2 - Life/Health Insurance Underwriting

Question 1

Changes in the Application

What must always be done if the information on the application is changed?

Answer 1

Any changes made must be initialed!

Question 2

Completeness

Why is it important to have an application filled out completely.

Answer 2

If a policy is issued with information missing the company cannot deny a claim based on that information

The underwriter basically waives the companies right to that information.

Incomplete applications delay the underwriting process!

Question 3

Backdating

What is backdating?

Answer 3

If your birthday was within the last 6 months you can backdate the policy to a younger age (ex: you turned 41 in September so you can put your age as 40 since the policy is being written in December).

Question 4

Who is required to sign an application?

Answer 4

1) Insured (company officer is a corporation is insured and the parent/guardian if a juvenile policy)
2) Producer/Agent
3) Applicant/Owner (if the applicant is not the insured)

*most of the time the applicant is the insured

Question 5

Producers Report

Describe what it is and what part of the application it is

Answer 5

1) Part III of the application
2) Producer records information that pertains to the proposed insured
3) The client does not see the producers report because it contains information pertaining to the clients financial status, habits, and character.

Question 6

Conditional Receipt

Answer 6

The date of the application or the medical exam (whichever is later) is considered the effective date of a conditional receipt.

As long as the applicant is found to be insurable under the company’s standard underwriting rules.

Question 7

Binding Receipt

What is a binding receipt?

Answer 7

Temporary receipt for 30-60 days after the application is issued

In force even if found uninsurable

Not common in life insurance policies

Question 8

Three Parts to The Application

What are they?

Answer 8

1) General Information
2) Health Information
3) Producers Report

Question 9

Attending Physician’s Statement (APS)

What is an APS?

Answer 9

The insurer may ask for an APS from the proposed insured’s regular doctor about current and past medical history.

Question 10

Who pays for medical testing in the underwriting process?

Answer 10

The insurer

Question 11

AIDS Consideration

Describe

Answer 11

AIDS testing can be required with applicants written consent

Sexual orientation may never be taken into consideration

If test results are positive then the results are sent to the medical information bureau

Question 12

Medical Information Bureau (MIB)

Describe what it is and what its main purpose is.

Answer 12

The MIB is a non-profit insurance trade association that maintains underwriting information on applicants.

When an insurer finds unfavorable information about an applicant they will report it to the MIB.

If an applicant is denied an application and applies elsewhere other member companies will have access to the information.

An applicant can’t be denied insurance based off of the information at the MIB, but they can use it to require further testing.

Main purpose is to reduce fraud!

Question 13

What are the underwriting sources of information?

Answer 13

1) Application
2) Medical Exam & Testing
3) AIDS Testing
4) Medical Information Bureau (MIB)
5) Consumer Reports
6) Investigative Reports (interviewing individuals who know something about the consumer like associates, friends, and neighbors)

Question 14

What are the 4 classifications of risk?

Answer 14

1) Preferred
2) Standard
3) Substandard
4) Declined

Question 15

Statement of Good Health

What is it and when is it required?

Answer 15

Required if no premium was paid when the application was submitted.

It is a statement attesting to the fact that their health has not changed since the application.

Question 16

Fair Credit Reporting Act

What is it and what are the 4 components?

Answer 16

Requires consumer reporting agencies to adopt reasonable procedures for exchange information on consumers personal information.

1) Third-Party Information - insurers must follow procedures and consumers must be made aware of inquiries.
2) Notice to Applicant - Required to move forward. Must be given no later than three days after a report was requested. The consumer may make a written request for complete disclosure of the nature and scope of the investigation and the discloser must be made in writing within 5 days after the request.
3) Consumers Have a Right to Dispute the information with the credit companies and with the insurance company.
4) Penalties - violators may be subject to $5,000 fine or 1 year in prison.

Question 17

STOLI/IOLI

Stranger Owned Life Insurance and Investor Owned Life Insurance

Answer 17

Investors get seniors to name them as beneficiary, for exchange of monetary value.

These are banned in most states because it opens up the Seniors to fraud

Question 18

Insurable Interest

What is it and when must it exist?

Answer 18

For Life Insurance an insurable interest must only exist when the policy is written (unlike property and casualty)

Must prove a financial or emotional loss which you only have to prove if the owner is different from the applicant (spouse, kids, business partner, key employee)

Insurable interest is assumed when you purchase a policy on yourself