Chapter 6

When is the True effective date?

When the policy is delivered and the first premium payment is received.

What is a warranty?

a statement that is guaranteed to be true

What happens if there are changes in the application?

any changes made to the application after completion must be initialed by the applicant to verify that the applicant is aware of the changes.

What are the consequences of incomplete applications?

Incomplete applications will be returned to the agent for completion. This delays the underwriting process and may in some cases cause the applicant to withdraw the application

What are the four common classification when reviewing an applicant

1. Standard 2. preferred 3. substandard, or rated 4. Decline

When is the policy constructively delivered?

when the company turns the policy over or mails it to someone acting for the policy owner, including the company's own agent.

What information has direct effect on the premium the company will charge?

1. Where the applicant lives 2. Age 3. Gender 4. Occupation 5. Hobbies

What are some of the important tasks the agent is in the field is responsible to do?

1. Proper solicitation of applicants. 2. Accurate completion of the application 3. Disclosure of required information and obtaining of permissions and acknowledgements 4. Collection of the initial premium 5. Issuing of the proper receipt

What is the declined classification?

An applicant may be rated as uninsurable (perhaps due to a serious illness) and be denied coverage entirely.

Who is allowed to call a person from the Do Not Call List?

1. Charities 2. Political organizations 3. Telephone surveys 4. calls from companies with which the consumer has an existing business relationship

What is the Consumer Report?

1. Consumer reports include information about an applicant's credit history, reputation, character and habits, general reputation and lifestyle.

What are the three basic parts of the information of the application?

1. General 2. Medical 3. Agent's Report

What does the National Association of Insurance Commissioners requires the agent to do with regard to replacement?

1. Give the policy holder a notice regarding replacement 2. Forward a signed copy of the replacement notice to the replacing insurance company 3. Forward copies of all sales proposals made to the policy holder

What is a medical report?

1. In cases where the insurer requires more information about the medical history of the insured. 2. It is done by a qualified person, physician, paramedic, registered nurse etc.

What are the underwriter's concerns about the applicant?

1. Insurable interest 2. Medical information 3. Credit information 4. Risk classification

What information is in the general part of the application?

1. Name 2. Address 3. Birth Date 4. Gender 5. Occupation 6. Hobbies 7. Type and amount of insurance sought 8. Current life insurance 9. Beneficiary

What are the three primary duties of the agent in delivering the policy?

1. Obtaining a statement of good health 2. Explain when coverage begins 3. Explain the policy

What are the explanations and actions of the agent upon delivery?

1. Obtaining a statement of good health 2. Explaining when coverage begins 3. Explaining the policy

What is the rules for the Do Not Call List?

1. Severe fines (up to $11,000) 2. Company can call for three months after consumer makes an inquiry 3. Company can call up to 18 months after the consumer's last purchase

What does proper solicitation means?

1. Solicitations must be open and above board 2. The agent must always make clear the nature of solicitation - who and what it is for 3. All advertising, must comply with fair trade practices 4. All required disclosures must be made or obtained in a timely fashion

What are the required signatures on the application?

1. The applicant 2. The proposed insured, if other than the applicant 3. The agent requesting the insurance 4. One or more partners or officers if a corporation will be policy owner

The underwriter's main sources of information are?

1. The application itself 2. The agent's report 3. Medical information Bureau reports 4. Consumer reports

What is insurable interest?

1. The direct, identifiable economic interest on the part of the policy owner in the life of the insured. 2. Must exist at the time of application 3. is not required of beneficiaries 4. Commonly requires a family, martial, or business relationship 5. If lacking, may be cause for denial of a claim

What is ruled under the Fair Credit Reporting Act (FCRA)

1. The insurer must provide, a notice to the applicant informing the applicant that the insurer will be ordering consumer credit reports 2. The insurer must identify the source of information that was used in denying coverage, and allow the applicant to refute negative information 3. The applicant may send written corrections of information the applicant feels is inaccurate to the consumer reporting agency responsible

What are some of the other forms that require signatures?

1. a replacement form if replacement of an existing policy is involved. 2. Forms requesting additional medical information 3. The agent's report 4. The fair credit reporting act notice of disclosure

What is a representation?

A statement that is presumed to be substantially true to the best knowledge of the person making the statement, but it is not guaranteed to be true

What are misrepresentations?

A statement that provides incorrect information, The effect of a misrepresentation on an application is judged according to whether it is material

What is the securities disclosure for variable products?

Agents who must be licensed to sell securities are subject to securities and Exchange Commission (SEC) rules requiring point of sale disclosure of costs, risks and potential conflicts of interest in investments underlying variable insurance and annuity products

What is a standard classification?

An applicant considered an average or typical risk will be charged the standard rate (most applicants)

What is a conservation effort?

Attempt to keep an existing policy in force.

What are Consumer Reporting Agencies?

CRA- companies that assemble such reports for insurance companies and other businesses

What are inspection reports?

Contains results of investigation into an individual's character and activities and may be ordered from national investigative agencies.

What is a binding receipt?

