Risk Selection

Question 1

decision making process whether to accept or reject insurance applications after assessing risks

Answer 1

underwriting

Question 2

To provide insurance coverage on an equitable basis, insurance companies charge each insured person a premium rate corresponding to __________

Answer 2

the risk that each individual presents to the company

Question 3

the tendency of individuals with impaired health / hazardous occupation to purchase life insurance

Answer 3

Anti-selection

Question 4

Four types of risks

Answer 4

-preferred/ superstandard risk
-standard risk
-substandard risk
-unacceptable isk

Question 5

The present condition, occupation, lifestyle, and health history of an applicant indicates a lower-than-usual mortality rate.

Answer 5

Preferred/superstandard risk

Question 6

This type of risk applies to applicants with normal mortality rate. Their current health status or lifestyles do not present any extra mortality risk. The insurer sees no reason to believe that these individuals will have shorter-than-average life expectancies. Most applicants for life insurance belong to this category.

Answer 6

standard risk

Question 7

This type of risk applies to individuals who possess more risks than usual probably due to occupational hazards, illnesses, disabilities, or unwise habits.

Consequently, these applicants are charged with higher-than-usual premium rates.

Answer 7

Substandard Risk

Question 8

Applicants who belong to this category are declined because of the pricing of the life insurance. It is difficult to set a proper premium for an individual who is extremely unhealthy or engaged in some dangerous hobbies. A person with only a few months to live is uninsurable because the premium would most likely be close to the face amount.

Answer 8

Unacceptable risk

Question 9

Sources of information to determine risk

Answer 9

• application form
  -agent’s confidential report
• inspection report
  -financial statements
  -credit report
  -medical records
  attending physician’s statement
  -medical information/impairment bureau

Question 10

An agent may supply additional information (i.e., supporting facts) about a client. These pieces of information could help the underwriter analyze the applicant’s case for a more comprehensive assessment

Answer 10

Agent’s Confidential Report

Question 11

a non-profit central information agency which was established in Boston, Massachusetts by life insurance companies