Chapter 2 Life Insurance Basics

The person who submits an application for insurance is always referred to as the _______. A. Insured B. Applicant C. Owner D. Beneficiary

Applicant

All of the following signatures would be required on a life insurance application for an adult, except that of the: A. Producer B. Applicant C. Beneficiary D. Insured

Beneficiary

Part 1 of the application consists of all of the following information, except: A. Place of residence B. Occupation C. Gender D. Medical status of immediate family members, their ages and causes of death

Medical status of immediate family members, their ages and causes of death

Which of the following is NOT a major source of underwriting information? A. Past life insurance owned B. The application C. Medical exams D. Attending Physician's Statement

Past life insurance owned

Any transaction in which a new life policy or annuity is to be purchased, and the producer knows, or should know, that existing contract(s) will be: lapsed, forfeited, surrendered, terminated, reduced in value, amended with a reduction in benefit or term, have a reduced cash value, or is subjected to borrowing, is best known as a __________. A. Conversion B. Replacement C. Reissuance D. Re-entry

Replacement

An applicant's signature on an application indicates what? A. That it is up to the insurer to discover the truth B. That their statements are true C. That the producer had coached them through the process D. That the statements made are guaranteed to be true in all respects

That their statements are true *The applicant is representing that statements on the application are true to the best of their knowledge and belief.

Which of the following statements about policy roles is TRUE? A. The insured and the policyowner are usually the same, but not necessarily B. The insured and the policyowner are always the same C. Any changes to a policy must be approved by both the insured and policyowner in writing D. The applicant, insured, and policyowner must approve any changes to a policy in writing

The insured and the policyowner are usually the same, but not necessarily

When a producer receives an application for life insurance that is completed and signed, but without premium payment, when does coverage start? A. On the date the medical exam is complete B. On the date the insurer mails the policy to the producer C. On the date the application is received D. On the date the policy is delivered and premium collected

On the date the policy is delivered and premium collected

An applicant claims they have no hazardous hobbies, but the agent sees a plaque proclaiming the applicant as president of a local skydiving club. The agent would need to include this information on the: A. MIB Report B. Agent's Report C. Inspection Report D. APS Report

Agent's Report *The agent's report is the vehicle for reporting information, obtained through personal observation, which may be material to the underwriting process.

In order for a life insurance policy to be valid, insurable interest must exist at time of _________. A. Issuance change to expiration B. Conversion C. Application D. Claim

Application

Which underwriting source is primarily used when an application reveals conditions for which more medical information is required? A. Inspection Report B. Agent's Report C. Attending Physician's Statement D. Medical Information Bureau Report

Attending Physician's Statement

The cost of any required medical exams in the underwriting process is paid by the: A. Insurer B. Applicant C. Insured D. Producer

Insurer

Which of the following medical reports cannot be used as the sole basis for rating or denying coverage to an applicant? A. Attending Physicians B. Paramedical Exam C. Medical Exam D. MIB

MIB

Which of the following is not a factor in premium determination? A. Interest B. Expenses C. Reserves D. Mortality

Reserves

All of the following are true regarding an Attending Physician's Statement (APS), except: A. They are used in cases where the application or medical records reveal conditions that require further explanation B. The insurer pays the physician for completing and forwarding the APS C. Applicants must sign a release in order for their physician to respond to an APS request D. An MIB report can be used in place of an APS

An MIB report can be used in place of an APS

A(n) ________ report is a general report of the applicant's finances, character, morals, work, hobbies, and other habits. A. Attending physician's B. Inspection C. Agent's D. Motor vehicle

Inspection

Which of the following signatures would not be considered valid on an application for insurance? A. A minor insured B. The licensed producer C. The policyowner D. A guardian applicant

A minor insured *Both the producer or agent and the applicant/insured must sign the application unless the guardian is signing for a minor.

