COMPLETING THE APPLICATION, UNDERWRITING, AND DELIVERING THE POLICY

An individual who willfully violates this Act enough to constitute a general pattern or business practice will be subject to a penalty of up to _____

$2,500 penalty

USE AND DISCLOSURE OF INSURANCE INFORMATION

-every applicant for a life insurance policy must be given a written disclosure statement that provides basic information about the cost and coverage of the insurance being solicited. This disclosure statement must be given to the applicant no later than the time the application for insurance is signed. Disclosure statements will help the applicants to make more informed and educated decisions about their choice of insurance. -when insurers plan to seek and use information from investigators, they must first provide the applicant/insured with a written Disclosure Authorized Notice. It will state the insurer's practice regarding collection and use of personal information. The disclosure authorization form must be written in plain language, and must be approved by the head of the Department of Insurance.

Domestic Insurer(domicile)

An insurance company that is incorporated in the state

Foreign Insurer

An insurer licensed to operate in a state but incorporated in another state.

Insured Consideration

Is the premium and statements on application

INVESTIGATIVE CONSUMER REPORTS

Similar to consumer report, primary difference is that the information is obtained through an investigation and interview with the associates, friends and neighbors of the consumer.

Insurance Transaction

Solicitation, negotiations, sale, advising an individual concerning coverage or claims

CONDITIONAL RECEIPT

The most common type of receipt, which is used only when the applicant submits a prepaid application. The conditional receipt says that the coverage will be effective either on the date of the 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. This rule will not apply if a policy is declined, rated, or issued with riders excluding specific coverages.

Unlike consumer reports

These reports cannot be made unless the consumer is advised in writing about the report within 3DAYS of the date the report was requested.

Elements of a Legal Contract

agreement, consideration, competent parties, legal purpose

Alien Insurer

an insurer that is chartered by a foreign country, but is licensed to operate in the state

WHEN COVERAGE BEGINS

If the initial premium is not paid with application, the agent will be required to collect the premium at the time of the policy delivery. The agent may also be required to get a statement of good health from the insured. This statement must be signed by the insured, and verifies that the insured has not suffered injury or illness since the application date. If the full premium was submitted with application and the policy was issued as requested, the policy coverage would generally coincide with the date of application.

Certificate of Authority

Insurer must obtain a____prior to transacting business in this state

Insurer's Consideration

Is to promise to pay for losses

ILLUSTRATION

Means a presentation or depiction that includes no guaranteed elements of a policy of individual or group life insurance over a period of years. A life insurance illustration must do the following: @distinguish between guaranteed and projected amounts @clearly state that the illustration is not a part of the contract @identify those values that are not guaranteed as such.

Competent Parties

Of legal age, sound mental capacity, and not under the influence of drugs or alcohol

Unauthorized or Nonadmitted

Those insurers who have not been approved to do business in the state

CHANGES IN APPLICATION

When an answer to a question on the application needs to be corrected, agents have the option, depending on which insurer they represent, of correcting the information and having the applicant initial the change, or completing a new application. An agent should never erase or white out any information on an application for insurance.

(IOLI) Investor-owned life insurance

is another name for a STOLI, where a third party investor who has no insurable interest in the insured initiates a transaction designed to transfer the policy ownership rights to someone whith no insurable interest in the insured and who hopes to make a profit upon de death of the insured or annuitant.

Legal Purpose

not against public policy

Unilateral

one-sided -only one of the parties to the contract is legally bound to do anything -insured makes no legally binding promises

Insurable Interest

something of value that, if lost, would cause you financial harm

POLICY SUMMARY

-a written statement describing the features and elements of the policy being issued. -it must include the name and address of the agent, the full name and home office or administrative office address of the insurer, and the generic name of the basic policy and each rider. -will also include premium, cash value, dividend, surrender value and death benefit figures for specific policy years. The policy summary must be provided when the policy is delivered.

Company Underwriting

-multiple sources of information (application, consumer reports, MIB) -risk classification- 3 types of risks: standard, substandard, preferred

Insurable Interest

-must exist at the of application -insuring one's own life, family member, or a business partner

CONSUMER REPORT

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

Federal Regulations

-Fair Credit Reporting Act: protects consumer against circulation of inaccurate or obsolete information -USA PATRIOT Act/Anti-money Laundering and Suspicious Activity Reports Rules

SUBSTANDARD (HIGH EXPOSURE) RISK

-applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits. -these policies are also referred to as "rated" because they could be issued with the PREMIUM RATED-UP, resulting in a higher premium.

Replacement

-terminating an existing policy or letting it lapse, and obtaining a new one. -to make sure that replacement is appropriate and in the best interest of the policyowner, Insurance producers and companies must take special underwriting measures to help policyowners make informed decisions.

Fair Credit Reporting Act

-A federal law that 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

CONSEQUENCES OF INCOMPLETE APPLICATIONS

Before a policy is issued, all the questions on the application must be answered. If the insurer receives an incomplete application, the insurer must return it to the applicant for completion. If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived it's right to have an answer to the question. The insurer will not have the right to deny coverage based on any information that the unanswered question might have contained.

