Chapter 2

Which of the following correctly describes the penalty applied to a company for calling a person whose phone number is on the Do Not Call List? Select one: a. Fine in the amount of $16,000 b. Fine in the amount of $40,000 c. Fine in the amount of $100,000 d. Fine in the amount of $1,000,000

a. Fine in the amount of $16,000

Which of the following best describes a life insurance policy in which the proposed insured is not required to undergo a medical examination? Select one: a. Easy policy b. Simply-issued policy c. Simplified issue d. Standard coverage policy

c. Simplified issue

Who administers the National Do Not Call Registry? Select one: a. The Social Security Administration b. The state insurance department c. The Federal Trade Commission d. The Department of Defense

c. The Federal Trade Commission

Who completes field underwriting? Select one: a. The insurer b. The insured c. The agent d. None of the above

c. The agent

All of the following correctly demonstrate policy delivery, EXCEPT: Select one: a. The insurance company mails the policy to the policyowner b. The insurance agent delivers the policy in-person c. The application is approved by the underwriter d. The insurance company mails the policy to the insurance agent, who in turn, delivers the policy to the policyowner

c. The application is approved by the underwriter

Which of the following incorrectly describes adhesion? Select one: a. The contract is, take it or leave it. b. Courts rule in favor of the insured when there is an ambiguity in the policy. c. The insured is not required to adhere to the contract "as is." d. The insurance contract is written by the insurance company.

c. The insured is not required to adhere to the contract "as is."

Which of the following individual's missing signature deems a life insurance application incomplete? Select one: a. The primary beneficiary b. The executive officer of the insurance company c. The prospective adult insured d. The underwriter

c. The prospective adult insured

This employee of the insurer assigns risk categories to applicants: Select one: a. Broker b. Agent c. Underwriter d. Actuary

c. Underwriter

When is a conditional receipt normally given to an applicant? Select one: a. When the agent and applicant are notified coverage is available b. Upon the delivery of the policy c. Upon payment of the initial premium d. Upon the initial meeting

c. Upon payment of the initial premium

The agent must provide the buyer's guide to the applicant: Select one: a. Upon application b. When the conditional receipt is given to the applicant c. When the policy is delivered d. Upon application or at the time of policy delivery if a 10-day free look is provided

c. When the policy is delivered

Which element is NOT necessary to the formation of a valid contract? Select one: a. Consideration b. Competent parties c. Written document d. Legal purpose

c. Written document

Annual premium = monthly premium =

cheapest most costly

When the insurer hands over control of the policy to another person (all premiums due are paid), this is

constructive delivery

Binding Receipt =

covered from date of application

Which of the following correctly identifies the two types of premium receipts? Select one: a. Conditional and binding b. Binding and guaranteed c. Conditional and aleatory d. Binding and temporary

a. Conditional and binding

What are the 3 steps in the underwriting process?

1. Field underwriting 2. underwriting 3. (once approved) deliver the policy

Loading includes the following costs:

Acquisition costs, overhead, contingency funds, and immediate claims payments

Contract of ___ = one author

Adhesion

Consumer reports provide information about the applicant's:

Character, Lifestyle, and Financial stability.

____ contracts can be thought of as "if-then" contracts: ex: if a loss occurs, then the insurance company will pay benefits.

Conditional

Expense ratio =

Expenses/premiums

insurance that compensates the beneficiaries of the policies for their actual economic losses, up to the limiting amount of the insurance policy. (to make whole)

Indemnity

Which policy accounts for interest? Traditional net cost method or Interest- adjusted net cost method

Interest- adjusted net cost method

Insurers expenses are called ____

Loading

loss ratio = _______ / ______

Losses/Premiums

Health insurance 3 premium factors:

Morbidity (rate of accident or sickness), Interest, and Expenses.

4 elements of a legal contract (OACCL)

Offer and acceptance, Consideration, Competent parties, and Legal purpose.

the right of the insurer to assume the rights of the insured and sue the responsible third party for damages inflicted upon the insured.

Subrogation

At what age may a minor purchase a life or health insurance contract? Select one: a. 15 b. 16 c. 18 d. 21

a. 15

An insurer requests that an applicant for life insurance undergo an HIV test. Which of the following is true? Select one: a. A consent form must be signed by the applicant prior to the test. b. The insurer can inquire about the applicant's sexual orientation. c. Insurers can target specific populations for HIV testing. d. HIV testing cannot be used for underwriting.

a. A consent form must be signed by the applicant prior to the test.

