Chapter 2) Field Underwriting, Application, Premiums, Receipts. Field Underwriting Procedures
According to the U.S. PATRIOT Act, which of the following is money laundering? Select one: a. Fraudulent use of public funds b. Computer crimes c. Illegal exportation of controlled munitions d. All of the above
Money laundering includes financial transactions made in the U.S. for committing violent crimes, bribery of public officials, fraudulent use of public funds, smuggling, illegal exportation of controlled munitions, importation of firearms/ammunition not authorized in the U.S., smuggling of any item controlled under export laws, and computer crimes. The correct answer is: All of the above
Binding Receipt
Also referred to as the temporary insurance agreement or unconditional receipt. Coverage begins on the date of the application regardless of whether or not the applicant is insurable. Coverage is issued for a short period of time, such as 30 to 60 days.
Outline of Coverage
In health insurance, document explaining the coverage purchased and the names of the insurer and agent.
Temporary Insurance Agreement
also referred to as the binding receipt or unconditional receipt. Coverage begins on the date of the application regardless of whether or not the applicant is insurable. Coverage is issued for a short period of time, such as 30 to 60 days.
Telemarketers may call phone numbers not on the Do Not Call List from: Select one: a. 7am to 6pm b. 8am to 5pm c. 8am to 9pm d. 9am to 8pm
C
Statement of Good Health
The insurer may require a statement of good health that verifies that the insured has not become ill, injured or disabled during the policy approval process (the time between the application and delivery of the policy), or if the applicant did not submit the initial premium with the application. Unless otherwise directed by the insurer, the agent should not deliver the policy if the insured's health has worsened. In this case, the agent should notify the insurer and proceed with the insurer's instructions.
Interest-adjusted net cost method
The interest-adjusted net cost method is used more frequently and is more accurate because it accounts for interest.
Underwriting The process that insurers use to select, classify and rate risks so that they accurately reflect the amount of risk undertaken.
Underwriting The process that insurers use to select, classify and rate risks so that they accurately reflect the amount of risk undertaken.
Field Underwriting
Underwriting done by the producer, face-to-face with the applicant.
Premiums and Receipts
When agents collect the initial premium with the application, speeds up the policy application process and improves the likelihood the policy will be accepted by the applicant upon issuance. The agent issues the applicant a premium receipt upon collecting the initial premium. There are two types of premium receipts that determine when coverage will begin: Conditional receipts and Binding receipts.
If a premium payment has not been given with the application, the policy becomes effective only when the producer delivers the policy and: Select one: a. Provides a conditional receipt b. Secures the applicant's signed application and statement of continued good health c. Explains its provisions, secures the initial premium, and a signed statement of continued good health d. Explains its provisions and leaves a receipt for policy delivery
When the initial premium has not been paid at the time of application, in addition to other delivery requirements, the producer must obtain a statement of continued good health with the first premium. The signed application must be submitted at the time of the application, not when the policy is delivered. The correct answer is: Explains its provisions, secures the initial premium, and a signed statement of continued good health
At what age may a minor purchase a life or health insurance contract?
Once a minor reaches the age of 15, they may purchase a life or health insurance policy.
Field underwriting process
1) completing the application (Parts of the application, must be signed/must be completed, warranties vs. representations, agents reports) 2) collect premium (conditional receipt-maybe covered, no payment paid-no coverage, must obtain statement of good health at deliver) 3) disclosures at point of sale ( HIPAA/HIV Consent, Medical information Bureau, Fair credit reporting)
Anna applied for a $1 million life insurance policy and paid the first premium. Later she was declared uninsurable. Her agent gave her a receipt that guarantees coverage until the insurer formally rejects the application. Which type of receipt did Anna receive? Select one: a. Conditional b. Insurability c. Binding d. Approval
With a binding receipt, coverage is assured, even if the person is later proved to be uninsurable, until the insurer formally rejects the application. The correct answer is: Binding
Backdating
A backdated application results in a backdated policy effective date, if approved by the insurer. In most states, applications usually can only be backdated up to six months, and the policyowner must pay all back-due premiums. Backdating does not affect the policy provisions such as the incontestability clause.
