Chapter 7: Life Insurance Underwriting and Policy Issue

Question 1

Adverse selection

Answer 1

This represents the tendency of a disproportionate of poor risks to seek or by insurance or to maintain existing insurance in force (i.e., the selection against the insurance company). Sound underwriting reduces adverse selection.

Question 2

Age change

Answer 2

This is the date halfway between birthdays when the applicants age changes to the next higher age. For some insurers, the age is based on the applicants age at his nearest birthday well for others it’s based on the applicants age as of his last birthday.

Question 3

Applicant

Answer 3

The applicant is the person who is completing an application with an insurance company for the insurance policy. Most cases the applicant is also the proposed insured, but this is not always the case.

Question 4

Application

Answer 4

The application is the statement of information that’s given when a person applies for life, health or disability insurance. The insurance companies underwriter uses this information as a basis, and determining whether the applicant qualifies for acceptance under the company guidelines applications are attached to and made a part of all individual contracts.

Question 5

Attending physician statement (APS)

Answer 5

AnAPS is used when the application or medical examiners report revealed conditions or situations past or present about which more information is desired due to physician/patient confidentiality guidelines. The applicant must sign an authorization for a physician is allowed to release information to the insurance company underwriter.

Question 6

Backdating

Answer 6

This is the practice of making the effective date of a policy earlier than application date. Backdating is used to make the issue age lower than applicants real age in order to obtain a lower premium state loss typically limit the time to which policies can be backdated to six months due to the nature of the investment backdating is not allowed in variable contracts.

Question 7

Binding receipt
(unconditional receipt)

Answer 7

This is one of the types of receipts that’s given by an insurance company upon the completion of an insurance application of the initial premium is collected with the application insurance becomes effective on the receipt date and continues for a specified period or until the insurer declines the application.

Question 8

Buyers guide

Answer 8

This is a pamphlet which describes and compare various forms of life or health insurance. This guide must be provided to a consumer by the producer when the producer is attempting to solicit insurance, this guy provides the consumer with information so that she can make an informed decision when purchasing insurance coverage.

Question 9

Conditional receipt

Answer 9

This is a form that’s customarily required to be signed by the agent and given to the prospective owner at the time a new application is completed. The issuing of a receipt is subject to rules of the individual company. Most companies require the agent to collect an initial premium and intern grant some level of limited coverage under special conditions before issuing the policy without a valid conditional receipt no coverage is enforced until the policy is issued, delivered and accepted with the initial premium paid

Question 10

Consumer report
(investigative consumer report)

Answer 10

This report is a detailed background investigation that may include an interview with coworkers, friends and neighbors about an applicants character, reputation lifestyle, etc. insurers are allowed to conduct a consumer report to obtain additional information as long as there’s no invasion of privacy. A common type of consumer report is a credit report.

Question 11

Credit report

Answer 11

This is a summary of an insurance applicants credit history (I.e., credit score, debt levels, repayment, history, assumed credit, worthiness, etc.) that’s completed by an independent organization which has investigated the applicants credit standing. Credit reports are typically obtained from one of the three major credit bureaus, Experian, Equifax, and Trans Union.

Question 12

Declined risk

Answer 12

This describes an individual whose application for coverage was rejected by an insurance company

Question 13

Disclosure form

Answer 13

As required by various state, regulatory agencies, this is a comparison form that must be given to every policy owner who chooses to replace an existing policy with another

Question 14

Evidence of insurability

Answer 14

This describes a statement or proof of a person’s health, history and current health status, which qualifies that person for coverage

Question 15

Fair credit reporting act

Answer 15

Past the 1970 this is a federal law that provides an insurer with the right to receive additional information regarding applicants for insurance coverage. This law permits, an insurer to conduct a consumer report on both applicants and proposed insurance and applicant for insurance must be informed of the purpose of the report if coverage is declined due to the information in the report, the insurer must provide the name and address of the reporting agency so that the applicant can secure a copy of the information in the report.