Field Underwriting (by agent)

-application-completed and signed -agent's report-agent's observations about the applicant that can assist in underwriting -premiums with application and conditional receipts

UNDER OF RISK CLASSIFICATION who are rejected

-are considered DECLINED RISKS. Risks that the underwriters asses as not insurable are declined. For example, a risk may be declined for the one of the following reasons: @no insurable interest @applicant is medically unacceptable @potential for loss is so great it does not meet the definition of insurance @insurance is prohibited by public policy or is illegal

STOLI (stranger-originated life insurance)

-Is a life insurance arrangement in which a person with no relationship to the insured (a "stranger ") purchase a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies. In other words, STOLI are financed and purchased solely with the intent of selling them for life settlements. -STOLIs violate the principle of insurable interest.

Adhesion

-One party prepares the contract; the other party must accept it as is -are offered on a take-it-or -leave-it basis by an insurer.

USA PATRIOT ACT

-was designed to detect international money laundering and the financing of terrorism. -requires financial institutions to file a currency transaction report (CTR) with FinCen(part of the Department of the Treasury) for each cash transaction that exceeds $10,000. -also requires financial institutions to report wire transfer that are in excess of $3,000.

A person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses may also be fined and/or imprisoned for up to ____

2 years prison

Premium Determination

3 key factors for life insurance Mortality, interest and expense Mode - the more frequently premium is paid, the higher the premium

Conditional

Certain conditions must be met in order for policy to pay-out.

COLLECTING PREMIUM RECEIPT

Collecting the initial premium at the time of the application increases the chance that the applicant will accept the policy once it is issued. Whenever the agent collects premiums, the agent must issue a PREMIUM RECEIPT. The type of receipt issued will determine when coverage will be effective.

Policy Issue and Delivery

Effective date of coverage - if the premium is not paid with the application, the agent must obtain the premium and a statement of continued good health at the time of policy delivery

Aleatory

Exchange of unequal amounts

EXAMPLE OF COLLECTING INITIAL PREMIUM

If an agent collects the initial premium from an applicant and gives the applicant a conditional receipt, and the applicant dies the next day, the underwriting process will proceed as though the applicant were still alive. If the insurer ends up approving the coverage, then the applicant's beneficiary will receive the death benefit of the policy. If, on the other hand, the insurer determines that the applicant was not an acceptable risk and declines the coverage, the premium will be refunded to the beneficiary, and the insurer is not required to pay the death benefit.

Authorized or Admitted

Insurers who meet the state's financial requirements and are approved to transact business in the state

MIB (Medical Information Bureau)

Is a 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.

REQUIRED SIGNATURES

-Both the agent and the proposed insured (usually the applicant) must sign the application. -if the proposed insured and policyowner are not the same person, such as a business purchasing insurance on an employee, then the policyowner must also sign the application. -an exception to the proposed insured signing the application would be in the case of an adult, such as a parent or guardian, applying for insurance on a minor child.

RISK CLASSIFICATION

-The home office underwriting department will look at the applicant's past medical history, present physical condition, occupation, habits and moral. -if the applicant is acceptable, the underwriter must then determine the risk or rating classification to be used in deciding whether or not the applicant should pay a higher or lower premium. A prospective insured may be rated as one of the three classification: preferred, standard, substandard.

REPRESENTATION

-Are statements believe to be true to the best of one's knowledge, but they are not guaranteed to be true. -untrue statements on the application are considered MISREPRESENTATIONS and could void the contract. A MATERIAL MISREPRESENTATION is a statement that, if discovered, would alter the underwriting decision of the insurance company. Furthermore, if material misrepresentation are intentional, they are considered fraud.

Characteristics Contract

-adhesion -aleatory -conditional -unilateral

Mutual Companies

-Owned by the policyowners and issue participating policies. -policyowner are entitled to dividends -return of excess premiums are nontaxable -dividend are not guaranteed

Considerations

Premiums and representations on the part of the insured; payment of claims on the part of the insurer

Agreement

offer and acceptance- there must be a definite offer by one party, and the other party must accept this offer in its exact terms. In insurance, the applicant usually makes the offer when submitting the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

5DAYS

The consumers must be advised that they have a right to request additional information concerning the report and the insurer or reporting agency has ____to provide the consumer with additional information

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.

HIPPA

-Regulations provide protection for the privacy of certain individually identifiable health information (such as demographic data that relates to physical or mental health condition, or payment information that can identify the individual), referred to as protected health information. -under the 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. The privacy rule, however, allows disclosures without individual authorization to public health authorities authorized by law to collect or receive the information for the purpose of preventing or controlling disease, injury, or disability.

WARRANTY

-absolutely true statement upon which the validity of the insurance policy depends. -breach of warranties can be considered grounds for voiding the policy or a return of premium.

HIV test

-when an applicant is applying for a large amount of coverage or -increased and additional benefits. -to ensure proper obtaining and handling of results, and to protect the insured's privacy, states have enacted the following laws and regulations for insurers requiring an applicant to submit to an HIV test: @the insurer must disclose the use of testing to the applicant, and obtain written consent from the application on the approved form.

Insurance companies can be classified in a variety of ways:

-based on ownership -authority to transact business -location of incorporation (domicile) -Marketing and distribution systems -or rating (financial strength)

Stocks Companies

-companies issue nonparticipating policies -Does not pay dividends to policyowner -taxable dividend are paid to stockholders