Incontestability Clause
A standard provision for group life and health insurance, stating that except for nonpayment of premium, the policy is incontestable after having been in force for at least two years.
Margaret makes a change to her health insurance application after completing it. Who must initial her change and sign the contract? Select one: a. Margaret b. Margaret and the underwriter c. Margaret and the agent d. Margaret and an executive officer of the insurer
Any changes made to an insurance application after the application is completed must be initialed by the applicant. In order for the changes to be valid, the contract must then be signed by the applicant and the agent. The correct answer is: Margaret and the agent
Effective Date of Coverage
As explained under conditional receipt, coverage is not effective: Without collection of the initial premium, Approval of the application, and Policy issuance and delivery. If the initial premium does not accompany the application, the agent must collect the premium. In some cases, the insurer requires the agent to collect a statement of good health from the insured at the time of delivery.
Field underwriting ________ adverse selection. Select one: a. Increases b. Reduces c. Encourages d. Eliminates
As field underwriters, agents help reduce the chance of adverse selection. Adverse selection cannot be completely eliminated by field underwriting; however, it reduces the chance of adverse selection. The correct answer is: Reduces
Which of the following statements about a temporary insurance agreement is CORRECT? Select one: a. Coverage begins when the application is signed and the premium is paid, assuming any required medical exam is scheduled within three days. b. It provides temporary coverage until an application is rejected or the policy is issued. c. It provides protection against death by accident, but not death from natural causes. d. It provides term insurance protection until the policy is converted to permanent insurance.
B. A temporary insurance agreement is just that: temporary coverage until an application is rejected or the policy is issued. The correct answer is: It provides temporary coverage until an application is rejected or the policy is issued.
Insurability Receipt
Conditional receipt in which coverage begins upon approval of the application with premium payment, there is interim coverage.
Which of the following does not demonstrate constructive delivery? Select one: a. The agent mails the policy to the insured b. The insurer mails the policy to the agent, who in turn, mails the policy to the insured c. A conditional receipt is issued to the applicant d. The insurer mails the policy to the insured
Constructive delivery occurs when the insurer divests all control over the policy to the policyowner. Delivery has not occurred when the agent issues a conditional receipt. The correct answer is: A conditional receipt is issued to the applicant
Backdating
For applicants that want to postpone the issue date of a life insurance policy to a later date, preliminary or interim term insurance may be used. This allows the applicant to defer payment of the initial premium up to a certain number of months, usually one to 11, from the date of the original application. The premium for interim coverage is based on the insured's age at initial application. Once the primary coverage is issued, premiums will be based on the insured's age at the end of the interim coverage.
Personal delivery
However, if the insurer requires personal delivery of the policy by the agent in order to obtain a statement of good health from the insured, then legal delivery does not occur until the agent personally delivers the policy to the insured. Possession of the policy by the applicant does not indicate delivery. Sometimes the insurer issues a policy to the applicant to look over. The initial premium has not yet been paid and the applicant wishes to review the coverage prior to acceptance by paying the initial premium. In such cases, coverage will not take effect until the inspection receipt has been collected from the applicant.
In Ray's application for life insurance an applicant failed to complete one part regarding family history. In his statement, the agent described the family as long-lived and healthy. If an insurance company accepts the application in the incomplete form and the applicant for coverage dies young from a cardiac condition that had taken the lives of both his parents before age 50, will the company deny or accept the claim of the beneficiaries? Select one: a. It will deny the claim, based on misrepresentation. b. It will deny the claim, based on concealment. c. It will deny the claim, based on breach of warranty. d. It will pay the claim, because in accepting the application, it waived its right to the missing information.
If a company accepts an incomplete application, in the event of a claim, the company cannot deny that claim based on missing information in the application. By accepting the application, it waived its right to the missing information. The correct answer is: It will pay the claim, because in accepting the application, it waived its right to the missing information.
Changes, Errors and Omissions
If an agent notices a minor error on the application, the producer should correct the information in the presence of the applicant and have the applicant initial the change. Changes should be struck through, not erased. If the agent notices a major error on the application, the agent should start a new application for the prospective insured and safely dispose of the previous application. If an agent notices that the application is incomplete, the agent should have the applicant fill in the incomplete sections and then submit the application to the insurer. If the insurer approves an incomplete application, then the insurer has waived its right and is legally estopped from reasserting the right.
