Completing the Application, Underwriting, and Delivering the Policy
Replacement
is a practice of terminating an existing policy or letting it lapse, and obtaining a new one
Buyer's Guide
provides basic, generic information about life insurance that contains and is limited to, language approved by the Department of Insurance; this document explains how a buyer should go about choosing the amount and type of insurance to buy, and how a buyer can save money by comparing the costs of similar policies
Which is the appropriate action by the insurer if a prospective insured submitted an incomplete application?
return the application to the applicant for completion
Which of the following types of risk will result in the highest premium?
Substandard risk
When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is
Conditional
An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?
Material misrepresentation
What is a definition of a unilateral contract?
One-sided: only one party makes an enforceable promise
A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will
Pay the policy proceeds only if it would have issued the policy
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; referred to as "rated"
Which is the primary source of information used for insurance underwriting?
application
Most agents try to collect the initial premium for submission with the application. When an agent collects the initial premium from the applicant, the agent should issue the applicant a ?
premium receipt
Misrepresentation
untrue statements on the application and could void the contract
Illustration
a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years
Risk or Rating Classification
is used in deciding whether or not the applicant should pay a higher or lower premium
Agreement
offer and acceptance
Insured
person covered by the insurance policy; may or may not be the policy owner
Consideration
something of value that each party gives to the other
What are the three risk or rated classifications?
standard, substandard, or preferred
Representations
statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true
Which of the following will be included in a policy summary? - - - -
Premium amounts and surrender values
An underwriter may obtain information on an applicant's hobbies,financial status, and habits by ordering a(n)
Inspection Report
If only one party to an insurance contract had made a legally enforceable promise, what kind of contract is it?
Unilateral
In forming an insurance contract, when does acceptance usually occur?
When an insurer's underwriter approves coverage
Life Insurane
coverage on human lives
Who make up the Medical Information Bureau?
insurers
Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information contained in his or her report, the reporting agency must
Respond to the consumer's complaint
In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT -Applicant's present occupation -Applicant's past income -Applicant's past medical history -Applicant's present physical condition
Applicant's past income
Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives?
Application Part 2 - Medical Information
Which of the following best describes the aleatory nature of an insurance contract?
Exchange of unequal values
An applicant is denied insurance because of information found on a consumer report. Which of the following requires that the insurance company supply the applicant with the name and address of the consumer reporting company?
Fair Credit Reporting Act
Which is generally true regarding insureds who have been classified as preferred risks? -They can decide when to pay their monthly premiums -They keep a higher percentage of an interest earned on their policies -Their premiums are lower -They can borrow higher amounts off of their policies
Their premiums are lower
What is the purpose of the buyer's guide?
To allow the consumer to compare the costs of different policies
If a policy includes a free-look period of at least 10 days, the Buyer's Guide must be delivered to the applicant
With the policy
Insurance policy
a contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events
Contract
an agreement between two or more parties enforceable by law
In insurance, an offer is usually made when?
an applicant submits an application to the insurer
Life Settlement
an arrangement that allows the policyowner sell their existing life insurance policy to a third party for compensation
An insurer wants to being underwriting procedures for an applicant. What source will it consult for the majority of its underwriting information?
application
Preferred Risk
are those individuals who meet certain requirements and qualify for lower premiums than the standard risk; these applicants have a superior physical condition, lifestyle, and habits
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
When must insurable interest exist?
at the time of application
Investigative Consumer Report (Inspection)
general reports of the applicant's finances, character, work, hobbies; subject to rules an regulations outlined in Fair Credit Reporting Act.
Consumer Reports
include 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.
Material Misrepresentation
is a statement that, if discovered, would alter the underwriting decision of the insurance company
Field underwriter
is known as the Agent and is the company's front line
Contract of Adhesion
is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured); take-it-or-leave-it basis
Underwriting
is the risk selection and classification process; determines whether or not a particular applicant is insurable, and if so, what premium to charge
Unilateral Contract
only one of the parties to the contract is legally bound to do anything
Lapse
policy termination due to nonpayment of premium
Death benefit
the amount paid upon the death of the insured in a life insurance policy
Legal purpose
the purpose of the contract must be legal and not against public policy; must have both: insurable interest and consent
Statement of Good Health
this must be signed by the insured, and verifies that the insured has not suffered injury or illness since the application date
Competent parties
those entering into the contract must be of legal age and must be mentally competent to understand the contract, and not under the influence of drugs or alcohol
USA Patriot Act
to address social, economic, and global initiatives to fight and prevent terrorist activities
What are the four elements of an insurance contract?
agreement - offer and acceptance; consideration; competent parties; and legal purpose
Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT -Consideration -Legal purpose -Offer and acceptance -Conditions
Conditions
When is the earliest a policy may go into effect?
