Life Insurance Basics
Underwriting and risk selection
Life underwriting prices mortality risk. The producer performs field underwriting - the most important step, because incomplete or misleading applications cause contested claims later. The application typically has Part I (general information) and Part II (medical history); a producer who knows an answer is false must not submit a clean application. Insurers may use the MIB (member insurers sharing coded impairment data - not a credit report), attending physician statements, inspections, and paramedical exams. The Fair Credit Reporting Act requires notice when a consumer report is used and notice of adverse action.
Applicants are classified preferred, standard, or substandard (rated/table-rated) using mortality or morbidity tables.
Application, receipt and delivery
Statements on the application are representations (believed true), not warranties. The conditional receipt makes coverage effective as of the application or medical-exam date, if the proposed insured proves insurable under company rules - the condition matters. Coverage does not exist merely because a premium was collected; the policy must be delivered while the insured is still alive and in good health for a statement-of-good-health delivery.
Ownership, beneficiary and ethics
Policy rights belong to the owner; the insured is not always the owner. Insurable interest must exist at purchase; STOLI arrangements (stranger-originated life insurance) are generally void as wagering contracts. Beneficiaries may be primary, contingent, revocable, irrevocable, per stirpes or per capita; a spendthrift clause protects proceeds from the beneficiary's creditors. Life settlements (viaticals) involve selling an existing policy.
Rule of thumb: if the question asks when coverage begins with a conditional receipt, the answer is the application/exam date - conditional on insurability.