LI Exam

Why is the Entire Contract provision an important provision for the policy holder?

It prohibits the insurer from making any changes to the policy after the policy has been issued.

Assignment Provision

The owner of the policy has the right to assign (transfer of ownership) his policy to someone else as long as he notify the company in writing of the assignment

Who is generally designated as the policyowner/policyholder?

The person who pays the premiums for an insurance contract.

Under the Entire Contract Provision, what constitutes the entire contract?

The policy document, the application (attached to the policy), and any attached riders

Collateral Assignment

The policy is assigned to a creditor as security, or collateral, for a debt.

Legal Purpose

The purpose of the contract must be legal and not against public policy

The Application

The starting point and basic source of information used by the company in the risk selection process

Absolute Assignment

The transfer is complete and irrevocable, and the assignee receives full control over the policy and full rights to its benefits

Competent Parties

Those who are legally capable of entering into contracts

Coverage will NOT be effective if

a policy is declined, rated, or issued with riders excluding specific coverages

The agent may also be required to get _______ from the insured,

a statement of good health

Policy Summary

a written statement describing the features and elements of the policy being issued

Although personal delivery of the insurance policy is the best method of finalize the insurance transaction,

mailing the policy directly to the policy owner IS acceptable.

When the policy is delivered, it is advisable to

obtain a signed delivery receipt.

Review of the contract (Explaining the Policy) with the insured involves

pointing out provisions or riders that may be DIFFERENT than anticipated, and explaining what EFFECT they have on the contract

When the insurer relinquishes control of the policy by mailing it to the policyowner,

policy is considered legally DELIVERED.

Policy summary must be provided

when the policy is delivered

Representations

Written or oral statements made by the applicant; "my statement is true to the best of my knowledge"

Offer and Acceptance

"Meeting of the minds" or mutual agreement - all parties concerned understand and agree to all the terms of the contract - an offer for a policy occurs when an insured applies for coverage. - an ACCEPTANCE takes place when underwriting has APPROVED and ISSUED the policy WITHOUT any changes, and payment HAS been made.

What are the requirements for reinstatement?

(1) All back premiums must be paid (2) Lost interest on the past due premiums must be paid (3) the insured may have to prove insurability (4)any outstanding loans on the lapsed policy may be required to be paid (5) must occur during stated period

What situations to which the incontestable clause does NOT apply?

(1) Impersonation (2) Non Insurable Interest (3) Intent to murder

What are the rights of ownership of a life insurance policy?

(1)the right to change the beneficiary. (2)select how the death benefits will be paid (3) to cancel the policy and select a nonforfeiture option (4)take out policy loans, assuming that it is a living benefit type of policy with equity (5) to receive policy dividends and select a dividend payment option, if it is a participating policy (6) to assign ownership of the policy to someone else.

Material Misrepresentation

- A statement that, if discovered, would alter the underwriting decision of the insurance company. - a false statement that changes the outcome of issuing a policy - generally with the health statement

Although the incontestable clause applies to death benefits, it generally does not apply to what types of benefits?

- Accidental Death Benefits - Disability Provisions conditions relating to accidents vary and are often uncertain

Replacement

- All applications ask whether the policy is meant to replace an already-existing contract on the insured. - If so, the producer MUST inform the applicant that the replacement may or may not be in their BEST interest. - Applicable to Renewable Term

Standard Risk

- Entitled to insurance protection without extra rating or special restrictions - Representative of the majority of people at their age and with similar lifestyles. - Average risk

If the financial company or insurer knows, suspects, or has reason to suspect that the transaction

- Has no business or lawful purpose - Is designed to deliberately misstate other reporting constraints - Uses the financial institution or insurer to assist in criminal activity - Is obtained using fraudulent funds from illegal activities - Is intended to mask funds from other illegal activities.

Preferred Risk

- Individuals who meet certain requirements and qualify for LOWER premiums that the standard risk. - Have a superior physical condition, lifestyle, and habits.

Conditional Receipt

- The most common type of receipt, which is used only when the applicant submits a prepaid application. - Says that the coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs LAST, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.

