Life Insurance Exam: Chapter 1

Applicant or Proposed insured

a person applying for insurance

Beneficiary

a person who receives the benefits of an insurance policy

Policyowner pays

a premium to insurance company

Insurance Policy

a contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events

T/F Losses can be transferred.

False Losses CANNOT be transferred.

What are perils in terms of hazard?

Hazards are conditions that increase the probability of an insured loss occurring and perils are causes of loss.

What are hazards in terms of insurance?

Hazards are conditions that increase the probability of an insured loss occurring.

What is insurance?

Insurance is a transfer of risk of loss from an individual or a business entity to an insurance company, which in turn, spreads the costs of unexpected losses to many individuals.

What does life insurance do?

Life insurance protects against financial loss associated with an insured's death, and pays a death benefit to beneficiaries upon the death of the insured.

T/F A generic guide that does not address the specific policy of the insurer, instead explaining life insurance in a way that the average consumer can understand.

True

T/F A policy owner of the insurance contract pays a premium to the insurer and the insurer issues a policy covering the insured. In the event of the insured's death, the insurer pays the death benefit to the beneficiary.

True

T/F Discloser statements will help the applicants make more informed and educated decisions about their choice of insurance.

True

T/F Sales presentations used by insurers or their agents in communication with public must be accurate and complete.

True

T/F Every applicant for a life insurance policy must be given a written disclosure statement that provides basic information about the cost and coverage of the insurance being solicited.

True

T/F Insurance is the transfer of risk of loss. The cost of an insured's loss is transferred over to the insurer and spread among other insureds.

True

Agent/Producer

a legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer

When would a misrepresentation on the insurance application be considered fraud? a. if it is intentional and material b. never: statements by the applicant are only representations c. when the application is incomplete d. any misrepresentation is considered fraud

a. if it is intentional and material

The term illustration in a life insurance policy refers to a. charts and graphs b. a presentation of nonguaranteed elements of a policy c. a depiction of policy benefits and guarantees d. pictures accompanying a policy

b. a presentation of nonguaranteed elements of a policy

Insurance company pays

benefit to beneficiary

Beneficiary receives

benefit upon insured's death

What do individuals use to transfer their risk of loss to a larger group? a. exposure b. indemnity c. insurance d. insurable interest

c. insurance

Life Insurance

coverage on human lives

Disclosure Statements

help applicants to make more informed and educated decisions about their choice of insurance

Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives?

medical information

Insured

person covered by the insurance policy; may or may not be the policy owner

Lapse

policy termination due to nonpayment of premium

Insurance company issues

policy to policy owner

What does the process of issuing a life insurance policy begin with?

solicitation

Death Benefit

the amount paid upon the death of the insured in a life insurance policy

Insurer (principal)

the company who issues an insurance policy

Premium

the money paid to the insurance company for the insurance policy

Policyowner

the person entitled to exercise the rights and privileges in the policy

Buyer's Guide

A consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process.

What is a material misrepresentation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company.

What describes the specific information about a policy? a. policy summary b. illustrations c. buyer's guide d. producer's report

a. policy summary A policy summary describes the features and elements of the specific policy for which a person is applying.

Insurance is the transfer of a. risk b. loss c. hazard d. peril

a. risk

Which is generally true regarding insureds who have been classified as preferred risks? a. their premiums are lower b. they can borrow higher amounts off of their policies c. they can decide when to pay their monthly premiums d. they keep a higher percentage of any interest earned on their policies

a. their premiums are lower

Solicitation of Insurance

an attempt to persuade a person to buy an insurance policy, and it can be done orally or in writing Includes providing information about available products, describing the policy benefits, making recommendations about a specific type of policy, and trying to secure a contract between the applicant and the insurance company.

If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to a. refuse to issue the policy b. charge a higher premium c. require a yearly medical examination d. lower its insurability standards

b. charge a higher premium

A producer agent must do all of the following when delivering a new policy to the insured except a. explain the rating procedures if the policy is rated differently than applied for b. disclose commissions earned from the sale of the policy c. explain the policy provisions, riders, and exclusions d. collect any premium due

b. disclose commissions earned from the sale of the policy

What is the purpose of a disclosure statement in life insurance policies? a. to help consumers compare policy prices b. to protect agents and insurers against lawsuits c. to explain features and benefits of a proposed policy to the consumer d. to obtain important underwriting information from the applicant

c. to explain features and benefits of a proposed policy to the consumer

In classifying a risk, the home office underwriting department will look at all of the following except a. applicant's past medical history b. applicant's present physical condition c. applicant's present occupation d. applicant's past income

d. applicant's past income

All of the following information about the applicant is identified in the general information section of the life insurance application except a. age b. gender c. occupation d. education

d. education

What does medical information include?

information on the prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives

Adverse Selection

insuring of risks that are more prone to losses than the average risk

Fraud

intentional misrepresentation or deceit with the intent to induce a person to part with something of value

Part 2 of the application for life insurance provides questions regarding all of the following except a. recent surgeries b. other insurance coverages c. family health history d. alcohol and tobacco consumption

b. other insurance coverages

Which of the following will be included in a policy summary? a. primary and secondary beneficiary designations b. premium amounts and surrender values c. copies of illustrations and application d. comparisons with similar policies

b. premium amounts and surrender values A policy summary must be delivered along with the policy and will provide the producer's name and address, the insurance company's home office address, the generic name of the policy issued, and premium, cash value, surrender value and death benefit figures for specific policy years.

Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process?

buyer's guide

When Y applied for insurance and paid the initial premium on Aug 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on Aug 22, before the policy was issued. In this case, the insurance company will a. return the premium o Y's estate, since it has no obligation to pay the death claim b. keep the premium and reject the risk on the basis that the applicant died before the policy could be issued c. issue the policy anyway and pay the face value to the beneficiary d. negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved

c. issue the policy anyway and pay the face value to the beneficiary The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as standard risk, and policy is issued exactly as applied for.

Whose responsibility is it to make certain that an application for insurance is filled out completely and correctly? a. the insurance company b. the applicant c. the producer d. the beneficiary of the applicant

c. the producer Producer = Agent

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant no later than a. within 30 days after the first premium payment was collected b. prior to filling out an application for insurance c. with the policy d. upon issuance of the policy

c. with the policy If a life insurance policy contains a free-look period of at least 10 days, the buyer's guide can be delivered with the policy. If it doesn't, the buyer's guide must be delivered prior to accepting the initial premium.