3-5

Which of the following statements regarding representations is CORRECT? A) Only written statements are considered representations. B) If a representation is false on a material point, the insurer may alter the contract but may not rescind it. C) A representation is guaranteed to be true. D) A representation may not be altered after the insurance is in effect.

D) A representation may not be altered after the insurance is in effect.

The annual premium on Rhoda's life insurance policy is due December 1, 2007. She paid the premium, which was for: A) 2008 B) any year she designates. C) 2007 D) 2006

A) 2008. All life insurance premiums are payable in advance. Thus, a premium due on December 1, 2007, was applied to 2008.

Which of the following statements regarding morbidity tables is CORRECT? A) They indicate the average number of individuals from a given group who will become disabled. B) They indicate the gender and number of individuals from a given group who will die in a given year. C) They indicate the gender and number of individuals from a given group who will become disabled in a given year. D) They indicate the average number of individuals from a given group who will die in a given year.

A) They indicate the average number of individuals from a given group who will become disabled.

An insurance agent should be all of the following EXCEPT: A) a college graduate. B) qualified to perform insurance functions. C) honest and trustworthy. D) reputable in business.

A) a college graduate.

In writing group insurance, insurance companies use all of the following underwriting procedures to guard against adverse selection EXCEPT: A) medical examinations for prospective insureds who are borderline risks. B) careful group selection. C) benefits determined by formula. D) minimum participation rules.

A) medical examinations for prospective insureds who are borderline risks.

In the underwriting of insurance policies, some amount of discrimination is: A) present in many cases, because of differing levels of risk. B) illegal in all cases. C) permissible only when 2 people of equal risk are charged different rates. D) forbidden by federal statutes.

A) present in many cases, because of differing levels of risk.

With regard to insurance, the term "consideration" means the: A) price of the contract (the premium). B) screening process all agents undergo prior to licensing. C) side-by-side policy comparison by the applicant. D) insurer's method of evaluating the applicant for coverage.

A) price of the contract (the premium).

Mark and Steve signed a contract in which Mark agreed to apply for health insurance and Steve would submit fraudulent medical claims through his physician billing service. Mark and Steve plan to share the proceeds. The contract between Mark and Steve can best be described as: A) void. B) incompetent. C) voidable. D) unilateral.

A) void.

Which of the following is a promise in exchange for an action? A) An aleatory contract. B) A unilateral contract. C) A contract of adhesion. D) A condition contract.

B) A unilateral contract.

A fiduciary responsibility is defined as: A) the responsibility of the insured to pay premiums in a timely fashion. B) the responsibility the producer has to the appointing insurer. C) a relationship of special trust and confidence when a person is entrusted with another's funds. D) the relationship between the broker and the insurer whose products are sold.

C) a relationship of special trust and confidence when a person is entrusted with another's funds.

When establishing premiums, insurers express the rate as a: A) cost per insured individual. B) percentage of the policy's face amount. C) cost per $1,000 of face amount. D) flat rate per risk.

C) cost per $1,000 of face amount.

Bill, age 45, purchased a life insurance policy from AllPro Insurers and named his 8-year-old son Ted as beneficiary. Which of the following statements regarding this situation is CORRECT? A) Bill and Ted are considered parties to the insurance contract. B) Ted is not a party to the insurance contract. C) Bill, AllPro Insurers, and Ted are considered parties to the insurance contract. D) Ted is not a competent party to the insurance contract because he is a minor.

B) Ted is not a party to the insurance contract. A beneficiary is not a party to an insurance contract.

AGC Publishing applied for key-person life insurance on its chief executive officer. Which of the following parties must sign the application? A) The CEO and the agent handling the application. B) The CEO, another officer of AGC, and the agent handling the application. C) An officer of AGC and the agent handling the application. D) The CEO and another officer of AGC.

B) The CEO, another officer of AGC, and the agent handling the application. If the policyowner is a firm or corporation, one or more partners or officers other than the proposed insured must sign the application.

Bernice has placed her home telephone number on the National Do-Not-Call Registry. In which of the following cases is the call prohibited? A) Bernice requested information about a policy from an insurer with whom she has not dealt before. The insurer's agent calls to give her this information. B) Wanda, Bernice's friend, gave Bernice's phone number to a personal financial advisor who calls to seek an appointment. C) Bernice applied for a policy with the Assured Insurance Company. Assured's agent calls to discuss her application. D) A representative of a local political organization calls to solicit a contribution.

B) Wanda, Bernice's friend, gave Bernice's phone number to a personal financial advisor who calls to seek an appointment. Remember, calls from or on behalf of political organizations, charities, and telephone surveyors are permitted.