Underwriting

- The risk selection and classification process - Involves a careful analysis of many different factors to determine the acceptability of applicants for insurance - producers have no authority to issue or bind coverage while in the field

Term Illustration means

- a presentation of depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years - Includes: underwriting classification, insurer's name, amount of death benefit NOT INCLUDED: Mortality Table

Apparent Authority

- a third party, such as a prospective customer, can reasonably assume to be given to the agent by the insurer - It is not provided by the contract and is not intended by the insurer.

Declined Risks

- applicants who are REJECTED - Risks that the underwriters assess as not insurable are declined

Buyer's Guide provides

- basic generic information about life insurance policies that contains, and is limited to, language approved by the Department of Insurance. - Insurers must provide this to all prospective policy applicants PRIOR to accepting their initial premium.

The Agent's Report

- can be considered the most important source of information available to the company underwriters and its process - provides the agent's personal observations concerning the proposed insured. - does not become a part of the entire contract, although it is a part of the application process.

Life insurance illustration must do the following

- distinguish between guaranteed and projected amounts - clearly state that an illustration is NOT a part of the contract - Identify those values that are NOT guaranteed as such.

Investigative Consumer Reports

- information is obtained through an investigation and interviews with associates, friends, and neighbors of the consumer - Performed on the applicant from an independent investigating firm or credit agency, which covers financial and moral information. - They are general reports of the applicant finances, character, work, hobbies, and habits.

Paramedical report done by a

- paramedic - registered nurse - Attending Physician's Statement from a medical practitioner who treated the applicant for a prior medical problem

Consideration Clause

- specifies the amount and frequency of premium payments that the policyowners must make to keep the insurance in force - exchange of values

Express Authority

- the activities the agent has the power to perform on behalf of the insurer (In the contract) - given written or orally

If the initial premium is not paid with the application,

- the agent will be REQUIRED to collect the premium at the time of policy DELIVERY. - the policy does NOT go into effect until the premium has been collected.

Policy summary must include

- the name and address of the insurer, - the generic name of the basic policy and each rider. - premium cash value - dividend - surrender value - death benefit figures for specific policy years

When delivering the policy, the agent should explain

- the rating procedure to the client especially if the policy is rated differently than applied for - any other choices and provisions available to the policy owner that may become active at this time.

If the insurer receives an incomplete application,

- the underwriter will most likely return it to the producer for completion by the applicant. - It is the producer's responsibility to make certain the application is filled out completely, correctly, and to the best of the applicant's knowledge.

Coverage goes into effect when:

1) the policy is delivered 2) the first premium payment is made 3) the applicant has signed a statement saying their health has not changed since the date the application was completed.

A valid insurable interest may exist between the policy owner when the policy is insuring any of the following:

1. Policy owner's own life; 2. The life of a family member (a spouse or a close blood relative); or 3. The life of a business partner, key employee, or someone who has a financial obligation to the policy owner (such as debtor to a creditor)

Unilateral Contract

A contract that results when an offer can be accepted ONLY by the offerree's performance.

Adhesion Contract

A take-it-or-leave-it offer made by a party who holds most of the power in a bargaining session

Grace Period Provision

Allows an extra 30 days during which the premium may be paid to keep the policy in force (period after the due date of the premium payment)

If a policy owner borrows money from the cash value, why should the owner have to pay interest?

Borrowing deprives (denies) the insurer of the investment income that is required to build the policy's cash value.

Under the Entire Contract Provision, a company

CANNOT claim that a special rider, not attached to the policy but on file at the home office, is part of the policy?

The acceptability of a risk is determined by checking the individual risk against many factors directly related to the risk's potential for loss. These reports fall into:

Consumer Reports and Investigative Reports

Suicide Provision

Discourages suicide by stipulating a period of time (usually 1 or 2 yrs from the date of policy issue) during which the death benefit will not be paid if the insured commits suicide.

Medical Information and Consumer Reports

For policies with higher amounts of coverage or if the application raised additional questions concerning the prospective insured' health, the underwriter may require a medical examination of the insured

Free-Look Provision

Gives the policyowners the right to return the policy for a full premium refund within a specified period of time (10-20 Days) if they decide not to purchase the insurance.

Insuring Clause

In Life: sets forth the company's basic promise to pay benefits upon the insured's death. Includes: (1) what company will pay (2) how much (3) to whom In Health: States the scope and limits of the coverage

Consumer Reports

Include written and or 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.

the policy owner must face the possibility of losing money or something of value in the event of loss.

