Life/Health Insurance Underwriting

Who sees the producers report?

only the producer, the proposed insured does not see it and it is signed only by the producer

A part of the application that requires the agent to provide information regarding the proposed insured, such as habits, character, and relationship with the insured is known as

producers report

Disclosure Notification

state laws require that applicants be given advance notice stating who is authorized to disclose personal info.

Life insurance binders

are called temporary insurance agreements and the insurer can either issue a policy or cancel the binder before the end of the stated period

Standard Risks

average health and normal life expectancy fall into the normal range when establishing premiums, can be insured for standard rates

Substandard Risks

below average life expectancy, high-risk life insurance. risk of loss is above average which is unfavorable to the company. charged higher rates

A risk that bears the same health, habits, and occupational characteristics as the persons on whose the mortality table was based upon is known as

standard risk

Declined Risks

underwriter indicates the applicant is not insurable at any price

Collecting the premium

"offer to buy" Insurance exists when the first premium is submitted with the life insurance app. - if no premium is given with the app, coverage is delayed until the premium is paid for the issued policy

Conditional Receipt

- Premium paid with application -Insurance effective—later of - Date application completed and signed - Medical exam (if required) -Must be standard or preferred risk - Can be determined after death

Medical Examinations and Testing

- if needing larger death benefit amounts, the insurer will have the proposed insured take medical exams - the insurer pays for these if they are requested during the underwriting process

Incomplete Applications

- cause a delay in the underwriting process and must be returned to the agent for completion.

Important things to note with the MIB

- insurers may not make an adverse underwriting decision(rejection or accepted) solely on the basis of info from the MIB, they may only use this info to further an investigation -insurers do not report underwriting decisions to the MIB -an applicant must be given written notice that info may be reported to MIB

The purpose of MIB

- reduce instances of misrepresentation and fraud

Which of the following factors is NOT prohibited from use in order to classify a risk?

- religion -place of residence -MARITAL STATUS -race

AIDS consideration

- the applicants sexual orientation CANNOT be used in the underwriting process or to determine insurability - but they can be required with the applicants written consent. They must be informed about the purpose of the test and results are reported back to the insurer - tests paid by insurer

Producer/Agents Report (Producer's statement)

- the producer records information that pertains to the proposed insured including the producers relationship to the proposed insured and anything to do with the insureds: financial status, habits, and character.

US Patriot Act

-designed to prevent and detect money laundering and financing of terrorism - report suspicious activity

Health Information

-height and weight -tobacco usage -drug usage - international travel -current meds -health history, etc.

General Information

-name -address -DOB -gender -SSN , etc.

The factors that insurers use to classify risks should be

-objective -clearly related to the likely cost of providing coverage -practical to administer -consistent with the applicable law -designed to protect the long-term viability of the insurer

Completing an Application

-producers/agents are responsible for the confidentiality, accuracy, and completeness of an application

Employee Retirement Income Security Act (ERISA)

-protects the interests of participants in employee benefit plans as well as the interests of the participants beneficiaries -qualified pension plans and group insurance

Backdating

-some insurers allow an application to be backdated so the premium can be based on an applicants earlier age & lower the cost of the premium. - most states allow life insurance to be backdated up to SIX MONTHS

3 parts of an application

1. General Information 2. Health Information 3. Producer's Report

4 Classifications of Risks

1. Standard 2. Preferred 3. Substandard (rated) 4. Declined

Statement of Good Health

The statement required to be signed by the applicant upon policy delivery attesting that their health is the same as when they applied -required if no premium w/ application -if health changed, agent can't deliver the policy

Who signs a corporation owned policy?

a company officer

Who signs a juvenile policy for a minor?

a parent or legal guardian

Under which of the following receipts is coverage effective as of the date of the application as long as the applicant is found to be insurable under the company's standard underwriting rules

conditional receipt

Investigative consumer reports (inspection reports)

contain info obtained by interviewing individuals who know something about the consumer such as associates, friends, and neighbors

Company Underwriting

each insurance company has its own set of underwriting guidelines to help the underwriter determine whether or not the company should accept the risk

Binding Receipts

effective for 30-60 days from the date of app even if the applicant is found to be uninsurable. - mostly used with auto or home insurance and rarely with life.

Who signs the application form?

insured, producer/agent, and applicant (if not the insured)

A general report in regard to the applicants finances, health, character, work, hobbies, and other habits is usually completed by interviewing friends and associates is known as

investigative consumer report

Issuing a policy

it must be delivered to the policy owner, can be mailed but most companies prefer the producer to deliver it in person. Some states require a receipt from the policy owner to the producer stating the policy was delivered and the date

Stranger Owned Life Insurance (STOLI)/Investor-Owned Life Insurance (IOLI)

life Insurance arrangements involve investors who persuade seniors to take out a new life insurance policy, with the investors named as the beneficiary -most states are banning these transactions due to fraud being targeted at seniors

Changes in an application

must be initialed by the applicant

Medical Information Bureau (MIB)

non-profit insurance trade association that maintains underwriting information on applicants. - types of info found in MIB filed include: medical history, hazardous jobs or hobbies, and poor driving records

Underwriting

process of evaluating a risk to determine if it is acceptable based on established insurance company guidelines.

Errors and Omissions

producers can make mistakes (misstatements and promises of coverage) and are held liable for them

Preferred Risks

represent excellent health risk of loss is BELOW average which is favorable to the company insured at preferred or discounted rates

Fair Credit Reporting Act (FCRA)

requires that credit reports contain only accurate relevant information and allows consumers to challenge errors or omissions of information in their reports -3rd party info. -notice to applicant REQUIRED -penalty: fines (max $5,000) and/or imprisonment (one year)

Attending Physician's Statement (APS)

the underwriter may ask the proposed insured's doctor for this to find out about their current condition and medical history.

After applications are evaluated...

they are sorted into groups, or classified, according to the level of risk each represents.

Consumer Reports

used to determine a consumer's eligibility for personal credit, insurance, or employment.

Receipts

when the first premium is collected at the time of app, the producer must provide the applicant with a receipt and the effective date of coverage will depend on the type of receipt issued.