[Life/Health License] - CH 2 - Underwriting, Issuance and Delivery

Elements of a Legal Contract

Four elements must be present in every contract to be valid and legally enforceable. These elements include: Offer and acceptance, Consideration, Competent parties, and Legal purpose.

Policy Cost Comparison Methods

Agents should be aware of 2 methods used to compare insurance policies. 1. The traditional net cost method - projects policy premiums for a certain number of years. The cash value and any dividends are subtracted, so the result shows the average premium cost per year. This method does not account for interest. 2. The interest-adjusted net cost method - used more frequently and is more accurate because it accounts for interest.

Rejected Business Rule

If an agent turns in an application to their standard company and the company declines to issue the policy standard, the rejected business rule allows the agent to then go to another company to issue the policy. The agent does not need to be appointed by the second company in order to the get the policy issued for his or her client and can also be paid a commission.

Effective Date of Coverage

If the application and initial premium are submitted to the agent, and a premium receipt is issued to the applicant, the policy effective date will be the date of the receipt. Coverage is not effective without collection of the initial premium, approval of the application, and policy issuance and delivery. If the initial premium does not accompany the application, the premium must be collected by the agent. In some cases, the insurer requires the agent to collect a statement of good health from the insured at the time of delivery. If the initial premium is not submitted with the application, the policy effective date is established by the insurer. - In this case, it could be the date of policy issuance, or the date the policy is delivered to the applicant, premium collected, and statement of continued good health signed.

Policy Issue and Delivery Procedures

The policy is delivered when the insurer approves the application and issues the policy for delivery. Delivery can take place electronically, by mail, or in person. If a conditional receipt was not issued, the insurer will declare the policy effective date.

Special Questionnaires

Used for applicants involved in special circumstances, such as aviation, military service, or hazardous occupations or hobbies. The questionnaire provides details on how much of the applicant's time is spent in these activities.

Competent Parties

All parties to a contract must be of legal competence. - This means that all parties must be of a legal age, mentally capable of understanding the terms of the contract, and not influenced by drugs or alcohol. The insurer must be legally authorized to sell insurance in the state, and the agent, if any, must also be licensed in that state. Note: beneficiaries and insureds, if a person(s) other than the applicant, are not parties to the contract.

The Basic Components of Insurance Contracts

Insurance contracts may be made orally or in writing; however, due to their inherent complexity, they are always made in writing. Life and health insurance contracts have four main components: the policy face, insuring clause, conditions, and exclusions. The conditions of the policy are the rights and responsibilities of all parties of the contract. All policy provisions are listed in the conditions section. The exclusions section of the contract states what the insurer will not do. This includes the risks that the insurer will not cover.

Selection Criteria and Unfair Discrimination

Insurers are in the business of selecting good risks that will not jeopardize the financial stability of the company. Insurers use discrimination to determine good risks. However, insurers cannot unfairly discriminate against individuals who are part of the same risk class and have the same life expectancy in any policy condition or coverage. If an underwriter determines that the risk does not meet the criteria for at least standard issue, the company may choose to decline to accept the risk, issue the policy with an exclusion rider, or issue the policy with a higher than standard premium.

Anti-Money Laundering (AML) and the PATRIOT Act

Money laundering is a process of concealing the origin of money obtained through illegal activities. Money launderers make multiple financial transactions, placing the illegal funds into legitimate financial institutions and businesses to "wash" any evidence of its original source. Money laundering is a federal crime with up to 15 years imprisonment and fines and penalties. The PATRIOT Act allows the government to obtain certain records to prevent terrorism, as well as prevent money laundering. The PATRIOT Act expands the definition of "money laundering" to include violent crimes, bribery of public officials, fraudulent use of public funds, smuggling, the illegal export or import of guns, ammunition, and other weapons not authorized in the U.S., and computer crimes. Requires financial institutions to develop strong anti-money laundering procedures, including maintaining thorough records of financial transactions and issuing a suspicious activity report (SAR) for any transactions that could possibly be money laundering. Financial institutions also must freeze or close the account if ordered by the U.S. Attorney General or Treasury Secretary. Financial institutions may be fined up to $10,000 per day for each account if it fails to do so.

