Unit 2: Life/Health Insurance Underwriting

AIDS testing

-Application may not ask about sexual orientation -testing not based on geographical location -requires insureds written consent -cannot be reported to MIB

Producer's Report

- Part 3 of life insurance is the Producer/ agent report or Producer Statement -The producer records information that pertains to the proposed insured including the producers relationship to the proposed insured and anything the producer knows about their proposed insured's -financial status -habits and -character -The proposed insured does not see the producers report -it's not attached the policy in the application when it's issued -producers report will be seen only by the producer

Confidentiality

- highly personal information about an applicant is required during the application process - Agents need to inform applicants that the info they share will be kept in the strictest confidence and producers must never violate confidentiality

Underwriting

- is the process of evaluating a risk to determine if it is acceptable based on insurance company guidelines -everything begins with the producer/agent when a decision to buy is made and the agent completes the application for insurance and submits it to the company's underwriter -the agent /producer is frequently referred to as the field under Writer

Medical Information Bureau (MIB)

-Application cannot be denied solely on MIB information -insured must be informed of MIB -maybe get its information from insurance companies

HIPAA Disclosures

-HIPAA and posit specific requirements on the disclosure of insured's health information by medical providers, insurance, and producers -Health information must remain confidential to protect an applicant privacy -if any health information will be shared, Applicants must be given full notice of: -the insurers information sharing practices -The right to maintain privacy; and -an opportunity to refuse to have their information release

Medical examinations and testing

-Insurance will underwrite some applications on a non-medical basis when the death benefit applied for is below a certain level -these applications are evaluated on health information on the application -The insurer usually requires the proposed insured to take a medical examination for larger death benefit amounts

Backdating

-Sam insurance allows the application to be backdated so the premium can be based on the applicants earlier age in the way the cost of the premium -most state laws allow the life insurance applications to be backdated up to 6 months -if an application is backdated, deposit becomes affected as the dated requested on the application -to receive a less expensive premium, the applicant must pay an additional premium that would have been paid from the back date

Disclosure Notification

-State law requires the applicants to give an advance written notice stating -who is authorized to disclose personal information >the kind of information that may be disclosed -and the reason it may be collected * by signing the disclosed form, the applicant is giving the insured consent together and disseminate info as described in the notice

AIDS Considerations

-The applicant sexual orientation can be used in the underwriting process or to determine insurability -however specific questions about being diagnosed with AIDS or ARC to determine a medical condition can be asked -AIDS testing can be required with the applicants written consent -they must be informed about the purpose of the test and the results are reported to the insurer

Medical Information Bureau (MIB)

-when member companies discover unfavorable information about an applicant during their underwriting process, they report it to the MIB using code signifying certain conditions -if the applicant applied for insurance as well as other member companies will have access to the information -these types of information maintained in MIB files include medical history, hazardous jobs, or hobbies and poor driving records

Receipts

-when the first premium is collected at the time of application, the producer must provide the applicant with the receipt -The affective date of coverage will depend on the type of receipt issued

Underwriting Sources of Information

> Application-primary source medical exams and testing > attending physician statement (APS) > AIDS testing > medical information bureau > consumer reports-Insured must be informed > investigative reports-insured must give consent

Fiduciary Responsibilities

ERISA: -protect participants in employee benefit plans -qualified pension plans and group insurance -reporting and disclosure information for plan participants

Changes in the Application

Must be initialed by the applicant

Classification of Risks

-Standard Risk: means average health and normal life expectancy and fall into the normal range anticipated by the company when it established its premium > these risks can be insured for standard rates -Preferred Risk: preferred risks represent excellent health > A risk of loss that is below average in there for favorable to the company > favorable risk factors include such things as healthy lifestyle, clean medical history, or low risk occupation > these risks may be insured at preferred or discounted rates -Substandard Risk: represent below average life expectancy, high risk life insurance > A risk of loss that is above average and there for unfavorable to the company > unfavorable risk factors include poor health, dangerous occupation, risky habits > substandard risk can only be excepted by charging them higher rates > sometimes referred to as being rated up (sometimes shortened to just rated) > methods of charging a relatively high rate for substandard risk include adding a freight additional charge, charging applicants with standard premium rehire attained age, or reducing the benefits provided by the policy -Declined Risk: and ensures underwriting guidelines indicate that an applicant is not insurable at any price > such cases the application or risk is declined

Required Signatures

-The application form- signed by the applicant and the producer/agent -The proposed insured- must sign if the applicant is not insured -A company officer - must sign a corporation owned policy -A parent or legal guardian- signs a juvenile policy for the minor

The Application

-The application used to purchase life insurance and ask the applicant for basic information 3 parts: -1. General information -2. Health information -3. Producers report