Rejected Business Rule
If an agent turns in an application to his/her standard company and the company declines to issue the policy standard, the rejected business rule allows the agent to then go to another company to issue the policy. The agent does not need to be appointed by the second company in order to the get the policy issued for his or her client and can also be paid a commission.
Invitation to Offer
If the applicant submits the application to the insurer without the initial premium.
An individual signed an application for a $100,000 life insurance policy and paid the first premium on January 1. The agent issued an insurability receipt. A week later, the required medical examination proves the person insurable. If the person dies before the insurer approves the application: Select one: a. The coverage will be retroactively effective. b. The coverage will be retroactively effective, but the policy will only pay $50,000. c. No coverage will be provided. d. No coverage will be provided, but the premium will be refunded.
If the person pays the premium, receives an insurability receipt, and proves to be insurable, coverage will be effective retroactively. As a result, the beneficiary will receive the $100,000 death benefit. The correct answer is: The coverage will be retroactively effective.
Options
They involve how policy funds are utilized.
Signatures
The agent and the applicant are required to sign the application. If the applicant is someone other than the proposed insured, except for a minor child, the proposed insured must also sign the application (in some states once a minor reaches the age of 15, the minor is eligible to contract for a life or health insurance policy).It is important for the agent to be present to witness any and all signatures. Both the agent and the applicant must sign disclosure forms and additional questionnaires that the applicant must complete. If automatic checking account drafts will be used for premium payment, the applicant must sign agreeing to such.
Conditional Receipt
The agent issues a conditional receipt to the applicant after the application and premium have been collected. If the insurer accepts the policy as applied for, the coverage will take effect from the date of the application or medical exam, whichever is later. There are two types of conditional receipts: Insurability and Approval. Conditional Receipt = Possibly Covered
Death Benefit
The amount paid to the beneficiary under an insurance policy upon the death of the insured.
Both the producer and the ___________ are required to sign the insurance application. Select one: a. Insured b. Applicant c. Beneficiary d. All of the above
The applicant must sign the application. In cases where the insured is a minor, the insured will not sign the application. If the insured is someone other than the applicant, and is not a minor child, they will be required to sign the application. The beneficiary is not required to sign the application. The correct answer is: Applicant
Provisions
The characteristics, privileges, duties of all parties, and rights of a policy.
Premium Collection
Typically, the initial premium accompanies the application submittal. If not, the applicant has made an invitation to offer, and the premium must be collected when the policy is delivered. After the initial premium, subsequent premiums are payable in advance.The premium must be collected at delivery.
The Application
the agent is responsible for making sure that the applicant has completely filled out the application and all signatures have been obtained. Agents should: Determine whether the applicant understands the questions asked on the application, Verify if the statements given are being misrepresented and Verify if any information has been concealed. These actions will keep from delaying issuance and delivery of a policy.
A life insurance application can usually be backdated for a maximum of how many months? Select one: a. 3 months b. 6 months c. 9 months d. 12 months
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Which of the following correctly describes the penalty applied to a company for calling a person whose phone number is on the Do Not Call List? Select one: a. Fine in the amount of $16,000 b. Fine in the amount of $40,000 c. Fine in the amount of $100,000 d. Fine in the amount of $1,000,000
A company that continues to call a consumer on the Do Not Call List may be subject to a penalty fine of $16,000. The correct answer is: Fine in the amount of $16,000 Question 3 Question text Both the producer and
If a company issues a conditional receipt to an applicant who has paid an initial premium for a policy that does not require a medical examination: Select one: a. The company thereby divests itself of all risk. b. The applicant is immediately covered. c. The applicant must yet meet certain conditions before their application can be submitted to the company. d. The company thereby waives its right to refuse to issue a policy.