Indemnity and Subrogation

Related to indemnity, subrogation is the right of the insurer to assume the rights of the insured and sue the responsible third party for damages inflicted upon the insured. Subrogation primarily applies to property and casualty, and seldom to life and health insurance. - For example, a life insurer does not have the right to sue a commercial airline for the death of an insured in a plane crash. - A property and casualty insurer, on the other hand, can sue the responsible third party for damages due to negligence in a car accident

Backdating Procedures

The process of predating the application a certain number of months to achieve a lower premium. A lower age results in a lower premium. A backdated application results in a backdated policy effective date, if approved by the insurer. In most states, applications usually can only be backdated up to six months, and the policyowner must pay all back-due premiums. Backdating does not affect the policy provisions such as the incontestability clause. For applicants that want to postpone the issue date of a life insurance policy to a later date, preliminary or interim term insurance may be used. - This allows the applicant to defer payment of the initial premium up to a certain number of months, usually one to 11, from the date of the original application. - The premium for interim coverage is based on the insured's age at initial application. - Once the primary coverage is issued, premiums will be based on the insured's age at the end of the interim coverage.

Field underwriting Procedure

Underwriting done by the producer, face-to-face with the applicant. As field underwriters, agents help reduce the chance of adverse selection, assure that the application is filled out completely and correctly, collect the initial premium and deliver the policy. Upon policy delivery, agents must deliver the life insurance buyer's guide and policy summary to the applicant. - The buyer's guide provides general information about the types of life insurance policies available, in language that can be understood by the average person. - The policy summary provides specific information about the policy purchased, such as the premium and benefits.

Medical Information Bureau (MIB)

A nonprofit trade organization that maintains medical information about individuals that is used by life and health insurers. The main purposes of the MIB include - preventing misrepresentation and fraud - providing insurers with tools to assess risk and - holding down the cost of life insurance. Member insurers supply the MIB with confidential information about an applicant for insurability purposes. This information is collected from insurance applications and claims. Information collected includes underwriting information such as an individual's hazardous activities and impairments to insurability; - however, the MIB does not collect claims information or how much coverage an individual has. Insurers may access MIB information on an applicant only if needed for additional investigation. Insurers cannot refuse to issue policies solely on information supplied by the MIB. An applicant or insured cannot receive information from the MIB. The MIB only provides information to the insurance company, never the individual.

Credit Report

An applicant's credit history is sometimes used for underwriting. The Fair Credit Reporting Act requires the applicant be notified at the time of application that a credit report may be requested, regardless if a credit report will be requested or not. Consumers must also be informed that they have the right to request additional information about the report - Such additional information must be provided to consumers within five days if requested. - the insurance company cannot tell the client what was in the report or why the client has been denied. - The FCRA requires the applicant be notified in writing if a credit report will be used. - The applicant must also be notified if the premium is increased because of a credit rating

Major Risk Factors for Underwriting Health Insurance:

Health insurance may have many claims for one insured. Since there are more claims made on a health insurance policy, it is crucially important those policies are underwritten correctly and risks are classified accurately. Underwriters aren't simply accepting or declining coverage; they are analyzing the applicant's degree of risk. The most important factors in underwriting a health insurance policy are: - physical condition - moral hazards, and - occupation.

Legal Concepts of the Insurance Contract

Insurance policies are legal contracts. Contract law defines a contract as a legally binding agreement between two or more parties where a promise of benefits is exchanged for valuable consideration. Contract law is based on legal contracts; whereas, tort law deals with legal liability for civil wrongs such as negligence. The purpose of an insurance policy is to indemnify (make whole) the insured when a covered loss occurs. In life insurance the insurance company agrees to pay a predetermined amount - the face amount, in exchange for consideration (premium). In health insurance the insurance company agrees to pay the insured's medical bills or disability income while the insured cannot work because of disability, in exchange for consideration (premiums).

Applicant, Policyowner, Insured, Beneficiary

Policyowner / Policyholder - The person who has all the ownership rights under the policy, pays premiums, and accepts the policy when delivered. Insured - The person who is covered under the policy Applicant - the person applying for the policy who fills out the application to be submitted to the insurer. Beneficiaries - The named individuals or entities designated by the policyowner to receive the policy proceeds

Underwriting Risk Factors

The following are risk factors which are considered when underwriting life insurance: Age Gender Lifestyle Smoking Hobbies Hazardous Occupations Medical History Family Health History Aviation

Premium Payment Mode

The frequency of premium payments. Insurers accept premium payments annually, semi-annually, quarterly, monthly and weekly. Some life insurance policies allow policyholders to pay one large single premium payment. This greatly reduces the costs of administering the policy since the insurer only needs to process one payment. Life insurers base rates on premiums paid annually. If premiums are paid more frequently, the insurer incurs an additional loading expense because the interest is based on only a partial payment rather than a full year, and the increased administrative costs of processing multiple premium payments. More frequent premium payments means higher premiums.

