This topic is about the foundations shared by life and health insurance: insurable interest, consent, the application and underwriting, and how policies are put in force. The national guide covers the concepts (risk pooling, adverse selection, conditional receipts, field underwriting, renewability types). Colorado puts several of these rules into C.R.S. 10-7-701 to 10-7-708, and regulates viatical settlements in 10-7-601 and following.

The national concepts in brief

• Pure risk (loss or no loss) is insurable. Speculative risk is not.
• Premiums for life insurance rest on mortality, interest and expense. Health premiums rest on morbidity.
• A conditional receipt can make coverage effective at the application or exam date if the applicant qualifies as applied for.
• Backdating within legal limits secures a younger insurance age.
• The producer's job in field underwriting is to record answers accurately and screen applicants.

Insurable interest and consent (Colorado)

• Benefits must be payable to the insured, the insured's estate, or someone with an insurable interest when the policy is issued (C.R.S. 10-7-703). Property insurance is different: there, insurable interest must exist at the time of loss.
• Everyone has an insurable interest in his or her own life and may name any beneficiary (10-7-705).
• Family: relatives within the fifth degree under the civil-law system have an insurable interest (10-7-704(1)(a)).
• Creditors: a creditor's interest is limited to the debt plus reasonable interest and charges. Any excess goes to the insured's estate (10-7-704(1)(i)).
• Key person coverage requires the key person's written consent before purchase. The employer may not retaliate against a key person who refuses (10-7-704(1)(h)).
• Charities organized under IRC 170(c) may own or buy insurance on a person who consents in writing (10-7-115).
• Consent: the insured must apply for or consent in writing to the policy (10-7-707). Exceptions:
  • a spouse may consent for the other spouse
  • a parent or legal custodian may consent for a dependent child
  • an attorney-in-fact may consent only for limited replacements

STOLI and viatical settlements

• STOLI (stranger-originated life insurance) is a policy started for a third-party investor who has no insurable interest at origination. It is unlawful and is treated as an unfair practice (10-7-702(5), 10-7-708(2)).
• Two-year bar: a policy generally can't be settled within two years of issue unless a listed exception applies, such as terminal or chronic illness (10-7-610).
• Rescission: the viator may rescind before the earlier of 30 calendar days after signing or 15 days after receiving the proceeds (10-7-609(3)).
• Producers:
  • must have held a resident life license for at least one year
  • must notify the commissioner within 30 days of first negotiating a settlement (10-7-603(1)(a))
  • represent only the viator, however they are paid (10-7-603(1)(c))

Underwriting limits (Colorado)

• Foreign travel: insurers can't refuse, limit or rate coverage solely because of lawful foreign travel. They may exclude or rate specific travel when relevant data supports it, but a State Department advisory alone is not enough (10-7-103(2)).
• Medical aid in dying: a life insurer may not deny or change benefits for a terminally ill person because medical aid-in-dying is available (10-7-103(3)).
• Sexual orientation: insurers may not ask about or investigate an applicant's sexual orientation (10-3-1104(1)(f)(VI)).

Exam traps

• In life insurance, insurable interest is required at issue, not at death.
• Key person coverage needs written consent before purchase.
• The viatical rescission window is the earlier of 30 days after signing or 15 days after receiving the money.