Question 16

Field underwriter

Answer 16

This is the agent or producer who completes the applicant application for insurance.

Question 17

Free-look period

Answer 17

All life insurance policies must include at least a 10 day free look period. This period begins when the producer delivers the insurance policy during this period if the policy owner decides to return the contract to the insurer, you’ll receive a full premium refund mail order or direct response. Ensures must include a free look period of at least 30 days.

Question 18

Inspection report

Answer 18

This is a report that contains general information regarding the health habits, finances, and reputation of an applicant. This report is developed by a firm that specializes in rendering this type of service.

Question 19

Insurable interest

Answer 19

This describes the financial or emotional relationship between two or more parties which justifies one owning a life insurance policy on the other a person is considered to have a unlimited insurable interest in her own life

Insurable interest may exist in another person’s life if there’s a chance of a financial or emotional loss due to that person‘s death the insurable interest must exist at the time of the policy issue.

Question 20

Medical information bureau

Answer 20

This is a service organization that collects medical data on life and health insurance applicants for member insurance companies.

Question 21

Policy summary

Answer 21

Summarize the basic terms of an insurance policy, including the conditions coverage limitations and premiums policy summary are often used with life insurance, long-term care, insurance, and annuities.

Question 22

Preferred risk

Answer 22

This describes an applicant who represents the likelihood of risk that’s lower than that of the standard applicant. This is typically due to better than average physical condition occupation mode of living and other characteristics compared to other applicants of the same age.

Question 23

Proposed insured

Answer 23

This is the person who is requesting that her life be insured. This also typically the applicant but not always.

Question 24

Rated policy (rating up)

Answer 24

A rated policy is the basis for an additional charge to the standard premium because the person insured is classified as a higher than average risk. The higher risk level is typically the result of impaired health or hazardous occupation.

Question 25

Replacement

Answer 25

This is a permitted activity in which a producer convinces a prospective client to laugh or surrender a life or health policy and purchase a new one if this activity occurs producers must provide a notice regarding replacement to the consumer. The producer must also notify the ensure that a replacement is occurring

Question 26

Representations

Answer 26

Most state law specified on an applicant statement on an application or considered representations, and not warranties and representation is only required to be substantially accurate to the best of the applicants knowledge generally and representation is considered to be fraudulent. If it relates to a situation that would be material to the risk and that the applicant made with fraud intent.

Question 27

Risk classification

Answer 27

This describes the underwriting category into which risk is placed, depending on the applicant susceptibility to injury, illness, or death.

Question 28

Special class

Answer 28

This describes an applicant who cannot qualify for a standard policy, but may secure one with a rider that waves the payment for loss involving certain existing health impairments. The applicant may be required to pay a higher premium or to accept a type of policy that’s different from the one for which she applied.

Question 29

Standard risk

Answer 29

This describes a person who, according to a company’s underwriting standards is considered an average risk and insurable at standard rates. High risk or lower candidates may qualify for increased or discounted rates based on their deviation from the standard.

Question 30

Substandard risk (impaired risk)

Answer 30

This describes an applicant whose physical condition doesn’t meet the usual minimum standards if the sub standard classification is due to adverse health, the application may be declined or written with a “rated up” premium and applicant may be in excellent health, but considered substandard due to her activities, hobbies or avocations (e.g., scuba diving, skydiving, etc..)

Question 31

Underwriter

Answer 31

This is a person who identifies examines and classifies the degree of risk represented by a proposed insured in order to determine whether coverage should be provided and if so, at what rate.

Question 32

Underwriting

Answer 32

This involves the analysis of information that’s obtained from various sources pertaining to an applicant for insurance, and the determination of whether the insurance should be issued as requested, offered at a higher premium or declined.

Question 33

Warranties

Answer 33

Most state law specify that an applicant statement on the application are considered representations, and not warranties. A warranty must be absolutely literally true. A bridge of warranty may be sufficient to avoid the policy, regardless of whether the warranty is material, and whether such breach of warranty had contributed to the loss