Why are life and health insurance contracts said to be contracts of adhesion? Select one: a. Because the insurer writes the contract, to which the insured must adhere b. Because only the insurer is bound to the promises made in the policy c. Because one party has the potential to receive more than the other d. Because certain conditions must be met by all parties of the contract in order for it to be a legally binding contract

a. Because the insurer writes the contract, to which the insured must adhere

What are the basic elements of a legal contract? Select one: a. Offer, acceptance, consideration, competent parties and legal purpose b. Acceptance and consideration c. Policy face, insuring clause and adhesion d. Competent parties, acceptance and reasonable expectations

a. Offer, acceptance, consideration, competent parties and legal purpose

An individual signed an application for a $100,000 life insurance policy and paid the first premium on January 1. The agent issued an insurability receipt. A week later, the required medical examination proves the person insurable. If the person dies before the insurer approves the application: Select one: a. The coverage will be retroactively effective. b. The coverage will be retroactively effective, but the policy will only pay $50,000. c. No coverage will be provided. d. No coverage will be provided, but the premium will be refunded.

a. The coverage will be retroactively effective.

A life insurance application can usually be backdated for a maximum of how many months? Select one: a. 3 months b. 6 months c. 9 months d. 12 months

b. 6 months

Which of the following does not demonstrate constructive delivery? Select one: a. The agent mails the policy to the insured b. The insurer mails the policy to the agent, who in turn, mails the policy to the insured c. A conditional receipt is issued to the applicant d. The insurer mails the policy to the insured

c. A conditional receipt is issued to the applicant

Which of the following elements of a legal contract is the combination of offer and acceptance? Select one: a. Competent parties b. Consideration c. Agreement d. Legal purpose

c. Agreement

In Ray's application for life insurance an applicant failed to complete one part regarding family history. In his statement, the agent described the family as long-lived and healthy. If an insurance company accepts the application in the incomplete form and the applicant for coverage dies young from a cardiac condition that had taken the lives of both his parents before age 50, will the company deny or accept the claim of the beneficiaries? Select one: a. It will deny the claim, based on misrepresentation. b. It will deny the claim, based on concealment. c. It will deny the claim, based on breach of warranty. d. It will pay the claim, because in accepting the application, it waived its right to the missing information.

d. It will pay the claim, because in accepting the application, it waived its right to the missing information.

Conditional Receipt =

possibly covered

frequency that premium payments are made (definition)

premium payment mode

Three basic parts in an insurance application:

pt 1. general information pt 2. medical information part 3. agents report

In personal delivery, the initial premium has not yet been paid. Coverage will not take effect until ___

the inspection receipt has been collected from the applicant

David signs an application for a $50,000 life policy, pays the initial premium, and receives a conditional receipt. If he were killed in an automobile accident one day later: Select one: a. His beneficiary would receive $50,000, if the application qualified him for the policy for which he applied. b. The insurer could reject the claim because the underwriting process had not been completed by the time of death. c. The insurer would return the amount of the premium because the underwriting process was incomplete. d. The insurer would pay half the policy amount if the application were approved by the underwriting department.

a. His beneficiary would receive $50,000, if the application qualified him for the policy for which he applied.

Benefits under a medical expense policy are provided through which of the following methods? Select one: a. Indemnity b. Cash payment c. Valued d. None of the above

a. Indemnity

Which of the following correctly identifies the two types of conditional receipts? Select one: a. Insurability and approval b. Insurability and binding c. Binding and approval d. Binding and nonnegotiable

a. Insurability and approval

Coverage begins on the application date or date of medical exam for which of the following? Select one: a. Insurability receipt b. Nonnegotiable receipt c. Premium receipt d. Approval receipt

a. Insurability receipt

All of the following are required components of a legal contract, EXCEPT: Select one: a. Invitation to offer b. Acceptance c. Offer d. Consideration

a. Invitation to offer

Which of the following best describes the MIB? Select one: a. Nonprofit trade organization that supplies insurability information to member companies b. Government agency that collects information about individuals' life and health insurance policies c. State organization that catalogs individuals' life and health insurance claims d. Group of federally-appointed physicians that monitor the medical treatments received by individuals insured by private companies

a. Nonprofit trade organization that supplies insurability information to member companies