When the application is signed and a check is given to the agent
Applicant or proposed insured
a person applying for insurance
Adverse Selection
insuring of risks that are more prone to losses than the average risk
Agent's Report
provides the agent's personal observations concerning the proposed insured; this does not become part of the entire contract
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
Insurer (principal)
the company who issues an insurance policy
The term "illustration" in a life insurance policy refers to
a presentation of nonguaranteed elements of a policy
When does an insurance policy go into effect?
when the policy is delivered and the premium is paid
If an applicant for a life insurance policy and the person to be insured are two different people, what would be the underwriter's main concern
whether an insurable interest exists between the individuals
Which of the following is NOT an example of insurable interest? -Employer in employee -Child in parent -Debtor in creditor -Business partners in each other
Debtor in creditor
What is consideration on the part of the insurer?
a promise to pay in the event of a loss
What is insurance?
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
Policy Summary
a written statement describing the features and elements of the policy being issued; must include the name and address of the agent, the full name and home office or administrative office address of the insurer, and the generic name of the basic policy and each rider; it will also include premium, cash value, dividend, surrender value and death benefit figures for specific policy years
Warranty
an absolutely true statement upon which the validity of the insurance policy depends
Conditional Receipt
is used only when the applicant submits a prepaid application and means that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for
Application
basic source of information used by the company in the risk selection process; basic components; Part 1 - General Information and Part 2 - Medical Information
Paramedical Report
completed by a paramedic or a registered nurse
Anti-Money Laundering (AML)
monitoring of all financial transactions and reporting an suspicious activity to the government
Part 1 - General Information
includes general questions about the applicant such as name, age, address, birth date, gender, income, marital status, and occupation; it will also inquire about the existing policies; identifies the policy applied for an the amount of coverage, and usually contains information concerning the beneficiary
Part 2 - Medical Information
includes information on the prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives
Health Insurance Portability and Accountability Act (HIPAA)
is a federal law that protects health information; provide protection for the privacy of certain individually identifiable health information (such as demographic data that relates to physical or mental heath condition, or payment information that can identify the individual), referred to as protected health information
Stranger-Originated Life Insurance (STOLI)
is 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
Standard Risks
persons who, according to a company's underwriting standards, are entitled to insurance protection without extra rating or special restrictions; representative of the majority of people at their age and with similar lifestyles; average risk
Suspicious Activity Report (SAR) Rules
state that procedures and plans must be in place and designed to identify activity that one would deem suspicious of money laundering, terrorist financial and/or other illegal activities
Premium
the money paid to the insurance company for the insurance policy
What is consideration on the part of the insured?
the payment of premium and the representations made in the application
Policyowner
the person entitled to exercise the rights and privileges in the policy
Insurable Interest
the possibility of losing money or something of value in the event of loss
Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process? -Policy Summary -Illustrations -Buyer's Guide -Insurance Index
Buyer's Guide
A producer agent must do all of the following when delivering a new policy to the insured EXCEPT -Explain the policy provisions, riders, and exclusions -Collect any premium due -Explain the rating procedures if the policy is rated differently than applied for -Disclose commissions earned from the sale of the policy
Disclose commissions earned from the sale of the policy
According to the Fair Credit Reporting Act, all of the following would be considered negative information about a consumer EXCEPT -Failure to pay off a loan -Disputes regarding consumer report information -Tax delinquencies -Late payments
Disputes regarding consumer report information
Which of the following best details the underwriting process for life insurance?
Selection, classification, and rating of risks
Who is required to sign an application for life insurance?
The agent and the proposed insured
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
Medical Information Bureau (MIB)
a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals; a systematic method for companies to compare the information they have collected on a potential insured with information other insurers may have discovered
Beneficiary
a person who receives the benefits of an insurance policy
A life insurance illustration must do the following:
distinguish between guaranteed and projected amounts; clearly state that an illustration is not a part of the contract; and identify those values that are not guaranteed as such
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; this law also protects consumers against the circulation of inaccurate or obsolete personal or financial information
Premium Receipt
given to the applicant by the producer or insurer, as proof of a premium payment.
Investor-owned life insurance (IOLI)
where a 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 and who hopes to make a profit upon the death of the insured or annuitant
A life insurance policy has a legal purpose if both of which of the following elements exists?
Insurable interest and consent
Aleatory Contract
exchange of unequal amounts or values
Attending Physician's Statement (APS)
from a medical practitioner who treated the applicant for prior medical problem