CARD T051
Underwriting
An insurer’s process for assessing an application and determining eligibility and terms under applicable rules. For example, reviewing a life insurance applicant’s health history to assess risk.
How it works
Underwriting is the insurer’s review of an application to decide whether to offer coverage and what price or terms to use. For life insurance, permitted information may include health, age, occupation, risky hobbies, and the financial reason for the amount requested. The insurer may offer its usual rate, a better rate, a higher rate, postpone the decision, or decline coverage. The rules depend on the product: ACA-compliant individual major medical insurance cannot deny coverage or charge more because of preexisting health conditions. [10] [12]
A life underwriter reviews a disclosed condition and additional medical evidence before offering a rated premium. The producer gathers information but does not make the insurer’s final decision.
Underwriting selects and classifies risks; claims handling evaluates requests for benefits after a loss.
CARD T052
Insurable Interest
A legally recognized interest in the insured’s continued life or well-being that supports obtaining insurance. For example, someone buying insurance on their own life has insurable interest.
How it works
Insurable interest connects the insurance to a legitimate personal or economic stake rather than a wager. A person has an interest in their own life; close family relationships and financial dependence or business relationships can support an interest in another person. Life insurance generally requires the interest at inception, not continuously until death. Consent and other requirements are separate. [11]
A company may have a financial interest in a key manager’s continued life. A stranger who merely hopes to profit from that manager’s death does not gain an interest simply by offering to pay premiums.
Insurable interest and beneficiary designation are not interchangeable. Ownership of a policy on another person requires separate attention.
CARD T053
Evidence of Insurability
Information used to assess whether someone qualifies for insurance. A health questionnaire or medical examination can provide evidence.
How it works
Evidence may include application answers, medical examinations, records, and other permitted information. Not every policy requires a physical examination; simplified or accelerated processes may use different evidence. No-exam does not necessarily mean guaranteed acceptance. A guaranteed renewal or conversion right may waive new evidence within its limits. [10]
An applicant submits a health questionnaire and authorizes records. The insurer can use that evidence even if it does not require a separate examination.
Evidence of insurability is information for a decision, not a promise that approval will follow.
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Practice questions
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T051 · Underwriting
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T052 · Insurable Interest
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T053 · Evidence of Insurability
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Sources & further reading
Original explanations and practice scenarios informed by the following regulatory, legal, and product resources. State examples are not presented as nationwide deadlines or requirements.