Insurance Exam Chapter 4

Beneficiary

named person(s) who receive the policy benefits

Policy-owner

person who has all the ownership rights under the policy, pays the premiums, and accepts the policy when delivered

Classification of Risks

1. Preferred 2. Standard 3. Substandard 4. Declined

Applicant

the person applying for the policy who fills out the application to be submitted.

3. Substandard

Higher risks, due to applicants physical condition, disease history, hazardous occultation or dangerous hobbies and habits

Expenses

Including acquisition costs, staff salaries, rent, contingency funds, and due claims payments. Expenses are also so called "Loading"

1. Preferred

Individuals above average in terms of physical condition and lifestyle and present less than average risk

2. Standard

Individuals in average physical condition with average lifestyles and habits

Selection Criteria and Unfair Discrimination

Insurers use discrimination to determine good risks. • Insurers cannot unfairly discriminate against individuals who are part of the same risk class and have the same life expectancy in any policy condition or coverage. Discrimination against the blind, physically or mentally impaired or sexual orientation all qualify as unfair discrimination.

Premium Concepts for Life Insurance

Net Premium - mortality and interest Gross Premium - net premium with expenses (loading) Premium = Mortality Risk + Operating Expenses - Interest

Medical Insurance Bureau (MIB)

Non-profit trade organization - used by life and health insurers - maintains confidential medical information about an applicant for insurability purposes - includes hazardous activities and impairments - does not collect claims information or how much coverage an individual has - Insurers cannot refuse to issue policies solely on information supplied by the MIB

Field Underwriting

Performed by the producer face-to-face with applicatn -reduce chance of adverse selection - collect initial premuim - ensure application is correct and complete - deliver policy

Insured

Person covered under policy

Interest Earnings

Premiums paid in advance before a claim is made so that they may be invested and earn interest - higher interest rates = lower premiums

Application

Primary source of information - Attached to the policy so that it becomes a legal part of the insurance contract

Underwriting

Process used to select, classify and rate risks so they can accurately reflect the amount of risk undertaken Factors of selection Age Gender Build Lifestyle smoking status hobbies hazardous occupations medical history family health history Insurers CANNOT base off national origin, race or sexual orientation

Expensive Mode - Premium Receipts

Producers collect initial premium with the application & issues a premium receipt

4. Declined

Risks are uninsurable because the applicant is too risky for an insurer to provide coverage

Premiums

based on Mortality Morbidity, and Interest Earnings

Premium Payment Mode

frequency payments are made