By what means does the client acknowledge that an insurer may use services and information provided by third parties to gather information during the underwriting process? A. By verbally acknowledging that the producer informed him or her about the Fair Credit Reporting Act B. By signing the application C. By signing the check given to the producer for the modal premium D. By accepting a copy of the Fair Credit Reporting Act brochure from the producer

By signing the application *The insurance company must meet requirements under the FCRA when gathering information about an applicant from a third party. The signature on the application acknowledges that the applicant has been given the required notice of information practices. The applicant has the right to request a copy of any prepared reports from a reporting agency. Any inaccurate or incomplete information found in any report may be challenged by the applicant.

Ultimately it is up to the _______ to determine if the proposed insured is an acceptable risk. A. Home office actuary B. Field underwriter C. Home office underwriter D. Insured's primary care physician

Home office underwriter

An insurable interest must exist between the _______ and the ________ at the time of application for life insurance to be valid. A. Applicant/Insured B. Applicant/Owner C. Owner/Beneficiary D. Insured/Beneficiary

Applicant/Insured *The insurable interest relationship must exist between the applicant and insured, at the time of application and policy issuance, in order for the contract to be valid.

The Medical Information Bureau (MIB) is formed by: A. The Government B. Medical professionals C. Insurance companies D. Employers

Insurance companies

If a medical exam is required as part of the underwriting process, who normally conducts the exam? A. A physician or nurse B. The producer's manager in the agency's office C. A chiropractor D. The producer

A physician or nurse *Physicians, nurses, or paramedics are the ones who conduct medical exams which may include blood tests, urine tests, EKGs, and medical histories among other things.

A producer should do all of the following when meeting with the client after the policy has been issued, except: A. Review any endorsements and riders B. Go over the benefits and exclusions C. Disclose the amount of commission earned on the sale D. Explain the policy to the applicant

Disclose the amount of commission earned on the sale

In a policy summary all of the following must be shown as being guaranteed, except: A. Interest rates B. Cash values C. Dividends D. Premiums

Dividends *Dividends are never guaranteed

The difference between Estate Creation and Estate Conservation is that A. Estate creation is one of the uses for life insurance and estate conservation is not B. Estate creation and estate conservation are two names for what is essentially the same goal C. Estate creation occurs when policy proceeds are paid to survivors. Estate conservation occurs when those proceeds are used to pay estate taxes D. Estate creation results from the accumulation of cash value, and estate conservation use the face amount

Estate creation occurs when policy proceeds are paid to survivors. Estate conservation occurs when those proceeds are used to pay estate taxes

If a copy of the application, which led to a life insurance policy being issued, is attached to the policy: A. It is provided merely as a convenience to the policyowner so that they will have a record of the transaction B. It is considered part of the entire contract C. It can be used by the insurance company later on if the insured wants to increase their coverage instead of using a new one D. It is a way for the insurer and policyowner to evidence who the producer was at the time of application

It is considered part of the entire contract *If a copy of the application is attached to the policy it becomes part of the entire contract and information contained within or left out can be the basis upon which the insurance company can challenge a claim during the contestable period.

How does life insurance reduce financial loss upon the insured's death? A. Through reinsurance risk techniques B. By eliminating the risk C. Through applicant risk retention strategies D. By transferring the risk to the insurer

By transferring the risk to the insurer *For a premium, the applicant can transfer a specific dollar amount of risk to the insurer, thereby reducing but not eliminating the entire risk.

