Chapter 14-Selection and Classification of Risks II

Question 1

What is some of the information insurers want about applicants for life insurance?

Answer 1

• Medical and nonmedical
• Selling agent to report on insurability
• Consent to obtain information from physicians
• Reporting agencies investigative reports

Question 2

What information is provided by the MIB?

Answer 2

• A clearinghouse of data primarily of a medical nature
• Information reported and maintained in code symbol
• Member companies are required to report any impairment designated on the Bureau’s official list
• MIB prohibits member companies from taking unfavorable underwriting action based exclusively on the information in MIB files

Question 3

What is required of the insurer’s underwriting evaluation and classification criteria?

Answer 3

• Accurately measure the effect of each factor affecting affecting insurability
• Assess The combined impact of interrelated factors
• Produce equitable results
• Be relatively simple and inexpensive to operate

(Member companies are prohibited from reporting and underwriting decision to the MIB

Question 4

What are some characteristics of the numerical rating system used by insurers?

Answer 4

• The system is based on the principle that a number of factors affect the composition of s risk
• The impact of the various factors on longevity of the insured can be determined by a statistical study of other people possessing that factor
• The system assumes that 100 points represents a normal or standard risk
• Overweight would produce an increase or debit to the basic normal points

(Judgement is still used in the operation of the numerical rating system such as the factors that are considered)

Question 5

What safeguards are used in writing nonmedical policies?

Answer 5

• Age limits for nonmedical policies
• Only standard risks are issued nonmedical policies
• Limiting the amount of coverage available for nonmedical policies
• Greater reliance on other sources of information

(Nonmedical is available for term and whole life)

Question 6

What is the primary justification of insurers providing nonmedical policies?

Answer 6

The savings in expenses such as exams and home office costs are greater than the increased cost of the resulting extra mortality

Question 7

What are some characteristics of the “special branches of the nonmedical insurance?

Answer 7

• A higher-than-normal mortality is expected with guaranteed issue plans
• The most important advantage of paramedical examinations is their reduced cost
• The mortality experience of insurers with extended privilege nonmedical policies has been unfavorable (adverse selection has been prevalent)

Question 8

What are some characteristics of the guaranteed insurability option?

Answer 8

• The insured may purchase any standard whole life or other cash value life policy from the insurer
• If the original policy has a riders, the insured may elect the same provision in any new policy acquired
• Some Insurers allow the insured to purchase as much as $100,000 at stated intervals
• The extra premium for the option is payable to the last anniversary at which the option may be exercised
• The extra premium for the option varies directly with the age of the insured at policy issue date

Question 9

What are some characteristics of underwriting insurance for the elderly (advance age is 70+)?

Answer 9

• The number of lives insured is too small for predictable mortality results
• A high degree of adverse selection occurs
• The medical exam for the elderly is relatively ineffective (exam may reveal perfect health and die of a fatal attack the same day)
• Insurers are experiencing an expansion of policies for the elderly

Question 10

What are some of the sources of information that insurers use in underwriting?

Answer 10

• Application
• Medical Examiners Report
• Medical Information Bureau

Question 11

What methods does the insurer use to classify applicants for insurance?

Answer 11

• Judgement Rating (effective when there is one unfavorable factor to weigh or if the decision is to accept at standard or reject)
• Numerical Rating

Question 12

How do insurers deal with the concerns of issuing life policies to young children?

Answer 12

• Limiting the face amount of policies available
• Requiring the coverage to have a relationship to the amount on the parent
• Sell a large volume of coverage on children to minimize adverse selection