1.- Completing the Application, Underwriting and Delivering the Policy

What is insurance underwriting?

The process of risk selection and classification

The responsibility of making certain that an application for insurance is filled out completely, correctly and to the best of his/her knowledge is the responsibility of

The producer

How is the information obtained for an investigative consumer report?

Through interviews with the applicant's associates, friends and neighbors

What is the purpose of a 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

Why should the producer personally deliver the policy when the first premium has already been paid?

To help the insured understand all aspects of the conteact

During which stage in the insurance process do insurers evaluate information that identifies adverse selection risks?

Underwriting

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

Unilateral

In health insurance contracts, the insured is not legally bound to any particular action; however, the insurer is obligated to pay for losses covered by the policy. What contract element does this describe?

Unilateral

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as

consideration

What do individuals use to transfer their risk of loss to a larger group?

insurance

Insurance is a contract that protects the insured from what?

loss

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?

mutual

Mutual companies are owned by

policy holders

Within how many days of requesting an investigative report must an insurer notify the consumer in writing that the report will be obtained

3 days

An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of

A STOLI policy

What is an aleatory contract?

A contract in which unequal amounts are exchanged between payments and benefits.

What is not true concerning insurance interest as it applied to life insurance?

A debtor has an insurance interest in the life of a lender

What is a policy replacement?

A new policy is issued while an existing policy is terminated or reissued with a reduction in cash value

The term illustration in a life insurance policy refers to

A presentation of non-guaranteed elements of a policy

What is material misrepresentation?

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

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristics does this describe?

Adhesión- a contract of adhesion is prepared only by the insurer; the insureds only option is to accept or reject the policy as it is written

What is the closest term to an authorized insurer?

Admitted- insurers who meet the states financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer

Who is a field underwriter?

Agent/Producer

What are the 4 elements of an insurance contract?

Agreement (offer and acceptance), consideration, competent parties, and legal purpose

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10K for a covered loss. What characteristics of an insurance contract does this describe?

Aleatory

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

Buyers Guide

An insurance contract required that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristics does this describe?

Conditional

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract

Conditional

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT

Consideration, legal purpose and offer & acceptance EXCEPT conditions

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. What insurance principle has the insurer violated?

Consideration- the binding force in any contract is consideration. The insured makes payment premiums and health representations on the application while insurer promises to pay in the event of loss

Representations are written or oral statements made by the applicant that are

Considered true to the best of the applicant's knowledge

What report includes information regarding a person's credit, character, reputation and habits?

Consumer report

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

Contracts of adhesion

If an insurance company wishes to order a consumer report on an applicant to assist in the underwriting process, and if a notice of insurance information practices has been provided, the report may contain all of the following EXCEPT the applicants

Credit history, character, reputation and habits EXCEPT ancestry

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

Exchange of unequal values

According to the fair credit reporting act, all of the following would be considered negative information about a consumer EXCEPT

Failure to pay off a loan, tax delinquencies and late payments are considered negative EXCEPT disputes regarding consumer report information

As a field underwriter, a producer is responsible for all of the following tasks EXCEPT

Helps prevent adverse selection, solicit business that will fall within the insurers underwriting guidelines, obtain appropriate signatures on the application for insurance EXCEPT issue the policy that is requested

An underwriter may obtain information on an applicants hobbies, financial status and habits by ordering

Inspection report

Stranger-originated life insurance policies are in direct opposition to the principle of

Insurable interest

The Medical Information Bureau (MIB) was created to protect

Insurance companies from adverse selection by high risk persons.

A life insurance policy has a legal purpose if both of which the following elements exist

Insurance interest and consent

Who makes up the Medical Information Bureau?

Insurers- this is so the companies can compare the information they have collected on the individual)

What are the 3 main instances when insurable interest exists in life insurance?

Insuring your own life, the life of a family member is r the life of a business partner or someone who has a financial obligation to the policyowner

What report is used to assess risk associated with a health insurance applicant's lifestyle and character?

Investigative consumer report

What is the purpose of the agents report during the application process?

The agent's report discusses the agent's personal observations about the proposed insured that may help in the underwriting process

What would qualify as a competent party in an insurance contract?

The applicant has a prior felony conviction

In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports?

The customer's associates, friends, and neighbors provide the report's data.

An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant to submit to a medical exam. If the policy is issued, what would be the policy's effective date?

The date of medical exam

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern?

