FL 2-15 Chapter 5 Summary: Life Insurance

3 Risk Classifications

1) Standard: are entitled to insurance protection without extra rating or special restrictions (average risk) 2) Substandard: not acceptable at standard rate because of a physical condition, personal or family history of disease, occupations, or dangerous habit ("rated" up: can result in a higher premium) 3) Preferred: applicants are in superior physical condition with healthy lifestyles and habits (qualify for for lower premiums)

Medical Information Bureau (MIB)

A nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical information on individuals. It is a way insurance companies compare the information they have collected on potential applicants.

Investigative Consumer Reports

A report similar to consumer report, that also provides information on the consumer's character, reputation and habits. The primary difference is that the information is obtained through an investigation and interviews with associates, friends, and neighbors.

Conditional Receipt Example

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 approves the policy, the beneficiary receives the death benefit. If not, they are refunded the premium and do not receive the death benefit.

Fair Credit Reporting Act

If someone applying for insurance is declined or modified because of information contained in either a consumer or investigative report, the person has a right to know what was in the report, and will be provided with the name and address of the reporting agency.

Consumer Reports

Include written and 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.

Backdating

It is possible to lower the premium rate by backdating an application for insurance. Lowering the premium is the only reason to backdate. If the applicant chooses to do this, the policy may be backdated for no more than 6 months.

Field Underwriter Name

The agent is the company's front line, and is referred to as the "field underwriter" because the agent is usually the one who has solicited the potential insured.

Conditional Receipt

The most common receipt. The applicant is covered by the insurance company as of the date of the application, providing that the insurance company approves them for insurance.

Underwriting Process

The person applying for insurance must submit an application to the insurance company for approval. The application is one of the main sources of underwriting information for the company. Basic Components of Applications: 1) General Information 2) Medical Information 3) The Agent's Report

Purpose of Underwriting

The process an insurance company uses to determines whether or not a particular applicant is insurable, and if so, what premium to charge. The main things underwriters use include the applicants health, both current and past, occupation, lifestyle, hobbies, and habits.

General Information (1/3 Application Components)

This section of the application includes general questions about the applicant, such as name, age, address, birthdate, gender, income, marital status, and occupation.

Medical Information (2/3 Application Components)

This section of the application includes information on the prospective insured's medical background, present health, recent medical visits, the medical status of living relatives, and causes of death of relatives.

The Agent's Report (3/3 Application Components)

This section of the application provides the agents personal observations concerning the applicant. As a field underwriter, the agent can be considered the most important source of information available to the company underwriters. The agents report does not become part of the entire contract, although it is a part of the application process.

Risk Classifications

Underwriting will look at the applicants past medical history, present, physical occupation, occupation, habits, and morals. 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.

Important Responsibilities of Field Underwriters

• Proper solicitation of applicants • Helping prevent adverse selection • Completing the application • Obtaining the required signatures • Collecting the initial premium • Delivering the policy • Issuing the receipt