Which part of the insurance application is described by the following: the applicant's general information, including name, date of birth, age, sex, social security number, marital status, address, occupation and income are collected? Select one: a. Part 1 b. Part 2 c. Part 3 d. None of the above

a. Part 1

Jeanine submits an application with initial premium for a $100,000 life insurance policy. She is issued a conditional receipt and is not required to take a medical exam. If Jeanine dies in a plane crash a week later, what will the insurer do? Select one: a. Pay $100,000 to Jeanine's beneficiary if Jeanine's policy would have been issued as applied for b. Pay $50,000 to Jeanine's beneficiary since Jeanine's death resulted from an accident c. Refund the initial premium to Jeanine's named beneficiary d. Void the policy, refund the initial premium and deny payment of the claim because the insurer did not approve Jeanine's coverage

a. Pay $100,000 to Jeanine's beneficiary if Jeanine's policy would have been issued as applied for

Which component of an insurance policy is the first page of the contract and identifies the named insured, policy number, policy effective date, limits of coverage, premium amount and due date? Select one: a. Policy face b. Insuring clause c. Conditions d. Exclusions

a. Policy face

James has above average health and is physically active. He has never smoked. Which risk classification will James most likely be rated? Select one: a. Preferred b. Standard c. Substandard d. Declined

a. Preferred

The agent may be required to collect a _______ from the policyowner upon policy delivery. Select one: a. Statement of good health b. Conditional receipt c. Blood test d. Buyer's guide

a. Statement of good health

Which of the following administers the Do Not Call List? Select one: a. The FTC b. The SSA c. The state insurance department d. The department of public welfare

a. The FTC

Of the following, who must explain the reason for premium increases to a life insurance applicant? Select one: a. The agent b. The insurer c. The underwriter d. None of the above

a. The agent

Coverage is effective: Select one: a. With collection of the initial premium, approval of the application, policy issuance and delivery b. Upon collection of the application only c. Upon collection of the initial premium only d. When the applicant makes an offer to the insurer

a. With collection of the initial premium, approval of the application, policy issuance and delivery

Both the producer and the ___________ are required to sign the insurance application. Select one: a. Insured b. Applicant c. Beneficiary d. All of the above

b. Applicant

Which of the following is the primary source of information used in underwriting an insurance policy? a. Attending physician statement b. Application c. Agent report d. Medical Information Bureau

b. Application

Insurance policies are based on: Select one: a. Tort law b. Contract law c. Negligence law d. Legal liability law

b. Contract law

If a life insurance applicant is given a binding receipt, when does their coverage become effective? Select one: a. Date the policy is issued b. Date the receipt is given c. Date the policy is delivered d. Date the applicant proves insurable

b. Date the receipt is given

Which report may contain information gathered through interviews with friends and neighbors, employers and coworkers, who know the insured? Select one: a. Agent's report b. Investigative report c. Medical report d. Insurer's report

b. Investigative report

Which of the following statements about a temporary insurance agreement is CORRECT? Select one: a. Coverage begins when the application is signed and the premium is paid, assuming any required medical exam is scheduled within three days. b. It provides temporary coverage until an application is rejected or the policy is issued. c. It provides protection against death by accident, but not death from natural causes. d. It provides term insurance protection until the policy is converted to permanent insurance.

b. It provides temporary coverage until an application is rejected or the policy is issued.

Sam submits an application with initial premium for a life insurance policy on July 6th. The agent issues Sam a conditional receipt at this time. Sam takes the required medical exam on July 10th. The insurer approves the policy on August 1st, and the agent delivers the policy to Sam on August 10th. Which day did Sam's coverage begin? Select one: a. July 6th b. July 10th c. August 1st d. August 10th

b. July 10th

All of the following are important underwriting factors for risk classification in a health insurance policy, EXCEPT: Select one: a. Physical condition b. Marital status c. Financial status d. Occupation

b. Marital status

Part II of the life insurance application includes: Select one: a. The agent's statement or report b. Medical Information c. General Information d. Inspection Statement

b. Medical Information

Field underwriting ________ adverse selection. Select one: a. Increases b. Reduces c. Encourages d. Eliminates

b. Reduces

If a company issues a conditional receipt to an applicant who has paid an initial premium for a policy that does not require a medical examination: Select one: a. The company thereby divests itself of all risk. b. The applicant is immediately covered. c. The applicant must yet meet certain conditions before their application can be submitted to the company. d. The company thereby waives its right to refuse to issue a policy

b. The applicant is immediately covered.

