Life: Chapter 5

In what relationships does insurable interest exist?

-applicant's own life -in a spouse -parents in their children -children in parent/grandparent -business in lives of officers, directors, key employees -business partners in eachother -creditor to debtor (to extent of the debt)

What is the USA Patriot Act?

An act requiring insurance companies to establish formal anti-money laundering programs.

Preferred risk policies with reduced premiums are issued by insurance companies because the insured has what?

Better than average mortality or morbidity experience.

An applicant intentionally lying to an insurance company on an application in order to obtain a cheaper premium is an example of what?

Fraud

What is a "conditional receipt"?

Most common; When applicant pays initial premium, coverage is effective on the condition that applicant proves to be insurable either on date of signature or date of medical exam.

When does insurable interest need to exist?

Only at the time of policy inception.

What is considered to be a document that describes the critical segments of a life insurance policy?

Policy summary

A person who is a nonsmoker, of average weight, and in excellent health would most likely be in which risk classification?

Preferred.

What would be a valid reason why a policy premium would be higher than the standard premium?

The insured does not meet established underwriting requirements.

What does a life insurance policy summary normally include?

The policy's cash value.

What is the purpose of the Medical Information Bureau (MIB)?

To help underwriters evaluate risk.

What is the purpose of backdating?

To use premiums based on an earlier age, making them lower.

When does a life insurance policy typically become effective?

When initial premium is collected and policy is issued.

Describe the three basic parts of an application.

1) General: general questions including name, age, address, birthday, sex, income, marital status, and occupation. 2)Medical: health and health history of proposed insured and their family. 3)Agent's report: Additional information bout the applicant's financial condition, character, background and purpose of sale, and how long the agent has known the applicant.

Upon policy delivery, which of the following must a producer have an applicant sign if no initial premium was collected with the life insurance application?

A good health statement

What does a change in an insurance application require?

An initial made by the applicant.

What would happen if a life insurance applicant is given a conditional receipt from an insurance agent and then dies the next day?

Claim will be paid if application is approved.

What is a "binding receipt"?

Coverage is guaranteed until insurer formally rejects application, even if proposed insured is ultimately found to be uninsurable.

Fair Credit Reporting Act of 1970

Enacted by congress in 1970 which establishes procedures for collection and disclosure of obtained information and to ensure fairness with regards to confidentiality, accuracy, and disclosure.

Statements made by an insurance applicant on an application are considered to be what?

Representations

What is required to complete an application?

Signature of applicant, agent, authorizing investigative consumer reports or medical information.

When is a policy valid?

With payment of initial premium.