Underwriting and Policy Issue Flashcards

An applicant pays the initial premium for a life insurance policy at the time of application and receives a conditional receipt. Five days later, before the policy is issued, the applicant dies in an accident. The underwriting process determines that the applicant was insurable at a standard rate on the date of application. What is the insurer's most likely course of action?

Answer: Pay the full death benefit as if the policy were issued.

A conditional receipt provides that coverage becomes effective as of the date of application or the date of a medical exam, whichever is later, provided the applicant is found to be insurable for the applied-for policy. Since the applicant was determined to be insurable and the premium was paid, the condition was met, and the insurer is obligated to pay the death benefit.

Which of the following is the primary purpose of the Medical Information Bureau (MIB)?

Answer: To provide a central database for insurers to share coded information and prevent fraud or misrepresentation on applications.

The primary function of the MIB is to serve as an information exchange for member insurance companies. It helps underwriters detect omissions, errors, or misrepresentations made on insurance applications by sharing coded information about applicants' medical histories and other risk factors, thus preventing fraud.

An underwriter classifies an applicant as a 'substandard risk.' What does this classification typically mean for the applicant?

Answer: The applicant will be charged a higher premium or have restrictions placed on their policy due to increased risk.

A substandard risk is an individual who, due to health, occupation, or lifestyle, presents a higher-than-average risk to the insurer. To offset this increased risk, the insurer will typically issue a policy with a higher premium (a 'rating') or include special limitations or exclusions.

Under the Fair Credit Reporting Act (FCRA), if an insurer denies an application or charges a higher premium based in whole or in part on information from a consumer report, what must the insurer do?

Answer: Provide the applicant with an adverse action notice that includes the name and contact information of the reporting agency.

The Fair Credit Reporting Act (FCRA) requires that when an insurer takes an adverse action (such as denying coverage or charging a higher rate) based on information in a consumer report, it must provide the consumer with an adverse action notice. This notice must include the contact information for the consumer reporting agency that supplied the report, a statement that the agency did not make the decision, and information on the consumer's right to obtain a free copy of the report and dispute its accuracy.

For a life insurance policy to be valid, the policyowner must have an insurable interest in the life of the insured. When must this insurable interest exist?

Answer: Only at the time of the application.

The principle of insurable interest requires that the policyowner would suffer a financial or emotional loss from the death of the insured. This interest is only legally required to exist at the inception of the policy—that is, at the time of the application. It does not need to exist at the time of the claim (the insured's death).

Which of the following is a key responsibility of a producer during the field underwriting process?

Answer: Observing the applicant, asking probing questions, and providing a producer's report with personal observations to the insurer.

Field underwriting is performed by the producer (agent). It involves gathering relevant information, ensuring the application is filled out completely and accurately, and providing a producer's (or agent's) report to the home office underwriter. This report includes the producer's personal observations about the applicant's health, financial status, and character that may not be captured on the application itself.