A conditional receipt is given when the applicant pays the first premium at the time they sign the policy application. A conditional receipt covers the applicant immediately from the date of application, providing that their application passes the underwriting requirements for the policy. Thus, the applicant is covered at the present time. If a medical examination is required, coverage begins after the applicant passes the medical examination. The correct answer is: The applicant is immediately covered. A
All of the following correctly demonstrate policy delivery, EXCEPT: Select one: a. The insurance company mails the policy to the policyowner b. The insurance agent delivers the policy in-person c. The application is approved by the underwriter d. The insurance company mails the policy to the insurance agent, who in turn, delivers the policy to the policyowner
A policy is not considered to be _delivered_ when the application is approved by the underwriter. The correct answer is: The application is approved by the underwriter
Of the following, who must explain the reason for premium increases to a life insurance applicant? Select one: a. The agent b. The insurer c. The underwriter d. None of the above
A. The agent is responsible for explaining any changes in coverage to the applicant.
Coverage is effective: Select one: a. With collection of the initial premium, approval of the application, policy issuance and delivery b. Upon collection of the application only c. Upon collection of the initial premium only d. When the applicant makes an offer to the insurer
A. Your answer is correct Coverage is effective with collection of the initial premium, approval of the application, and policy issuance and delivery. If the initial premium does not accompany the application, the premium must be collected by the agent. In some cases, the insurer requires the agent to collect a statement of good health from the insured at the time of delivery. If the initial premium is not submitted with the application, the policy effective date is established by the insurer. In this case, it could be the date of policy issuance, or the date the policy is delivered to the applicant, premium collected, and statement of continued good health signed. The correct answer is: With collection of the initial premium, approval of the application, policy issuance and delivery
Policy Cost Comparison Methods
Agents should be aware of two methods used to compare insurance policies. These are the: Traditional net cost method Interest-adjusted net cost method
Relationship Between Field Underwriting with Underwriting
Both the field underwriting done by the agent and the interpretation of the risk data and selection of the risks performed by the insurance company are parts of the underwriting process.
Buyers Guide and Policy Summary
Buyers Guide The buyer's guide provides general information about the types of life insurance policies available, in language that can be understood by the average person. Policy Summary The policy summary provides specific information about the policy purchased, such as the premium and benefits. Policy Summary in life insurance, document explaining the coverage purchased and the names of the insurer and agent.
Who administers the National Do Not Call Registry? Select one: a. The Social Security Administration b. The state insurance department c. The Federal Trade Commission d. The Department of Defense
C
The agent must provide the buyer's guide to the applicant: Select one: a. Upon application b. When the conditional receipt is given to the applicant c. When the policy is delivered d. Upon application or at the time of policy delivery if a 10-day free look is provided
C. The buyer's guide must be provided by law to the applicant at policy delivery. The correct answer is: When the policy is delivered
Constructive delivery
Constructive delivery occurs when the insurer hands over control of the policy to another person. Constructive delivery occurs when the insurer mails the policy to the agent or other policyholder representative for delivery to the insured. In these cases, a legal delivery has occurred.The initial premium must be paid for the policy to be delivered.
Sam submits an application with initial premium for a life insurance policy on July 6th. The agent issues Sam a conditional receipt at this time. Sam takes the required medical exam on July 10th. The insurer approves the policy on August 1st, and the agent delivers the policy to Sam on August 10th. Which day did Sam's coverage begin? Select one: a. July 6th b. July 10th c. August 1st d. August 10th
Coverage begins at the later of the conditional receipt or medical exam. In this case, July 10th. The correct answer is: July 10th
Summary of the Approval Process
Feild Underwriting> (take life application, collect premium, disclosure at Pt. of sale) Underwriting> (information sources, selection of risk) APPROVED> Delivery the policy ( 1. Review policy coverage/ explain charges if rate. 2. Collect premium, if necessary- get statement of good health. 3. policy summary. -Free look period begins on delivery sate
Who completes field underwriting? Select one: a. The insurer b. The insured c. The agent d. None of the abov
Field underwriting is performed by the insurance agent because the producer has face-to-face contact with the applicant. The correct answer is: The agent
David signs an application for a $50,000 life policy, pays the initial premium, and receives a conditional receipt. If he were killed in an automobile accident one day later: Select one: a. His beneficiary would receive $50,000, if the application qualified him for the policy for which he applied. b. The insurer could reject the claim because the underwriting process had not been completed by the time of death. c. The insurer would return the amount of the premium because the underwriting process was incomplete. d. The insurer would pay half the policy amount if the application were approved by the underwriting department.