Conditional Receipt

-The date the application is effective date > as long as the applicant is found to be insurable under the company standard underwriting rules -affected on the date of the application, or the date of a required medical examination- which ever is later of these two events -if the proposed insured dies before the policy is issued, the application continues through the normal underwriting process and one of the following will occur: > if the deceased insured meets the company standard underwriting requirements in the policy would have been issued had they lived, the policy is in force and the death benefit will be paid to the beneficiary > if the insured is found to be uninsurable or a substandard risk, no coverage will be enforced. The premium that was collected with the application will be returned to the policy or beneficiary (in case of death)

Source of Information

-The factors that insurers used to classify risk should be -objective -clearly related to the likely cost of providing coverage -practiced administer -consent with applicant law -and designed to protect long-term viability of the insurer * the application is the underwriters primary source of information

Information Practices

-The life insurance producer must comply with the requirements for notifying applicants but to ensure his privacy policy as it relates to the personal information collected during the application process and how it will be used

Medical Information Bureau (MIB)

-The purpose of the MIB is to reduce instances of misrepresentation and fraud. It's important to note: -insurers may not make an adverse underwriting decision such as rejecting the applicants solely on the basis of information from the MIB. Ensures me only use this information to further their investigation -insurers do not report underwriting decisions to the MIB. This prevents other member insurance to except or reject an applicant based on what other insurance companies have done -an applicant must be given written notice that information may be reported and obtained from the MIB and insurers must give an applicants written authorization to do so -applicants must also be notifying that applying for insurance or filing a claim with other company may trigger the release of MIB information

Collecting the premium

-an "offer to buy" insurance sixes when the first premium is submitted with the insurance application -if no premium is submitted with the application coverage is delayed until the premium is paid for the issued policy -if the insured becomes uninsurable or dies between the time when the application submitted the first premium is collected, the policy will pay no benefit

Attending physician statement APS

-an underwriter may ask for the proposed insurance regular doctor for intending statement (APS)to find out about the applicants current condition and medical history with the physician. -The underwriter may also ask for copies of medical records

Investigative consumer reports

-are reports containing information obtained by interviewing individuals who know something about the consumer such as associates, friends, neighbors -consumers must be notified and give their consent to having such reports done -in the insurance industry, investigative consumer reports are also called inspection reports

STOLI/IOLI

-banned in most states -investors named as beneficiaries -investors loan money to the insured to pay premium for specific time -often 2 years -after 2 years investor named as beneficiary

Consumer Reports

-consumer reports are used to determine a consumers eligibility for personal credit (credit report) or insurance for employment -they may be issued only to persons who have a legitimate business need for the information -underwriters use an applicants credit report to determine if they are reliable and paying their monthly bills -insurers count on policyholders to pay their premium to differ the high initial cost to issue A life insurance policy -it can take several years for certain process to become profitable for your life insurer

Fair Credit Reporting Act (FCRA)

-consumer rights > consumers who fill the information in their files in accurate were incomplete may dispute the information, and the reporting agencies may be required to re-investigate and correct or delete information > Insurance companies may use consumer reports, or investigate consumer reports, to compile additional information regarding the applicant. If applicants feel that the information complied by the consumer inspection service is in accurate, they may send a brief statement to the reporting agency with the correct information

Anti-Money Laundering Provisions of the USA Patriot Act

-designed to prevent and detect money laundering and financing of terrorism -Report suspicious activity -The types of suspicious activity that insurers must report include: > receipt of any cash payment in excess of $10,000 > purchase of insurance that is not consistent with the consumer needs > request to have refund or surrender proceeds were other benefits paid to a party not clearly related to the purchaser > greater interest in the early termination feature of a product rather than its potential performance; and > fictitious identification or reluctance to provide identification; and maximum borrowing against a product value soon after it is purchased

Statement of Good Health

-during the delivery appointment, the agent/producer must collect the first premium if it was not paid at the time of application -call sooner my sign a statement of good health attesting that their health is the same as when they applied for the policy -if health changed: agent can't deliver policy

Policy Review

-during the delivery appointment, the morning producer will review with the policy owner the policy, riders, exclusions, and other details to make sure they understand it -The producer should also answer any pertinent questions the policyowner has about the policy they purchased

Binding Receipts

-effective for 30 to 60 days from the date of application even if applicant has found uninsurable -finders are most often used with auto homeowners insurance and rarely with life insurance -Life insurance binders are called temporary insurance agreements >The insured can either issue a policy or cancel the binder before the end of the stated.

Classification of Risks

-every like insurance company has different underwriting guidelines that determine what risk class an individual qualifies for -The company will look at an applicant personal medical history, smoker status, height/weight profile, medical exam results, family history, motor vehicle record, and any hazardous activities -after applicants are evaluated, they are sorted into groups or classified, according to the level of of risk each represents. There are generally for classifications

Health information

-her tooth application is designed to obtain information about the insured's physical conditions and habits: -height and weight -tobacco use -drug use -International travel -current medical treatments details of most recent office visit -medications being taken -conditions the insured has sat treatment for or been diagnosed with in the past -history of disability claims -Health conditions prevalent in the insured's family -High risk hobbies -name and address of current position

