Completing the Application
The agent must fill out the application neatly, honestly, and fairly, and check to make sure all signatures are complete. The agent doesn't have the authority to issue a life insurance policy, only the company does.
THE AGENT CANNOT BIND (COMMIT THE INSUR
Required signatures
It is the agent's responsibility to check the application for all required signatures. without these signatures the underwriting department will return the "incomplete" application to the insurance agent who will then have to revisit with the client to ge
Without all the required signature the following would be assumed:
-the proposed insured has not given permission to the underwriters to conduct any background, investigations, or medical inquiries.
-the proposed insured has not attested to the information in the application.
Parts of the Life Insurance Application
GMA - Gold Makes Awards
I. General Information
II. Medical Information
III. Agent's Statement
General Information (parts of insurance app)
asks personal questions such as full name of insured, address, date of birth, etc.
Medical Information (parts of insurance app)
questions regarding medical history of proposed insured.
Agent's Statement (parts of insurance app)
agents are required to furnish certain information and to answer specific questions about the proposed insured such as:
-length of time the proposed insured has known the agent
-knowledge of current insurance in effect
-whether proposed insurance will be
Incomplete Application
incomplete applications that are accepted mean that the company has made a decision on assuming a given risk that could result in a significant loss for the co. Should be rescinded or cancelled before incontestable clause takes effect.
Changing an Application
changes made during the initial prep must be initialed by proposed insured.
any further changes after issuance must have the insured's written approval.
if the company discovers an error or omission the application is usually returned to the agent who mus
Warranties and Reprsentations
when the application for the insurance contract is made a part of the policy, the answers to specific questions on the application may be deemed to be warranties. If false, they make the policy voidable b. y the insurer regardless of their materiality.
Warranties
if false make a policy voidable
Representation
A statement, which is true to the best of the applicant's knowledge and belief. (for test purposes all statements made on an insurance application are representations, NOT warranties).
Misrepresentation
a false statement made by the insured such as indicating that he/she doesn't smoke when in fact the proposed insured smokes three packs a day.
an untrue answer supplied on the application.
Difference between warranty and representation
a warranty is a part of the contract itself and must therefore be strictly complied with. Representations are usually incidental statements preceding the contract.
Conditional Receipt Rule (explained)
A conditional receipt is issued by the life agent at the time of application of the proposed insured provided the initial required premium is paid. T
The conditional receipt will allow a death benefit to be paid if the insured dies within the underwriting
You must for the exam, know all of the following conditional receipt rules and be able to apply them to a factual situation, which the examiners will give you on the exam:
Rule #1: When premium is paid and a conditional receipt is given, and the underwriters approve the issuance of the policy, the policy effective date will be the date of the conditional receipt.
Rule #2: When a conditional receipt is given and a medical ex
Policy Effective Date (coverage begins)
the policy effective date can be:
-date of the conditional receipt (if premium is paid and underwriters approve issuance of policy)
or
-date of a paramedic exam (if conditional receipt is given and medical exam is requested)
or
-date policy is delivered a
The policy effective date is important because the policy provides protection as of that date. Whichever date is used also establishes the following dates:
- the contestable period begins on this date
-the suicide clause period begins on this date
-the insurance coverage beings on this date
Replacement
It is not uncommon to find life insurance purchasing decisions that involve the replacement of an old policy with a new one.
An existing insurance policy may be replaced by another policy from the same insurer or by a different insurer.
Twisting
When a policy owner is induced to discontinue and replace a policy through agent or insurer distortion or misrepresentation of facts.
-illegal
Some issues in policy replacement:
1. pay high first year expenses again
2. higher premiums
3. new suicide clause
4. new incontestable clause
5. more or less favorable policy terms?
****When an agent submits an application for life insurance or an annuity to his insurer, he must include a
Disclosures at Point of Sale
HIPPA Disclosure
HIV Consent
HIPPA Discolsure
Insurance companies are required to provide a HIPPA disclosure to applicants advising them that the insurer collects, uses and discloses information about them in order to evaluate and process any requests for coverage and claim benefits.
HIV Consent
The National Policy on Testing for HIV says that people can only be tested for HIV with their informed consent. This type of disclosure must be given to a life and health insurance policy applicant.
There are other specific disclosures that must be made to potential insurance policy applicants. Specific rules are reviewed in the general law sections. Consumers have the right to become aware of necessary disclosures so that they can have all the infor
.....
Underwriting Process
The proposed insured's app will be reviewed by the insurance company underwriter to determine whether or not there is an insurable risk, whether there is an insurable interest in the insured ( if the owner is a different person) and whether the proposed i
THE PURPOSE OF UNDERWRITING (TEST QUESTIONS)
To avoid adverse selection
Insurable Interest
In order to own a life insurance policy, one must have what is known as "an insurable interest" in the insured. This means that the owner of the life insurance policy must stand to lose something by the death of the insured. Underwriters will review each
More on insurable interest:
- all persons are assumed to have an insurable interest in themselves. therefore one can own all the insurance they want (subject to their health and ability to pay) having an insurable interest does NOT guarantee issuance of the policy.
-if the insured/o
Test Clue ... If there is not insurable interest....
