Chapter 1-Life

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Declined risks

Applicants who are rejected

Required Signatures

Both the agent and the proposed insured (usually the applicant) must sign the application.

Intentional

Fraud

Domicile of Insurer

Location of incorporation

Conditional Contract

Requires that certain conditions must be met by the policy owner and the company in order for the contract to be executed, and before each party fulfills its obligations

What provides an underwriter with information concerning an applicant's health history?

The Medical Information Bureau

Policy owner

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

Legal Purpose

The purpose of the contract must be legal and not against public policy. It must have insurable interest and consent.

Aleatory

There is an exchange of unequal amounts or values.

Misrepresentations

Untrue statements on the application and could void the contract.

Insurer (principal)

The company who issues an insurance policy

The Medical Information Bureau (MBI) was created to protect

Insurance companies from adverse selection by high risk persons

Unauthorized or Nonadmitted

Insurers who have not been approved to do business in the state.

Competent Parties

By law, the parties must be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.

Life Insurance

Coverage on human lives

Alien

If the insurer is incorporated outside of the United States.

Premium

The money paid to the insurance company for the insurance policy

Certificate of Authority

This must be obtained before insurers may transact business in a specific state, they must apply for and be granted a license or Certificate of Authority from the state department of insurance and meet any financial (capital and surplus) requirements set by the state.

Elements of a Legal Contract

1. Agreement--Offer and acceptance 2. Consideration 3. Competent Parties 4. Legal Purpose

Insurance Policy

A contract between a policy owner (and/or insured) and an insurance company which agrees to pay the insured or the 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

Which of the following document delivered to the policy owner includes information about premium amounts, cash values, surrender values, and death benefits for a specific policy years? A. A policy summary B. A notice regarding replacement C. A privacy notice D. A buyer's guide

A. A policy summary usually includes all the listed information, and must be delivered alone with a new policy.

In order for an insurer to legally transact insurance, it must obtain? A. Director's Decree B. Authorization of Power C. Certificate of Authority D. Power of Authority

Certificate of Authority

All of the following are duties and responsibilities of producers at the time of application EXCEPT A. Explain the nature and type of any receipt the producer is giving to the applicant B. Probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information C. Check to make sure there are no unanswered questions on the application D. Change any incorrect statement on the application by personally initialing next to the corrected statement.

D. Any changes to information on an application must be initialed by the applicant.

Stranger-originated life insurance (STOLI)

Life insurance arrangement in which a person with no relationship to the insured purchases a life insurance policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies.

Medical Information Bureau

Membership corporation owned by member insurance companies; it is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals

Insurance Transactions

Solicitation; Negotiations; Sale; Advising an individual concerning coverage or claims.

Field Underwriter

The agents is the company's front line because the agent is usually the one who has solicited the potential insured.

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require alls of the following elements EXCEPT A. Legal Purpose B. Offer and Acceptance C. Conditions D. Consideration

C. Conditions: part of the policy structure.

Which of the following is NOT essential of an insurance contract? A. Consideration B. Agreement C. Legal Purpose D. Counteroffer

D. Counteroffer: In order for insurance contracts to be legally binding, they must have 4 essential elements; counteroffer is not required

An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied? A. Waiver B. Utmost Good Faith C. Estoppel D. Material misrepresentation

D. Material Misrepresentation: will affect whether or not a policy is issued. If the insured had been truthful, it is very likely that the policy would not be issued.

Fair Credit Reporting Act

Established procedures that consumer reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used. The law also protects consumers against the circulation of inaccurate or obsolete personal or financial information.

An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n)

Inspection Report

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did she purchase the policy?

Mutual: Funds not paid out after paying claims and other operating costs are returned to the policy owners in the form of a dividend. If all funds are paid out, no dividends are paid.

Delivery Receipt

Obtain this once the policy is delivered

Offer and Acceptance

Offer- when submitting the application Acceptance- when an insurer's underwriter approves the application and issues the policy.

Agent's Responsibilities

Proper solicitation of applications Helping prevent adverse selection Completing the application Obtaining the required signatures Collecting the initial premium and issuing the receipt, if applicable Delivering the policy

Applicant or proposed insured

A person applying for insurance

Beneficiary

A person who receives the benefits of an insurance policy

Warranty

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

Contract

An agreement between two or more parties enforceable by law.

Purpose of a life insurance illustration

Distinguish between guaranteed and projected amounts Clearly state that an illustration is not part of the contract Identify those values that are not guaranteed as such.

Foreign

If the insurer is operating in a state other than the one they are incorporated in

What is insurance?

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

Agent's Report

Provides the agent's personal observations concerning the proposed insured; part of the application process.

Underwriting

Risk selection and classification process

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

What describes the specific information about a policy?

A policy summary describes the features and elements of the specific policy for which a person is applying.

Illustration

A presentation or depiction that includes nonguranteed elements of a policy of individual or group life insurance over a period of years

Investor-owned life insurance (IOLI)

A third-party investor who has no insurable interest in the insured initiates a transaction designed to transfer the policy ownership rights to someone with no insurable interest in the insured and who hopes to make a profit upon the death of the insured or annuitant.

Mutual companies

Owned by the policy owners and issue participating policies; dividends are not guaranteed.

Insurable Interest

Possibility of losing money or something of value in the event of a loss.

Replacement

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

Contract Adhestion

Prepared by one of the parties (insurer) and accepted or rejected by the other party (insured). "Take it or leave it"

Buyer's Guide

Provides basic, generic information about life insurance policies that contains, and is limited to, language approved by the Department of Insurance.

Consumer reports

Include written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.

Consideration

The binding force in any contract.

Premium Receipt

Whenever the agent collects premiums, it must distribute this and will determine when coverage will be effective.

What is the purpose of a conditional receipt?

It is intended to provide coverage on a data earlier than the date of the issuance of the policy.

An agent and an applicant for 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 and acceptable Statement of Good Health.

Insured

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

Standard risks

Persons who, according to a company's underwriting standards, are entitled to insurance protection without extra rating or special restrictions.

Participating Policies

Policy owners are entitled to dividends, which in the case of mutual companies, are a return of excess premiums and are therefore nontaxable. Di

Nonparticipating Policies

Policy owners do not share in profits or losses; does not pay dividends to policy owners; however, taxable dividends are paid to stockholders

Policy Summary

A written statement describing the features and elements of the policy being issued.

Domestic

In the state they are incorporated in, they are considered a domestic insurer.

Substandard (High Exposure) Risk

Applicants are not acceptable at standards rates because of physical condition, personal or family history of disease, occupation, or dangerous habits.

Authorized or Admitted

Insurers who meet the state's financial requirements and are approve to transact business in the state as a legal insurer.

Conditional Receipt

The most common type of receipt; is used only when the applicant submits a prepaid application

An insurance company requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristics does this describe?

Conditional

Unilateral Contract

Only one of the parties to the contract is legally bound to do anything.

Stock companies

Owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share any profits or losses

Lapse

Policy termination due to nonpayment of premium

Material Misrepresentations

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

Representations

Statements believed to be true to the bust of one's knowledge, but they are not guaranteed to be true.

Death Benefit

The amount paid upon the death of the insured in a life insurance policy

Preferred Risks

Those individuals who meet certain requirements and qualify for lower premiums that standard risk

Privacy Rule

patients have the right to view their own medical records, as well as the right to know who has accessed those records over the previous 6 years