When applicable, all of the following forms require an applicant's signature EXCEPT: A) application. B) agent's report. C) aviation questionnaire. D) authorization form.

B) agent's report. An agent's report is not given to the applicant and does not require his or her signature.

Underwriting techniques commonly used by insurers in issuing policies to applicants who do not measure up to a standard rating include the following EXCEPT: A) charging an extra premium. B) averaging total risks pending. C) limiting the type of policy. D) attaching an exclusion rider or waiver to a policy.

B) averaging total risks pending. Underwriting techniques used by insurers in issuing policies to substandard risks include charging extra premiums to compensate for the additional risk, limiting coverage by excluding certain risks, and restricting or modifying the policy issued.

If a broker diverts funds belonging to an insurer to his or her own use, he or she has committed the illegal act of: A) fraud. B) theft. C) embezzlement. D) commingling.

B) theft.

All of the following statements pertaining to inspection reports on life insurance applicants are correct EXCEPT: A) they help to determine the insurability of applicants. B) they provide information obtained principally from law enforcement officials. C) they generally are requested on applicants who apply for large amounts of life insurance. D) they usually are obtained from national investigative agencies or firms.

B) they provide information obtained principally from law enforcement officials. They normally receive inspection reports on life insurance applicants from national investigative agencies.

All of the following can affect directly the amount of premium an individual insured pays EXCEPT: A) age. B) sex. C) marital status. D) occupation.

C) marital status.

Brian met with an insurance producer to discuss how much life insurance he'd need to support his family in the event of his premature death. Both parties agreed that a $750,000 life insurance policy would be sufficient. When Brian stated that he wanted to discuss the matter with his wife, the producer asked him to sign a general background information form before he left. However, the document was actually an application form that the producer submitted to the insurer. If the insurer then issues a contract, it will be legally unenforceable because: A) the insurer did not make a valid offer. B) Brian is not presumed to be a competent party to the contract. C) Brian did not make a valid offer. D) Brian did not make a valid acceptance of the contract.

C) Brian did not make a valid offer.

Which of the following statements pertaining to inspection reports and credit reports on life insurance applicants is NOT correct? A) Applicants with unfavorable credit ratings are poor prospects for life insurance. B) Information contained in inspection reports usually is obtained through interviews with employers, neighbors and associates of the proposed insured. C) Inspection reports are requested regardless of the size of the policy. D) The size of the policy being requested generally determines whether an inspection report is ordered by the underwriting department.

C) Inspection reports are requested regardless of the size of the policy. Inspection reports usually are obtained from several knowledgeable sources by insurance companies on applicants who apply for large amounts of life insurance.

Ben is considering the purchase of a $75,000 whole life policy. Which of the following options would tend to lower his premiums? A) The waiver of premium option. B) The addition of a guaranteed insurability rider. C) Paying premiums annually as opposed to monthly. D) The addition of a cost of living rider.

C) Paying premiums annually as opposed to monthly. The less frequently premiums are collected on a life insurance policy, the less it costs the insurer to administer that policy and the more the insurer will have to invest.

If a medical report is required on an applicant, it is completed by: A) the agent. B) the home office medical director. C) a paramedic or examining physician. D) a home office underwriter.

C) a paramedic or examining physician.

Which of the following situations would create a possible errors and omissions liability to the producer? A) The producer informs the insurer that he has serious doubts about the applicant's insurability. B) The producer fails to inform the client that her policy is being canceled at the end of the year. C) The producer fails to return phone calls from the client. D) During the sale of a replacement health policy, the producer tells an applicant that the new policy will cover expenses ordinarily paid by Medicare.

D) During the sale of a replacement health policy, the producer tells an applicant that the new policy will cover expenses ordinarily paid by Medicare. The producer selling the replacement policy has engaged in misrepresentation, which is illegal. Health policies exclude coverage for benefits that are covered by Medicare. The producer has exposed himself to errors and omissions liability, in addition to possible license suspension or revocation.

Which section of a health insurance policy specifies the conditions, times and circumstances under which the insured is NOT covered by the policy? A) Coverages. B) Insuring clause. C) Coinsurance provision. D) Exclusions.

D) Exclusions.

An insurance contract is prepared by one party, the insurer, rather than by negotiation between the contracting parties. Which of the following statements explains this characteristic of insurance contracts? A) The insurance contract is a unilateral contract. B) The insurance contract is a conditional contract. C) The insurance contract is an aleatory contract. D) The insurance contract is a contract of adhesion.

D) The insurance contract is a contract of adhesion. Insurance contracts are contracts of adhesion, meaning that they are prepared by one party, the insurer. They are not negotiated contracts. In effect, the applicant "adheres" to the terms of the contract when he or she accepts it.

the price requested and given in exchange for a promise or an act

consideration