Life & Health: Underwriting

Question 1

Definition:
Underwriting

Answer 1

The process of evaluating a risk to determine if it is acceptable based on established insurance company guidelines

Question 2

If a change is needed on a completed application, what must be done?

Answer 2

The change must be initialed by the applicant

*(Some insurers require the Producer/Agent to also initial)

Question 3

Definition:
Backdating

Answer 3

Max Backdating - 6 months

Allows the premium to be based on an applicant’s earlier age to lower the cost of the premium

• Policy becomes effective as of the date requested on the application
• Applicant must pay any additional premiums that would have been paid from the backdate

Question 4

Whose signatures are required on a new application?

Mandatory: 2 Parts / If Applicable: 3 Parts

Answer 4

Mandatory:
1. Applicant
2. Producer/Agent

If Applicable:
* Proposed Insured (if the “applicant” is not the insured)
* Company Officer (Corporation owned policy)
* Parent/Legal Guardian (Juvenile Policy for the Minor)

Question 5

What is included in the
“Producers Report”?
(Producers Statement)

4 Parts

Answer 5

Information that pertains to the proposed insured including, but not limited to:
1. Financial status
2. Habits
3. Character
4. The producer’s relationship to them

Question 6

3 Important Facts about the “Producers Report”?
(Producers Statement)

4 Parts

Answer 6

1. Completed/Signed by the Producer/Agent
2. Not attached to policy at issue
3. Never seen by the applicant/insured

Question 7

What information is included on the written “Disclosure Notification” a client must sign/agree to?

3 Parts

Answer 7

1. Who is authorized to disclose their personal information
2. The kind of information that may be disclosed
3. The reason it is being collected

(By signing, the applicant is giving the Insurer consent to gather/disseminate the information described)

Question 8

Policy Coverage:
Premium Received w/ Application

Answer 8

“Offer to Buy” Insurance
Policy is affective immediately (if approved)
(First premium is submitted with the application)

Question 9

Policy Coverage:
No Premium Received w/ Application

Answer 9

Coverage is delayed until the first premium is paid

Question 10

Policy Coverage:
No Premium Received
(Status Changes)

Answer 10

The policy will not pay the benefit

(The insured becomes uninsurable/dies before the first premium is collected)

Question 11

Policy Coverage: Conditional Receipt
* When is the Effective Date?
* Allowed for which Risk Classes?

Premium Received w/ Application

Answer 11

Insurance Effective Date:
* Date the Application Completed/Signed
* Date of the Medical exam (if required)
* (whichever is later)

Must be “Standard” or “Preferred” risk
* Can be determined after death

Question 12

Policy Coverage: Binding Receipt
* When is the Effective Date
* How long is it Effective?
* What can the Insurer do during stated period?

Premium Received w/ Application

Answer 12

Think Temporary

1. Effective Date: Date of Application
2. Effective for: 30-60 days
   (Even if the applicant is found to be uninsurable)
3. The insurer can either Issue a policy or Cancel the binder
   (before the end of the stated period)

• Often used with auto/homeowners insurance
• Rarely used with life insurance (“Temporary Insurance Agreements”)

Question 13

What are the 3 Parts of a Life Insurance Application?

Answer 13

1. General Information - Personal Info, Employment Info, Policy Info, etc.
2. Health Information - Physical Condition & Health Habits
3. Producer’s Report - Additional Info

Question 14

Part 1: General Information
What type of info is requested?

5 Parts

Life Insurance Application

Answer 14

1. Personal Information
(Name, Address, DOB, Gender, SSN, Driver’s License #, Marital Status)

2. Employement Status/Details
(Income, Occupation, Employers Address)

3. Policy Features (Requested)

(Type of Policy, Face amount being applied for)

4. Additional Information
(Beneficiary, If other insurance is owned)

5. If the applicant not the insured
(The applicant’s name and address)

Question 15

Part 2: Health Information
What type of info is requested?

8 Examples Given

Life Insurance Application

Answer 15

Physical Condition and Health Habits of the insured

Examples:
* Height and Weight
* Tobacco and/or Drug usage
* International travel
* Current/Historical Treatments/Diagnoses/Medications
* History of disability claims
* Health Conditions within the insured’s family
* High-risk hobbies
* Name/Address of Current physician

Question 16

Part 2: Health Information
Additional records an Underwriter can request

2 Parts

Life Insurance Application

Answer 16

1. An APS (Attending Physician’s Statement)
   (The applicant’s current condition and medical history)
2. Copies of medical records

Question 17

Part 2: Health Information
If a Medical Exam is needed, who pays?

2 Parts

Life Insurance Application

Answer 17

The Insurer pays for all Medical Exams/Tests that are requested during the Underwriting Process

Examples:
* Stress testing
* Scans
* EKG’s
* MRI’s
* AIDS/ARC Testing - Must have applicant’s written consent

Question 18

Definition:
Medical Information Bureau
(MIB)

2 Parts

Life Insurance Application

Answer 18

1. A non-profit insurance trade association that maintains underwriting information on applicants
2. The purpose is to reduce instances of misrepresentation and fraud

Example of info maintained:
* Medical History
* Hazardous jobs/hobbies
* Poor driving records

Question 19

Underwriting Process:
What are the Primary Sources of Information?