Loss Ratios

The proportion of losses incurred by an insurer with respect to the total dollar value of premiums received (total losses divided by total premiums). Expense ratio is the insurer's expenses divided by the total premiums received. - If the sum of an insurer's loss and expense ratio is 100%, then the insurer has reached the break-even point. - Greater than 100% is a loss, and less than 100% is a gain. Underwriters keenly analyze loss ratios to determine the renewability of insurance contracts and the adequacy of premiums.

Sources of Underwriting Information

The sources used to gather information during the underwriting process include: - Application - Medical Report - Attending Physician Statement - Investigative Consumer (inspection) report - Credit report - Medical Information Bureau, and - Medical examinations and lab tests; and - Special questionnaires.

Premium Collection

Typically, the initial premium accompanies the application submittal. - If not, the applicant has made an invitation to offer, and the premium must be collected when the policy is delivered. After the initial premium, subsequent premiums are payable in advance.

Statement of Good Health

The insurer may require a statement of good health that verifies that the insured has not become ill, injured or disabled during the policy approval process (the time between the application and delivery of the policy), or if the applicant did not submit the initial premium with the application. Unless otherwise directed by the insurer, the agent should not deliver the policy if the insured's health has worsened. - In this case, the agent should notify the insurer and proceed with the insurer's instructions.

Health Insurance Underwriting

The most important factors in underwriting a health insurance policy are: physical condition, moral hazards, and occupation. Physical Condition - An applicant's physical condition is the most important factor in evaluating health risks. The underwriter must know if the applicant has any medical conditions. For example, a person who has chronic headaches and migraines may have a neurological condition that needs medical attention at some point in the future. Moral Hazards - An applicant's lifestyle and habits also have an effect on risk selection and classification. A careless or accident prone person may pose a higher risk to the insurer. Alcohol abuse and drug use are red flags for the insurer. Occupation - is important for predicting the likelihood and severity of a disability. Some occupations pose little threat for disability while others expose people to a wide array of hazards. - Circumstances that contribute to higher risks include irregular work hours, fluctuating income, and a nonspecific place of employment. - Insurance companies classify occupations into five classes: AAA, AA, A, B, and C. The AAA class is for professional workers and those who work in an office. The lower classes (B and C) are for more hazardous occupations. The premium for health insurance policies is directly affected by an occupation's degree of hazard. - Applicants with less hazardous occupations have lower premiums; - applicants with more hazardous occupations have higher premiums. Adjusted if occupation changes Women tend to have higher disability rates than men. Medical and family history is often a good indicator for the reemergence of health problems. Finally, dangerous hobbies an applicant pursues, such as cave diving, heli-skiing and bull riding, increase the insurance company's risk.

Offer and Acceptance

Agreement occurs when a definite, unqualified offer is proposed by one party and accepted by another. The applicant makes an offer to the insurance company when he submits the completed application with the initial premium to the insurance company. If the insurance company's underwriter approves the application as it was applied for, the insurance company has accepted the offer. If the applicant submits the application to the insurer without the initial premium, the applicant is inviting the insurance company to make an offer. - In this case, the insurer makes an offer to the applicant by issuing the policy with a premium invoice. If the applicant pays the initial premium, he has accepted the offer. If the insurance company receives the application and initial premium, but issues the policy with modified coverage or premium, the insurance company has made a counter-offer. If the applicant accepts the counter-offer, agreement occurs. However, if the applicant refuses the modified terms of the policy, there is no contract and the insurance company will return any initial premium paid. Acceptance occurs when the policy is issued.

Consideration

An exchange of value between parties of the contract. The insurance company provides consideration by promising to pay a covered loss. The insured provides consideration, as well as an offer to buy, through the statements on the application and payment of premium.

Consumer (Inspection) Reports

Provide information about the applicant's character, lifestyle, and financial stability. Consumer reports are generally only used for policies with large coverage amounts because the reports increase underwriting expenses. There are two types of consumer reports: inspection reports and investigative reports. Inspection reports are performed by a credit reporting agency. Insurers must abide by the rules of the Fair Credit Reporting Act. Investigative reports are based on interviews with friends and neighbors, employers and coworkers, and other individuals who know the insured. - Investigative reports cannot be made unless the insured is notified of the report in writing

Binding Receipt

The binding receipt or the temporary insurance agreement provides coverage from the date of the application regardless of whether the applicant is insurable. Coverage usually lasts for 60 days, or until the insurer accepts or declines the coverage. Coverage usually has a maximum of $1,000,000. Binding receipts are rarely used in life insurance and are primarily used in auto and homeowners insurance.

