2-15 License - Chapter 1

AML Program Minimum Requirements

1) Assimilate policies, procedures and internal controls based on an in-house risk assessment, including: 2) Instituting AML programs similar to banks and securities lenders; and 3) File suspicious activity reports (SAR) with Federal authorities; 4) Appointing a qualified compliance officer responsible for administering the AML program; 5) Continual training for applicable employees, producers and other; and 6) Allow for independent testing of the program on a regular basis.

"Red Flags" for suspicious activity that might need to be reported with a SAR:

1) Customer uses fake ID or changes a transaction after learning that he or she must show ID; 2) Two or more customers use similar IDs; 3) Customer conducts transactions so that they fall just below amounts that require reporting or recordkeeping; 4) Two or more customers seem to be working together to break one transaction into two or more (trying to evade the Bank Secrecy Act (BSA) requirements); or 5) Customer uses two or more money service business (MSB) locations or cashiers on the same day to break one transaction into smaller transactions (trying to evade BSA requirements).

A life insurance illustration must do the following:

1) Distinguish between guaranteed and projected amounts; 2) Clearly state that an illustration is not a part of the contract; 3) Identify those values that are not guaranteed as such.

Deposits, withdrawals, transfers or any other business deals involving $5,000 or more are required to be reported with a SAR if the financial company or insurer "knows, suspects or has reason to suspect" that the transaction:

1) Has no business or lawful purpose; 2) Is designed to deliberately misstate other reporting constraints; 3) Uses the financial institution or insurer to assist in criminal activity; 4) Is obtained using fraudulent funds from illegal activities; or 5) Is intended to mask funds from other illegal activities.

A valid insurable interest may exist between the policyowner and the insured when the policy is insuring any of the following:

1. Policyowner's own life; 2. The life of a family member (a spouse or a close blood relative); or 3. The life of a business partner, key employee, or someone who has a financial obligation to the policyowner (such as debtor to a creditor).

What are the two types of medical examinations that may be required by the underwriter?

1. The insurer may only request a paramedical report which is completed by a paramedic or a registered nurse; and 2. The underwriter may require an Attending Physician's Statement (APS) from a medical practitioner who treated the applicant for a prior medical problem.

How long does the Insurer have to produce an Investigative Consumer Report after the request of the consumer?

5 days

Health Insurance Portability and Accountability Act (HIPAA)

A federal law that protects health information. These regulations provide 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.

Stranger-Oriented 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.

Medical Information Bureau (MIB)

A nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

Illustration

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

Investigative Consumer Reports

A report on the applicant from an independent investigating firm or credit agency, which covers financial and moral information requested by the underwriter to supplement the information on the application. They are general reports of the applicant's finances, character, work, hobbies, and habits. Companies that use inspection reports are subject to the rules and regulations outlined in the Fair Credit Reporting Act.

Investor-Oriented Life Insurance (IOLI)

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. (another name for a STOLI)

Policy Summary

A written statement describing the features and elements of the policy being issued. It 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. Also includes premium, cash value, dividend, surrender value and death benefit figures for specific policy years. Must be provided when the policy is delivered.

Warranty

An absolutely true statement upon which the validity of the insurance policy depends.

Fraud

An intentional untrue statements on the application that, if discovered, would alter the underwriting decision of the insurance company.

Rated Risk

Another term for Substandard Risk because the policies could be issued with the premium rated-up, resulting in a higher premium.

AML

Anti-Money Laundering A program created by FinCEN to require the monitoring of all financial transactions and reporting of any suspicious activity to the government, along with prohibiting correspondent accounts with foreign shell banks.

What happens if an insurer receives an incomplete application?

Before a policy is issued, all of the questions on the application must be answered. If the insurer receives an incomplete application, the insurer must return it to the applicant for completion.

Who is required to sign the insurance application?

Both the agent and the proposed insured (usually the applicant).

What happens during a breach of warranty?

Breach of warranties can be considered grounds for voiding the policy or a return of premium.