7 Parts

Life Insurance Application

Answer 19

1. Application
2. Medical Exams/Testing
3. Attending Physician Statement (APS)
4. AIDS testing - Insured must give written consent
   (Applications may not ask about sexual orientation)
   (Testing not based on geographical location)
5. Medical Information Bureau
   (Application cannot be denied solely on MIB information)
   (Insured must be informed of MIB)
6. Consumer Reports - Insured must be informed
7. Investigative Reports - Insured must give consent

Question 20

What information is collected using an
Investigative Report?

6 Parts

Life Insurance Application

Answer 20

1. Finances
2. Health
3. Character
4. Work
5. Hobbies
6. Habits

(Collected by interviewing friends and associates of the applicant)

Question 21

What is a Consumer Report used for?

3 Parts

Life Insurance Application

Answer 21

Helps determine the applicants eligibilty for:
1. Personal Credit
2. Insurance
3. Employment

Question 22

Are Insurer’s subject to HIPAA?

Life Insurance Application

Answer 22

Yes

The Insurer must:
* Keep all medical information confidential
* Protect the applicants privacy

Question 23

What are the 4 Risk Classifications?

Answer 23

1. Standard
2. Preferred
3. Substandard (“Rated”)
4. Declined

Question 24

Definition:
Standard Risk

Risk Classifications

Answer 24

Average health and normal life expectancy
(Insured for standard rates)

Question 25

Definition: **Preferred Risk** ## Footnote Risk Classifications

Answer 25

Excellent health Risk of loss is below average - Favorable to Insurance Company *(Insured for preferred/discounted rates)*

Question 26

Definition: **Substandard Risk** ## Footnote Risk Classifications

Answer 26

Below average life expectancy (High Risk) Risk of loss that is above average - Unfavorable to Insurance Company *(Insured but at higher rates - "Rated-up")*

Question 27

Definition: **Declined** ## Footnote Risk Classifications

Answer 27

The applicant is not insurable at any price

Question 28

What are some examples of prohibited **"Unfair Discrimination"**? | 6 Parts

Answer 28

1. Race 2. Religion 3. National Origin 4. Place of Residence 5. Blindness 6. Victims of domestic violence

Question 29

What is done during **"Policy Delivery"**? | 4 Parts

Answer 29

1. Policyowner signs a "Delivery Receipt" 2. Producer reviews the Policy with the Policyowner *(Policy, Riders, Exclusions, and any other details)* 3. Producer collects first Premium (if not already paid) 4. Policyowner signs a "Statement of Good Health" *(attesting that their health is the same as when they applied for the policy)*

Question 30

According to the Fair Credit Reporting Act (FCRA): What standard procedures must be followed when an Insurer is gathering information about an Applicant? | 4 Parts

Answer 30

**1. 3rd Party Data** The Insurer must comply w/ all FCRA rules regarding info collected from a 3rd party **2. "Notice to Applicant" is Required** Informs the applicant that a report will be ordered Notice must be given within 3 days after requesting a report **3. "Consumer Rights"** Consumers may dispute information they believe is inaccurate Reporting Agencies may be required to reinvestigate/correct/delete incorrect information **4. Violators of FCRA are subject to Penalties** Fines: Up to $5,000 Imprisonment: Up to 1 Year ## Footnote FCRA - Fair Credit Reporting Act

Question 31

What are **STOLI** and **IOLI** Transactions/Policies? ## Footnote Stranger-Owned Life Insurance (STOLI) Investor-Owned Life Insurance (IOLI)

Answer 31

*Life Insurance Arrangements* **Banned in most states** An individual persuades a Senior Citizen to take out a new life insurance policy (with that Individual named as the beneficiary) Senior receives some sort of financial incentive: * Loan * Upfront Payment * Small continuing interest in the policy death benefit

Question 32

According to the AML Provisions of USA PATRIOT Act: What are the primary types of suspicious activity are Insurers required to report? | 6 Parts ## Footnote Anti-Money Laundering (AML) Provisions (USA PATRIOT Act)

Answer 32

1. Receipt of any cash payment ($10,000 or more) 2. Fictitious ID/Reluctance to provide ID 3. Purchase of insurance that is inconsistent with stated needs 4. Requests for the refund/surrender proceeds/benefits to be paid to unrelated 3rd party 5. Greater interest in the early termination features over the actual performance 6. Max borrowing against a product's value (very soon after purchase)

Question 33

Regarding Group Insurance Plans: How is ERISA involved? | 2 Parts ## Footnote Employee Retirement Income Security Act (ERISA)

Answer 33

**Reporting and Disclosure** Requires that certain plan documents are made available to the: * Plan Participants * Named Beneficiaries * Department of Labor (DOL) * IRS **Fiduciary Responsibility** Sets strict standards that Fiduciaries of the plan must follow *(Applies to all "parties-in-interest" of the Plan)*