Completing the Application, Underwriting, and Delivering the Policy

Medical Information Bureau (MIB)

A membership corporation owned by member insurance companies. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals. Insurers cannot refuse coverage solely on the basis of adverse information on an MIB report.

Applicant or proposed insured

A person applying for insurance

Insured

A person covered by the insurance policy; may or may not be the policyowner

Insurable Interest

To purchase insurance, the policyowner must face the possibility of losing money or something of value in the event of loss. Must exist between the policyowner and the insured at the time of application. The policyowner must have the interest in the life of the insured.

Insurance Policy

A contract between a policyowner (and/or) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events

Agent/Producer

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

Stranger-Originated Life Insurance (STOLI)

A life insurance arrangement in which a person with no relationship to the insured (a "stranger") purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies. Are financed and purchased solely with the intent of selling them for life settlements.

Field Underwriter

A life insurance producer, and the agent is the company's front line

Beneficiary

A person who receives the benefits of an insurance policy

Illustration

A presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years.

Material Misrepresentations

A statement that, if discovered, would alter the underwriting decision of the insurance company. Furthermore, if they are intentional, they are considered fraud.

Policy Summary

A written statement describing the features and elements of the policy being issued. Will also include premium, cash value, dividend, surrender value and death benefit figures for specific policy years.

What are the 4 elements of a contract?

Agreement - offer and acceptance, consideration, competent parties, and legal purpose

Contract

An agreement between two or more parties enforceable by law

Aleatory Contract

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 the insurer in the event of loss.

Substandard (High Exposure) Risk

Applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits. These policies are also referred to as "rated" because they could be issued with the premium rated-up, resulting in a higher premium.

Life Insurance

Coverage on human lives

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. The law also protects consumers against the circulation of inaccurate or obsolete personal or financial information.

Prohibited Information

Includes bankruptcies more than 10 years old, civil suits, records of arrest or convictions of crimes, or any other negative information that is more than 7 years old.

Preferred Risk

Individuals who meet certain requirements and qualify for lower premiums than the standard risk. These applicants have a superior physical condition, lifestyle, and habits.

Negative Information

Information regarding a customer's delinquencies, late payments, insolvency or any other form of default.

Adverse Selection

Insuring of risks that are more prone to losses than the average risk. Risks which are more likely to suffer a loss.

Insurance

Is a transfer of risk of loss from an individual or a business entity to an insurance company, which, in turn, spreads the costs of unexpected losses to many individuals

Warranty

Is an absolutely true statement upon which the validity of the insurance policy depends. Breach of warranties can be considered grounds for voiding the policy or a return of premium.

Contract of Adhesion

Is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured). Insurance contracts are offered on a take-it-or-leave-it basis by an insurer. Any ambiguities in the contract will be settled in favor of the insured.

Consideration

Is something of value that each party gives to the other. Insurer's consideration is the promise to pay for losses; insured's consideration is the premium and statements on the application

Underwriting

Is the risk selection process. Responsibilities include selecting only those risks that are considered insurable and meet the insurer's underwriting standards. The purpose is to protect the insurer against adverse selection.

Application

One of the main sources of underwriting information for the company. The key source underwriters use for information about the applicant.

Privacy Rule

Patients have the right to view their own medical records, as well as the right to know who has accessed those records over the previous 6 years. Allows disclosures without individual authorization to public health authorities authorized by law to collect or receive the information for the purpose of preventing or controlling disease, injury, or disability.

Standard Risks

Persons who are entitled to insurance protection without extra rating or special restrictions. Are representative of the majority of people at their age with similar lifestyles. They are the average risk.

Lapse

Policy termination due to nonpayment of premium

Unilateral Contract

Promise in exchange for an act. Only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises. However, an insurer is legally bound to pay losses covered by a policy in force.

Buyer's Guide

Provides basic, generic information about life insurance policies that contains, and is limited to, language approved by the Department of Insurance.

Health Insurance Portability and Accountability Act (HIPAA)

Provides protection for the privacy of certain individually identifiable health information (such as demographic data that relates to physical or mental health condition, or payment information that can identify the individual), referred to as protected health information.

Offer and Acceptance

The applicant usually makes the offer when submitting the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

Insurer (Principal)

The company who issues an insurance policy

Competent Parties

Requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol

Conditional Contract

Requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations.

Anti-Money Laundering (AML)

Requires the monitoring of all financial transactions and reporting of any suspicious activity to the government, along with prohibiting correspondent accounts with foreign shell banks.

Types of Insurance Transactions

Solicitation, negotiations, sale (effectuation of a contract of insurance), and advising an individual concerning coverage claims

Representations

Statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true. For insurance purposes, they are the answers the insured gives to the questions on the insurance application.

Suspicious Activity Reports (SARs)

States that procedures and plans must be in place and designed to identify activity that one would deem suspicious of money laundering, terrorist financing and/or other illegal activities.

Death Benefit

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

Investigative Consumer Reports

The information is obtained through an investigation and interviews with associates, friends and neighbors of the consumer. These reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested.

Premium

The money paid to the insurance company for the insurance policy

Conditional Receipt

The most common type of receipt, which is used only when the applicant submits a prepaid application. Means the applicant may be covered as early as the date of the application.

Policyowner

The person entitled to exercise the rights and privileges in the policy

Replacement

The practice of terminating an existing policy or letting it lapse, and obtaining a new one.

Legal Purpose

The purpose of the contract must be legal and not against public policy. It must have both: insurable interest and consent. A contract without a legal purpose is considered void, and cannot be enforced by any party.

USA Patriot Act

To address social, economic, and global initiatives to fight and prevent terrorist activities.

Misrepresentations

Untrue statements on the application and could void the contract.

Rating Classification

Used in deciding whether or not the applicant should pay a higher or lower premium. The higher the risk, the higher the premium.

Consumer Reports

Written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.