Life Insurance Basics
Underwriting and the application
The producer is the field underwriter - the agent's honest report of observations matters. Underwriting tools include the application, the MIB (Medical Information Bureau, which reports coded information, not diagnoses), paramedical exams, attending physician statements, and inspection reports (which trigger an FCRA notice to the applicant). Applicants are classified as preferred, standard, substandard (rated/table-rated), or declined.
When coverage begins
The conditional receipt makes coverage effective on the date of the application (or the medical exam, if later) - but only if the proposed insured meets the insurer's underwriting rules. If a statement of good health is required at policy delivery, the applicant's health is re-confirmed at delivery; if health has changed, the insurer may decline. Delivery plus premium is required to place coverage in force in some circumstances.
Premium and ownership
Gross premium = mortality (cost of claims) + interest (assumed earnings) + expense (operations) loaded together. Annual mode costs the least overall; monthly mode costs the most, but is easiest to budget. The policyowner holds the rights: naming and changing beneficiaries (unless irrevocable), surrendering, borrowing, assigning, and selecting settlement options - none of which require the insured's consent.
Beneficiaries
Primary receives first; contingent receives only if the primary has predeceased. Per stirpes divides a deceased child's share among that child's heirs; per capita divides equally among living survivors. Naming a minor creates a problem - insurers pay a guardian or UTMA custodian, not the child. An estate beneficiary pushes proceeds through probate and exposes them to creditors. A common disaster clause delays payment to the contingent beneficiary until the primary is shown to have died first.
Traps: the unconditional receipt question ("policy issued means covered") and confusing ownership with insured status.
Rule of thumb: no insurable interest at application = no valid contract, no matter how the death occurs later.