The existence of insurable interest between the applicant and the insured

If an insurer requires a medical examination of an applicant in connection with the application for life insurance, who is responsible for paying the cost of examination?

The insurer

In terms of parties to a contract, which of the following does NOT describe a competent party?

The person must have at least completed secondary education

If an insurer issued a policy based on the application that had unanswered questions, which of the following will be TRUE?

The policy will be interpreted as if the insurer waived its right to have an answer on the application

In insurance, an offer is usually made when

An applicant submits an application to the insurwr

In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT

Applicants present physical condition, present occupation and past medical history EXCEPT past income

An insurer wants to begin underwriting process for an applicant. What source will it consult for the majority of its underwriting information?

Application

Which is the primary source of information used for insurance underwriting?

Application

The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective?

As of the application date

When must insurable interest exist for a life insurance contract to be valid?

At the time of application

When must the policy summary for a life insurance policy be delivered to the policy owner?

At the time of policy delivery

When Y applied for insurance and paid the initial premium on August 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 August 22, before the policy was issued. In this case, the insurance company will

Issue the policy anyway and pay the face value to the beneficiary

What best describes the MIB?

It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance

What is the purpose of a conditional receipt?

It is intended to provide a coverage on a date prior to the policy issue- Coverage commences on the date of application or the date of a medical examination, whichever is later, on the condition that the applicant is determined to be insurable at the rate applied for.

An applicant who receives a preferred risk classification qualifies for

Lower premiums than a person who receives a standard risk

Which of the following information about the applicant is NOT included in the General Information section of the application for insurance?

Marital status, gender and occupation/income EXCEPT medical background

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. Which of the following will explain the reason a death benefit claim is denied?

Material misrepresentation

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

Medical information

Under the fair credit reporting act, individuals rejected for insurance due to information contained in a consumer report

Must be informed of the source of the report

On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are

Not taxable since the IRS treats them as a return of a portion of the premium paid

Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT

Other insurance coverage- Part 2 contains questions regarding the applicants health history. Part 1 contains questions regarding current coverage being applied for as well as any other insurance coverage with the same or other insurers

What is the major difference between a stock company and a mutual company?

Ownership

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will

Pay the policy proceeds only if it would have issued the policy.

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT

Payment of premium, delivery receipt and statement of good health EXCEPT signed waiver of premium

How can health insurance policies be delivered to the insured?

Personally delivered by the agent or mailed

What describes the specific information about a policy?

Policy summary

What individual must have insurable interest in the insured?

Policyowner

Who must have insurable interest in the insured?

Policyowner

What are the risk classifications used by underwriters for life insurance?

Preferred, standard and substandard

What will be included in a policy summary?

Premium amounts and surrender values

When an agent collects the initial premium from the applicant, the agent should issue the applicant a

Premium receipt

If an insurer needs to obtain information about the applicant from investigators, what is the insurer required to do?

Provide the applicant a Disclosure Authorization Notice

Another name for a substandard risk classification is

Rated

The Federal Fair Credit Reporting Act

Regulates consumer reports

If an agent fails to obtain an applicants signature on the application, the agent must

Return the application to the applicant for signature

What is the main responsibility of a company's underwriting unit?

Risk selection

What best details the underwriting process for life insurance?

Selection, classification, and rating of risks

What is correct about a standard risk classification in the same age group and with similar lifestyles?

Standard risk is representative of the majority of people

Stock companies are owned by

Stock holders

What protects consumers against the circulation of immaculate or obsolete personal or financial information?

The Fair Credit Reporting Act

Who would provide an underwriter with information concerning an applicant's health history?

The Medical Information Bureau

If an applicant does not receive a copy of the new insurance policy, who would be held responsible?

The agent

A statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

Warranty- a warranty in insurance is a statement guaranteed to be true

In forming an insurance contract, when does acceptance usually occur?

When an insurer's underwriter approves coverage

When would a misrepresentation on an insurance application be considered fraud?

When it is intentional and material

When would a misrepresentation be considered material?

When it may alter the underwriting decision

An agent and an applicant for life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin?

When the agent delivers the policy, collects the initial premium and the applicant completes an acceptable Statement of Good Health

When is the earliest a policy may go into effect?

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

In insurance, when is the offer usually made on a contract?

When the insurance application is submitted

In forming an insurance contract, when does acceptance usually occur?

When the insurer approves a prepaid application

When does an insurance policy go into effect?

When the policy is delivered and the premium is paid