Underwriting

The process that insurers use to select, classify and rate risks so that they accurately reflect the amount of risk undertaken. Underwriters seek to answer two big questions: 1. Is the applicant insurable? 2. Does the applicant have an insurable interest in the insured?

Conditional Receipt

Issued to the applicant after the application and premium have been collected. If the insurer accepts the policy as applied for, the coverage will take effect from the date of the application or medical exam, whichever is later. 2 types of conditional receipts: - Insurability receipt - provides interim coverage as long as the applicant is insurable. However, most conditional receipts are approval conditional receipts. - Approval receipt - does not begin until the insurer approves the application. Conditional receipts provide coverage only if the applicant is insurable as applied for. If the insurer issues a counter-offer because the applicant is a substandard risk, coverage is not provided until the applicant accepts the modified coverage. This means a death benefit would not be paid to an applicant who dies during the time period a conditional receipt is issued and prior to agreeing to the modified coverage. If a standard risk applicant submits an application requiring a medical exam and receives a conditional receipt for his premium, the policy effective date is as of the completion of the required medical examination.

Health Insurance Premium Factors

Health insurance premiums are based on three factors: Morbidity - the rate people are expected to become disabled from accident or sickness in a year. Interest - In health insurance, premiums are paid in advance before a claim is made. These premiums are invested to earn interest. Higher interest rates allow insurers to charge lower premiums. Expenses - Insurers' expenses are called loading. These are the daily expenses of operating an insurance company. Loading includes the following costs: - Acquisition Costs: cost of effectuating insurance policies, of which a producer's first year commission makes up the greatest portion - Overhead: insurer's salaried staff, rent, and furniture - Contingency Funds: additional premium may be required if original premium is insufficient - only some insurers (i.e. assessment insurers) have the right to charge additional premium - Immediate Claims Payments: insurers assume that all claims are paid at the end of the year when establishing rates, when in reality claims are paid all year Other factors that affect health insurance premiums are: Policy benefits Past claims experience Age Gender Occupation Hobbies Some policies provide very limited benefits while others provide broad coverage. Both the type and amount of benefits will affect the premium. Policies with limited benefits are likely to have lower premiums than those with more coverage. Policies that provide a greater amount of protection are likely to have higher premiums. The insurer's claim experience also has an impact on premiums. The more claims an insurer has, the more premium it must charge to pay future claims. As stated earlier, women, especially those in their working years, tend to have more disabilities than men. In advancing populations, the rate of disability for men and women is about the same. Finally, more hazardous occupations and hobbies subject the insurer to greater risk, and require a higher premium.

Policy Face

The policy face, also referred to as the title page, typically is the first page of the contract and indentifies the following information: - The named insured, - Policy number, - Policy issue date, - Policy limits, - Premium amount, and - Premium due dates. - A right of examination statement (right to return the policy); and - Signatures of the insurer's secretary and president are also part of the policy face. - The insuring clause is the insurer's promise to pay covered losses as long as the insured pays premiums and abides by the terms and conditions of the policy. The insuring clause is usually included on the policy face.

Insurance Application

- Primary source of insurability information used in underwriting. 3 basic parts: Part I General Information Part II Medical Information Part III Agent's Report. Part I - General Information: contains general information about the applicant such as... - the applicant's name, date of birth, age, sex, social security number, smoking status, marital status, address, occupation, income. - Type of insurance policy for which the applicant is applying and the amount of coverage requested. - Information about existing policies if the proposed coverage is intended to replace existing coverage. - Beneficiaries Part II - Medical Information: covers the applicant's medical history. Information included here is about the applicant's... - diagnoses, diseases, doctor visits, treatments, surgeries, drug and alcohol use, dangerous hobbies, family health history, name and address of physician(s). - Life insurance for coverage larger than $100,000 usually requires the prospective insured undergo a medical examination performed by a paramedic or physician.r. Part III - Agent's Report: used for underwriting, but does not become part of the contract. Here, the agent records his observations of the applicant... - information about the applicant's financial condition, background and character, and a disclosure of the agent's relationship to the applicant. - The agent will note whether or not the proposed coverage is replacing existing coverage. If so, the policy application is considered a replacement, to which the agent must comply with certain regulatory steps for submitting the application. - An agent should complete the agent's report before sending the completed application to the insurer's home office. - The person who applies for coverage must complete and submit the application. - In most cases, the application is attached to and becomes part of the contract. - The agent's name and license number, as well as the name of the insurance company, are required to appear on the first page of the application. - If the application is attached to the contract and the insurer discovers intentional misstatements, it can be used as a legal document. - Agents should do their best to review the applicant's answers to questions on the application to avoid delays in underwriting from inaccuracies.