Insurable interest

Three clauses are on the front page of every Policy, what are they?

Insuring, Consideration, Free Look

In addition to and attending physician's report, the underwriter will usually request a ____

Medical Information Bureau (MIB) Report

What DOESN'T the Entire Contract Provision prevent?

Mutually agreeable change from being made to the policy if the policy specifically provides a means for modifying the contract after it has been issued (Ex: changing the face amount of an adjustable life policy)

Whose recommendations do most state legislatures follow when it comes to changing Insurance Codes?

National Association of Insurance Commissioners (NAIC)

Policy Loan Provision

Policyowners may borrow money from the cash values of their policies if they wish to do so

The type of receipt issued will determine when coverage will be effective

Premium Receipt

Whenever the agent collects premiums, the agent must issue a _____.

Premium receipt

Accelerated Death Benefit

Provide for early payment of some % of the policy face amount should the insured suffer from a terminal illness or injury

If a policy owner borrows money against his insurance, whose money is he/she actually borrowing?

The Beneficiary

Most agents attempt to collect the initial premium and

SUBMIT it along with the application to the insurer.

the process of issuing a life insurance policy begins with

Solicitation

Warranties

Statements or conditions that the applicant represents to be absolutely true

Adverse Selection would fall under which underwriting class?

Uninsurable Risk

Changes on an application

When an answer to a question on the application needs to be corrected, agents have the option, depending on which insurer they represent, of correcting the information and having the applicant initial the change, or completing a new application. An agent should never erase or white out on an application for insurance.

Before a policy is issued,

all the questions on the application MUST be answered.

Personal delivery of the policy allows the agent

an opportunity to make sure that the insured understands all aspects of the contract.

Substandard (High Exposure) risk

applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits resulting in a HIGHER premium.

MIB can be used only

as in aid in helping insurers know what areas of impairment they might need to inverstigate further.

Collecting the Initial Premium and Issuing the Receipt

at the COMPLETION of an application

Insurable interest must exist between the policy owner and the insured

at the time of application

Required Signatures

authorized producer applicant the insured if they aren't the applicant

Producer must complete an appropriate form regarding the replacement which will then

be FORWARDED to the insurance company

An applicant CANNOT be refused simply

because of some adverse (unfavorable) information discovered through the MIB

Risk Classification

classifying probationers so that they may receive an appropriate level of treatment and control will determine how much a premium for a policy will cost

Implied Authority

comes from the powers that the company customarily gives its agents.

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

doesn't allow random people to insure you

Disclosure at point of sale

every applicant must be given a written disclosure statement providing basic information about the cost and coverage of the insurance being solicited; must be given at the time the application is SIGNED

Insurance transaction includes

solicitation negotiations sale advising individual concerning coverage or claims

A prospective insured may be rated as one of these classifications:

standard, substandard, or preferred.

An individual willfully violates the Fair Credit Reporting Act will be

subject to a penalty of up $2500.

Once the underwriting process has been completed and the company issues the policy,

the agent will DELIVER it to the insured.

In classifying risk, the Home Office underwriting department will look at

the applicant's past medical history, present physical condition, occupation, habits, and morals

After a policy has been in force for a specified term (Usually 2 yrs & while the insured is living),

the company cannot contest a death claim or refuse payment of the proceeds EVEN on the basis of a material misstatement, concealment, or fraud.

If a policy is issued with questions left unanswered,

the contract will be interpreted as if the insurer waived its right to have an answer to the question

a statement of good health must be signed by

the insured and verifies that the insured has not suffered injury or illness since the application date.

Once a life policy insurance has been issued

the insurer must pay the policy benefit, whether or not an insurable interest exists

Based on any information that the unanswered question might have contained,

the insurer will NOT have the right to deny coverage

If the full premium WAS submitted with application and the policy was issued as requested,

the policy coverage would generally coincide with the DATE of application

If the applicant's risk is acceptable, the underwriter must then determine

the risk rating or rating classification to be used in deciding whether or not the applicant should pay a higher or lower premium.

Aleatory Contract

the values exchanged may not be equal but depend on an uncertain event

Consideration

this is the contractual EXCHANGE OF VALUE between the parties

After the application is submitted with the initial premium,

this will INCREASE the chance that the applicant will accept the policy ones it is issued