Chapter 6: Underwriting and Policy Issue

part 2 of the application

- Agent's Report (Statement) - agent's personal observations - applicants financial condition, character, background, purpose of sale, and how long agent has known the applicant

Premiums and Receipts

- Agents should make every effort to collect the initial premium with the application. However, if premium is not collected with the application, the policy will not become valid until the initial premium is collected. - The agent issues the applicant a premium receipt upon collecting the initial premium. The only time a customer will receive a receipt is if they pay their initial premium at the time of application. No receipt will be given at any other time.

purpose of underwriting

- another term for risk selection

Medical Information Bureau (MIB)

- nonprofit trade organization that maintains medical information about individuals - help with adverse selection as it detects misrepresentations, fraudulent information, and controls the cost of insurance -information released may be released to the proposed insured's physician

Field Underwriting: duties of agent (5)

-make sure the application is filled out completely and accurately - collect the initial premium, and deliver the policy -forwarding the application to the insurer in a timely manner - seeking additional information about applicant's medical history if needed - notifying the insurer of any suspect misstatements in the application

the most common sources of underwriting information include

1. the application 2. the medical report 3. attending physician's statement 4. the Medical Information Bureau 5. Special Questionnaires 6. Credit reports

Suitability Form

Ensures that the customer is best suited for the policy they are purchasing. Prevents the sale of unnecessary insurance.

Part 1 of the application

General Information - Age, DOB, Sex, Address, Marital Status, Occupation -details about the requested insurance coverage - other personal information - tabacco use, hazardous hoppy, foreign travel, etc.

Application errors

If an agent realizes that an applicant has made an error on an application, the agent must correct the information and have the applicant initial the changes • An incomplete application will be returned to the agent • The agent can NEVER change the application without the customer present to initial the changes

Signatures

The agent and the applicant are required to sign the application. If the applicant is someone other than the proposed insured, except for a minor child, the proposed insured must also sign the application. This is considered third-party ownership.

inspection report

This report provides information about the applicant's character, lifestyle, and financial stability

representation

a statement believed to be true to the best of one's knowledge

a producer may also be required to obtain a signature on

a statement of good health at the time of policy delivery

underwriting process

accomplished by reviewing and evaluating information about an applicant and applying what is known of the individual against the insurer's standards and guidelines for insurability and premium rates. - the larger the policy, the more comprehensive and diligent the underwriting process

policies below a face amount of $50k or even $100k will not require

additional medical information other than provided by the application

Effective Date of Coverage

coverage does not begin until the collection of the initial premium, approval of the application, and policy issuance and delivery if the initial premium is not submitted with the application, the policy effective date is established by the insurer.

Application

insurable interest must exist between the policyowner and insured at the time when the application is made

Backdating

is the process of predating the application a certain number of months to achieve a lower premium. -A lower age results in a lower premium. - A backdated application results in a backdated policy effective date, if approved by the insurer. - Applications usually can only be backdated up to 6 months. This process is also known as "saves age". - policyowners are required to pay all back-due premiums and the next premium is due at the backdated anniversary date

medical report

may be needed to provide further underwriting information. This report may be based on a recent examination with the applicant's physician or an examination conducted as part of the underwriting process. - used for higher face amounts

Applicant Ratings

once all the information about a given applicant has been reviewed, the underwriter seeks to classify the risk that the applicant poses to the insurer. this evaluation is known as risk classification.

a producer must provide a privacy notice to an applicant if

personal information id disclosed and passed along to the insurer or its affiliates

Personal Delivery

allows the producer to explain the coverage to the insured (such as the riders, provisions, and options); - builds trust and reinforces the need for the coverage - all of the following acts can be considered a means of delivery: mailing policy to the agent, mailing the policy to the applicant, and the agent personally delivering the policy

Constructive Delivery

policy delivery may be accomplished without physically delivering the policy into the policyowner's possession. - Constructive policy occurs if the insurance company intentionally relinquishes all control over the policy and turns it over to someone acting for the policyowner, including the company's own agent. - Mailing the policy to the agent for unconditional delivery to the policyowner also constitutes constructive delivery, even if the agent never personally delivers the policy. - If the company instructs the agent not to deliver the policy unless the applicant is in good health, there is no constructive delivery.

Buyer's Guide

provides general information about the types of life insurance policies available, in language that can be understood by the average person.

Policy Summary

provides specific information about the policy purchased, such as the premium and benefits.

warranty

statements that are guaranteed to be literally true - if not literally true, the policy may become void

when an investigative consumer report is used on connection with an insurance application,

the applicant has the right to receive a copy of the report

Credit Reports: an applicants credit history is sometimes used for underwriting and to determine

the likelihood of making premium payments

Conditional Receipt

the producer issues a conditional receipt to the applicant when the application and premium are collected - the conditional receipt denotes that coverage will be effective once certain conditions are met -if the insurer accepts the coverage as applied form the coverage will take effect from the date of application or medical exam, whichever is later

Binding Receipt

this is a temporary insurance agreement which provides coverage from the date of the application regardless of whether the applicant is insurable. The insurer is bound to coverage until the application is formally rejected. - coverage usually lasts for 30 to 60 days until action is taken - most commonly seen in auto and homeowner's insurance - even if the insured is ultimately found to be uninsurable, coverage is still guaranteed until rejection of the application

Statement of Good Health

verifies that the insured has not become ill, injured or disabled during the policy approval process (time between submitting application and delivery of the policy), or did not submit the initial premium with the application.