Maria buys a life insurance policy for her husband, Fred. Of the following, which correctly describes the party legally bound to fulfill the policy's promise of paying benefits? Select one: a. The insured b. The insurer c. The insurer and Maria d. The insurer and Fred

b. The insurer

Which type of law deals with legal liability for civil wrongs, such as negligence? Select one: a. Contract law b. Tort law c. Policy law d. Negligence law

b. Tort law

Insurance contracts are one-sided. Which of the following terms best describes this? Select one: a. Aleatory contract b. Unilateral contract c. Conditional contract d. Personal contract

b. Unilateral contract

Telemarketers may call phone numbers not on the Do Not Call List from: Select one: a. 7am to 6pm b. 8am to 5pm c. 8am to 9pm d. 9am to 8pm

c. 8am to 9pm

The MIB is best described as: Select one: a. A private underwriting group b. A government agency that collects credit information c. A nonprofit organization that supplies insurability information d. None of the above

c. A nonprofit organization that supplies insurability information

Anna applied for a $1 million life insurance policy and paid the first premium. Later she was declared uninsurable. Her agent gave her a receipt that guarantees coverage until the insurer formally rejects the application. Which type of receipt did Anna receive? Select one: a. Conditional b. Insurability c. Binding d. Approval

c. Binding

If a premium payment has not been given with the application, the policy becomes effective only when the producer delivers the policy and: Select one: a. Provides a conditional receipt b. Secures the applicant's signed application and statement of continued good health c. Explains its provisions, secures the initial premium, and a signed statement of continued good health d. Explains its provisions and leaves a receipt for policy delivery

c. Explains its provisions, secures the initial premium, and a signed statement of continued good health

Gerald has a chronic medical condition. What will his risk classification be? How will his premium be affected? a. Gerald's risk classification will be preferred. His premium will be higher. b. Gerald's risk classification will be standard. His premium will be lower. c. Gerald's risk classification will be substandard. His premium will be higher. d. Gerald will be denied coverage.

c. Gerald's risk classification will be substandard. His premium will be higher.

The _______________ is the insurer's promise to pay covered losses as long as the insured pays premiums and abides by the terms and conditions of the policy. Select one: a. Conditions b. Policy face c. Insuring clause d. Exclusions

c. Insuring clause

Margaret makes a change to her health insurance application after completing it. Who must initial her change and sign the contract? Select one: a. Margaret b. Margaret and the underwriter c. Margaret and the agent d. Margaret and an executive officer of the insurer

c. Margaret and the agent

When completing the application, a producer should do all the following, EXCEPT: Select one: a. Make sure the applicant has completely filled out the application. b. Determine whether or not the applicant understands questions asked on the application c. Obtain the spouse's signature on the application, if the applicant is married d. Write and sign an honest opinion of the applicant and their integrity in the section for the Agent's Statement.

c. Obtain the spouse's signature on the application, if the applicant is married

If required by the insurer, the statement of good health must be collected by the producer at the time of: Select one: a. Policy application b. Policy issuance c. Policy delivery d. None of the above

c. Policy delivery

Quentin applies for a whole life insurance policy. When he hands his application to the agent, he does not include a check for the initial premium. The insurance company approves the application, issues the policy, and the agent delivers the policy to Quentin with a premium invoice. Aside from the initial premium, what must the agent collect from Quentin when the policy is delivered? Select one: a. Quentin's inspection report b. Quentin's medical history report c. Quentin's signed statement of continued good health d. Quentin's conditional receipt

c. Quentin's signed statement of continued good health

What action will the life insurance company most likely take when an applicant for a life insurance policy is discovered to be substandard risk? Select one: a. Decline issuance of the policy b. Require the applicant undergo a physical examination c. Require the applicant pay additional premium d. Request the applicant provide proof of insurability for the past 10 years

c. Require the applicant pay additional premium

Rates for insurance policies are based on: Select one: a. Marital status and age b. Sex, age and marital status c. Sex and age d. Sex only

c. Sex and age

A client applied for a $100,000 whole life policy, but did not pay the initial premium at the time of application. When the agent later delivers the policy and collects the premium, which of the following statements must be obtained from the client? Select one: a. A statement of no material change in risks b. A statement of insurability c. A statement of continued representations and warranties d. A statement affirming continued good health

d. A statement affirming continued good health

Which of the following is not a primary component of an insurance contract? Select one: a. Policy exclusions b. Policy face c. Policy conditions d. Aleatory contract

d. Aleatory contract

According to the U.S. PATRIOT Act, which of the following is money laundering? Select one: a. Fraudulent use of public funds b. Computer crimes c. Illegal exportation of controlled munitions d. All of the above

d. All of the above

The PATRIOT Act: Select one: a. Requires financial institutions to develop strong anti - money laundering procedures b. Requires financial institutions to issue suspicious activity reports (SAR's) c. Requires financial institutions to maintain thorough records of financial transactions. d. All of the above

d. All of the above

Which of the following is a true statement? Select one: a. If an applicant needs to makes changes in their application, the agent should create a new form. b. After the applicant's signature, no changes can be made to that particular application. c. Any changes in the application must be signed by both the applicant and the agent. d. Any changes in the application must be initialed by the applicant.

