Life Insurance Underwriting Chapter 7 Flashcards

Questions and Answers

Mere possession of a policy by the client establishes delivery if all conditions have been met.

False

What happens if an application is submitted incomplete?

It will be sent back to the agent. (correct)

It will be approved anyway.

The client will be penalized.

It will automatically be processed.

What are representations in an insurance application?

Statements made by the applicant that are believed to be substantially true.

What is a warranty in the context of insurance applications?

A statement that is guaranteed to be correct. Signup and view all the answers

Representations are considered fraudulent only when made with fraudulent intent.

True Signup and view all the answers

The application requires the signatures of the proposed adult insured, the policyowner, and the _____.

agent Signup and view all the answers

An insurance policy may be issued with a preferred insurance premium in all of these situations EXCEPT:

Living in a rural area Signup and view all the answers

What is field underwriting by a producer?

It is done when the producer is in front of the applicant and may disclose hazardous activities. Signup and view all the answers

What document might an insured be required to sign at policy delivery?

Good health statement Signup and view all the answers

Who is responsible for supplying the privacy notice when submitting an application?

The producer Signup and view all the answers

How is the initial premium for a life insurance policy typically collected?

It is obtained by the producer and forwarded to the insurer. Signup and view all the answers

After originating an insurance application, what is the producer's role?

The major personal contact to the insured. Signup and view all the answers

The beneficiary receives $50,000 income tax-free if the policy owner dies one month after paying the first annual premium.

True Signup and view all the answers

When will coverage be effective if an application is submitted with an unsigned check?

The date the agent delivered the policy, collected the initial premium, and obtained a good health statement. Signup and view all the answers

When must a producer provide disclosure about information practices to an applicant?

Prior to or at the time of signing the application. Signup and view all the answers

Which of the following is likely NOT an underwriting requirement for a large amount of life insurance?

Eye examination Signup and view all the answers

What is the primary source of insurability information?

The application for insurance. Signup and view all the answers

What does Part III of the application focus on?

The agent's report and personal observations about the proposed insured. Signup and view all the answers

What is insurable interest?

A requirement necessary for life insurance to prevent it from being a wagering contract. Signup and view all the answers

What does Part I of the insurance application ask about?

General information about the proposed insured. Signup and view all the answers

What does Part II of the application focus on?

The proposed insured's health history. Signup and view all the answers

What is the purpose of the Medical Information Bureau (MIB)?

To provide reliable medical information concerning applicants. Signup and view all the answers

What is a preferred risk in life insurance?

A classification for good risks with reduced premiums. Signup and view all the answers

What defines a substandard risk?

A risk below the insurer's standard or average guidelines. Signup and view all the answers

What is a buyers guide?

A publication that appraises prospective buyers of the terms and conditions of insurance. Signup and view all the answers

What does the USA Patriot Act require from insurance companies?

To establish formal anti-money laundering programs. Signup and view all the answers

Why are credit reports considered a valuable underwriting tool?

They identify applicants who may be poor credit risks. Signup and view all the answers

What is risk classification?

The evaluation of the risk that an applicant poses to the insurer. Signup and view all the answers

What is the Fair Credit Reporting Act?

A law enacted to protect the rights of consumers regarding credit reports. Signup and view all the answers

What is backdating in life insurance?

Dating a policy earlier to potentially lower premiums. Signup and view all the answers

What does a policy summary include?

A summary of the terms of a life insurance policy. Signup and view all the answers

What is a binding receipt?

Coverage guaranteed until the insurer formally rejects the application. Signup and view all the answers

What is a conditional receipt?

A receipt indicating conditions must be met for coverage to go into effect. Signup and view all the answers

What is constructive delivery in terms of insurance policy delivery?

Delivery accomplished without physically giving the policy to the policyowner. Signup and view all the answers

Study Notes

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.

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Description

Test your knowledge on life insurance underwriting and policy issuance with this quiz based on Chapter 7. Review key concepts and terminologies to understand how preferred insurance premiums are determined and the role of field underwriting by producers.