Chapter 2 quiz

The Attending Physician's Statement (APS) is completed by:

An applicant's physician to provide information about the applicant's medical history An Attending Physician's Statement (APS) is used in cases where the individual application and/or medical reports reveal conditions for which more information is required. The treating physician will provide information regarding the medical history of the applicant. An applicant must sign a written release to enable a release of the APS. The insurer pays for this.

J took out a life policy when he was 35. It had a conversion feature that he exercised at age 45. Age 45 is referred to as his ____ age.

Attained Attained age is the insured's age at any point in time, typically used at renewal or conversion.

A generic brochure developed by the NAIC to provide consumers with descriptions of basic types of life insurance as well as the comparative costs of each is called the _______.

Buyer's Guide It is required that prospective life insurance buyers receive the NAIC Buyer's Guide to assist them in their life insurance purchase decision.

All of the following are characteristics of Term Insurance, except:

High premium outlay in the early years Term Insurance is characterized by a low initial premium outlay when the insured is young and increases as the insured's age advances.

Why have many states prohibited STOLI transactions?

It is a violation of the insurable interest rule The practice of STOLI has resulted in fraudulent abuses causing many states to outlaw STOLI policies due to a lack of insurable interest.

The results of the ________________ is the only document that might be copied and made part of the policy.

Medical Examination The results of the Medical Examination is the only report that might be copied and made part of the policy.

Policy __________ are the net premiums paid plus interest earned and reflect potential insurance contract obligations.

Reserves A reserve is maintained by an insurer in order to meet future potential obligations and is also required by State insurance laws.

When an insurer accounts for the interest and mortality factors, then adds additional charges to meet all costs of a contract, it derives __________.

The gross premium Insurer expenses (loading) are added to the net premium rate to enable an insurer to meet all costs under the contract, such as operating costs, commissions, medical examination costs, etc.

Which rating classification is typically used in the senior marketplace so that policies can be issued without a medical exam?

The lien plan With the lien plan, initially, only the premium would be refunded in case of death. The death benefit increases over time with the full face amount eventually payable. This is generally used with Senior Life Insurance plans to provide minimal benefits without a medical examination.

A policy is considered to have been received how many months after the date of issuance if premiums have been paid to date?

6 A policy is considered to have been received 6 months after the date of issuance if premiums have been paid to date.

A Consumer Investigative Report is not completed by ___________.

A producer A Consumer Investigative Report. This can be completed by the insurer or a third-party provider.

The person offering him/herself or another person to be insured by the contract best defines the:

Applicant The applicant is the party making the application, offering him/herself or another to be insured. The applicant may possibly also be the insured and/or policyowner, but not necessarily.

What is the primary reason why States have 'outlawed' Stranger/Investor Originated Life Insurance (STOLI) transactions?

At policy inception there is a lack of insurable interest If a policy is issued without proper insurable interest it becomes a wager contract which is prohibited by State insurance law.

he MIB is used in the underwriting of all of the following types of insurance, except:

Auto and Homeowners 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.

Policy delivery in California will be accomplished by all of the following, except:

Calling the applicant/insured to inform him/her that the policy was issued and keep in the client file Policy delivery in California will be accomplished by personal delivery, with a signed receipt of delivery, registered or certified mail with a signed receipt of delivery, first-class mail with a signed receipt of delivery, or delivery by reasonable means, as determined by the Commissioner.

A group plan is designed to insure all of the following, except:

Creditors A group plan can cover employees, debtors, and members. Creditors may be the owner of the plan, but not the insured.

Part 2 of the application consists of all of the following information, except:

Date of birth, gender Part 2 of the application consists of all of the following information, except:

A current and prior HIV positive test result (two positive blood tests) may be the basis for a life insurer to:

Decline the application for life insurance A current and prior HIV positive test result (two positive blood tests) may be the basis of a decline for life insurance.

In life insurance, the Buyer's Guide is required to be provided not later than at the time of policy ___________.

Delivery In life insurance, the Buyer's Guide is required to be provided not later than at time of policy delivery.

Buying life insurance so that the death benefit will be available for paying estate taxes due upon the death of the insured is known as:

Estate conservation Estate taxes are due nine months after the insured's death. Life insurance can provide the proceeds in which to pay the tax thereby conserving the estate for the heirs.

During the application process, a mistake is made by the applicant in answering one of the health questions and needs to be corrected. What is the best way to go about this?

Have the applicant initial the change or start over with a completely new application The easiest and most practical method would be for the applicant to initial any change; however, some insurers might prefer an entirely new application be completed.

_______________ is the process of selection, classification and rating, and determining if someone is insurable.

Home office underwriting Home office underwriting is the process of selection, classification and rating, and determining if someone is insurable.

