Insurance Underwriting Process Quiz

Types of Policies

• Life insurance protects against premature death
• Whole Life (Ordinary, Limited-pay, Single-premium): Permanent protection for life
• Variable Whole Life: Interest-sensitive, fluctuating rates. No guaranteed cash value.
• Universal Life: Flexible premiums, policy owner can skip payments (with cash value); adjustable.
• Term Life (level, decreasing, increasing): Temporary coverage for a set period
• Combination Plans (Joint, Survivorship): Cover multiple lives.

Group vs. Individual

• Individual policies are more expensive and restrictive than group policies
• Group policies provide coverage for many people under one policy (master policy). Individual certificates are issued per insured member.

Traditional Whole Life

• Ordinary (straight life): Level face amount & premiums throughout the insured’s entire life
• Limited-pay Life: Premiums are paid for a limited time, but coverage for life, level face amount
• Single-premium Life: Paid in a lump sum, level premiums for entire life
• Adjustable Life: Mix of whole & term life; policies have changeable features (e.g., premiums, face amount, coverage period)

Interest/Market-Sensitive Life Products

• Variable Life: Policyowners earn higher investment returns on cash values
• Universal Life (Flexible Premium Adjustable Life): The primary difference between adjustable and universal life is the ability to skip premium payments as long as cash value covers costs.

Variable Universal Life

• Flexible premiums, investment choices of variable life, cash value based on investment in separate account, access to policy loans and withdrawals.

Interest-Sensitive Whole Life

• Flexible (varying) premiums based on changing interest rate, adjustable premiums.

Equity-Indexed Universal Life

• Interest rate tied to the stock market. Offers higher potential cash value growth. Fixed guaranteed rate. Nonguaranteed indexed rate is often high (15%–20% or more).

Term Life

• Level Term: Level face amount throughout the policy period
• Decreasing Term: Face amount decreases over the policy period
• Return of premium (ROP): Premiums are returned to the insured if no death benefit is paid
• Annually renewable: Level face amount with increasing premiums
• Increasing term: Increasing face amount with level premiums

Special Features

• Renewable policies allow renewal without proving insurability
• Convertible policies allow term policies to convert to permanent policies without proving insurability.

Annuities

• Protect against outliving savings, systematically liquidates an estate
• Single Premium Immediate Annuity (SPIA): Lump sum, immediate payments
• Single Premium Deferred Annuity (SPDA): Lump sum, deferred payments
• Flexible Premium: Variable premium amount and frequency.

Combination Plans and Variations

• Joint Life: Pays out upon the first death of two or more people within a set policy period, after the first death, the contract does not provide additional coverage.
• Survivorship Life: Pays benefits upon the second death in the set policy period only.

Policy Riders, Provisions, Options, and Exclusions

• Policy characteristics and how policies function.
• Policy Provisions: Terms of a policy reflecting rights, duties and responsibilities
• Options involve how policy funds are used (e.g., premium payment modes);
• Riders modify coverage.

Policy Riders

• Waiver of premium: Waiving premium payments during disability
• Guaranteed insurability: Purchasing additional permanent coverage later with no proof of insurability.
• Pay-or benefit: Premium waiver for insured's death or disability
• Accidental death/dismemberment: Pays benefits for accidental death or dismemberment
• Term riders: Add term coverage to existing life policy
• Other Insureds: Protecting other lives (e.g., spouse, children)

Policy Provisions and Options

• Entire contract: All parts of the contract, including riders and endorsements
• Insuring clause: Company’s promise to pay benefits if covered loss occurs
• Free Look Period: Time to review policy and return it
• Consideraion Period: Payment of premium by insured in exchange for insurer's promise to pay benefits
• Owner Rights: Provides rights of the policyowner regarding the policy
• Beneficiary designations: Selecting beneficiaries
• Revocable & Irrevocable: beneficiaries
• Primary/Contingent beneficiaries: Ordered list of people who receive funds in the event of death.

Special Features

• Renewable Term Policies: Allow renewal without proving insurability
• Convertible Term Policies: Allow conversion to permanent policies without proving insurability
• Long-Term Care Riders: Insurance that covers costs of prolonged care

Settlement Options

• Cash Payment (Lump Sum): Not taxable
• Life Income: Pays out installments until recipient dies
• Interest Only: Pays interest until recipient dies
• Fixed-period Installments: Gradual payments over a fixed period
• Fixed-amount Installments: Fixed payments until funds are exhausted.

Accelerated Death Benefits

• Allows insured to receive a portion of the death benefit before death due to terminal illness

Policy Exclusions

• Sections that exclude certain risks or conditions from coverage based on the insurer's discretion. This protects the insurer.