Agency contract

Contract that is held between an insurer and an agent/producer, containing the expressed authority given to the agent/producer, and the duties and responsibilities to the principal. An agent who is in violation of the agency contract may be held personally liable to the insurer.

When will coverage begin if premium is collected with the application and the insured is issued a conditional receipt?

Date of the application. The applicant is covered by the insurance as of the date of the application providing that the insurer subsequently determines the applicant to be insurable at the rating for which the policy was applied.

FinCEN

Financial Crime Enforcement Network

What is the primary difference between a Consumer Report and an Investigative Consumer Report?

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

What happens if a policy is issued with questions left unanswered?

If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived its right to have an answer to the question. The insurer will not have the right to deny coverage based on any information that the unanswered question might have contained.

Nonmedical Application

If the amount of insurance is relatively small, the agent and the proposed insured will complete all of the medical information. For larger amounts, the insurer will usually require some sort of medical examination by a professional.

Under which circumstances would the application require signatures from someone other than the Proposed Insured and Agent?

If the proposed insured and the policyowner are not the same person, such as a business purchasing insurance on an employee, then the policyowner must also sign the application.

When would the proposed insured not sign the application?

In the case of an adult, such as a parent or guardian, applying for insurance on a minor child.

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.

Medical Information Bureau (MIB) Report

It is a systematic method for companies to compare the information they have collected on a potential insured with information other insurers may have discovered.

Can information from the MIB Report be used as a reason to refuse an insurance applicant?

No. The MIB can be used only as an aid in helping insurers know what areas of impairment they might need to investigate further. An applicant cannot be refused simply because of some adverse information discovered through the MIB.

Standard risks

Persons who, according to a company's underwriting standards, are entitled to insurance protection without extra rating or special restrictions. These are representative of the majority of people at their age and with similar lifestyles. They are the average risk.

Replacement

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

Fair Credit Reporting Act

Protects consumers against the circulation of inaccurate or obsolete information.

Buyer's Guide

Provides basic, generic information about life insurance policies 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. Must be presented to the buyer prior to accepting their initial premium.

When does an SAR need to be filed?

Relevant SAR reports must be filed with FinCEN within 30 days of initial discovery.

Agent's Report

Report that provides the agent's personal observations concerning the proposed insured. This does not become a part of the entire contract, although it is a part of the application process.

Representations

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

If the premium was not collected at the time the policy was issued, what is the effective date of the policy?

The effective date of the policy is the date of delivery. At that time premium is collected along with a Statement of Good Health.

Insurable Interest

The policyowner must face the possibility of losing money or something of value in the event of loss.

Insurance Application

The starting point and basic source of information used by the company in the risk selection process. Although applications differ by insurance company, they all have the same basic components: Part 1 General Information and Part 2 Medical Information.

What is the USA PATRIOT Act?

Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act The purpose of the Act is to address social, economic, and global initiatives to fight and prevent terrorist activities. The Act enabled the Financial Crime Enforcement Network (FinCEN) to require banks, broker-dealers, and other financial institutions to establish new anti-money laundering (AML) standards.

Material Misrepresentation

Untrue statements on the application that, if discovered, would alter the underwriting decision of the insurance company.

Misrepresentation

Untrue statements on the application. Note these could void the contract.

How should an agent make changes to an insurance application?

When an answer to a question on the application needs to be corrected, agents have the option, depending on which insurer they represent, of correcting the information and having the applicant initial the change, or completing a new application. An agent should never erase or white out on an application for insurance.

Declined Risk

a risk may be declined for one of the following reasons: 1) There is no insurable interest; 2) The potential for loss is so great it does not meet the definition of insurance; 3) Insurance is prohibited by public policy or is illegal.

Substandard Risk

a.k.a. High Exposure Risk Applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits.

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.

Part 1 General Information

the 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 and if the proposed insurance will replace them. It identifies the type of policy applied for and the amount of coverage, and usually contains information concerning the beneficiary.

Rating Classification

to be used in deciding whether or not the applicant should pay a higher or lower premium.