Life Insurance Underwriting Chapter 7 Flashcards

Life Insurance Underwriting and Policy Issue

• Insurance policies can be issued with preferred premiums; living in a rural area does not affect the preferred rate.
• Field underwriting occurs when the producer is with the applicant; this process helps reveal any hazardous activities and the potential for moral hazard.
• At policy delivery, the insured must sign a good health statement affirming no adverse medical conditions have arisen since application submission.
• The producer is responsible for supplying the privacy notice to the insurance applicant when personal information is disclosed.
• The initial premium for a life insurance policy is collected by the producer and forwarded to the insurer.
• After the application is submitted, the producer remains the primary contact for the insured.
• If the policyowner dies shortly after paying the first premium on a $50,000 policy, the beneficiary receives the amount income tax-free.
• Coverage becomes effective for an applicant after the agent delivers the policy, collects the initial premium, and obtains a good health statement.
• Disclosure about information practices must be provided to an applicant before or at the time of signing the application.
• Eye examinations are generally not a requirement in underwriting large life insurance applications.
• The application is fundamental for assessing insurability, consisting of three parts: General Information, Medical Information, and the Agent's Report.
• The Agent's Report includes the agent's observations and details about the applicant’s financial condition and purpose of application.
• Insurable interest must exist for life insurance; it ensures that the policy cannot be treated like a wager. Relationships presumed to have insurable interest include spouses, parents, and business partners.
• Part I of the application collects general information such as name, age, and coverage details, while Part II focuses on health questions.
• The Medical Information Bureau (MIB) provides insight into an applicant's medical history and lifestyle habits, helping prevent fraud and misrepresentation.
• Preferred risks receive lower premiums due to reduced mortality or morbidity risk, typically associated with non-smokers and healthy individuals.
• Substandard risks are categorized below normal standards due to poor health or risky occupations, often leading to higher premiums or coverage rejection.
• A buyers’ guide is issued to inform potential policyholders of essential terms and conditions related to life or health insurance.
• The USA Patriot Act mandates insurance companies establish anti-money laundering programs to combat terrorism funding.
• Credit reports serve as a crucial underwriting tool to evaluate applicant risk, highlighting those with poor credit histories as potentially problematic.
• Risk classification allows insurers to evaluate and categorize risks based on submitted application information, with uninsurable risks typically leading to application denial.
• The Fair Credit Reporting Act protects consumer rights regarding information collected for credit or inspection reports, applicable to insurance companies.
• Backdating allows applicants to obtain a policy effective date prior to their current age, typically within a two-month timeframe, under certain conditions.
• A policy summary outlines the life insurance policy's terms, coverage limitations, and premiums, potentially required by law during transactions.
• Under binding receipts, coverage is guaranteed until the application is formally rejected, creating risk for the insurer during the underwriting process.
• Conditional receipts activate coverage upon fulfilling specific conditions, such as proving insurability at the application or medical exam date.
• Constructive delivery means legal policy delivery can occur without the policy being physically handed to the policyowner, as long as the insurer relinquishes control.
• Completing the application is critical; agents must ensure accuracy and completeness to facilitate underwriting decisions and validate the policy.
• In the application process, statements are representations that must be true regarding the risk; warranties require absolute accuracy and can void the policy if untrue.