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A.U.D.
Completing Application, Underwriting and Delivering the Policy
| Term | Definition |
|---|---|
| Required Signatures | Proposed insured, policy owner (if not the insured) and the agent |
| Changes in the Application | Changes made to an application after it is completed must be initialed by the applicant; no whiteout is allowed |
| Consequences of Incomplete Applications | The insurance company will return it to the agent to be completed which will delay the underwriting process |
| Warranty | A statement on the application that is guaranteed to be true |
| Premium Receipt | A receipt is usually given to the applicant at the time the application is completed and the initial premium is paid. |
| Conditional Receipt | States that coverage will be effective either on the date of the application or on the date of the medical exam, whichever is later, as long as the policy is issued as applied for; issued if the initial premium is paid at the time of application. |
| Replacement | Any transaction in which a new policy is purchased and the old policy is either lapsed, forfeited, or surrendered for its face amount or cash values are diminished. |
| Buyer's Guide | Contains generic information about life policies and must be provided at the time of application, or upon requested |
| Policy Summary | Describes the features and benefits of the policy being issued and must be provided no later than policy delivery, or upon requested |
| HIPAA (Health Insurance Portability and Accountability Act) | A federal law that protects the privacy of certain individual health information. All medical information must remain confidential during underwriting. Commissioner must approve a company’s consent form prior to use. |
| USA Patriot Act | Passed in 2001 (9/11 attack) to strengthen measures to protect against terrorism. Requires insurer to establish Anti-Money Laundering, report suspicious activity, verify the identity of customers and report transactions in excess of $10,000 in currency |
| Money Laundering | the process of taking money obtained through crime and putting it through the financial system in such a way as to disguise its illegal origins and make it appear legitimate. |
| Money Laundering Steps | Placement: getting the money into the financial system Layering: carrying out financial transactions to separate the illicit proceeds from its source Integration: making the money derived from illicit proceeds appear legitimate |
| Insurable Interest | The possibility of losing money or something of value in the event of a loss. Insurable interest must exist between the policy owner and the insured at the time of application, not at the time of loss |
| Medical Information Bureau (MIB) | A nonprofit member funded trade organization that collects and shares adverse medical information from insurance companies. An application cannot be refused because of information discovered through the MIB |
| Underwriting | Risk selection and classification |
| Fair Credit Reporting Act | Established as a way to protect consumer privacy by creating procedures to ensure that records are confidential, accurate, relevant and properly used. It protects against the circulation of inaccurate information |
| Consumer Report | Includes written and or oral information obtained from employment records, credit reports, and other public sources regarding character, reputation and habits. |
| Investigative Consumer Report | Similar to a consumer report except that it includes interviews with associates, friends, and neighbors of the consumer |
| Preferred Risk | These applicants have a superior lifestyle, physical condition, and habits: they pays the lowest premium (lowest risk) |
| Standard Risk | These applicants are representative of the majority of people; most insureds fall in the standard classification (average risk) |
| Substandard Risk | These applicants are not insurable at standard rates because of some health issue, medical history, occupation, or dangerous habits; also known as “rated” and pay the highest premium (highest risk) |
| Declined Risk | If the risk is too great, the underwriter will decline the application |
| Stranger-originated life insurance (STOLI)/Investor-originated life insurance (IOLI) | Violates the principle of insurable interest since the purchaser of the policy has no interest in the life of the insured; investors (strangers) persuade policy owners to take out new life insurance with the investors named as the beneficiaries. |
| Delivering the Policy | Agent explains the the policy and discuss provisions, riders, exclusions, any ratings, and any amendments and have the policy owner to sign a receipt |
| Statement of Good Health | If no premium was paid with the application, the agent will be required to collect the full premium and a signed statement of good health from the applicant at the time of policy delivery. |
| Contract | An agreement between two or more parties enforceable by law. Insurance contracts are unique and the law of contracts had to be modified to meet insurance needs |
| Offer and Acceptance (Agreement) | The offer must be accepted in its exact terms; in insurance, the offer is the submitted application and the acceptance is when the underwriter approves the policy |
| Consideration (Element of a Contract) | Something of value that each party gives to the other; the insured pays the premiums and the insurer promises to pay the benefit in the event of loss |
| Competent Parties (Element of a Contract) | Parties to the contract must be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol |
| Legal Purpose (Element of a Contract) | The contract must be legal and not against public policy; insurance policies must have both insurable interest and consent |
| Contract of Adhesion (Unique Characteristic) | The contract is prepared by one party and accepted or rejected by the other; a “take-it-or-leave-it” contract offered by the insurer with no negotiation |
| Aleatory (Unique Characteristic) | An exchange of unequal values; the premiums amount paid is smaller than the amount the insurer will pay in the event of a loss |
| Unilateral (Unique Characteristic) | Only on party is legally bound to do anything; the insured makes no binding promise, but the insurer is legally bound to pay the losses covered by the policy |
| Conditional (Unique Characteristic) | Certain conditions must be met for the contract to be executed; the insured must pay the premiums and provide proof of loss for the death benefit to be paid |
| Application | Part 1 - General Information Part 2 - Medical Information Part 3 - Agent's Report |
| Representations | Statements on the application that is true to the best of the applicant's knowledge; statements on an application are deemed to be representations |
Created by:
KHodge5812
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