LAH - Chapter 7

what happens upon policy delivery

agents must deliver the life insurance buyer's guide and policy summary to the applicant. Alife insurance producer also be required to obtain a signature on a statement of good health at the time of policy delivery

credit reports

an applicant's credit history is sometimes used for underwriting and to determine the likelihood of making premium payments

when does coverage begin under conditional receipt

it denotes that coverage will be effective once certain condition are met. if the insurer accepts the coverage as applied for, the coverage will take effect from the date of the application or medical exam, which is later

the effective date is important for two reasons

it identifies when the coverage is effective and establishes the date by which future annual premiums must be paid

preferred - Low Risk - Lower premiums

lower risk tend to have lower premiums. Some of following may result in a policy being issued with a preferred insurance premium: * applicant is nonsmoker and/or nondrinker * Good personal/ family health history

risk classification

once all the information about a given applicant has been reviewed, the underwriter will utilize several different types of information in determining the insurability of the individual and the risk that the applicant poses to the insurer

Constructive Delivery

policy delivery may be accomplished without phsyically delivering the policy into the policyowner's possession.

all of the following acts can be considered means of delivery

. mailing policy to the agent mailing the policy to applicant the agent personally delivering policy

what general information do they need in part 1 of an application

1. age 2. DOB 3. sex 4. address 5. marital status 6. occupation

Premiums and Receipts

1. agent should make every effort to collect the initial premium with the application. However if premium is not collected with the application, the policy will not become valid until the initial premium is collected

part 3 of the Application

1. agent's report (statement) 2. includes the applicant's financial condition, character, background, purpose of sale, and how long agent has known the applicant 3. this part of the application is often called the agent's report. This is where the agent reports observations about the proposed insured 4. because the agent represent the interest of the insurance company, the agent is expected to complete this part of the application fully and truthfully

two types of premium receipt that determine when coverage will begin

1. condition receipts 2. binding receipts

Field Underwriting Procedures

1. forwarding the application to the insurer in a timely manner 2. seeking additional information about the applicant's medical history if requested 3. notifying the insurer of any suspected misstatements in the application 4. assuming the application is filled out completely and correctly 5. collect the initial premium 6. in addition to that, agents have the responsibility and duty to solicit good business. therefore, an agent solicitation and prospecting efforts should focus on cases that fall within the insurer's underwriting guidelines and represent profitable business to the insurer

Part 1 of the application

1. general information 2. details abiut the requested insurance coverage 3, type of policy 4 amount of insurance 5. name and relationship of the beneficiary 6. other insurance the proposed insured owns 7. other information personal information 8. tobacco use 9. hazardous hobby 10. foreign travel 11. aviation activity 12. military service

policy issue

1. happens when the insurer "approves" the application, they are "issueing the policy" 2. technically a policy could ISSUED nad not deluvered for days or weeks later

Application errors

1. of an agent realizes that an applicant has made an error on an application, the agent must correct the information and have the applicant initial the changes 2. an incomplete application will be returned to the agent 3. the agent can NEVER change the application without the customer present to initial the changes

Applicant rating

1. preferred - Low Risk - Lower premiums 2. Standard - Average Risk - No Extra Ratings or Restrictions 3. Substandard - High Risk - Rated up - Higher Premium 4.Declined - Not Insurable - Potential of Loss to Insurance Company is Too High

the most common sources of underwriting information include

1. the application 2. the medical report 3. attending physician's statement 4. the Medical Information Bureau 5. Special questionnaires 6. inspection reports 7. Credit reports

Medical Information Bureau (MIB)

A nonprofit association that maintains medical information about individuals. Those information is used by life and health insurers

Third Party Ownership

A policy owned by a person other than the insured. (applicant that is different from the insured (parent and minor child. once a minor reaches the age of 15, he is eligible to contract for an insurance policy)

when does coverage begin under Binding receipt

AKA temporary insurance agreement provides coverage from the date of the application regardless of whether the applicant is insurable. Coverage usually last for 30 to 60 days, or until the insurer accepts or declines the coverage

(True or False) an insurance company would notify the MIB if an application is notified

False

what happens to an incomplete application

Its usually returned and new one will have to be filled out

part 2 of the application

Medical information - Heath History * part 2 focuses on the proposed insured's health and asks a number of questions about the health history * this medical section must be completed in its entirety for every application * depending on the proposed policy, this section may or may not be all that is required in the way of medical information * the individual to be insured may be required to take a medical exam and/or provide a blood test or urine specimen

which bill allows a company allows to obtain inspection reports

The Fair Credit Reporting Act

Backdating "saves age"

The process of predating the application a certain number of months, up to 6 months, in an attempt to achieve a lower premium.

when are inspection reports requested?

are usually only requested for larger coverages because they add expense to the underwriting process. When an investigative consumer report is used in connection with an insurance application

Substandard - High Risk - Rated up - Higher Premium

chronic conditions, insulin diabetes, heart disease

Field Underwriting

completed by the agent unlike the insurer, the agent has face-to-face with the applicant, which can aid the insurer in risk selection. 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

effective date of coverage under Conditional Receipt

coverage is NOT effective without the collection of the initial premium, approval of the application, and policy issuance and delivery.