Coverage begins as of the date of the receipt and continues unless and until rejected by the insurer 1. If the company decides not to provide coverage, the premium is returned with notification. 2. If the applicant dies before the underwriting procedure is completed - claims will be paid even if the coverage would have been denied in the underwriting process

What is a conditional receipt?

Coverage begins as of the date of the receipt if the application is approved, including approval of the policy type, coverage amount and premium rate. 1. If approved, the insured does not have to wait for the policy to actually be issued and delivered for the coverage to begin. 2. This is the type of receipt normally provided when the initial premium is paid at the time of application.

What is the Policy Effective Date?

Determines when coverage is effective, but also when future premium payments will be due

T/F all of the statements of the applicants are considered to be warranties

False, they are considered to be representations

What is the HIV consent?

If an applicant is asked to take an AIDS-related blood test as part of establishing insurability, the agent or insurer will give the applicant a Notice and Consent for Aids Virus testing, describing how the information obtained will be used and requiring the applicant's signed consent

What must an agent do in case there has been a change in rating?

If the applicants has been rated as substandard, the agent must provide the reasons

When does the coverage begins?

If the premium is paid when the policy is delivered, coverage begins as of the delivery. Otherwise, when the initial premium is paid, the underwriters have approved the application, and all conditions have been met, coverage begins as of the date of the receipt

What is a replacement?

It is a purchase of new life insurance policy that the producer (or insurer) knows or should know will cause an exiting product to be terminated, converted, amended, reissued, pledged, continued etc.

What must an agent do in the case of riders?

It is often the case that the insured has to sign a statement verifying that he ro she understand s what restrictions are created by the rider

What is materiality?

It is tested by a simple question: would the insurance company have acted differently if the truth had been known? if so, the statement is material.

What is Underwriting?

It is the process of reviewing an applicant's background information and medical history to determine whether to accept the applicant for coverage and if so, how much, what kind, and at what rates.

What is in the medical part of the application?

Medical questions enable the company's underwriters to determine how much coverage the company can issue based on an applicant medical condition. 1. The underwriters may ask the applicant to undergo a medical examination or ask for a physician's statement to provide specific information about a condition.

When does the free look period begins?

On the delivery of the policy

What is the preferred classification?

Preferred risks have a risk profile offering the lowest chance of loss and are insurable at a lower rate. 1. A person in good health, with no dangerous hobbies or history of health problems is most likely to be classified as preferred and charged the lowest rate

What is the substandard or rated classification?

Substandard risks present additional exposure to loss and must pay higher than standard rates. 1. People with bad health conditions, or who engage in hazardous occupations or hobbies 2. or are subject to moral hazards are often deemed substandard risks and are issued rated policies, meaning higher premium.

What is a statement of good health?

Sometimes the initial premium is not collected until the policy has been underwritten and delivered. 1. in such cases, the insurer usually asks for a signed statement from the insured attesting that the insured has remained in good health since submitting the application

What is the Buyer's guide and policy summary?

The NAIC model state law requires the agent and insurer to give an applicant a buyer's guide explaining insurance options and how to determine the best type and amount of coverage, and a policy summary detailing premiums, cash values, dividends and benefits

What is the explanation of the receipt and coverage?

The agent must explain how the binding or conditional receipt functions and when coverage begins under the relevant type.

What is the explanation of policy?

The agent must explain the policy, provisions, riders, exclusions, and ratings at the time of delivering the policy

What is the Explanation of sources of insurability information?

The agent must explain, on delivering a policy, that underwriters will use medical reports and consumer reports to determine insurability

What is the Notice Regarding Replacement?

The agent must present and/or read this notice regarding replacement of any existing policies and obtain a signed acknowledgement.

What is the Fair Credit Reporting Act Notice to the Applicant?

The agent must present, along with the receipt for premium, a notice that underwriters will be ordering consumer and credit reports and explaining the consumer's rights concerning these reports

What happens under conditional receipt if the applicant dies after the date of the receipt but before the policy is issued?

The applicant will be covered if the coverage would have been approved in the underwriting process?

What happens under binding receipt if the applicant dies before the underwriting procedure is completed?

The claim will be paid, even if the coverage would have been denied in the underwriting process

What happens if the application is not in good health at time of delivery?

The company may instruct the agent not to deliver the policy. It may also allow the applicant a period to inspect the policy - delivery is not established until all conditions have been met

What is the HIPAA disclosure on uses of medical records?

The health insurance portability and accountability act (HIPAA) requires a disclosure to the effect that certain medical records of the applicant may be accessed by underwriters, that the information can only be used for certain purposes, and that it must be protected.

What is the MIB report?

The medical information Bureau is a shared data bank of medical information and past application information regarding an applicant 1. It includes records of any medical impairments 2. The bureau will suggest further sources of information if some impairment is discovered

What is in the Agent's Report part of the application?

The underwriters also obtain information from the agent's report on the applicant, usually a section on the back of the application wherein the agent states how long he or she has known the applicant and whether the proposed insurance will replace an existing policy.

What is asked in the special questionnaires?

Used to obtain information relating to avocations, aviation activities, foreign residence, military service, or finances.