicant no later than application signature

Consideration

binding force in any contract and value that each party provides for each other insured --> payment of premium and representations made in application insurer --> promise to pay in the event of loss

Competent Parties

both parties must be capable of entering a contract - legal age - mentally competent - not under the influence

A Conditional Contract

certain conditions must be met by policy owner and company for the contract to be executed prior to fulfilling the obligations; insured must pay premium and show proof of loss and for insurer to cover claim

Life Insurance

coverage on human lives

Acceptability of Risk

determined by checking the individual risk against many factors directly related to the risk's potential for loss - can request additional information of risk from outside source through Consumer Reports and Investigative Consumer Reports

Fair Credit Reporting Act

established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used; protects consumers from obsolete or inaccurate circulation of obsolete personal and financial information

General Information on App

general questions to help identify the type of policy applied for and the amount of coverage --> usually includes information on beneficiary

Substandard Risks

high exposure risk individuals that are not acceptable at standards rates due to physical condition, personal or family history of disease, occupation, or dangerous habits; referred to as "rated" because they could be issued with the premium rated-up and higher premium

If Denied, FCRA requires...

if declined or modified due to these reports, you must advise the consumer with the name and address of the reporting agency; they have a right to know what was in the report * if anything in the report is inaccurate, this must be amended to all parties within 2 years

Prohibited Information

in the case that a policy is 150,000 or less, consumer reports cannot contain bankruptcies over 10 yo, civil suits, records of arrest or conviction of crimes, or any negative info that is over 7 yo

Consumer Reports

include written an oral info on a consumer' credit, character, reputation, or habits collected by reporting agency from employment records, credit reports, and other public records

Standard Risks

individuals who are entitled to insurance protection without extra rating or special restrictions; represent the majority people their age with similar lifestyles and average risk

Preferred Risks

individuals who meet certain requirements and qualify for lower premiums that standard risk; applicants have superior health, lifestyle, and habits

Adverse Selection

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

Medical Information on App

medical questions; executed differently depending on the amount of insurance - a nonmedical application is when the amount is small and agent and proposed insured complete together - if amount is large, insurer usually requires an examination by a professional

Collecting Initial Premium

most agents attempt to collect initial premium and turn it in along with the application; this increases chances of acceptance by applicant when policy is issued - must issue a premium receipt to determine when coverage will be effective

Conditional Receipt

most common, stating that coverage is effective on date of application or medical exam (whichever is last) - if found to be standard risk, policy is issued as applied for - does not apply if policy is declined, rate, or issued with riders excluding specific coverages

Legal Purpose

must be legal and not against public policy - has both insurable interest and consent

Insurable Interest

must exist between policy owner and insured at time of policy issue; however, after policy is issued, insurer must still pay policy benefit even if interest no longer exists * not required for beneficiaries

A Unilateral Contract

only one party in legally bound; insured makes no legal binding promises where insurer must pay losses covered by a policy

Privacy Rule

patients right to view their own medical records and to request knowledge of who has accessed their information in the past 6 years

Insured

person covered by insurance policy; may not be the policy owner

Policy Owner

person entitled to exercise the rights and privileges of the policy

Participating Policies

policy owners are entitled to nontaxable dividends which are a return of excess premiums

Nonparticipating Policies

policy owners do not share in profits or losses, taxable dividends may be paid to stockholders

Lapse

policy termination due to nonpayment of premium

Replacement

practice of terminating an existing policy or letting it lapse and obtaining a new one; producers and companies take special measures in underwriting to ensure the policy owners make informed decisions

A Contract of Adhesion

prepared by insurer and rejected or accepted by insured; take-it-or-leave-it basis for insurer

Illustration

presentation or description that includes non guaranteed elements of policy over a period of years approved by insurer; must: - distinguish between projected and guaranteed amounts - clearly state that the illustration is not a part of the contract - identify those values that are not guaranteed as such

Underwriting

process of reviewing applications and information for insurance; risk selection process based on: - health - lifestyle - habits / hobbies - occupation

Buyers Guide

provides basic information about policies available in plain language by Department of Insurance, comparing all options and policies; must be provided to applicant prior to collecting initial premium

Risk Classification

rating classification, used in deciding whether or not the applicant should pay a lower or higher premium; Home Office underwriting department looks at past and current medical history, occupation, habits, and morals

Suspicious Activity Reports (SARs)

rules state that procedure must be in place to identify activity that would deem suspicion for terrorist financing, money laundering, and other illegal activities; deposits, withdrawals, or transfers of $5,000 or more must be reported if insurer suspects transaction: - has no business or lawful purpose - designed to purposely misstate other reporting constraints - uses insurer to assist in criminal activity - obtained using fraudulent funds from illegal activities - intended to mask funds fromm other illegal activities *must be filed within 30 days of initial discovery with FinCEN

Life Settlement

selling an existing life insurance policy

Application

starting point and basic source on information used by company in he risk selection process; vary but always include 1) general info & 2) medical info

Representations

statements made by applicant that are believed to be true based upon ones knowledge, but are not guaranteed; answers insured gives to questions on insurance app misrepresentation--> untrue statements on application and could void contract material misrepresentation--> intentional and considered fraud

Disclosure Authorization Notice

states the insurer's practice regarding the collection and use of personal information written in plain language and approved by the Department of Insurance; must be presented before seeking out investigation

Stock Companies

stockholders provide capital necessary to establish and operate insurance company: - nonparticipating polices - owned by stock holders, run by officers - taxable dividends

Death Benefit

the amount paid upon the death of the insured in a life insurance policy

Insurance Policy

the contract between a policy owner and an insurance company which agrees to pay the beneficiary or insured for loss caused by specific events

Delivering the Policiy

the end of the underwriting process, policy is issued and either delivered by agent in person or can be mailed; advisable to always receive a delivery receipt

Premium

the money paid to the insurance company for the insurance policy

Applicant

the proposed insured; a person applying for insurance

Dividends

when premiums/earnings exceed actual cost of providing coverage creating a surplus, not guaranteed

An Aleatory Contract

where there is an exchange of unequal amounts or values; the premium paid by the insured is small in relation to the amount that will be paid by insurer in the event of loss

Policy Summary

written statement delivered when policy is issued describing the elements an features of policy being issued; must include: - name address of both agent and insurer office - generic name of policy and specific riders - premium - cash value - dividend - surrender value - death benefit figures for specific policy years