Life Licences Chapter 1

True or False An agent should use white-out, erase or obliterate any answers given to a question on an application.

False.

_______________ is something of value that is transferred between the two parties to form a legal contract.

Consideration

The factor added to the net premium to cover the costs of the insurer in obtaining and maintain the business is called

Expenses

_______________ are statements that are true to the best of the applicant's knowledge

Representations

Permissible calling hours for telemarketers are between

8pm and 9pm

A tornado that destroys property would be an example of which of the following?

A Peril

All of the following are requirements for life insurance illustrations EXCEPT: A. They must be part of the contract B. They may only be used as approved. C. They must identify non guaranteed values. D. They must differentiate between guaranteed and projected amounts.

A. They must be part of the contract.

What company produces evaluations of insurer financial status often used by the Insurance Department?

AM Best

______________ occurs when a person withholds a material fact that is crucial to making a decision.

Concealment

Another name for a substandard risk classification is

Rated

Insurance policies are contracts of

adhesion

In order to be characterized as pure risk, the loss must be due to

chance, definite, measurable, and predictable, but not catastrophic

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is

conditional

When is the earliest a policy may go into effect?

When the application is signed and a check is given to the agent.

In contract in which only the insurer has the right to determine the wording of a policy, the policyholder will receive benefits denied due to

a contract ambiguity

FDIC is funded by

premiums paid on deposits in covered financial institutions.

What companies are owned and controlled by stockholers

stock insurance companies

The principle of indemnity stipulates

that the insured can only collect the amount of their loss, in the event that their policy would allow for a greater benefit to be collected.

What is a statement guaranteed to be true

warranty

The MIB was created to protect

Insurance companies from adverse selection by high risk persons

What is surplus lines insurance?

Insurance placed with an unauthorized insurer

In order of insurance contracts to be legally binding, they must have 4 essential elements:

1. Agreement 2. Consideration 3. Competent parties 4 Legal Purpose

What are the three recognized areas in which insurable interest exist?

1. a policy owner insuring his or her own life 2. the life of a family member, business partner or key employee 3. someone who has a financial obligation to them.

a contract that is prepared only by the insurer and the insured's only option is to accept or reject the policy as it is written is known as:

A contract of adhesion

The type of company organized to return any surplus money to their policyholders is

A mutual insurer

An insurance contract that requires a relatively small amount of premium for a large risk is known as

Aleatory contract

A person who does not lock the doors or does not repair leaks shows an indifferent attitude. This person presents what type of hazard?

Morale

Companies that are owned by the policy owners and issue participating policies are known as

Mutual Companies

The risk of loss may be classified as

Pure risk and speculative risk

If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of which legal concept?

Reasonable Expectations

What insurance provider would be considered a risk sharing arrangement?

Reciprocal

a method used by insurers to protect against catastrophic losses. The rest are marketing arrangements.

Reinsurance System

Entities like municipalities, manufactures, and hospitals typically seek insurance coverage from which type insures?

Risk retention groups

The term "illustration" means

a presentation or depiction that includes non guaranteed elements of a policy of individual or group life insurance over a period of years

When insurance is obtained through a reciprocal insurer, the insureds are:

sharing the risk of loss with other subscribers of that reciprocal.

What are the three ratings classifications that denote the risk level of insureds are

standard, substandard, and preferred.

When must insurable interest exist in a life insurance policy?

At the time of application

What insurance concept is associated with the words "Weiss" and "Fitch"?

Guides describing company financial integrity

Courts will interpret any ambiguity in an insurance contract

In favor of the insured.

What is the special significance of a conditional receipt?

It is intended to provide coverage on a date earlier than the date of the issuance of the policy.

Mortality tables are statistical tables used by life insurance companies to help predict

Life expectancy and the death rates for specific groups of individuals

The reduction, decrease, or disappearance of value of the person or property insured in a policy, by a peril insured against is know as

Loss

What describes the specific information about a policy?

Policy Summary

Which risk classification would pay the lowest premium?

Preferred

A non admitted insurer who provides insurance coverage that are not available from an admitted insurer is called

Surplus lines insurer

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

The Buyer's Guide

What entity established the Do-No-Call Registry?

The Federal Trade Commission

In insurance, an offer is usually made when

The application is submitted

Peril is most easily defined as

The cause of loss insured against

Not all losses are insurable, and there are certain requirements that must be met before a risk is a proper subject for insurance.

The loss may be intentional.

What is the purpose of the buyer's guide?

To allow the consumer to compare the costs of different policies

What is the purpose of a disclosure statement in life insurance policies?

To explain features and benefits of a proposed policy to the consumer

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it?

Unilateral

Which of the following types of risk will result in the highest premium? A. Substandard Risk B. Standard Risk C. Preferred Risk

A. Substandard Risk

A material misrepresentation will

affect whether or not a policy is issued.

To calculate an individual's life value, the agent must do the following:

1. Determine the insured's after=tax income from the present date until retirement. 2. Deduct the insured's annual expenses for food, clothing, medical and other expenses. 3. Calculate the number of years to retirement. Estimate the effect inflation would have on income over the required number of years.

An insurance producer who by contract is bound to write insurance for only one company or group of companies is classified as an

Captive Agent.

What is the most common way to transfer risk?

Purchase Insurance

The underwriting process is accomplished by

reviewing and evaluating information about an applicant and applying what is known of the individual against the insurer's standards and guidelines for insurability and premium rates

As a field underwriter, an agent is responsible for all of the following tasks EXCEPT: A. Solicit business that will fall within the insurer's underwriting guideline. B. Obtain appropriate signatures on the application for insurance. C. Issue the policy that is requested. D. Help prevent adverse selection.

C. Issue the policy that is requested.

If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to

Charge a higher premium

Contracts that are prepared by one party and submitted to the other party on a "take it or eave it" basis are classified as

Contracts of adhesion.

Upon policy delivery, the agent may be required to obtain any of the following EXCEPT: A. Statement of good health. B. Payment of premium. C. Corrected and Resigned Application. D. Signed waiver of premium.

D. Signed waiver of premium.

Officers who manage stock insurance companies are

Elected by the stockholers

Which of the following best describes the aleatory nature of an insurance contract?

Exchange of unequal values

Which insurance principle states that if a policy allows for greater compensation that the financial loss incurred, the insured may only receive benefits for the amount lost?

Indemnity

What type of report covers moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies.

Inspection report

An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. What would be the reason a death benefit claim is denied?

Material misrepresentation

Does a debtor have an insurable interest in the life of the lender?

No

An insurer wants to obtain information from investigators regarding an insured. What must the insurer do in order to legally acquire this information?

Present the insured with a Disclosure Authorization Notice

Which of the following statements is an accurate comparison between private and government insurers?

Private insurers may be authorized to transact insurance by state insurance departments

MIB

The Medical Information Bureau - a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals

The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as

Utmost good faith

If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about

Whether an insurable interest exist between the individuals.

Both consumer reports and investigative consumer reports provide

additional information from an outside source about a customer's character and reputation, and both types of reports are used under the Fair Credit Reporting Act

According to the Law of Large Numbers, the larger a group becomes:

the easier it is to predict losses.

Retention usually results from three basic desires of the insured:

to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that can not be insured.