2.1 Terms
Applicant: An applicant is an individual who submits a request for insurance coverage, either for himself or herself or on behalf of another person. The applicant may also serve as the insured, the policyowner, or both.
Application: An application is a formal written request submitted to an insurer seeking issuance of a policy based on the information provided. It serves as the primary source of information used in the underwriting process.
Beneficiary: A beneficiary is the person or entity designated in the policy to receive the policy proceeds (death benefit) if the insured dies while the policy is in force.
Insurable Interest: Insurable interest is the legally recognized relationship that must exist between the applicant (or policyowner) and the insured at the time of application and policy issuance for the contract to be valid. An individual has an unlimited insurable interest in his or her own life. Insurable interest also exists when the policyowner would suffer a financial or economic loss upon the death of the insured. Examples include policies purchased by a spouse, immediate family member, business partner, or creditor.
Policyowner: The policyowner is the individual or entity that holds the ownership rights in the insurance policy. Although the policyowner and the insured are often the same person, they may be different. Any changes to the policy generally require the written consent and signature of the policyowner.
Third-Party Ownership: Third-party ownership exists when a life insurance policy is owned by someone other than the insured.
Issue (Original) Age: Issue age refers to the insured's age as of the policy's issue date.
Attained Age: Attained age is the insured's current age at a given point in time, often used when calculating premiums at renewal or conversion.
Effective Date: The effective date is the date on which insurance coverage begins.
Expiration Date: The expiration date is the date on which insurance coverage terminates.
Quiz
1. Who has the legal authority to make changes to an insurance policy?
A. The beneficiary
B. The insured only
C. The policyowner
D. The applicant only
Correct Answer: C
Rationale: The policyowner holds the ownership rights to the policy. Any changes to the contract generally require the written consent and signature of the policyowner, even if the policyowner and insured are different individuals.
2. The primary source of information used in the underwriting process is the:
A. Beneficiary designation
B. Application
C. Policy summary
D. Agent's personal opinion
Correct Answer: B
Rationale: The application is the formal written request for insurance and serves as the primary source of information for underwriting decisions.
3. Insurable interest in a life insurance policy must exist:
A. At the time of loss only
B. At the time of application and policy issuance
C. Continuously throughout the life of the policy
D. Only if the beneficiary is a relative
Correct Answer: B
Rationale: For life insurance, insurable interest must exist when the policy is applied for and issued. It does not need to exist at the time of the insured's death.
4. A life insurance policy owned by a business partner on the life of another partner is an example of:
A. Third-party ownership
B. Issue age
C. Attained age
D. Expiration date
Correct Answer: A
Rationale: Third-party ownership occurs when someone other than the insured owns the policy. A business partner owning a policy on another partner is a common example.
5. The insured's current age at a given point in time, often used for renewal or conversion purposes, is referred to as:
A. Issue age
B. Effective age
C. Attained age
D. Original age
Correct Answer: C
Rationale: Attained age refers to the insured's present age at any specific time. Issue (original) age refers to the insured's age at the time the policy was issued.