Chapter 1-Completing the App, Underwriting, and Delivering the Policy

The agent is commonly referred to as the _______________

field underwriter

What is the opposite of a warranty when a person makes a general statement to the best of their knowledge?

Representations

What is the purpose of a disclosure statement in life insurance policies?

To explain features and benefits of a proposed policy to the consumer

What two reports can be requested if the insurance policy is a higher amount of coverage in regards to medical examinations?

1) Paramedical report 2) Attending Physician's Statement

What are the three recognized areas in which insurable interest exists?

1) Policy owner insuring his/her own life 2) Life of a family member (relative or spouse) 3) Life of business partner or key employee 4) Financial obligation to someone *A debtor DOES NOT have insurable interest in the creditor

What are examples of insurable interest?

1) Policy owner's own life 2) Life of family member 3) Life of business parter, key employee or someone who has a financial obligation to policy owner

An applicant is denied insurance because of information found on a consumer report. Which requires that the insurance company supply the applicant with the name and address of the consumer reporting company?

Fair Credit Reporting Act

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

Insurance

Risk is ______________________

uncertainty or chance of loss occurring

Companies using inspection reports are subject to the rule outlined in the _____________________________________

Fair Credit Reporting Act

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will ___________________.

Pay the policy proceeds only if it would have issued the policy.

The insurer must release information obtained through investigative reports to persons within how many days?

5

What is the primary source of information used for insurance underwriting?

Application; must be complete and accurate!

A disclosure statement does what?

Provides the applicant basic information about the cost and coverage of the insurance being solicited

Speculative or pure risk is the only type insurance companies are willing to accept

Pure

A situation in which a person can only lose or have no change represents ________________.

Pure Risk

The National Do Not Call Registry was created to regulate

Telemarketers

What is the main difference between consumer reports and investigative consumer reports?

The investigative consumer reports are obtained through investigation and interviews with associates, friends and neighbors of the consumer.

A misrepresentation is

a statement that if discovered would alter the underwriting decision of the insurance company

The reporting agency is required to respond to the consumer's complaint, and if necessary to _____________________

reinvestigate the report

Insurable interest refers to

the possibility of losing money or something of value in the event of the loss.

Who supplies the inspection reports to the insurer?

Private investigators and credit agencies.

Risk classification used by underwriters for Life insurance include ___________________

Standard, substandard and preferred.

Agent/Producer

person who acts for another person or entity with regard to contractual arrangements with third parties; a legal representative of an insurance company.

An agent who is in violation of the agency contract may be held ___________________ to the insurer

personally liable

Insurer is the __________________

principle

If an agent fails to obtain an applicant's signature on the application, the agent must

return the application to the applicant for signature

Underwriting refers to

risk selection and classification process; company decides whether or not applicant is insurable and what premium to charge.

What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act?

$2500

A producer agent must do what things when delivering a new policy to the insured

1) must explain policy provisions, exclusions, and riders at time of delivery 2)Explain rating procedures especially if the policy is rated differently than applied for 3) Collect any due premium and have the insured sign the statement of continued good health

Preferred risks are

Meet the certain requirements and have lower premiums because of it

What is the appropriate action by the insurer if a prospective insured submitted an incomplete application?

Return the application to the applicant for completion.

Insurable interest is not required of _________________.

beneficiaries

Investigative reports cannot be done unless the person is notified within how many days?

3

Characteristics of Consideration

Aleatory- An unequal exchange; premium paid by insured is considerably lower than the amount insurer pays in event of loss Adhesion- If insured accepts terms as written by insurer, adhering on "TAKE IT or LEAVE IT" basis. All disputes are resolved in favor of insured Unilateral contracts- Policy lapses if premium isn't paid, insurance company CANNOT file legal action. As long as payments continue, insurer makes promise to pay for losses. ONLY ONE PARTY IS LEGALLY BOUND (INSURANCE COMPANY) Conditional contracts- Certain conditions must be met by policy owner and insurance company before contract is approved. Legal purpose Competent parties-insurer/producer must be licensed

Difference between consumer reports and investigative consumer reports

Consumer reports use information regarding the person's credit, character reputation or habits from employment records, credit reports, and other public sources while the Investigative consumer reports use friends, associates and interviews to uncover information on person.

