Insurance Agent

Aleatory Contract

The exchange of value is unequal. 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.

Statement of Good Health

The statement required to be signed by the applicant upon policy delivery to assure the insurer.

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.

Morale Hazard

carelessness or indifference to a loss because of the existence of insurance

Types of Term Policies

level, increasing, decreasing

Agents producer report

provides the agents personal observations concerning the proposed insured.

4 elements of an insurance contract

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

a warranty

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

Field Underwriter

An insurance agent who conducts an initial policy solicitation and application. (The company's front line of underwriting)

When must insurable interest exist?

At the time of application

peril

cause of loss

Insurer

(principal) the company who issues a policy of insurance

Attending Physician's Statement (APS)

- From a medical practitioner who treated the applicant for prior medical problem

Insured

A person covered by an insurance policy

Distinct Characteristics of an Insurance Contract

Contract of Adhesion, Aleatory Contract, Personal Contract, Unilateral Contract, Conditional Contract

Universal Life Insurance(flexible)

Flexible premium permanent life insurance that separates the protection, savings, and expense components.

Investigative Consumer Report (Inspection)

General reports of the applicant's finances, character, work, hobbies, and habits that supplement the information of the application. Subject to rules an regulations outlined in Fair Credit Reporting Act.

Consequences on incomplete application

If a question is not answered and policy is given the insurer waived its right to have an answer to the question. the insurer will not have the right to deny coverage.

Adjustable life

Life insurance which permits changes in the face amount, premium amount, period of protection, and the duration of the premium payment period.

No premium

No coverage

Investigative Consumer Report

Similar to consumer reports in that they also provide information on the consumer's character, reputation, and habits.

Term insurance(pure life)

Temporary protection because it only provides coverage for a specific period of time.

Beneficiary

one who receives benefits

application

the starting point and basic source of information used by the company in the risk selection process. Part 1 general information Part 2 Medical information

STOLIs violate

violate the principle of insurable interest , which is in place to ensure that a person purchasing a life insurance policy is actually interested in the longevitiy rather than the death of the insured.

Fair Credit Reporting Act

Act that protects privacy of background information and ensures that information supplied is accurate.Law protects consumers against the ciruclation of inaccurate or obsolote personal or financial information.

Required signature

Both agent and the proposed insured must sign the application

Conditional Receipt

Used when the applicant submits a prepaid application. receipt says that coverage will be effective either on the date of the application or the date of the medical exam.

Ordinary whole life

Ordinary whole life insurance provides insurance protection to age 100, cash value accumulation to age 100, and fixed level premium payments.

Single Premium Whole Life

Paid up for life with one large premium payment

Medical examinations for policies with higher amounts of coverage

Paramedical report & attending physician's statement

2 parts of an insurance application

Part 1 General information Part 2 Medical information

Return of Premium

Policy refunds every penny of the premiums if one outlives the defined term

Declined risk

Risk that is not insurable and has a potential of loss.

competent parties

The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.

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

Applicant or proposed insured

a person applying for insurance

Paramedical Report

completed by a paramedic or a registered nurse

Offer and acceptance(agreement)

definite offer by one party and other party must accept it. Applicant usually makes the offer when submitting application. acceptance takes place when an insurers wunderwrite aprroves the application and issues a policy.

Adverse Selection

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

fraud

intentional misrepresentation of an existing, important fact

underwriting

is the risk selection and classification process

Key characteristics of whole life insurance

level premium, death benefit, cash value, living benefits

Collecting the Initial Premium and Issuing the Receipt

most agents attempt to collect a premium and submit it along with the application.

laws and regulation for insurers requiring an hiv test.

must disclose the use of testing to the applicant and obtain written consent. must establish written policies and procedures.

Unilateral Contract

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.

lapse

policy termination due to nonpayment of premium

Key source for underwrites

the key source underwriters use for information about the applicant is the application.

Policyowner

the money paid to the insurance company for the insurance policy

Insurable Interest

the policyowner facing the possibility of losing something of value in the event of loss. MUST EXIST ON TIME OF APPLICATION.POLICY OWNER MUST HAVE INSURABLRE INTERST IN THE LIFE OF THE INSURED.

