Life & Health: Underwriting

What is underwriting?

The process of evaluating risk to determine if it’s acceptable based on established insurance company guidelines.

Agent/Producer = frequently called “field underwriter”

Application confidentiality

Highly personal information is gathered during the application process. Agents hold this information in the strictest confidence and producers must never violate that confidence.

Application accuracy

Producers must be diligent in getting and recording the correct answer to every question on the application. The company underwriter relies on the accuracy to assess and rate this business.

Changes in the application

Corrections can be made if a producer has mistakenly recorded applicant information.

The applicant must certify an error occurred and place their initials next to the correction.

Application completeness

Incomplete applications cause delays and prolongs the application process. All required information must be available for the Underwriter Review Department before it can be approved and issued.

If an incomplete application is approved, the underwriter/company waives their right to the information and cannot deny if a claim arises.

Application backdating

Some insurers allow backdating for lower premiums.

Most state laws allow life insurance applications to be backdated up to 6 months.

Who’s signatures are required on the application?

• applicant

• producer/agent

• insured (parent or legal guardian for a juvenile policy)

What is the Producer’s Report?

Part III of a life insurance application is the Producer’s/Agent Report, or Producer’s statement.

Information included:

• Producer’s/Insured relationship

• what the agent knows about the applicant’s financial status, habits, and character.

• never seen by the client

Not attached to the policy at issue

What is the Disclosure Notification?

State law requires that applicants are given advanced written notice on:

• who is authorized to disclose personal information

• the kind of information

• and the reason the information is being collected

By signing the disclosure form, the applicant gives consent to gather and disseminate information described in the notice.

Collecting the premium

An “offer to buy” insurance exists when the first premium is submitted with the application. There is no benefit until the premium is collected.

Once the premium is collected, the producer must provide the applicant with a “receipt”.

What is a conditional receipt?

The premium paid with the application.

The insurance is effective—the later of:

• on the date the application is completed & signed

OR

• after a medical exam (if required)

If the insurer dies before the policy is issued, the death benefit is paid only if they would have been accepted had they lived. If not, the premium is returned and no death benefit.

What is a binding receipt?

Temporary, 30 - 60 days from the date of application, even if the applicant is uninsurable.

Binders are mostly used for auto and home insurance, rarely life.

Life insurance binders = temporary insurance agreements

What are the 3 Parts of the application?

Part 1 — General Information

Part 2 — Health Information

Part 3 — Producer’s Report

What is the Attending Physician’s Statement (APS)?

When the underwriter asks the insured’s regular doctor for an Attending Physician’s Statement (APS) to find out about their current condition, medical history, or ask for copies of their medical records.

When would an insurer underwrite on a non-medical basis?

When the death benefit is below a certain level, the applicant is evaluated on the health information on the application.

Medical exams are required for larger death benefit amounts.

What are the requirements/considerations for AIDS?

Questions about being diagnosed with AIDS (Acquired Immune Deficiency Syndrome) or ARC (AIDS-Related Complex) to determine a medical condition can be asked.

AIDS testing can be required with the applicant’s written consent. If required, they must be informed of the purpose of the test and that results are reported to the insurer.

If positive, a report is sent to the Medical Information Bureau (MIB) that an individual has abnormal blood test results.

The presence of AIDS is never revealed, reported, or shared and can only be released to persons designated by the applicant. If the applicant does not designate a medical provider, state law may require the results forwarded to the State’s Department of Health.

AIDS tests are paid by the insurer.