know this Flashcards
(81 cards)
Insurance is
Insurance is the transfer of risk of loss. The cost of an insured’s loss is transferred over to the insurer and spread among other insured.
Insurer’s Consideration is
Insurer’s consideration is the promise to pay for losses.
Insured’s Consideration
Insured’s consideration is the payment of premium and statements on application.
A Contract is
A contract is an agreement between two or more parties enforceable by law. Because of unique aspects of insurance transactions, the general law of the genera law of contracts had to be modified to fit the needs of insurance.
Insurance contracts are aleatory which means
there is an exchange of unequal values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of a loss.
Unilateral Contract
In a unilateral contract, only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises. However, an insurer is legally bound to pay losses covered by a policy in force.
Conditional Contract
A conditional contract required that certain conditions must be met by the policy owner and the company in order for the contract to be executed, and before each party fulfills its obligations. For example, the insured must pay the premium and provide proof of loss in order for the insurer to cover a claim.
Representations
are statements believed to be true to the best of one’s knowledge, but they are not guaranteed to be true. For insurance purposes, representations are the answers the insured gives to the questions on the insurance application.
Who is the Field Underwriter?
The Agent (or insurance producer)
Conditional Receipt
Conditional Receipt means the applicant may be covered as early as the date of the application. (assuming they have pre-pain the monthly premium)
EX) if the insured pre-pays the monthly premium and submits the application on 2/2, then dies on 2/5 and the application is approved on 2/10, the beneficiary will still be paid the premium.
Underwriting is
Underwriting is the risk selection process. The underwriter’s responsibility include selecting only those risks that are considered insurable and meet the insurer’s underwriting standards. The purpose of underwriting is to protect the insurer against “adverse selection”(risks which are more likely to suffer a loss)
Insurable Interest
To purchase insurance, the policyowner must face the possibility of losing money or something of value in the event of lost.
Insurable Interest must exist at the time of the application. The policy owner must have insurable interest in the life of the insured
Example: having insurance on your own home and not your neighbors house. The neighbors house has no insurable interest to you.
What is there Key Source underwriters use for information about the applicant?
And insurance application
T/F
Insurance applicants must be notified in writing whenever insurers request investigative consumer reports.
TRUE
MIB stands for
Medical Information Bureau
MIB is a
MIB is a membership corporation owned by member insurance companies. it is a “nonprofit trade organization”, the purpose of which is to collect, maintain, and make available to insurance companies important underwriting information on applicants for life and health insurance. It is only to be used as an aid in helping insurers know what areas of impairment they might need to investigate further.
Can insures refuse coverage solely on the basis of adverse information on an MIB report?
NO
What are the Risk Classification categories?
- Standard
- Substandard
- Prefferred
Preferred Risks are
Preferred Risks are those individuals who meet certain requirements and qualify for lower premiums than the standard risk. These applicants have superior physical conditions, lifestyle and habits.
Standard Risks are
Standard Risks are persons who according to a company’s underwriting standards, are entitled to insurance protection without extra rating or special restrictions. Standard risks are representative of the majority of people are their age and with similar lifestyles. They are AVERAGE RISK.
Substandard Risk
Substandard (High Exposure) Risk applicants are not acceptable at standard rates bc of physical condition, personal or family history of disease, occupation, or dangerous habits. These policies are also referred to as RATED bc the could be issued PREMIUM RATED-UP, resulting in a higher premium.
The higher the risk,
the higher the premium.
Stranger- Originated Life Insurance (STOLI)
is a life insurance arrangement in which a person with no relationship to the insured (a stranger) purchases a life policy on the insured’s life with the intent of selling the policy to an investor and profiting financially when the insured dies.
STOLIs violate the principle of insurable interest .
Investor-owner Life Insurance (IOLI)
is another name for a STOLI, where a third-party investor who has NO INSURABLE INTEREST initiates a transaction designed to transfer the policy ownership rights to someone with NO INSURABLE INTEREST in the insured and who hopes to make a profit upon the death of the insured annuitant.