Constructive Delivery

Occurs when the insurer hands over control of the policy to another person. Constructive delivery occurs when the insurer mails the policy to the agent or other policyholder representative for delivery to the insured. In these cases, a legal delivery has occurred. The initial premium must be paid for the policy to be delivered. In other words, constructive delivery occurs when the insurance company sends the policy to the agent or other representative of the policyholder and all premiums due are paid. If the insurer requires personal delivery of the policy by the agent in order to obtain a statement of good health from the insured... - legal delivery does not occur until the agent personally delivers the policy to the insured. Possession of the policy by the applicant does not indicate delivery. Sometimes the insurer issues a policy to the applicant to look over. The initial premium has not yet been paid and the applicant wishes to review the coverage prior to acceptance by paying the initial premium. - In such cases, coverage will not take effect until the inspection receipt has been collected from the applicant.

Explaining Coverage to Client

Personal delivery of the policy is a good practice as it allows the agent to explain the coverage to the insured, such as the riders, provisions, and options. Personal delivery establishes a good relationship with the insured, building trust that the agent has the insured's best interest in mind. The agent should explain if any changes were made to the contract, such as modified coverage or premium rate. The applicant must receive a document explaining the coverage purchased and the names of the insurer and agent. In life insurance, this document is called the policy summary. In health insurance, it is called the outline of coverage. After delivering the policy, agents/insurers should keep in good communication with the client. - This assures high retention rates. Agents should assure their clients are satisfied with their purchase. High retention rates are advantageous for agents because it assures renewal business (renewal commissions). - An advantage of high retention rates for policyholders is peace of mind, knowing they have suitable coverage at competitive prices. Insurers benefit from high retention rates because it is continued business income. When conducting business, a life insurance agent cannot use any of the following titles: - Investment Advisor - Financial Planner - Financial Consultant

Warranties and Representations

Warranties are statements that are guaranteed to be true and are part of the legal contract. Insurers are held to the principle of warranties. Breach of warranty is grounds for voiding an insurance contract. Representations - Statements made by the insured, to the best of his knowledge. The insured's statements made in the application are held to the principle of representations because they are not guaranteed to be true. As long as the insured's statements are made in good faith, any statements the insurer deems misrepresentations must be shown to be material to the risk in order to void the policy. Material to the risk means information that is fundamental to insuring a risk. If the insurer discovers a misrepresentation that affects whether or not the policy would have been issued, the misrepresentation is said to be material. Misrepresentations are intentional misstatements made by the insured. Misrepresentations must be intentional and material to the risk in order for the insurer to void the contract.

Special Features of an Insurance Contract

1. Contract of Adhesion 2. unilateral Contract 3. Conditional Contract Contract of Adhesion - Take it or leave it agreements, where the insured has no say in the contract terms and conditions. Unilateral Contract - Insurance contracts are said to be unilateral because they are one-sided ("uni" means one and "lateral" means side). - Only the insurance company makes legally enforceable promises to pay benefits in the event of a covered loss. - The applicant does not make any legally enforceable promises to the insurance company, not even the payment of premiums. - However, if the applicant fails to pay premiums, the insurance company has the right to cancel the contract. Conditional Contract - Certain conditions must be met by all parties to the contract when a loss occurs in order for the contract to be legally enforceable. - Example of a condition in a life insurance contract is submitting the insured's death certificate to the insurance company for payment of the death benefit. - Conditional contracts can be thought of as "If-Then" contracts: if a loss occurs, then the insurance company will pay benefits.

Medical Report and Attending Physician Statement (APS)

A medical report is sometimes used for underwriting policies with higher face amounts. - If the information in the medical section warrants further investigation into the applicant's medical conditions, the underwriter may need an attending physician statement (APS). - Once the medical report is completed, it is sent to the insurer for use in underwriting.