If David qualifies for coverage, he is immediately insured at the time of application if he pays the initial premium and receives a conditional receipt. IF his application is approved by underwriters _ that is, if he qualified for the policy, his beneficiary would receive the $50,000. The correct answer is: His beneficiary would receive $50,000, if the application qualified him for the policy for which he applied
Effective Date of Coverage
If the application and initial premium are submitted to the agent, and a premium receipt is issued to the applicant, the policy effective date will be the date of the receipt. However, if the initial premium is not submitted with the application, the insurer establishes the policy effective date. In this case, it could be the date of policy issuance, or the date the policy is delivered to the applicant, premium collected, and statement of continued good health signed.
Wesley fills out an application for a life insurance policy and submits it to the agent on January 5th. He does not include the first premium payment. Wesley undergoes the required medical examination on January 7th. The insurance company approves Wesley's application on January 15th. Wesley's agent delivers the policy to Wesley on January 17th. At this time, Wesley writes out a check for the initial premium. On what date is Wesley's policy effective? Select one: a. January 5th b. January 7th c. January 15th d. January 17th
If the initial premium is not submitted with the application, the policy effective date is the date on which the policy is delivered, and the initial premium is paid. In this example, January 17th. The correct answer is: January 17th
The insurability receipt provides interim coverage as long as the applicant is insurable. However, most conditional receipts are approval conditional receipts. The approval receipt does not begin until the insurer approves the application. Conditional receipts provide coverage only if the applicant is insurable as applied for.
If the insurer issues a counter-offer because the applicant is a substandard risk, coverage is not provided until the applicant accepts the modified coverage. This means a death benefit would not be paid to an applicant who dies during the time period a conditional receipt is issued and prior to agreeing to the modified coverage. In addition, if a standard risk applicant submits an application requiring a medical exam and receives a conditional receipt for their premium, the policy effective date is as of the completion of the required medical examination.
Counter-offer
If the insurer receives an application and initial premium, but issues the policy with modified coverage or premium.
When conducting business, a life insurance agent cannot use any of the following titles:
Investment Advisor Financial Planner Financial Consultant
Marge and Ben purchase a comprehensive major medical policy to cover their family. Who is required to sign the application? Select one: a. Marge, Ben, and each child insured b. Only Marge c. Only Ben d. Marge and Ben
Marge and Ben are the applicants for health coverage. Their signatures are required on the application. Minor children do not sign the application. The correct answer is: Marge and Ben
Retention
Method of handling risk in which a person chooses not to take proactive steps to transfer, avoid or reduce the risk.
Anti-Money Laundering (AML) and the PATRIOT Act
Money laundering is a process of concealing the origin of money obtained through illegal activities, such as drug trafficking or other crime. Money launderers make multiple financial transactions, placing the illegal funds into legitimate financial institutions and businesses to "wash" any evidence of its original source. Money laundering is a federal crime with up to 15 years imprisonment and fines and penalties.
Explaining Coverage to Client
Personal delivery of the policy is a good practice, as it allows the agent to explain the coverage to the insured, such as the riders, provisions, and options. Personal delivery establishes a good relationship with the insured, building trust that the agent has the insured's best interest in mind. The agent should explain if any changes were made to the contract, such as modified coverage or premium rate. Additionally, the applicant must receive a document explaining the coverage purchased and the names of the insurer and agent. In life insurance, this document is called the policy summary. In health insurance, it is called the outline of coverage. After delivering the policy, agents/insurers should keep in good communication with the client. This assures high retention rates. Agents should ensure their clients are satisfied with their purchase. High retention rates are advantageous for agents because it assures renewal business (renewal commissions). An advantage of high retention rates for policyholders is peace of mind, knowing they have suitable coverage at competitive prices. Insurers benefit from high retention rates because it is continued business income.