AIDS Considerations

-if there's other positive report is sent to the medical information bureau that the applicant has abnormal blood test results -The presence of age is never revealed, reported, or shared and can only be released to persons designated by the applicant, such as a particular physician -if the applicant does not designate a medical provider, state law may require the results to be forwarded to the state department of health -similar to other required health examinations, it's test or also paid by the insurer

Accuracy

-in the interest of both the applicant and then sure, producers must be conscious about getting in recording the correct answer to every question on the application -The company underwriter is relying upon application accuracy to correctly assess and rate this business

Completeness

-incomplete applications cause a delay in the underwriting process because they must be returned to the agent for completion -The policy is issued and the application was incomplete, the underwriter on behalf of the company Waze it's right to that information -if a claim arises, the company cannot deny it based on the fact that the information was missing for the application

Selection criteria and unfair discrimination

-insurers must not unfairly discriminate between individuals who are in the same risk class -specifically, use any of the following considered unfair discrimination: > race > religion > National origin > place of residence -and addition, most states prohibit unfair discrimination against individuals who are blind, or victims of domestic violence

Required Signatures

-insures - producer/agent -applicant, owner (if not insured)

Medical Information Bureau (MIB)

-is a nonprofit insurance trade association that maintains underwriting information on applicants -according to the federal trade commission member MIP companies account for 99% individual life insurance policies and 80% of health and disability policies issued in the US and Canada

Completing the Application

-its an important responsibility for the producer/agent -the information in the application is the basis for issuing rhe policy- provides client with valuable benefits -producers must approach the completion of the application with an eye toward confidentiality, accuracy and completeness

Producer's Report

-never seen by client -completed by the producer/agent -not attached to policy at issue

Fair Credit Reporting Act (FCRA)

-notice to applicant > must be issued to all applicants for life insurance coverage. This notice informed the applicant that a report will be ordered concerning their past credit history and any other life or health insurance for which they had previously applied. The agent must leave this notice with the AppleCare along with the receipt ~ this notice must be given to the consumer no later than three days after report was requested ~ A consumer may make a written request for complete disclosure for the nature and scope of the investigation underlying the report > disclosure must be made writing within five days after the date on which the consumers report was receives

General Information

-part one of application ask for general or personal data regarding the insured: -name -Address -DOB -gender -social Security number -drivers license number -marital status -income -occupation and business address -type of policy and face and mouth being applied for -beneficiary -other insurance owned * in addition if the applicant assignment other than insured, the applicants name and address will also be requested

Fair Credit Reporting Act (FCRA)

-penalties > violators of the fair credit reporting act may be subject to fines and imprisonment > May be required to pay an actual damages suffered by a consumer >punitive damage awarded by a court, and reasonable attorneys fees > The maximum penalty for obtaining cook consumer information reports under false penalties is $5000 in imprisonment for one year

Other errors and omissions situations

-producers are liable for their mistakes, including miss statements and promises of coverage. They must take special care to follow establish producers when: > taking applications > explaining coverages > collecting premiums > amending policies; and > submitting claims

STOLI/IOLI

-stranger owned life insurance (STOLI) or investor owned life insurance (IOLI) > transactions are life insurance arrangements involve investors who persuaded and seniors to take out new life insurance policies, with the investors name as beneficiary

Effective date of coverage

-terms of conditional receipt is issued -substandard and pays additional premium - date of policy issue -no receipt - policy issue date if premium paid at delivery

Medical examination and testing

-these exams can be conducted by a registered nurse, paramedic and some applicants are part of a doctors examination with stress testing scans EKGs MRIs -The amount of death benefit determines the type of examination testing required by the insurer -The insurer pays for medical exams and testing they requested during the underwriting process

Fair Credit Reporting Act (FCRA)

-third-party information -notice to applicant required -consumers have rights and can dispute information in Files -penalty: find max of $5000 and/or imprisonment one year

Employee retirement income security act (ERISA)

-was enacted to protect the interests of participants in employee benefit plans as well as the interest of participants beneficiaries -much of the law deals with qualified persons plans, but some selections also apply to the group insurance plans

Personal Delivery

-when a policy is issued, it must be delivered to a policy owner -it can be mailed, but most companies it is the producers responsibility to deliver in person -in some states, producers must obtain a receipt from the policy owner acknowledging that the policy was delivered and the date

Effective date of coverage

-when the first premium is collected at the time of application for a policy, the affective date of coverage is the date of application or the date of medical exam, if it was required -if the proposed insured is found to be substandard risk, the policy that is issued required substandard/higher premiums because the initial application for insurance was forwarded with a standard premium > if the applicant declines the substandard policy and does not pay the additional premium, coverage has never been in effect > if the applicant excepts a substandard policy and pays additional premium, the affective date of coverage as the date the policy was issued -if an application for insurance is sent to the insured with out the first premium, but is paid at policy delivery, the effective date of coverage is the date the policy was issued

Company Underwriting

-which insurance company has its own set of underwriting guidelines to help the underwriter determine whether or not the company should except the risk -information used to evaluate the risk of an applicant for insurance will depend on the type of coverage involved