No policy will be issued.
Underwriters also review the following:
+Law of large numbers: actuaries look at similar type losses using large numbers of incidents (for test purposes remember the word homogenous, which defines this process) with a large enough pool of risks, an insurer can predict with reasonable accuracy t
Administration of the Fair Credit Reporting Act
The life agent must administer the Fair Credit Reporting Act found in the back of the policy application. The agent must explain the terms and have the proposed insured sign them. These signed forms will give the underwriters authority to investigate the
Risk Classification (Ratings used by Insurers)
Used when a person doesn't have a normal life expectancy. Once the rate for policy is established, the company can never raise it as long as each premium is paid before the expiration of the grace period.
Substandard Risk
Also known as special class risk - a person does not have a normal life expectancy and therefore, exposes the co. to more risk.
as a result, they will likely be charged more for insurance.
*premiums will be adjusted to insure the additional risk
**permane
Preferred Risks
people who will have lower rates for insurance because they pose less risk to an insurance company. non smokers, healthy people with normal life expectancies.
Types of Risks
Speculative risk
Pure Risk
Financial vs. Nonfinancial Risk
Personal, Property and Liability Risks
Speculative risk
one with which you can lose or you can win. The best example for speculative risk is gambling.
Pure Risk
opposite to speculative risk: A category of risk in which loss is the only possible outcome; there is no beneficial result. Pure risk is related to events that are beyond the risk-taker's control and, therefore, a person cannot consciously take on pure ri
Financial versus Nonfinancial Risks
Risks can be financial risks in the sense they involve financial loss or can be nonfinancial such as emotional distress or loss of memory as examples.
Personal, Property and Liability Risks
the pure risks confronting individuals and businesses are ordinarily divided into three categories.
1. risks involving the person
2. risks involving loss of or damage to property
3. risks that involve liability for injury or damage to persons or the prope
Managing risks:
Risk Avoidance
Assumption or Retention of Risk
Risk Transfer
Risk Sharing
Risk Reduction or Prevention
Risk Avoidance
One method of coping with risk is to try and avoid it. perhaps spending the rest of your life in a bubble...
Assumption or Retention of Risk
instead of purchasing insurance, you decide to assume the risk by self-insuring. An example of this would be declining life or health insurance and preparing yourself and your family for paying all expenses out of your hard earned money.
Risk Transfer
This choice is what insurance is all about and is the most common way to manage risk. Transfer the risk to the insurance company and have the insurance company pay for any losses.
Risk Sharing
transfer most of the risk but not all to an insurance co. you may have to share part of the losses.
Risk Reduction or Prevention
one example of risk reduction is by living a healthier lifestyle or by living and working under safer conditions.
Delivering the Policy (steps)
1. Check the policy before delivery
2. Make a definite appointment with the insured
3. review and explain policy to the owner, pointing out different parts including the summary page, provisions, exclusions and riders. also impt. that the producer explain
Insurance Company Ratings
Measures the insurance company's ability to pay claims
AM BEST COMPANY: A++ is the highest rating
STANDARD AND POOR as well as MOODY'S: AAA is the highest rating.
Insurance Agents
Act in a fiduciary capacity when dealing with the public. they must always use utmost care in dealing with clients and client transactions. Will be held to a higher duty of care than an average person.
Types of agents
Independent Agents: contract with several insurance companies
Captive agents: can represent one insurance company
general agent: individual responsible for insurance agency operation in a particular area, including the sale of life and health insurance, s
Misc. Agent Responsibilites
-collecting of premiums
-submitting the life application to home office
-check for all required signatures
-fill out and sign the agent's section of the application
-agent must stress the importance of answering all questions accurately.
USA Patriot Act/Anti-Money Laundering
-Establish AML programs similar to those required at banks and securities broker dealers (the AML program rule).
-File suspicious activity reports (SARs) with the federal government (the SAR rule)
-FinCEN, or its designee, will examine insurance company c
Which insurance companies are covered by USA Patriot act/ anti-money laundering?
insurance companies engaged within the United States in the business of issuing or underwriting "covered products," which are those insurance products FinCEN believe have features such as cash surrender values that pose money laundering and terrorist fina
Insurers covered by USA Patriot act/ anti-money laundering rules must...
take responsibility for their agents' and brokers' actions and secure compliance by them.
What does the AML Program Require?
(1) Insurance companies must develop and implement AML programs reasonably designed to prevent the companies from being used to facilitate money laundering or financing terrorist activities.
(2) The AML program must be in writing, approved by senior manag
Stranger Originated Life Insurance (STOLI)
An arrangement in which a stranger initiates an insurance policy against someone's life and makes the premium payments.
-come into conflict with some states' laws covering insurable interest. even in states where stoli is technically legal, the intent beh
Investor Originated Life Insurance (OLI)
Used synonymously with STOLI
-consumers must be aware that STOLI arrangements do not resemble traditional life insurance transactions. traditionally the consumer (the insured) initiates the application for insurance and the insured's loved ones are benefi
The main characteristic of STOLI arrangements is that ...
The insurance is purchased purely as an investment vehicle, not to provide for the insured's beneficiaries.
typically marketed to people 65 - 85 years old