Lesson 5 Review
Underwriting is the process by which an insurer determines whether, and on what basis, an insurance application will be accepted.
Agents are sometimes referred to as field underwriters and are responsible for initiating the process (i.e., solicitation, application, etc.).
Each application must be signed by the proposed insured, the policyowner (if different from the insured), and the agent. The application must contain the name of the insurance company, the name of the soliciting agent, and the agent's I.D. number.
In Florida, a child must be at least 15 years of age to sign a life insurance application; otherwise, an adult (i.e., parent or legal guardian), must sign for and on the minor's behalf.
The preferred risk is favored by insurers. These are individuals who offer a lower risk for the insurer than a standard risk and are rewarded with generally lower premium rates.
Even though all insurance companies develop their own outline of what they consider a "standard risk," the premiums are higher than preferred risks.
Premiums for substandard risks would be significantly higher than those for standard risks.
There are basically three sections in a typical life insurance application:
- Part I - General
- Part II - Medical
- Part III - Agent's Report
PART I is the front or initial part of the application which contains personal information about both the applicant and the proposed insured - general information such as the type of policy, amount of insurance, name, address, birth date, gender, marital status, smoker or nonsmoker, occupation, and income.
PART II is the medical section and contains questions about the proposed insured's health, at the present time and in the past. The insurer can request an attending physician's statement if more information is needed on the medical portion of the application. An attending physician's statement does not necessarily have to be completed by a physician, but the person must be a duly qualified person, such as a nurse.
PART III is the agent's report in which the agent presents his "observations" about the applicant. The agent's report also must state if the policy being applied for is a replacement policy.
Special Questionnaires are relied upon when an underwriter requires additional information in order to assess the risk properly, such as when the proposed insured's hobby is skydiving.
The Medical Information Bureau (MIB) is a nonprofit organization whose main purpose is to be a reliable source of medical information for their more than 700 member insurance companies.
Various consumer reporting agencies can supply the insurer with consumer investigative reports (inspection reports). Under the Fair Credit Reporting Act, the applicant must be informed that such a report may be made. Usually, these reports are not requested unless the applicant is requesting a large amount of insurance coverage. If any adverse information is supplied that results in coverage being denied or approved with higher premium rates due to the credit report, the applicant must be notified within three days and given the name of the consumer reporting agency used. If the applicant requests a summary of the nature and scope of the investigation, the insurer must provide that information within five days.
In order to provide the applicant with a lower premium rate, the insured's age as stated in the policy can be backdated in order to save age (usually up to six months). However, the insured must pay the backdated premium payments, and the policy's anniversary date will also be as it would have been if the policy had been purchased using the new effective date as well.
Term insurance for interim coverage is designed to allow the insured immediate coverage and yet defer the actual effective date of the policy (usually 1-11 months), allowing the insured to also defer premium payments.
A conditional receipt means that the applicant and the company have formed what might be called a "conditional contract" - one contingent upon conditions that existed at the time of application or when a medical examination is completed. The binding receipt binds the insurer to the agreement unconditionally when benefits are due up to a limit expressed in the policy (usually not more than $100,000).
The information contained in Unit 9 of the Florida study manual has been presented in Lesson 5 of the online course.