d. Any changes in the application must be initialed by the applicant.

The term attributed to the person who applies for insurance coverage is _______; the term attributed to the person insured by the policy is ________. Select one: a. Beneficiary; applicant b. Insured; insurer c. Policyowner; insurer d. Applicant; insured

d. Applicant; insured

Janice applies for a life insurance policy. She submits the application with the initial premium for $100,000 whole life. The agent returns the policy with a higher premium and hazardous occupation exclusion. What has the insurer made? Select one: a. Agreement b. Offer c. Invitation to offer d. Counter-offer

d. Counter-offer

Dale fills out a health insurance policy application, and hands it to his agent along with the initial premium. Of the following statements, which is correct? Select one: a. Dale's policy is in force when he pays the initial premium. b. Dale's policy is in force when he hands his application to the agent. c. Dale's policy is in force when the insurance company issues the policy. d. Dale's policy is in force when the agent deliver's Dale's policy.

d. Dale's policy is in force when the agent deliver's Dale's policy

The __________ section of the contract states what the insurer will not do. This includes the risks that the insurer will not cover. Select one: a. Conditions b. Policy face c. Insuring clause d. Exclusions

d. Exclusions

Wesley fills out an application for a life insurance policy and submits it to the agent on January 5th. He does not include the first premium payment. Wesley undergoes the required medical examination on January 7th. The insurance company approves Wesley's application on January 15th. Wesley's agent delivers the policy to Wesley on January 17th. At this time, Wesley writes out a check for the initial premium. On what date is Wesley's policy effective? Select one: a. January 5th b. January 7th c. January 15th d. January 17th

d. January 17th

Marge and Ben purchase a comprehensive major medical policy to cover their family. Who is required to sign the application? Select one: a. Marge, Ben, and each child insured b. Only Marge c. Only Ben d. Marge and Ben

d. Marge and Ben

Unilateral is best defined as: Select one: a. Take it or leave it b. Unequal exchange of value c. A contract between the insurer and the insured d. One-sided

d. One-sided

Once a person places their phone number on the Do Not Call List, how long will their number remain on the registry? Select one: a. 31 days b. 6 months c. 5 years d. Permanently

d. Permanently

All of the following statements are true regarding insurance application procedures, EXCEPT: Select one: a. The application is one of the key sources of information used by underwriters. b. The producer is responsible for making sure the applicant has filled out the application completely. c. In many states the application becomes part of the insurance contract. d. Producers can fill in any missing information they discover on the application.

d. Producers can fill in any missing information they discover on the application.

All of the following are involved in the collection of an applicant's medical history, EXCEPT: Select one: a. The application for the insurance policy b. The attending physician statement c. The agent report d. The consumer report

d. The consumer report

John purchases a life insurance policy for his wife Jean. Which of the following best describes who is legally bound to the policy's promise of benefits? Select one: a. The insurer, John and Jean b. The insurer and John c. The insurer and Jean d. The insurer

d. The insurer

Constructive delivery has occurred in all of the following, EXCEPT: Select one: a. The insurer mails the policy to the producer, who mails the policy to the insured b. The producer mails the policy to the insured c. The insurer mails the policy directly any representative of the policy d. The producer receives the application and issues a conditional receipt

d. The producer receives the application and issues a conditional receipt

Insurance agent Margaret receives life insurance applications from Tim and Tom, who are identical twins, and are each applying for the exact same type of policy with the same face amount. The insurance company issues the policies as applied for, but charges Tom a 15% higher premium. Which of the following best explains the higher premium charged to Tom? Select one: a. Longer free look period b. Insuring clause c. Tom had to undergo a medical examination d. Tom's risk classification

d. Tom's risk classification

Which of the following best describes the process used to select and classify risks? Select one: a. Rating b. Discrimination c. Risk classification d. Underwriting

d. Underwriting