1: Completing the Application, Underwriting, and Delivering the Policy

An insured is upset that her new health insurance policy was delivered to her by certified mail and not through her agent. Which of the following is true? A) There is nothing wrong with this form of policy delivery. B) The insured should complain to the insurer. C) The insured should ask for a new policy to be delivered. D)The policy will not be legal until it is delivered by an agent.

A) There is nothing wrong with this form of policy delivery.

T or F: Medical exams are conducted at the insured's expense.

False, medical exams are conducted at the insurer's expense.

T or F: Medical are exams are more common in health insurance underwriting than life insurance underwriting.

False, medical exams are more common in life insurance underwriting.

What phase begins after a new policy is delivered?

Free-look period

HIPAA

Health Insurance Portability and Accountability Act

Which of the following best describes the aleatory nature of an insurance contract? A) Exchange of unequal values B) Only one of the parties being bound by the contract C) Ambiguities are interpreted in favor of the insured D) Policies are submitted to the insurer on a take-it-or-leave-it basis

A) Exchange of unequal values

Replacement

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

What is a notice to the applicant?

A statement that is issued to all applicants applying for health insurance notifying them that a credit report will be ordered and info about any health insurance previously applied for.

Material Misrepresentation

A statement that, if discovered, would alter the underwriting decision of the insurance company.

Which of the following describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company? A) Aleatory B) Adhesion C) Subrogation D) Warranty

A) Aleatory

Elements of a Legal Contract

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

Warranty

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

Investigative Consumer Report

An extensive report that includes information on an individual's character, work, hobbies, and habits.

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.

Contract of Adhesion

Any contract in which one party must either accept the agreement as written by the other party or reject it.

Sources of Underwriting Information

Application, agent's report, investigative consumer report (inspection), federal credit reporting act, consumer reports

What is the term used for an applicant's written request to an insurer for the company to issue a contract, based on the information provided? A) Request for insurance B) Application C) Policy request D) Insurance request form

B) Application

To comply with Fair Credit Reporting Act, when must a producer notify an applicant that a credit report may be requested? A) At the initial interview B) At the time of application C) When the applicant's credit is checked D) When the policy is delivered

B) At the time of application

In terms of parties to a contract, which of the following does NOT describe a competent party? A) The person must be of legal age. B) The person must be mentally competent to understand the contract. C) The person must have at least completed secondary education. D) The person must not be under the influence of drugs or alcohol.

C) The person must have at least completed secondary education.

Conditional contract

Certain conditions must be met by all parties to the contract when a loss occurs in order for the contract to be legally enforceable.

Who makes up the Medical Information Bureau?

Insurers (this is so the insurers can compare the info that have collected on the individual)

Example of aleatory contract

John purchases a life insurance policy for $100,000. His monthly premium is $100. He paid for 2 months, until he suddenly died. His beneficiary receives $100,000.

Can a policy go into effect before the premium is collected?

No, an initial premium is paid with the application or during policy delivery in order for the policy to go into effect

Unilateral contract

Only one party is legally bound to the contractual obligations after the premium is paid to the insurer. Only the insurer makes a promise of future performance, and only the insurer can be charged with breach of contract.

T or F: Insurers cannot refuse coverage solely on the basis of adverse information on an MIB report.

True

Statement of good health

The statement required to be signed by the applicant upon policy delivery to assure the insurer that the insured has not suffered injury or illness since the application date.

T or F: Applicant HIV tests are a common requirement among insurers

True, HIV tests are common.

Changes in the application

Whenever an answer to a question needs to be corrected, the applicant or producer makes the correction and the applicant initials the change, or the producer can complete a new application

Can you deliver a policy by mail?

Yes it is considered legally delivered, but you should obtain a signed delivery receipt.

Insurance policy

a contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or beneficiary for loss caused by specific events

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

Pre-existing conditions

a medical condition for which the insured sought medical advice or treatment within a specified period of time prior to the policy issue

Coverage begins at the time of application when an initial premium is collected, unless...

a medical exam is required. Then coverage coincides with the date of the exam.

Applicant or proposed insured

a person applying for insurance

Required Signatures

agent and proposed insured (usually the applicant)

Contract

an agreement between two or more parties that can be enforced by law

Entire contract

application + the policy

Consideration

binding force in any contract; it's something of value that each party gives to the other.

"Take-it-or-leave-it" basis

describes a contract of adhesion

Best practice for policy delivery

direct delivery by the agent to the insured

Aleatory Contract

exchange of unequal amounts

Difference between investigative consumer reports and consumer reports

investigative consumer reports are obtained through interviews with associates, friends, and neighbors of the consumer. They can only be done if the consumer is advised in writing within 3 days of the date the report was requested. The consumer must also be informed of their right to request additional information concerning the report, and the insurer/reporting agency has 5 days to provide that info.

Insurable interest is proven by love and affection, economic, or financial loss. In life and health insurance...

it is required at the time of policy issuance.

Insurable interest is __________________.

not required of beneficiaries

Competent parties

of legal age, mentally competent, not under the influence of drugs/alcohol

Collecting the initial premium

often occurs when the application is first submitted

Consent

permission to do something

Insured

person covered by the insurance policy; may or may not be the policyowner

Underwriting

risk selection process

Best practice for changes in an application

start a new application

Representations

statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true

Personal delivery of a policy ensures that...

the agent can explain provisions, riders, exclusions, and ratings (in case the policy is rated differently than what was applied for).

Insurer (principal)

the company who issues an insurance policy

The cost of an insured's loss is transferred over to ______________________.

the insurer and spread among other insureds.

Premium

the money paid to the insurance company for the insurance policy

Policyowner

the person entitled to exercise the rights and privileges in the policy

Insurable interest

the possibility of losing money or something of value that exists at the time of the application

For policies with higher amounts of coverage or if the application raised some questions...

the underwriter can request a paramedical report (paramedic or RN), and an attending physician's statement (APS)

Insurance is the ___ ___ ___ of loss.

transfer of risk

Consumer reports

written/oral info about a consumer's credit, character, reputation, or habits from employment records, credit reports, and other public sources