Life & Health Chapter 19 | Health Chapter 10: Health Insurance Underwriting and Policy Issue Concepts

Adverse Selection

High-risk individuals disproportionately seek or keep coverage; curbed by underwriting

Age Change

Midpoint between birthdays when age for rating purposes increments

Agent’s Report

Confidential agent’s observations on proposed insured

Applicant

Person completing application (often the insured)

Application

Info statement used by underwriters; forms part of contract

Attending Physician Statement (APS)

Doctor’s detailed medical report; requires applicant’s authorization

Avocation

Non-work activity; some hobbies raise risk and need extra underwriting

Backdating

Setting effective date up to 6 months before application to lower issue age

Binding Receipt (Unconditional Receipt)

Receipt providing immediate coverage upon application and first premium payment

Buyer’s Guide

Pamphlet comparing policy types; required when soliciting coverage

Claims Experience

Insured’s loss history; higher claim rates raise premiums

Community Rating

Premiums set by area-wide claims and healthcare costs

Conditional Receipt

Temporary coverage upon premium payment if conditions met; refunded if uninsurable

Constructive Delivery

Carrier relinquishes control; policy deemed delivered unconditionally

Consumer Report (Investigative)

Background investigation (incl. interviews, credit) for underwriting

Counter-Offer

Insurer rejects paid application but offers rated policy at higher premium

Credit Report

Summary of applicant’s credit history from major bureaus

Declined Risk

Applicant whose coverage request is refused

Delivery Receipt

Signed proof of policy delivery; starts free-look period

Disclosure Form

State-mandated comparison form when replacing an existing policy

Earned Premium

Portion of advance premium corresponding to elapsed coverage period

Effective Date

Date coverage begins and premium schedule is set

Evidence of Insurability

Proof of health status/history needed to qualify for coverage

Fair Credit Reporting Act

1970 federal law permitting consumer reports; must notify applicant and provide agency details if declined

Field Underwriter

Agent or producer who completes the applicant’s insurance form

Field Underwriting

Producer’s onsite risk selection and disclosure of required notices

Free-Look Period

Minimum 10-day (30-day mail/direct) window to return policy for full refund

Health Insurance Premium

Calculated as morbidity minus interest plus expenses

Information and Privacy Protection Act

Requires conformity with privacy laws; bans decisions based solely on past adverse underwriting

Inspection Receipt

Temporary policy release for review before purchase; largely obsolete due to free-look

Inspection Report

Third-party background check on health, habits, finances, and reputation

Insurable Interest

Financial or emotional stake that justifies coverage

Interest

Insurer’s projected earnings from investing collected premiums

Issue Date

Date underwriting is complete; policy effective upon issue or delivery with first premium

Load

See Expense Factor

Loading Factor

See Expense Factor

Medical Information Bureau

Organization compiling medical data on applicants for member insurers

Medical Report

Physician exam report used for underwriting

Mode

See Premium Mode

Moral Hazard

Applicant habits or lifestyle choices that increase risk

Non-Medical

Application assessed without medical exam

Outline of Coverage

Plain-language summary of benefits, conditions, and terms

Payor

Person responsible for paying the premium

Policy Fee

Small transaction charge per policy year

Policy Summary

Basic terms, coverage limits, and premiums overview

Policy Term

Period policy remains in force while premiums are paid

Policy Holder

Individual entitled to policy rights; usually the payor

Preferred Risk

Applicant with lower-than-average risk profile

Premium

Advance payments for risk transfer; required to keep coverage active

Premium Mode

Frequency of premium payments; non-annual modes may incur extra charge

Premium Receipt

Proof of initial payment; determines when coverage starts and conditions

Proposed Insured

Person whose life/health is to be insured

Rated Policy

Policy with higher premium due to above-standard risk

Rated-Up Policy

See Rated Policy and Substandard Risk Classification

Rated-Up Premium

Extra amount added to standard premium for substandard risk

Replacement

Lapse/surrender of existing policy to buy new one; requires notice to consumer and insurer

Representations

Applicant statements; must be substantially accurate; material misstatements are fraudulent

Reserves

Funds held to pay future claims; some are statutorily mandated

Risk Classification

Underwriting category based on applicant’s injury, illness, or death susceptibility

Special Class

—

Special Questionnaire

Form for detailed high-risk activity screening

Standard Risk

Average risk meeting standard underwriting criteria

Substandard Risk (Impaired Risk)

Above-standard risk requiring a rated-up premium

Statement of Continued Good Health

Affirmation no health change since application receipt

Temporary Insurance Agreement

See Binding Receipt

Trial Application

Application without premium; no contract until premium paid

Underwriter

Risk evaluator who decides coverage and pricing

Underwriting

Selection, classification, and rating of insurance risks

Unearned Premium

Portion of prepaid premium for unexpired coverage

Uninsurable

Risk too extreme or unknown; rejected by insurer

USA PATRIOT Act

Law imposing anti-terrorism and anti-money-laundering rules

Warranties

Absolute applicant statements; breach voids the policy

Purpose of Underwriting

Avoid uninsurable risks and reduce adverse selection

Underwriting Process

Evaluate applicant data against company standards to accept, rate, and classify risks

Underwriting Guidelines

Insurer’s internal rules directing risk selection, classification, and rating

Agent’s Underwriting Role

Gather complete applicant info, provide required disclosures, and ensure truthful answers

Pre-Selection Underwriting

Producer’s tasks before submission: obtain detailed answers, advise on services, stress honesty

Post-Selection Underwriting

Underwriting department’s evaluation of risk using all relevant information sources

Agent Binding Limit

Producers cannot legally guarantee or bind coverage

State-Specific Regulations

State insurance laws that supersede general course content in case of conflict

Underwriting Outcomes

Accept/decline/rate decisions that drive coverage and commissions

Risk Factors in Health Insurance

Applicant attributes (health, lifestyle, history, occupation)

Insurable Interest

Applicant’s financial/emotional stake validating coverage

Physical Condition & Health History

Current health and past/family medical profile

Moral Hazards

High-risk behaviors or habits raising claim likelihood

Occupation & Hobbies

Job and leisure activity hazard levels used to set premiums

Age and Sex

Older age increases risk/premiums; women generally higher rates but cannot be denied on gender

Classification of Risk Exposures

Assigning applicants to preferred, standard, substandard, or declined categories

Preferred Risk

Risk below average; qualifies for reduced premiums (e.g., non‐smoker, ideal BMI)

Standard Risk

Average risk meeting underwriting guidelines; insurable at standard rates

Substandard (Rated) Risk

Above‐average risk requiring an extra (“rated‐up”) premium or possible restrictions

General Insurance Premium Concepts

Overview of how premiums are determined and structured

Premium

Advance payment(s) required to transfer risk and keep coverage in force

Premium Mode

Payment frequency (annual, semiannual, quarterly, monthly) affecting extra charges

Premium Payment Frequency

More frequent premium modes add convenience but raise total cost due to extra admin and delayed investment

Unearned Premium

Portion of prepaid premium for future coverage; recorded as liability until earned

Morbidity

Expected incidence and severity of disability in a group; primary input for rate setting

Interest

Projected investment return on premiums; higher assumed rates lower premium amounts

Expense Factor

Loading charge covering commissions, overhead, reserves, and profit

Benefits

Scope and level of policy payouts; more or richer benefits lead to higher premiums