When a producer personally delivers a life insurance policy, they are responsible for doing which of the following? A. Request a medical exam B. Collect referrals C. Explain the policy benefits D. Explain the insurance licensing laws

Explain the policy benefits

An insurance company must adhere to the __________ when gathering information about an applicant from third parties. A. Fair Credit Reporting Act (FCRA) B. Federal Trade Commission Act (FTCA) C. Truth in Underwriting Regulations D. Medical Information Bureau Rules

Fair Credit Reporting Act (FCRA)

An insurance company must adhere to the __________ when gathering information about an applicant from third parties. A. Federal Trade Commission Act (FTCA) B. Fair Credit Reporting Act (FCRA) C. Medical Information Bureau Rules D. Truth in Underwriting Regulations

Fair Credit Reporting Act (FCRA)

Under what circumstances should the producer obtain a Statement of Good Health? A. When the client wants to obtain a quote B. If no premium was paid at time of application and the policy is now being delivered C. At the time of application, in cases where the producer wants to be sure the applicant is not withholding any information D. At the first client meeting, to determine if an application should be completed

If no premium was paid at time of application and the policy is now being delivered *The producer must also get a Statement of Good Health from the applicant/insured at the time of policy delivery that verifies that the insured has not suffered injury or illness, had any surgeries, or been admitted to a hospital since the application date.

The Medical Information Bureau (MIB) is formed by: A. Medical professionals B. Employers C. The Government D. Insurance companies

Insurance companies *The MIB is a member-owned corporation that operates on a not-for-profit basis in the United States and Canada. The MIB's Underwriting Services are used exclusively by MIB-member life and health insurance companies to assess an individual's risk and eligibility during the underwriting of life, health, disability income, critical illness, and long-term care insurance policies.

Which of the following best describes a Statement of Good Health? A. It is required with all policy deliveries to confirm the underwriting class that was assigned B. It is a sworn oral statement made by the insured at time of application which allows for coverage to come into effect C. It verifies that the insured has not suffered a serious illness or injury since the application date if the premium was not paid at the time of application D. It is the producer's authority to raise the rate if the insured does not appear to be in good health at the time of policy delivery

It verifies that the insured has not suffered a serious illness or injury since the application date if the premium was not paid at the time of application

A generic brochure was developed by the ________ to assist prospective buyers of life insurance, which includes descriptions of all the basic types of life insurance and comparisons of their relative costs. A. NAIC B. FINRA C. FIO D. SEC

NAIC

If an insured pays a premium that is lower than others that are in the same class, this insured is considered to be rated as? A. Reduced B. Substandard C. Standard D. Preferred

Preferred *Individuals who meet certain requirements (such as ideal health, height and weight, low occupational stress, etc.) are preferred risks.

If after meeting with a client, a producer returns to the agency office and notices that the application has unanswered questions, what is the best course of action for the producer to take? A. Submit the application to the home office B. Fill in the answers on behalf of the client C. Return the original application back to the applicant for completion prior to submission D. Detach that page of the application that contains the unanswered questions and submit the rest

Return the original application back to the applicant for completion prior to submission

On the day a newly-issued policy was to be delivered and the initial premium collected, the producer discovers that the insured is in the hospital with a heart condition pending surgery. What should the producer do? A. Collect additional premium at the time of delivery to reflect the higher risk the insurer now faces B. Hold onto the policy until the insured is discharged from the hospital and then deliver the policy C. Return the policy to the insurer with a letter of explanation D. Deliver the policy to an immediate family member and collect any outstanding premium

Return the policy to the insurer with a letter of explanation *Producers must return the policy to the insurer if they know that the insured's health status has materially changed since the time of application.

What information must appear on the policy summary provided to a life insurance client? A. The producer's name and home address B. The producer's agency's name and address C. A copy of the producer's license D. The producer's name and addressThe producer's name and address

The producer's name and address *The producer's name and address along with the address of the insurance company must appear on the policy summary.

Why should a producer collect a premium at the time the application is completed? A. Without it, coverage cannot go into effect, as there would be a lack of consideration B. It allows the producer to get paid faster C. It helps the home office with its cash flow D. It allows the insurer to afford to pay for any required medical records or tests

Without it, coverage cannot go into effect, as there would be a lack of consideration *Collecting the premium at the time of application allows the producer to issue a conditional coverage receipt, which can bring coverage into effect as early as the date of the application, provided all the conditions have been satisfied.