Policy Provisions, Clauses, and Riders

• Suicide clause: Policy is voided if insured commits suicide within a certain timeframe.
• Aviation clause: Policy is voided if the insured dies while flying (or involved with) an aircraft
• War or Military Service clause: Policy is voided if death occurs during active military service or acts of war
• Hazardous Occupation or Hobby: Policy is voided if death occurs as a result of hazardous occupation or hobby.

Completing the Application, Underwriting, and Delivering the Policy

• Application: Primary source of information for underwriting
• Signatures (agent, applicant, and proposed insured)
• Changes require initialing and not erasing the original writing.
• Consequences of incomplete application: insurer may waive rights and be estopped from reasserting rights if a completed application is approved.
• Warranties: Statements that are guaranteed to be true from the insured
• Representations: Statements made to the best of the applicant's knowledge
• Collecting the initial premium and issuing the receipt.
• Replacement insurance policy: The proposed coverage replaces existing insurance coverage.
• Disclosures (HIPAA/HIV ): Must be provided to the applicant
• USA Patriot Act and/or anti-money laundering provisions

Insurable Interest

• Financial motivation to want the insured to stay alive.

Medical Information and Consumer Reports

• Medical Information Bureau: Collected medical information to determine individual insurability; Insurers may access information only on need.
• Consumer Reports: Any communication about a consumer's creditworthiness or other information about their lives
• Investigative Consumer Reports: Information from personal interviews with neighbors etc.

Risk Classification

• Preferred, Standard, Substandard, Declined
• Factors include lifestyles, health, hobbies, and occupations

Stranger-Originated Life Insurance (STOLI) and Investor-Originated Life Insurance (IOLI)

• STOLI: Third-party agent/broker or investor purchases policy; Insured receives profit on their death
• IOLI: Similar to STOLI, but investors loan money upfront to pay premiums to the party until the death of insured. Policy sold to investor after a set period.

Delivering the Policy

• Effective date of coverage: Date the policy becomes effective.
• Explaining the policy's provisions, riders (additional terms), exclusions, and rating to the client. Insurance policy summary or policy outline is issued with the policy.

Taxes, Retirement, and Other Insurance Concepts

• Third Party Ownership: Policyowner has insurable interest in the life of the insured
• Group life insurance: Purchased by businesses for employee protection. Provides benefits for family members. Employers are responsible for payment.
• Group conversion provisions: Insured has right to convert group coverage to individual policy
• Tax qualified plans: Retirement plans which are written in writing, permanent, favor employees, not high-paid employees, and communications are appropriate for employees.

Other Health Insurance Concepts

• Total, Partial, and Residual Disability: Definitions and eligibility
• Owner's rights: include the right to change beneficiaries, and pay premiums.
• Dependent Children Benefits: Include the right to continue coverage, and notification must be provided if a child or dependent's coverage is to continue or not.
• Premium Payment Modes: How and to whom premiums should be paid (e.g., annually, quarterly)
• Non-duplication/Coordination of Benefits: Determining primary/secondary insurer for covered losses (if multiple policies cover the person)
• Tax treatment of premiums and proceeds is based on whether premiums are taxed; tax consequences of benefit payments depend on whether tax was deducted.

Health Policy Provisions, Clauses, and Riders

• Dread disease plans and Critical Illness plans: Cover specific illnesses
• Hospital indemnity plans: Flat dollar benefit for each day in hospital
• Dental; policies may exclude plans
• Vision: Pay for eye exams, or eyeglasses/contacts (often included in group plans)

Mandatory Provisions

• Entire Contract: Includes policy, application, and endorsements.
• Incontestability: Cannot contest policy after a period of time, except for fraud.
• Grace Period: Time for paying premiums without penalty
• Reinstatement: Policy can be reinstated after missing payment under certain conditions
• Notice of Claim: Procedure and timeframe for submitting a claim
• Claim Forms: Providing claim forms
• Proof of Loss: Timeframe for submitting written documents proving loss.
• Payment of Claims Procedures: Payment timelines and methods
• Physical Examinations & Autopsies: Right to conduct exams
• Legal Action Provisions
• Beneficiary Change Provisions: Rules for changing beneficiaries.
• Misstatement of Age Implications: How age misstatements affect benefits

Optional Provisions

• Change of Occupation
• Free Look Period (or Free Look)- 10 days to review the policy (return it for a full refund)
• Consideration Clause
• Elimination Period: Time between when injury/sickness/disability occurs and payment begins
• Waiver of Premium: Premium payments are waived if the person is permanently and totally disabled
• Exclusions (list specific exclusions), Pre-Existing Conditions (limitations), Recurrent Disability (existing or new claim), Coinsurance, Deductibles, Expense Coverage,

Other Health Insurance Concepts

• Social Security benefits: Supplemental Security Income (SSI) is for low-income, blind, disabled, or elderly people.