(1) Completing the Application, Underwriting, and Delivering Policy

What is policy replacement?

A new policy is issued while an existing policy is terminated or reissued with a reduction in cash value

Who is a field underwriter?

Agent/Producer

What is the difference between an authorized/admitted and unauthorized/nonadmitted insurer?

An admitted or authorized insurer is qualified and received a certificate of authority from the Department of Insurance to transact insurance in the state. A nonadmitted or nonauthorized insurer is an insurance company that has not applied for, or has been denied a Certificate of Authority and may not transact insurance.

When must insurable interest exist for a life insurance insurance policy?

At the time of application

When must insurable interest exist?

At the time of application

What information does a Buyer's Guide provide?

Basic information about life insurance policies and comparison of policy cost

When a change needs to be made on the application for insurance, which is the best method for correcting the information?

Complete a new application or ask the applicant to initial the correction on the original application

What type of report provides information about the applicant's hobbies, habits and financial status?

Inspection report

Health insurance contracts are unilateral. What does that mean?

Only one party makes a legally enforceable promise.

How can health insurance policies be delivered to the insured?

Personally delivered by the agent or mailed.

What is the main responsibility of a company's underwriting unit?

Risk selection

What is included under the term insurance transaction?

Solicitation, negotiating prior to execution of a contract, execution of a contract, and the transaction of any matters that arise as a result of the contract, as well as the actual process of insuring

If an applicant does not receive his or her insurance policy, who would be held responsible?

The agent

Who must have insurable interest in the insured?

The policyowner

When would a misrepresentation on an insurance application be consider fraud?

When it is intentional and material.

When does an insurance policy go into effect?

When the policy is delivered and the premium is paid

What report is used to assess risk associated with a health insurance applicant's lifestyle and character?

Investigative Consumer Report

Insurance is a contract that protects the insured from what?

Loss

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern?

The existence of insurable interest between the applicant and the insured

When must the policy summary for a life insurance policy be delivered to the policyowner?

At the time of policy delivery

Who is required to sign an application for life insurance?

Both the agent and the proposed insured must sign the application as well as the policy owner

How does a substandard risk policy differ from a standard risk?

Substandard risk applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits. These policies could be issued with the premium rated-up (higher than the standard risk)

What are the four elements of an insurance contract?

Agreement (offer and acceptance), consideration, competent parties, and legal purpose

What is a warranty in an insurance contract?

An absolutely true statement upon which the validity of the insurance contract is based.

What is insurance underwriting?

The process of risk selection and classification

When would an insured be required to sign a statement of good health?

When the initial premium is not paid with the application, the agent may need to obtain the statement of good health at policy delivery

What is the purpose of the Fair Credit Reporting Act?

Ensures that records are confidential, accurate, relevant, and properly used. It also protects consumers against the circulation of inaccurate or obsolete information

What entities make up the Medical Information Bureau?

Insurers

What are the three main instances when insurable interest exists in life insurance?

Insuring your own life, the life of a family member, or the life of a business partner or someone who has a financial obligation to the policyowner

What is the purpose of the agent's report during the application process?

The agent's report discusses the agent's personal observations about the proposed insured that may help in the underwriting process.

During which stage in the insurance process do insurers evaluate information that identifies adverse selection risks?

Underwriting

At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?

Either on the date of the application or the date of the medical exam (whichever occurs last)

What document describes the specific information about a policy?

Policy summary

What does representation mean and how does it differ from a warranty?

Representations are statements believed to be true to the best of one's knowledge. A warranty is an absolute true statement upon which the validity of the insurance policy depends

What is the best way to handle incomplete insurance application?

Return the application to the applicant for completion

What are the three types of risk rating classifications in life insurance?

Standard, substandard and preferred

How can an insurance company use the information it obtains from the MIB?

To conduct further investigation into an applicant's current insurability

Health contracts are prepared by insurers and must be accepted by the insured on an 'as is' basis. This describes what aspect of a health insurance contract?

Contract of adhesion

What information is gathered in Parts 1 & 2 of the application?

Part 1 of the application includes the general questions about the applicant, including name, age, address, birth date, gender, income, marital status, and occupation. Part 2 includes medical information about prospective insured.

What risk classification would typically qualify for lower premiums?

Preferred risk

In insurance, when is the offer usually made on a contract?

When the insurance application is submitted.

In forming an insurance contract, when does an acceptance usually occur?

When the insurer approves a prepaid application

What two elements are necessary for a life insurance contract to have a legal purpose?

Insurable interest and consent

What is adverse selection?

People who are more likely to submit insurance claims are seeking insurance more often than preferred risks.

What is the name of the process that insurance companies use to determine whether or not an applicant is insurable?

Underwriting

In health insurance contracts, the insured is not legally bound to any particular action; however, the insurer is obligated to pay for losses covered by the policy. What contract element does this describe?

Unilateral

What is stranger-originated life insurance (STOLI)?

STOLI is an arrangement in which a person purchases an insurance policy on another without having insurable interest with the insured. STOLIs are purchased with the intent to sell policies for life settlements

When would a misrepresentation be considered material?

When it may alter the underwriting decision

How is the information obtained for an investigative consumer report?

Through interviews with the applicant's associates, friends and neighbors.

If an agent fails to obtain an applicants signature on the insurance application, what must the insurer dot?

Send the application back to the applicant for signature

What do individuals use to transfer their risk of loss to a larger group?

Insurance

What term describes the fee a person pays an insurance company to receive coverage?

Premium

If an insurer needs to obtain information about the applicant from investigators, what is the insurer required to do?

Provide the applicant a Disclosure Authorization Notice

What is insurance?

Insurance transfers the risk of loss from an individual or business entity to an insurance company, which in turn spreads the costs of unexpected losses to many individuals.

What law protects consumers from the circulation of inaccurate or obsolete information?

The Fair Credit Reporting Act.

What is the purpose of the agent's report?

The agent's (producer's) report is used by the agent to discuss his or her personal observations concerning the proposed insured.

Whose responsibility is it to determine that all the questions on an insurance application are answered?

The agents