Ad Banker CH 2

A ____________ account is an amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.

A reserve is an amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability.

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

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

When are Errors and Omissions claims filed?

Claims are filed due to client reports (complaints) and for a number of reasons, including negligence or inadequacy.

The term 'mode' refers to the:

Mode refers to the frequency of premium payment, such as monthly or annually.

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

Producers must make sure that policies are delivered to insureds, preferably in person.

Which of the following listed policies has the least likelihood of keeping pace with inflation?

Since straight whole life is a fixed benefit policy, its values over time are most likely to lose purchasing power.

Which underwriting source is primarily used when an application reveals conditions for which more medical information is required?

The Attending Physician's Statement would be ordered by the underwriter to secure the additional medical information.

The Medical Information Bureau (MIB) is formed by:

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 is not a major source of underwriting information?

The sources of underwriting include the application, medical exams, an attending physician's statement, the medical information bureau, an inspection report, and the agent's report.

Premium

an amount to be paid for an insurance policy.

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

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

What is an insurer permitted to do if and when it discovers during the underwriting process that a proposed insured has AIDS?

Insurers are required to maintain strict confidentiality of personal information obtained through testing and to obtain informed consent before testing for HIV. Unfair discrimination is never permitted.

Which of the following is included in Part II of a Life Insurance Application?

Part II of the application contains questions pertaining to medical background, present health, any medical visits in recent years, medical status of family members and causes of death of deceased relatives.

A type of coverage with a small face amount, typically purchased to pay the burial expenses of the insured, is called a(n) _________ plan:

A type of coverage with a small face amount, typically purchased to pay the burial expenses of the insured is called pre-need insurance.

If a client chooses to pay premiums other than annually, what can he or she expect?

Additional charges are included in modes other than annual to offset the lost interest earnings and the increased administration costs.

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

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.

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 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.

Part 2 of the application consists of all of the following information

Part 2 of the application contains questions pertaining to medical background, past and present health, any medical visits, hospitalizations, or surgeries in recent years, medical status of immediate family members, and age and causes of their death.

Which of the following medical reports cannot be used as the sole basis for rating or denying coverage to an applicant?

The MIB report reveals past medical concerns and cannot be used as the only medical report for rating or denying an application

Which of the following is standard industry practice for producers in order to prove that they delivered the policy mailed to them from the insurer?

The standard industry practice and the one most practical is to have the producer obtain a policy delivery receipt when the policy is delivered.

Which of the following is a type of rating that does not involve an extra premium being assessed?

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.

Of the following, which can a home office underwriter solely use to determine insurability of an applicant based on age, medical history, and amount of coverage?

A Nonmedical Application is used for a policy requested when the applicant's age, medical history or amount of coverage does not require a medical examination for underwriting. Health questions on the application are asked by the producer and are the only medical information required.

All of the following are true regarding an Attending Physician's Statement (APS), except:

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

Which of the following best describes a Statement of Good Health?

Generally, this is used when the policy was issued with an outstanding premium requirement to assure the issuer that the health status of the insured has not significantly changed since the time of application.

Industrial Life Insurance is also referred to as a:

Industrial life policies are also known as home service and debit policies where premiums are collected by a Debit Agent.

If a copy of the application, which led to a life insurance policy being issued, is attached to the policy:

It is considered part of the entire contract

Ultimately it is up to the _______ to determine if the proposed insured is an acceptable risk.

It is ultimately up to the insurer's home office underwriter to determine whether or not the insured is an acceptable risk or not and at what rate classification.

A producer must include their name and address on which of the following?

Only a policy summary requires that the producer disclose their name and address.

Part 1 of the application consists of all of the following information, except:

Part 1 of the application consists of general questions about the applicant, such as gender, marital status, residence, date of birth, occupation, and past and present life insurance.

The Needs Analysis Approach always assumes the death of the insured to be:

The Needs Analysis Approach always assumes the death of the individual to be immediate, and assesses various factors to calculate all financial needs caused by an immediate death.

An applicant's signature on an application indicates what?

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

In order for an insurance company to determine if it will issue a policy, what document must always be submitted for review?

The application is what the insurer's home office underwriters use to start their determination of the applicant's insurability in regard to the coverage applied for.

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?

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.

Under the Do Not Call Registry, telephone solicitation calls before _____ or after _____ are prohibited.

The hours during which calling is prohibited are before 8 a.m. and after 9 p.m.

When a producer receives an application for life insurance that is completed and signed, but without premium payment, when does coverage start?

The policy will go into effect upon delivery and collection of the premium. No contract is effective until both parties have provided the required consideration.

The MIB obtains its information from which of the following?

The primary purpose of the Medical Information Bureau (MIB) is to collect adverse medical information about an applicant's health that is known to insurers to which the applicant has previously applied for coverage.

Which of the following policies offers the least guarantees?

Variable Universal Life has no guaranteed death benefit and no guaranteed cash values.

If a home office underwriter obtains MIB codes inconsistent with information provided on the application, what is the underwriter required to do?