If required by the insurer, the statement of good health must be collected by the producer at the time of: Select one: a. Policy application b. Policy issuance c. Policy delivery d. None of the above
The agent collects the statement of good health upon policy delivery. If the agent notices the insured's health has worsened, the policy should not be delivered. The correct answer is: Policy delivery
Relationship Between Field Underwriting with Underwriting
The agent performs Field underwriting. Unlike the insurer, the agent has face-to-face contact with the applicant, which can aid the insurer in risk selection. As field underwriters, agents help reduce the chance of adverse selection, assure that the application is filled out completely and correctly, collect the initial premium and deliver the policy. Upon policy delivery, agents must deliver to the applicant the life insurance: Buyer's guide, and Policy summary.
All of the following statements are true regarding insurance application procedures, EXCEPT: Select one: a. The application is one of the key sources of information used by underwriters. b. The producer is responsible for making sure the applicant has filled out the application completely. c. In many states the application becomes part of the insurance contract. d. Producers can fill in any missing information they discover on the application.
The application is one of the key sources used by underwriters to collect information and establish insurability. In many states the application becomes part of the insurance contract. For this reason, the producer is responsible for making sure that the applicant has completely filled out the application, and all signatures have been obtained. Producers cannot make any changes in the application. Instead, the producer should notify the applicant of the missing information, and have the applicant fill in the required information. The correct answer is: Producers can fill in any missing information they discover on the application.
Binding Receipt
The binding receipt (binder) or the temporary insurance agreement provides coverage from the date of the application, regardless of whether the applicant is insurable. Coverage usually lasts for 60 days, or until the insurer accepts or declines the coverage. In addition, coverage usually has a maximum of $1,000,000. Binding receipts are rarely used in life insurance, and are primarily used in auto and homeowner's insurance. Binding Receipt = Covered
Policy Issue and Delivery
The policy is delivered when the insurer approves the application and issues the policy for delivery. Delivery can take place electronically, by mail, or in person. If a conditional receipt was not issued, the insurer will declare the policy effective date.
Premium Payment Mode
The premium payment mode is the frequency that premium payments are made. Some life insurance policies allow policyholders to pay one large single premium payment. This greatly reduces the costs of administering the policy since the insurer only needs to process one payment. Life insurers base rates on premiums paid annually. If premiums are paid more frequently, the insurer incurs an additional loading expense because the interest is based on only a partial payment rather than a full year, and the increased administrative costs of processing multiple premium payments. More frequent premium payments result in higher premiums. Regardless, insurers accept premium payments annually, semi-annually, quarterly, monthly and weekly. Annual Premium = Cheapest Monthly Premium = Most Costly
Backdating
The process of predating the application a certain number of months, up to 6 months, in an attempt to achieve a lower premium.
Do Not Call List. The Federal Trade Commission (FTC) administers the National Do Not Call List.
The purpose of the Do Not Call List is to allow consumers to place a limit on the number of personal telemarketing phone calls they receive. Consumers may place their phone numbers on the Do Not Call List at www.donotcall.gov or by calling toll-free 1.888.382.1222.
The agent may be required to collect a _______ from the policyowner upon policy delivery. Select one: a. Statement of good health b. Conditional receipt c. Blood test d. Buyer's guide
The statement of good health is collected from insureds who become ill or injured between the time the application is collected and policy delivery, or for insureds who do not submit the initial premium, with the application. The statement of good health verifies that the insured's medical status has not changed since policy application. The correct answer is: Statement of good health
Traditional net cost method
The traditional net cost method projects policy premiums for a certain number of years. The cash value and any dividends are subtracted, so the result shows the average premium cost per year. This method does not account for interest.
Riders
They are policy elements that "ride on" or add to the existing coverage by modifying provisions or coverage.
The Application
Underwriters collect information about the applicant's: Past health, Current health, Occupation, Lifestyle and Habits. The application is one of the key sources used by underwriters to collect this information and establish insurability. In many states the application becomes part of the insurance contract. For this reason, the agent is responsible for making sure that the applicant has completely filled out the application and all signatures have been obtained.
Coverage begins on the application date or date of medical exam for which of the following? Select one: a. Insurability receipt b. Nonnegotiable receipt c. Premium receipt d. Approval receipt
With the insurability receipt coverage begins on the application date or date of medical exam. The correct answer is: Insurability receipt