Flashcards in Chapter 15 Deck (36)
term used to describe a situation, either medical or financial, in qhich a proposed insured or agenm conceeal, falsify, or material misrepresent information at the time of application to the detriment of the insurance carrier.
deceit, trickery, sharp practice, or breach of confidence perpertrated for profit to grain some unfaire or dishonest advantage
os a secret agrement, especially for fraudulent or treacherous purpose created in order to cheat or decive others.
- can occure anywhere in the sales process,
What are the 3 primary red flag patterns for which an u/w should be especially vigilent?
1. stacking of coverage
2. avoidance of requirements
3. early lapse or possible rebating scenariua
What is stacking coverage?
term used to describe the planned purchase of mulitple polciies for smaller faceamounts from multiple carriers rather than one large policy with one cassier.
- done to avoid requirements
What is the pricing practice known as banding?
the action of the actuaries who set pricing premioum raches for the premium of a 100K of fully underwriting coverage is less expensive than 99K of simplified issue coverage.
What are examples of the requirements usually attempted to be avoided by those who stack policies?
1. federal income 1040 tax returns
2. audited 3rd fianancial statements.
3. inspection reports
4. credit reports
5. treadmill EKGs
6. timed vital capacity tests
8. Drug screens
What is SLAs?
Service level agreements, these and time service standards are part of the u/w process.
-= agents are not paid until policy is issued, do not let them bully you into speedy decisions.
What are some examples of lack of candor?
1. negative anser on the application to the tobacco usage question, but +ve cotinine
2. -ve response to ETOH use, but sig ETOH cirtism in APS
3. overstatement of income, assets or network, when compared to 1040 federal tax return, credit report, etc..
4. sig undisclosed medical hx, when compared to labs, or APS hx.
During the u/w process an agent may request for a policy not to be sent to Reinsurance. Why would this be a red flag?
1. there are other unknown applications in force, or applied for that can exceed the totoal line of coverage requirements
2. agen has a reason to believe the RI will u/w the proposed insured more conservatively than the ceeding company
3. RI can already have adverse knowledge of the individual from previous submissions form other carriers or can have already requested additional requirements on a falculative basis.
What is trip insurance?
when one would purchasea policy right before leaving where the initial premium is all that is required or they let the policy lapse and are returned premiums when they get back.
What would be a concern for those who are listed as self employed
the disclosed income, make sure it makes sense for their line of business and duties preformed.
What is an (irreovcable Life insurance trustee) ILIT trustee?
a key contact in the customer, agent and funding entity agrements.
What are the ILITs that should bear additional scrutiny?
Those that involve the following
1. the trustee is not well known to the proposed insured
2. the trustee and possibly the agent live in a different state then the proposed insured.
3. multiple propsoed insured from the same writing agent have the same trustee.
Why would one want to pay special atttention to reinstatements of olderage people?
elderly insurers who apply for reinstatements are at greater potential for an adverse change of health since the policy was issued.
What are some useful u/w tools that can be used at the time of underwriting?
1. MIB- fraud
2. credit reports- quick to obtain, not expense, and show financial hx over long period of time
3. US federal income tax returns.
4. pharmaceutical (Rx) Databases
5. Social security Number (SSN) verififcation databases)
6. third party financial records.
7. U.S. Patriot Act Form 314b
What is a Pharmaceutical Rx database.
Everyone with benefits have them even if they do not have px's. They provide the medication px filled by phamaxists and also contain the px's GP's information. They also include dosages, number of refills, and px date.
- they can be ranked on a scoring sxs, which can be used to review the severity of a Rx hx.
What can be included on a lab slip that may not be found anywhere else.
They may include the name of of multiple carriers who were not mentioned on the application, to whom the cx requested the data be sent.
- signature reviews can be used, and the contact info of the applicant.
- Agents names
What are some reg flags that one may see on a 3rtd-party financial record provided on usually high faceamount applications?
1. no formal letterhead for the firm or certified public accountant
2. no printed name of the CPA under the signature
3. no professional credentials listed after the CPA's name
4. no internet search information found, ie website.
What is the purpose of the 314b provision of the PAtriot Act?
to allow insurance companies and other financial entities to track the flow of money when money laundering or terrorist activity is suspect.
direct or indirect offering or giving anything of value, which is not plainly specified in the life insurance policy?
what are examples of rabating?
1. aggrement to pay any part of a policy premium
2. any payment or gift offered as an inducement to purchase insurance
3. offering any special advantage regarding the divident, interest, or tother policy benefits other than those provided by the terms of the policy
4. offering to buy, sell or give any type of security or property, and dividents or income from securities or property for the benefit of a policy owner.
What are some reg flags often seen in rebating activity?
1. frequent replacement or lapsing of policies 3 years old or less
2. trustee is in California or Florida where rebating is legal and the agent or proposed insured reside in different states
3. target premium being paid on all insures to maximize commissions
4. proposed insured does not know the trustee, face amount or the premium is being paid
5. agent is new to the insurance company and is also submitting large amount of premium in a short period of time.
Define the act of churning
practive in which an existing in force life insurance policy is replaced for the purpose of earning additional first year commissions.
- illegal in most states except california.
- This also has a direct effect on policy lapse rates.
How long does a policy ususally have to be in force to recover expenses incuerred upon issue?
What is premium financing?
involves the lending of funds to an individual or a company to cover the cost of an insurtance premium, there usually needs to be a signed premium finance agreement with the premium finance company.
There are several types of life insurance premium financing aggrements. Name them.
1. Recourse premium financing
2. non-recourse premium financing
3. Hybrid premium financing
What is recourse premium financing?
an applicant enters into a fully collateralized loan arrangement with the intention of holding the life insurance policy to mature.
- used for estate luquidity needs
- most advantageous to u/w and the company
what is non-recourse premium financing?
the borrower is typically an irrevocable life insurance trust (ILIT) or a liability company (LLC). A non-recourse loan is used and there is generally no recourse, or liability to the underlying insured or his estate.
-policy is the collateral
- can pose hidden tax and liability risk to the insured
- there can be high lapse or settlement rates.