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.