Who governs what information can be collected and how the information can be used?

Fair Credit Reporting Act

What is the MIB?

Non profit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals

An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date?

The date of medical exam; if the company acknowledges receipt of the premium with a conditional receipt, the policy is in effect on the date of the application or the date of medical exam (whichever is later)

The policy summary provides __________________

specific information about the issued policy, as well as the insurer's information.

What is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process?

Buyer's Guide

A policy summary includes what information?

Information about premium accounts, cash values, surrender values, and death benefits for specific policy years

Standard risks are ________

Average risk; entitled to insurance protection with extra rating or special restrictions

When an agent collects the initial premium from the applicant, the agent should issue the applicant a

Premium receipt

What is the illustration?

Presentation or depiction that includes NON-guaranteed elements of a policy or group life insurance

The most effective way to control risk

Risk transfer- this is where insurance comes into play

What is a statement guaranteed to be true and if untrue may breach an insurance contract?

Warranty

A policy summary provides what?

Written statement describing features and elements of the policy being issued.

If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to

charge a higher premium

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will _____________________

pay the policy proceeds only if it would have issued the policy.

Declined risks are

rejected applicants; Have no insurable interest, are medically unacceptable, potential of loss is so great it doesn't benefit the insurer, and insurance is prohibited by public policy or is illegal

Under the Fair Credit Reporting Act, if the consumer challenges the correctness of the information contained in his/her report, the reporting agency must ______________________________

respond to the consumer's complaint.

The term "illustration" in a life insurance policy refers to

A presentation of non guaranteed elements of a policy of individual or group life insurance over a period of years.

Which entity established the Do-Not-Call Registry?

The Federal Trade Commission (FTC)

What must the policy summary contain?

1) Name and address of agent 2) Full name of home office and address of insurer 3) Generic name of policy with riders 4) Premium, cash value, dividend, surrender value and death benefit

In classifying a risk, what does the Home Office underwriting department look at?

1) Past medical history 2) Present physical condition 3) Occupation 4) Habits & morals

What is included in a policy summary?

1) Producers name and address 2) Insurance companies home office dress 3) Generic name of policy issued 4) Premium 5) Cash Value and surrender values and death benefit figures for specific policy years

What is a material misrepresentation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

To ensure proper obtaining and handling of test results the insurer must do what two things

Must disclose the use of testing to the application and obtain written consent from the applicant on the approved form. Must establish written policies and procedures for the internal dissemination of test results among its producers and employees to ensure confidentiality

An applicant signs an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant is killed in an automobile accident the next day what would happen?

The beneficiary would receive $25,000 if it was determined that the insured qualified for the policy applied for

A buyers guide provides what?

Basic, generic info about life insurance.

If premium is paid with application when does coverage begin with policy?

Date of application

The application consists of what two parts

General Information Medical Information

An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies, and habits. What type of a report is that?

Inspection report

What is the purpose of the buyers guide?

To allow the consumer to compare the costs of different policies.

An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin?

When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health

When is the earliest a policy may go into effect?

When the application is signed and a check is given to the agent

Peril

cause of loss insured against

hazards are

conditions/situations that increase probability of loss

Agency contract

contract that is held between insurer and an agent/producer, containing the expressed authority given to the agent/producer, and the duties and responsibilities to the principal

The conditional receipt states ___________________

coverage will be effective either on the date of application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.

Loss is defined as

due to chance definite measurable Statistically predictable (mortality tables) Exposure must be large Loss cannot be catastrophic

Inspection reports cover ___________________

moral and financial information regarding a potential insured.

Substandard (High Exposure risks) are

not acceptable at standard rates due to physical condition, history of disease, occupation or dangerous habits; Have higher premium

Why should the producer personally deliver the policy when the first premium has already been paid?

To help the insured understand all aspects of the contract; It is their responsibility to make sure the insured have no questions and the delivery receipt is signed.

Consideration is

the binding force in any contract; value each party brings Consideration on part of insured is payment of premium Consideration on part of insurer is promise to pay in event of loss