Life and Health Insurance ch. 1 Exam Help

fraud

intentional misrepresentation of deceit with the intent to induce a person to part with something of value

what type of report provides information about the applicant's hobbies, habits, and financial status?

investigative consumer report

a consequence of a person who unknowingly obtains info on consumer from reporting agency (Fair Credit Reporting Act)

is liable in the amount equal to the loss to the customer

field underwriter

life insurance producer

insurance is a contract that protects the insured from what?

loss

unilaterial contract

only one of the parties to the contract is legally bound to do anything -the insured makes no legally binding promises however, an insurer is legally bound to pay losses covered by a policy in force

insured

person covered by the insurance policy; may or may not be the policyowner

a consequence of a person who purposely obtains info on consumer from reporting agency (Fair Credit Reporting Act)

person who willingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses may: -be subject to civil action -be fined and/or imprisoned for up to two years - subject to fine up to 2,500 (if violation is willful and constitutes a general pattern or business practice)

how can health insurance policies be delivered to the insured?

personally delivered by the agent or mailed

lapse

policy termination due to nonpayment of premium

replacement

practice of terminating an existing policy or letting it lapse, and obtaining a new one. -to make sure that replacement is appropriate and in the best interests of the policyowner, insurance producers and companies must take special underwriting measures to help policyowners make informed decision

what risk classification would typically qualify for lower premiums

preferred risk

what is the main responsibility of a company's underwriting unit?

risk selection

if an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do?

send the application back to the applicant for signature

what is the purpose of the agent's report during the application process?

the agents report discusses the agents' personal observations about the proposed insured that may help in the underwriting process

death benefit

the amount paid upon the death of the insured in a life insurance policy

offer and acceptance

the applicant usually makes the offer when submitting the application. acceptance takes place when an insurer's underwriter approves the application and issues a policy.

what law protects consumers from the circulation of inaccurate or obsolete information

the fair credit reporting act

premium

the money paid to the insurance company for the insurance policy

policyowner

the person entitled to exercise the rights and privileges in the policy

underwriting

the risk selection and classification process -it involves a careful analysis of many different factors to determine the acceptability of applicants for insurance -underwriting is the process in which an insurance company determines whether or not a particular applicant is insurable, and if so, what premium to charge.

how is information obtained for an investigative consumer report?

through interviews with the applicant's associates, friends and neighbors

What is the name of the process that insurance companies use to determine whether or not an applicant is insurable?

underwriting

during which stage in the insurance process do insurers evaluate information that identifies adverse selection risks?

underwriting

when would a misrepresentation be considered material

when it may alter the underwriting decision

when would a misrepresentation on an insurance application be considered fraud?

when its intentional and material

Underwriting - Application

- the personal applying for insurance must submit an application for the insurer for approval for a policy to be issued. the application is one of the main sources of underwriting information for the company -an insurance application is the key source underwriters use for information about the applicant

Field Underwriter

-An insurance agent who conducts an initial policy solicitation and application. (The company's front line of underwriting) - a life insurance producer is the company's field underwriter - as a field underwriter, the agent (or producer) can be considered the most important source of information available to the comapny underwriters

Investigative Consumer Report (inspection)

-General reports of the applicant's finances, character, work, hobbies, and habits that supplement the information of the application. -covers financial and moral information -Subject to rules and regulations outlined in Fair Credit Reporting Act.

agent's (producer's) report

-Provides the agent's personal observations concerning the proposed insured - the agents report does not become part of the entire contract, although it is a part of the application process

conditional contract

-Requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations -for example the insured must pay the premium and provide proof of loss in order for the insurer to cover a claim

insurable interest

-The policyowner must face the possibility of losing money or something of value in the event of loss. (policy owner MUST have insurable interest in the life of the insured) -not required of beneficiaries: since the beneficiary's well-being is dependent upon the insured, and the beneficiary's life is not the one being insured, the beneficiary does not have to show an insurable interest for a policy to be purchased -in life insurance, insurable interest must exist between the policyowner and the insured at the time of application, however, once a life insurance policy has been issued, the insurer must pay the policy benefit, whether or not an insurable interest exists

Material Mispresentation

-a statement that, if discovered, would alter the underwriting decision of the insurance company -if material misrepresentations are intentional, they are considered fraud

3. consequences of incomplete applications

-before a policy is issued, all of the questions on the application must be answered. if the insurer receives an incomplete application, the insurer must return it to the applicating for completion -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. the insurer will not have the right to deny coverage based on any information that the unanswered question might have contained

1. required signatures

-both the agent and the proposed insured (usually the applicant) must sign the application -exception to the proposed insured signing the application would be in the case of an adult applying for insurance on a minor child

