The Life, Disability and Health Insurance Agent

There are many ways to define the term, “insurance agent”. Fundamentally, an insurance agent is a licensed individual who solicits sales for an insurance company, or a number of insurance companies. The agent is subject to the state licensing laws of every state in which he sells life, health and disability insurance.

Captive v. independent agent

If an agent is licensed with only one company, he is referred to as a “captive agent”. And he can only sell the insurance products of that company. If he is licensed with many companies, he is referred to as an “independent agent” because he is not restricted to selling the products of only one company.
But every agent can only sell the products of companies for which he is licensed to sell. This is important for you to know because an independent agent who can sell for many companies, if he is conscientious, has a better likelihood of selling you the best product to meet your insurance needs because he has more products from which to choose. In order to make the sale (and earn the commission), a captive agent may try to convince you that his company’s product is the best for you when in fact there are better products for your situation in the marketplace.

The Importance of Dates in Your Insurance Policy

Dates (not to be confused with the social encounter or the fruit) in the insurance world are critical. There are three specifically that are often confused with each other, but are highly crucial in insurance litigation. And to make it more befuddling, insurance companies each have their own definitions of those terms in their policies which they are supposed to follow. The three terms are issue date, policy date and effective date. We will give you the generally understood meaning of these terms.

The issue date is normally the date on which the insurance company approves and accepts your application. The policy date is the date written on the policy. These two are sometimes the same, but insurance companies often add a few days to the issue date to name a policy date. This allows time for the policy to be delivered to the insured. The effective date is the date on which the legal obligation by the insurance company is created.
The policy date is important because so many time periods under the policy start with it: The suicide and contestable periods, due dates of renewal premiums, expiration date of grace periods, availability and amount of nonforfeiture values and the duration of any extended term insurance.

The effective date is significant because it is the date on which the insurance company becomes liable under the contract. Insurance companies usually try to make the effective date very clear in their policies and define it in the policy and the application. The date on which a policy first takes effect is determined by several factors, such as whether a premium was paid with the application and if a conditional receipt was given for the premium if a premium was paid.

Almost all applications read that coverage is not effective until the policy is delivered and the first premium is paid. Therefore, these criteria must be met before the policy is considered to be in place. Backdating a policy usually results in different issue and effective dates. In that circumstance, premium due dates are ordinarily computed from the date of issue, while contestable and suicide periods run form the effective date. The effective date under a conditional receipt depends on the language of the receipt and state law.

This is a very complicated area of the law and courts apply different legal theories, depending on the facts and circumstances of each case. To give you a few examples, one court determined that a suicide period in a life insurance policy ran from the date the policy was issued and not from the date of the conditional receipt because the court considered the policy and the receipt to be two separate contracts. If the date of the conditional receipt had applied, the suicide period would have expired and the insurance company could not have used it as a defense and would have had to pay the death benefit. However, because the two year suicide exclusion ran from the policy date (also the issue date in this case), the court determined that the insurance company properly denied the claim.

In another case, the court held that coverage began when the insured first paid his premium and not on a later date defined in the policy because that was what the insured could reasonably have expected (in legal parlance, called the “doctrine of reasonable expectation”). The policy excluded death from suicide within two years of the effective date of coverage, and the insured committed suicide more than two years after the first premium was paid but less than two years from the coverage date.

As you can see, if determining the date from which to begin counting a particular time period is critical to your outcome, you would be well advised to seek the advice of attorney. There are policy definitional issues, state law issues and judicial interpretation issues, all of which call for expert legal guidance. It is not an area for a novice.

Determination of insurable interest

Courts and state laws have established guidelines for those persons and entities presumed to have insurable interest. They fall into three general categories – relations by blood or marriage, business relationships, and creditors.
Blood or Marriage: People generally have an insurable interest in the lives of their spouses and dependents. Based on this relationship, the general rule of thumb is:
Insurable InterestHusbands and wivesParents and children(including adopted children)Grandparents and grandchildrenBrothers and sistersEngaged couples (some states)
No Insurable InterestOther relatives by marriageNieces and nephews CousinsUncles and auntsStepchildren and stepparents
Business Relationship: An insurable interest may be created in an otherwise non-insurable interest relationship by the creation of a financial dependency or a business relationship between the parties. For example, an uncle may be deemed to have an insurable interest in a nephew because the uncle’s business is run by the nephew and the business, as run by the nephew, is making a lot of money for the uncle.
One who receives economic benefit from the continued life and good health of another has an insurable interest in that person’s life. For example, employers can take out key person life insurance on key employees, corporations can take out insurance on the lives of their officers, business partners can take out life insurance on each other.
Creditors: Creditors are allowed to take out life insurance on the lives of their debtors, with the debtors’ consent, up to the limit on the debt. Mortgage and credit insurance are examples of this type of insurance.
Insurance companies have a duty to exercise reasonable care in determining whether insurable interest exists and whether the consent of the insured has been obtained. If they don’t, they may be sued.
For more information on life insurance contracts, read our section on Life Insurance.