When the home office underwriter receives MIB codes that are inconsistent with information provided on the application, the underwriter is required to conduct a further investigation to obtain more information prior to making an underwriting decision. Underwriting decisions cannot be based solely on MIB codes since there could be a reasonable explanation for the discrepancy.

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

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

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?

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.

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

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

In a STOLI/IOLI transaction, what are the insureds basically doing?

The insureds are basically selling their mortality to another for up-front cash.

Mortality

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

Which of the following types of coverage is best used to protect the beneficiary, and to provide a living benefit for the policyowner?

Permanent insurance is designed not only to provide the beneficiary a death benefit if the insured dies, but also to provide the insured/owner a build-up of cash value which may be borrowed for emergency expenses.

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

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

B was 42 when the life insurance policy was issued. 42 is referred to as the ______ age of the policy.

The issue (original) age of the insured is the age on the policy issue date. The attained age is the insured's age at any point in time typically used at renewal or conversion. The effective date is the date when insurance coverage begins, and the expiration date is the date in which insurance coverage ends.

Loading includes all of the following, except:

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

There are ______ methods available to determine the income objective after the death of the client for planning purposes.

The two methods are the capital liquidation and the capital retention/conservation approaches.

Replacement

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.

A producer provided a conditional receipt to an applicant who paid the first premium with the application. The applicant died before a policy was issued. If the insurer denies the claim, which party would have to prove the reasons for its actions if the claim was challenged?

If the first premium is paid at the time of application and the producer provides a conditional receipt, and if the applicant then dies before a policy is issued, the insurer would have to prove that it would not have issued the policy as applied for in order to avoid paying a claim.

The HIV Consent Form specifies which types of individuals may receive __________.

The HIV Consent Form specifically addresses who may receive test results, most often it is the insured's doctor.

An insurable interest must exist between the _______ and the ________ at the time of application for life insurance to be valid.

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.

Industrial life policies are also known as home service and debit policies where premiums are collected by a Debit Agent.

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.

Which of the following receipts states that coverage will begin immediately for a specific length of time, regardless of whether the applicant is ultimately approved for coverage by the insurer?

If premium is paid, coverage will begin immediately for a specific length of time regardless of whether the applicant is ultimately approved by the insurer. This may also be referred to as a temporary insurance agreement or a binding receipt.

Which of the following best describes producer field underwriting?

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.

What should the producer do, if the insured is in the hospital with a heart condition pending surgery on the day the newly issued policy was to be delivered and initial premium collected?

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.

Once the gross amount of dollars required to fund an insured's needs has been determined using the needs analysis approach, what is the next step?

The next step is to subtract any assets available to fund financial needs after death. This reduces the amount of life insurance required.

Which of the following would be considered a good result from an underwriter's action when an individual Life Insurance Policy is issued as applied for?

To be issued standard is the most favorable action listed, as the coverage requested is issued at the rate that was quoted.

Debit life insurance is classified as which of the following?

Debit life insurance is classified as industrial life or home service life insurance.

When soliciting insurance, producers are governed by state rules and regulations under the title of ___________.

Each state has identified Unfair Trade Practices governing what producers can and cannot say when soliciting insurance.

Insurance covering the liability of a producer or agency is called _______.

Errors and Omissions insurance covers producers and agencies to protect them against complaints alleging inadequacy or negligence in carrying out their professional responsibilities.

If a copy of the application, which led to a life insurance policy being issued, is attached to the policy:

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.

A life insurance applicant pays the initial premium at the time of application and receives a Conditional Receipt. If coverage is issued as applied for, when did coverage go into effect?

In the case of a Conditional Receipt, the coverage is effective as of the date of the application or upon the completion of any required medical exam, unless it is declined within a stipulated period.

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

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 of the following types of life insurance provides the largest portion of all coverage in force?

Ordinary life insurance represents the largest portion of all life insurance in force in the United States.

__________ life insurance is when an insured is induced into purchasing life insurance with the sole intent of selling that policy once issued to third party investors for an amount less than the death benefit, but greater than its cash values.

When investors hope to gain off of the insured's induced purchase of a life insurance policy for later sale of their mortality for profit is referred to as Stranger Originated Life Insurance (STOLI).

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

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.

Which of the following best describes 'Capital Liquidation' in an effort to meet an income objective?

In a capital liquidation strategy both principal and earnings are paid out over the anticipated time period in order to meet the income objective. Each payment would be the same as any investment earnings shortfall would be offset by principal liquidations.

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

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.

The mortality rate is based on mortality tables which show life expectancy and the death rate per _______ people living in the U.S.

Mortality tables show the death rate per 1,000, similar to how policy premiums are based on, a rate per $1,000 of coverage.

If it is known or should be known by the agent that an existing policy is going to be lapsed, forfeited, surrendered or terminated in favor of a new policy, the agent must submit a:

Notice of Replacement

In a replacement transaction, all of the following are insurer duties and responsibilities, except:

The Replacing Insurer's responsibilities include: upon receiving proper notification with the new application, the replacing insurer must notify the existing insurer of the planned replacement, maintain copies of the information regarding replacement for a specified period of time as mandated by the state.