Loading includes all of the following, except:

Mortality The mortality rate is used to determine net premium. Loading are additional charges to net premium to derive gross premium.

Which one of the following is the basic formula for determining premiums for life insurance?

Mortality - Interest + Expenses Mortality - Interest + Expenses is the basic formula for determining life insurance premiums.

If premiums were submitted at the time of application, when is a life insurance policy considered constructively or legally delivered by the insurer?

Once the insurer mails the issued policy as applied for to the producer Once the insurer mails the issued policy as applied for to the producer, it is considered constructively or legally delivered by the insurer, if premiums were submitted at the time of application.

In a replacement transaction, why should the existing policy not be terminated until the replacing policy is issued and delivered?

Potential of new evidence of insurability being required Since new evidence of insurability may be required, the existing policy should not be terminated until the replacing policy is issued and delivered.

Which of the following best describes producer field underwriting?

Taking the time to probe beyond the stated questions on the application based upon the applicant's responses Probing beyond the stated questions in the application based upon the applicant's responses is field underwriting. The producer does not engage in any of the other listed activities.

An applicant for life insurance pays the agent the initial premium and receives a Conditional Receipt in return. If the policy was to be issued as substandard, but the applicant dies prior to policy issue, what is the result?

The insurer will refund any premiums paid With a Conditional Receipt, if the premium is paid, coverage will be in effect prior to the issuance of a policy as long as the insured is found to be a standard (or preferred) risk. All underwriting requirements must be satisfied first.

If the producer discovers that the applicant is not in good health at time of policy delivery, what should the next step be?

The policy should be returned to the insurer, or the deliver the policy only after the insurer grants permission If the applicant is not in good health, the policy should be returned to the insurer, or the producer may deliver the policy only after the insurer grants permission.

California law requires that the purchaser of life insurance be provided with a copy of the Buyer's Guide to Life Insurance not later than:

The time of policy delivery California law requires that the purchaser of life insurance be provided with a copy of the NAIC Buyer's Guide to Life Insurance not later than the time of policy delivery.

Which of the following is not a purpose of the life insurance and annuities replacement rules?

To assure that the producer receives enough information to make an informed recommendation The requirements for the replacement of life insurance and annuities contracts have been established to assure that the purchaser receives enough information to make an informed decision.

Producer Andy is sent a newly issued policy by his insurer. Andy should now:

Visit the insured in person to deliver the policy Producers must make sure that policies are delivered to insureds, preferably in person.

Under the California Senior Market and Policy Illustrations rules, all preprinted illustrations containing non-guaranteed values must show the:

Columns of any guaranteed values in bold print Under the California Senior Market and Policy Illustrations rules, all preprinted illustrations containing non-guaranteed values must show the columns of any guaranteed values in bold print.

What is the difference between net premium and gross premium?

Expense loading Net premium plus expense loading equals gross premium.

The insurance company must meet requirements under the _____ when gathering information about an applicant from a third party.

FCRA The insurance company must meet requirements under the FCRA when gathering information about an applicant from a third party.

Under what circumstances should the producer obtain a statement of good health?

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.

If after a policy has been issued and delivered, the insurer discovers unanswered questions on the application, what can the insurer legally do at this point?

Nothing, the insurer has waived its right to that information If a policy is issued with a question unanswered, the contract will be interpreted as if the question had not been asked, and is therefore waived by the insurer.

Normally, when the insurer determines that the insured is an acceptable risk, the insurer will send the policy to the ____________.

Producer Normally, the insurer will mail the issued policy to the producer for delivery so that if any outstanding premium is due, it can be collected, if a statement of good health is required, it can be obtained, and any questions the applicant has about the policy can be answered.

When calculating premium of life insurance policies, insurers assume all of the following, except:

The actual life expectancy of each group of insured's When calculating premium rates, life insurers assume that: premiums are paid in advance of the period of coverage, premiums will be invested and earn interest and claims are paid at the end of a year. Insurers assume that the average life expectancy of each group will materialize.dditional charges to offset lost interest, earnings, and increased administrative costs

Life insurance policy illustration requirements apply to which one of the following?

Traditional whole life insurance Policy illustration requirements apply to all group and individual life insurance policies, except: Variable life insurance, Individual and group annuity contracts, Credit life insurance, Life insurance policies with no illustrated death benefits on any individual exceeding $10,000.

What is it called if an agent or insurer recommends the replacement or conservation of an existing policy by use of a materially inaccurate presentation or comparison of an existing contract's premiums, benefits, dividends, and values?

Twisting It is a violation of the replacement rules for an agent or insurer to recommend the replacement or conservation of an existing policy by use of materially inaccurate presentation or comparison of an existing contract's premiums, benefits, dividends, and values, commonly referred to as 'twisting' and is a misdemeanor.