USA Patriot Act (2001)

enacted in 2001 requires insurance companies to establish formal anti money laundering programs

suitability form

ensures that the customer us best suited for the policy they are purchasing. prevents the sale of unnecessary insurance for example, a 75 years old customer living off of social security would not be suited for a single premium deferred annuity because they would be giving up a large some of cash that they could live on and possibly not live long enough to collect on the annuity

Privacy rule of HIPAA

federal protection for an individual's health information and gives patients an array of rights with respect to that individually identifiable health information, when an agent submits an application that reveals personal information regarding the applicant, the agent is responsible for providing the insurance applicant with privacy notices

personal delivery of the policy

good practice as it allows the producer to explain the coverage to the insured (such as the riders, provisions, and options) also build trust and reinforces the need for the coverage

how is Medical Information Bureau (MIB)

helps insurance companies from adverse selection by applicants, as it detects misrepresentations, helps identify fraudulent information, and controls the cost of insurance.

what types of procedures does The Fair Credit Reporting Act of 1970 establish on inspection or credit report?

if an insurance company request a credit report, the consumer must be notified in writing. this report provides information about the applicant's character, lifestyle, and financial stability. when an investigative consumer report is used in connection with an insurance application, the applicant has the right to receive a copy of the report

when is the ONLY time a customer receive a receipt

if they pay their INITIAL premium at the of application. No receipt will be given at any other time

underwriting process

involves reviewing and evalutaing information about the applicant and establishing individual against insurer's standards and guidelines for insurability and premium rates. The larger the policy, the more comprehensive and diligent the underwriting process

Purpose of underwriting

is another term for risk selection. it is the process used by an insurance company to determine whether or not an applicant is insurable and if so, how much to charge for premiums. the underwriter will utilize several different types of information in determining the insurability of the individual. this is called risk classification. Material facts can affect an applicant being accepted or rejected

The Privacy Rule of HIPPA on HIV

producers must secure an Consent form from the applicant in applicable situation and communicate that blood tests may be a required underwriting practice in other words, even though the insurer requires a blood test as part of its normal underwriting activity, it must still secure a signed consent form which indicates to the applicant that any blood taken will be screened for the Virus and that he or she is providing permission for such testing to be completed

who could receive/release information that has been released by the Medical Information Bureau (MIB)

proposed insured's physician

buyer's Guide

provide general information about the types of life inusrance policies available, in language that can be understood by the average person. This is whole life, this is term life this is what variable life means

Policy summary

provides specific information about the policy purchase, such as the premium and benefits. Mom calls you excited because she bought new health insurance. This allows you to quickly see what "health insurance specifically did she buy: Medicare Supplement, Major Medical, Critical Illness, long term care

Binding Receipt

rarely used in life insurance, and are primarily used in auto and homeowner's insurance. coverage is guaranteed until the insurer formally rejects the application. This may also be described as Inusrer is bound to coverage until the application is formally rejected. Even if the proposed insured is ultimately found to be uninsurable, coverage is still guaranteed until rejection of the application

The Fair Credit Reporting Act of 1970 (inspection report)

regulates the way credit information is collected and used to protect the rights of consumers for whom an inspection or credit report has been requested.

The Fair Credit Reporting act

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

medical report

sometimes used for underwriting policies with higher face amount. If the information in the medical section warrants further investigation into the applicant's medical conditions, the underwriter may need an attending physician statements (APS)

Standard - Average Risk - No Extra Ratings or Restrictions

standard term and rates

representation

statement made by applicants that are substantially true to the best of their knowledge, but not warrantied as exact in every detail

warranty

statement that are guaranteed to be literally true. it is not literally true in every detail, even if made in error, is sufficient to render a policy void

Declined - Not Insurable - Potential of Loss to Insurance Company is Too High

terminal illness, too many chronic conditions

signature

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.

what happens if an applicant makes a mistake in the information given to an agent in completing the application

the applicant can have the agent correct the information, but the applicant must initial the correction

what happens if an agent fails to deliver a fully completed and accurete application

the insurance company will return the application to the agent

what happens if the initial premiums is not accompany with the application under conditional receipt

the premiums 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 insurer (in this case, it could be the date of policy issuance, or date the policy is delivered to the applicant, premium collected, and statement of continued good health signed)

Conditional receipts

the producer issues a conditional receipt to the applicant when the applicant and premium are collected.

application

the starting point and basic of information used by the insurance company in the risk selection. Although it differ from company to company they all have the following same components insurable interest must exist between the policyowner and insured at the time when the application is made insurable interest exist when the death of the insured would have a clear financial impact on the policyowner

what happens if the company discovers a mistake in the information before the applicant

then it usually returns the application to the agent. The agent then corrects the mistake with the applicant and as the applicant initial the change

Inspection Report

this report provides information about the applicant's character, lifestyle, and financial stability.

what is the purpose of USA Patrroit Act

to detect and deter terrorism. a life insurance policy can be cash-surrendered, which can be an attractive money laundering vehicle because it allows criminals or terrorists to put dirty money in and take clean money out in the form of an insurance company check

what is the main responsibility of an underwriter

to protect the insurer against adverse selection

when does agent issued the applicant a premium receipt

upon collecting the initial premium

Special Questionnaires

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

Statement of Good Health

verifies that the insured has not become ill, injured, or disabled during the policy approval process ( time between submitting application and delivery of the policy), or did not submit the initial premium with the application

when is statement of good health used

when the applicant did not submit the initial premium with the application common company practice requires that before leaving the policy the agent must collect the premium and obtain from the insured a signed statement attesting to the insured's continued good health when reinstating policy

when does a constructive policy occur?

when the insurance company intentionally relinquishes all control over the policy and turns it over to someone acting for the policyowner, including the company's own agent

policies below a certain face amount, such as $50,000 or even $100,000

will not require additional medical information, other than provided by the application. However, they require a medical report for further information

can applicant receive a copy of an complete Inspection Reports

yes, however, company rules vary as to the sizes of policies that require a report by an outside agency

does mailing the policy to the agent for unconditional delivery to the policy owner also constitutes constructive delivery

yes. it is not constructive delivery, if the company instruct the agent not to deliver the policy unless the applicant is in good health