Premiums and Receipts Procedures

Agents should make every effort to collect the initial premium with the application. This speeds up the policy application process and improves the likelihood the policy will be accepted by the applicant upon issuance. The agent issues the applicant a premium receipt upon collecting the initial premium. There are two types of premium receipts that determine when coverage will begin. 1. Conditional Receipt 2. Binding Receipt

HIV and AIDS

Most states allow insurers to include a question on the application asking if the applicant has tested positive for AIDS. Insurers are also permitted to request applicants undergo an HIV test as part of the application requirements, at the insurer's expense. This is typical of life insurance with higher face amounts. The requirement is fair as long as all individuals of a class are required to undergo the test, and the test is in compliance with all state and federal laws. Insurers cannot target a population based on sexual orientation, marital status or geographic location as the basis for an HIV test. In some states, an insurer may be permitted to deny coverage based on a positive HIV test; however, coverage issued to individuals who have tested positive for HIV cannot contain special policy limits or exclusions for losses due to HIV or AIDS. Insureds must sign a consent form before the HIV test may be performed. HIV test results are confidential, and the insured must sign a release form if the results are to be disclosed to a non-entitled party.

Underwriting Process

Once underwriter establishes that applicant is insurable, the process begins. The underwriter will evaluate information about the applicant and select a risk classification and premium rate that matches the degree of risk undertaken. After the application clears underwriting, the insurer will issue the policy for delivery, and the insurance producer will deliver the policy to the policyowner.

Classification of Risks

Preferred - individuals who are above average in terms of physical condition and lifestyle and present a less than average risk to the insurer. - These risks have lower premiums than standard risks. - In life insurance, these are healthy non-smoking individuals with long life expectancies. Standard - individuals in average physical condition with average lifestyles and habits for people of their respective sex and age group. Standard risks are the average risks of an insurer. Substandard - pose a higher risk to the insurer than standard risks. - This rating may be due to the applicant's physical condition, disease history, hazardous occupation or dangerous hobbies or habits. - Substandard risks pay higher premiums because their life expectancy is shorter. Declined Declined risks are uninsurable. These individuals are too risky for an insurer, and are declined coverage.

Do Not Call List

The National Do Not Call List is administered by the Federal Trade Commission (FTC). Purpose: to allow consumers to place a limit on the number of personal telemarketing phone calls they receive. Consumers may place their phone numbers on the Do Not Call List at - www.donotcall.gov - calling toll-free 1.888.382.1222. The Do Not Call List does not expire, and phone numbers on the list will remain there permanently. Phone numbers can be taken off the Do Not Call List using the website or toll free number. Once a phone number is on the Do Not Call List, telemarketers must remove the number from their calling lists within 31 days. - If telemarketers call after 31 days, consumers can make a complaint on the National Do Not Call Registry website or by calling the toll free number. The Do Not Call List does not stop all telemarketing calls. The Do Not Call List only covers personal calls. Unsolicited business-to-business calls and faxes are not protected by the Do Not Call List. Calls from political organizations, charities, and telephone surveys are permitted. Calls are also permitted from companies with an established business relationship with the consumer or that have express written consent from the consumer to call. If a consumer requests the company to stop calling, any further calls may subject that company to a fine of $16,000. Telemarketers may call phone numbers not placed on the Do Not Call List from 8am - 9pm.

Application Procedures

Underwriters collect information about the applicant's past and current health, occupation, lifestyle and habits. The application is one of the key sources used to collect information and establish insurability. In many states the application becomes part of the insurance contract. For this reason, the agent is responsible for... - making sure that the applicant has completely filled out the application and all signatures have been obtained. - determine whether the applicant understands the questions asked on the application - verify if the statements given are being misrepresented or any information has been concealed, which can delay issuance and delivery of a policy. Signatures - The agent and the applicant are required to sign the application. - If the applicant is someone other than the proposed insured, except for a minor child, the proposed insured must also sign the application (in some states once a minor reaches the age of 15, he is eligible to contract for a life or health insurance policy). - Furthermore, it is important for the agent to be present to witness any and all signatures. Changes Errors and Omissions - If an agent notices a minor error on the application, the producer should correct the information in the presence of the applicant and have the applicant initial the change. - Changes should be struck through, not erased. - If the agent notices a major error on the application, the agent should start a new application for the prospective insured and safely dispose of the previous application. If an agent notices that the application is incomplete, the agent should have the applicant fill in the incomplete sections and then submit the application to the insurer. If the insurer approves an incomplete application, then the insurer has waived its right and is legally estopped from reasserting the right.