Level Premium

the premium that does not change throughout the life of a policy

Medical Information Bureau (MIB)

An information database that stores the health histories of individuals who have applied for insurance in the past. Most insurance companies subscribe to this database for underwriting purposes.

Limited payment

Premiums should be paid for specified number of years Insurance is effective until death

loss

reduction in the value of an asset

Representations

statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true

representations and warranties

statements of fact about the past or present

Life insurance categories

temporary or permanent protection

Moral Hazard

the actions people take after they have entered into a transaction that make the other party to the transaction worse off

Changes in the Application

If an answer to a question on the application needs to be changed, the producer or applicant may make the correction but the applicant must initial the change, or the producer can complete a new application.

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.

Standard risks

Individuals who have the same health, habits, sex/gender, and occupational characteristics as those reflected in the mortality table. Individuals in this category have an average life expectancy.

Whole life insurance

Insurance that is kept in force for a person's entire life and pays a benefit upon the person's death, whenever that may be.

Convertible Provision

Provides the policyowner with the right to convert the policy to a permanent insurance policy without evidence of insurability

policy summary

a written statement describing the features and elements of the policy being issued

replacement

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

Material Misrepresentation

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

Conditional Contract

A type of an agreement in which both parties must perform certain duties and follow rules of conduct to make the contract enforceable.

Premium Receipt

Receipt given to the applicant by the producer or insurer, as proof of a premium payment.

Decreasing term

Term life insurance in which the face amount of the policy decreases over time in scheduled steps. Most often used to cover a debt obligation (mortgage).

agents report

The agent's report allows the agent to communicate with the underwriter and provide information about the applicant known by the agent that may assist in the underwriting process.

death benefit

The amount payable upon the death of the person whose life is insured.

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

If the initial payment is not paid with the application

agent is requried to collect the premium on the time of policy delivery.

General information

application includes the general questions about the applicant,such as a name,age,address birthdate,gender ,income, and marital status

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.

Pure Death Protection

- if the insured dies during this term, the policy pays the death benefit to the beneficiary - if the policy is canceled or expires prior to the insured's death, nothing is payable at the end of the term - there is no cash value or other living benefits

Elements of a Legal Contract

1. Agreement - offer and acceptance 2. Consideration 3. Competent parties 4. Legal purpose

Misrepresentation

A false statement or lie that can render the contract void.

permanent life insurance

A general term used to refer to various forms of whole life insurance policies that remain in effect to age 100 so long as the premium is paid.

Medical information

Information or records obtained, with the consent of the individual to whom it relates, from licensed physicians or medical practitioners, hospitals, clinics or other medical or medically related facilities.

Can insurers refuse coverage based on MIB Report?

Insurers cannot refuse coverage solely on the basis of adverse information on an MIB report.

Stranger-Originated Life Insurance (STOLI)

Life insurance arrangement in which a person with no relationship to the insured 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.

Provides the greatest amount of coverage for the lowest premium

Term insurance

Level Term Insurance

Term insurance where the face value of policy remains the same from the date the policy is issued until the date the policy expires.

Legal purpose

The purpose of the contract must be legal and not against public policy.Life insurance policy, for example, it must have both:insurable interest and consent. A contract without a legal prupose is considered void and cannot be enforeced by any party.

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

Physical Hazard

a physical condition that increases the frequency or severity of loss

pure risk

a risk that presents the chance of loss but no opportunity for gain

Speculative Risk

a situation in which either profit or loss is possible

renewable

allows the policyowner the right to renew the coverage at the expiration date without evidence of insurability.

risk classification

an assessment of the risk level probationers pose to the community and themselves

Prohibited information in consumer reports

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

living benefits of whole life insurance

policyowner can borrow against the cash value while the policy is in effect.

Annualy renewable term

purest form of term insurance. Death benefit remains the same but as age increases premium increases.

transfer

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

consideration

something of value exchanged for something else of value. In insurance is the payment premium of the insured and the promise to pay in the event of loss by the insurer.

Prospective insured may be rated as on the three classifcations

standard, substandard, or preferred

cash value

the amount of money a whole life policyholder would receive if the policy were surrendered before death or maturity

Minimum premium

the amount to keep the policy in force for the current year.

Contract of Adhesion

the insured must accept the entire contract with all of its terms and conditions must be accepted or rejected by the other party no negotations.