Fair Credit Reporting Act

-established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used -the law also protects consumers against the circulation of inaccurate or obsolete personal or financial information -acceptability of a risk is determined by checking the individual risk against many factors directly related to the risk's potential for loss -an underwriter will sometimes request additional information about a particular risk from an outside source (2 categories) -if a policy of insurance is declined or modified because of information contained in either a consumer or investigative report, the consumer must be advised and provided with the name and address of the reporting agency. the consumer has the right to know what was in the report as well as a right to know the identity of anyone who has received a copy of the report during the past year -if consumer challenges any information in the report, the reporting agency is required to reinvestigate and amend the report, if warranted. --if corrected, the corrected info must be sent to all parties in which have reported the inaccurate information within the past 2 years

consideration

-insurer's consideration is the promise to pay for losses -insured's consideration is the payment of premium and statement on the application -is something of value that each party gives to the other

warranty

-is an absolutely true statement upon which the validity of the insurance policy depends -breach of warranties can be considered grounds for voiding the policy or a return of premium -because of such a strict definition, statements made by applicants for life and health insurance policies, for ex, are usually not considered warranties, except in cases of fraud

aleatory contract

-means there is an exchange of inequal amounts of values - the premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss

4. Collecting the Initial Premium and Issuing the Receipt

-most agents attempt to collect the initial premium and submit it along with the application to the insurer. in addition, collecting the initial premium at the time of the application increases the chance that the applicant will accept the policy once it is issued -whenever the agent collects premiums, the agents must issue a premium receipt. the type of receipt issued will determine when coverage will be effective

stock companies

-owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses -typically issue nonparticipating policies in which policy owners do not share in profits or losses

nonparticipating policy

-policyowners do not share in profits or losses -does not have to pay dividends to policyowners; however taxable dividends are paid to stockholders (dividends are not guaranteed as they are based on company profit)

contract of adhesion

-prepared by one of the parties (insurer) and accepted or rejected by the other party (insured) -insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions-- insurance contracts are offered on a take-it-or-leave it basis by an insurer -any ambiguities in the contract will be settled in favor of the insured

investigative consumer reports

-similar to consumer reports in that they also provide information on the consumer's character, reputation, and habits -the primary difference is that the information is obtained through an investigation and interviews with associates, friends and neighbors. -unlike consumer reports, these reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested. -* insurance applicants must be notified in writing whenever insurers request investigative consumer reports

representations

-statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true -for insurance purposes, representatives are the answers the insured gives to the questions on the insurance application

Underwriter- Agent's report

-the agents report allows the agent to communicate with the underwriter and provide information about the applicant known by the agent that may assist in the underwriting process

insurer (principal)

-the company who issues an insurance policy -any person or company engaged as the principal party in the business of entering into insurance contracts

insurance

-the cost of an insured's loss is transferred over to the insurer and spread among other insureds -is the transfer of risk of loss from an individual or a business entity to an insurance company, which, in turn, spread the costs of unexpected losses to many individuals

competent parties

-the parties to a contract must be capable of entering into a contract in the eyes of the law

legal purpose

-the purpose of the contract must be legal and not against public policy. - to ensure legal purpose of a Life Insurance Policy, it must have both: insurable interest and consent - a contract without a legal purpose is considered void, and cannot be enforced by any party

application

-the starting point and basic source of information used by the company in the risk selection process -although applicants are not uniform and may vary from one insurer to another, they all have the same basic components: part 1: general information and part 2: medical information

2. changes in the 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 havong the applicant initial the change, or completing a new application -an agent should NEVER erase or white out any information on an application for insurance

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

1) policyowner's own life 2) the life of a family member (spouse or a close blood relative) 3) the life of a business partner, key employee, or someone who has a financial obligation to the policyowner (ex. a debtor has a financial obligation to a creditor, so the creditor has a valid insurance interest in the life of the debtor)

what is policy replacement?

A new policy is issued while an existing policy is terminated or reissued with a reduction in cash value

Elements of a Legal Contract

Agreement (offer and acceptance), consideration, competent parties, and legal purpose

Alien Insurer

An insurance company that is incorporated outside the United States.

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.

Domicile of Insurer

Insurer's location of incorporation and the legal ability to write business in a state.

dividend

The portion of corporate profits paid out to stockholders

insurance policy

a contract between a policyowner (and/or insured) and an insurance company which agreed to pay the insured or the beneficiary for loss caused be specific events

agent/producer

a legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer

applicant or proposed insured

a person applying for insurance

beneficiary

a person who receives the benefits of an insurance policy

what are the four elements of an insurance contract?

agreement (offer and acceptance), consideration, competent parties, and legal purpose

mutual companies

are owned by the policyowners and issue participating policies

when a change needs to be made on the application for insurance, which is the best method for correcting the information?

complete a new application or ask the applicant to initial the correction on the original application

life insurance

coverage on human lives

at what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?

either on the date of the application or the date of the medical exam (whichever occurs last)

what do individuals use to transfer their risk of loss to a larger group?

insurance

What entities make up the Medical Information Bureau?

insurers

adverse selection

insuring of risks that are more prone to losses than the average risk