Chapter: Completing the Application, Underwriting, and Delivering the Policy
In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe. A) Unidirectional B) Aleatory C) Conditional D)Unilateral
D) Unilateral In a Unilateral contract, the insured is not legally bound to do anything. The insurer however must pay losses by the policy.
What is the maximum penalty for habitual willful noncompliance with the Fair Credit Report Act? A) Revocation of License B) 2,500 C) 1,000 D) 100 per violation
B) 2,500 An individual who willfully violates this Act enough to constitute a general pattern or business practice will be subject to a penalty of up to 2,500
What is a material misrepresentation? A) Concealment B) A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company C) Any misstatement made by an applicant for insurance D) Any misstatement by the producer
B) A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company
Who makes up the Medical Information Bureau? a) Insurers b) Hospitals c) Former insured d) Physicians and paramedics
C) Insurers The Medical Information Bureau is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have discovered.
Which part of an insurance application would contain information regarding the cause of death of the applicants deceased relatives? A) Agents report B) General Information C) Medical information D) Inspection report
C) Medical information Part 2 - Medical Information of the application includes information on the prospective insureds medical background, present heath, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives.
What is the purpose of a conditional receipt? A) It is intended to provide coverage on a date prior to the policy issue B) it guarantees that a policy will be issued in the amount applied for C) it serves as proof that the applicant has been determined insurable D) it is given only to applicants who fully prepay the premium
A) It is intended to provide coverage on a date prior to the policy issue. Coverage commences on the date of the application or the date of a medical examination which is later on the condition that the applicant is determined to be insurable at the rate applied for.
If insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe? A) Conditional B) Unilateral C) Unidirectional D) Aleatory
B) Unilateral Is a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy.
When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is A) Personal B) Unilateral C) Conditional D) Aleatory
C) Conditional The contract is formed on the basis that certain conditions are met
What is the purpose of the insurability provision in group life policies issued in this state? A) To require the insurer to provide certificates of insurance to individual insured B) To guarantee insurability for all eligible applicants C) To allow the insurer to require proof of insurability from the individual insured D) To automatically renew coverage for a new policy term
C) To allow the insurer to require proof of insurability from individual insured Under the insurability provision in group life policies, the insurer has the right to require an individual applicant to provide evidence of insurability as a condition for coverage
When can a long term care policy deny claim for losses incurred because of a pre-existing condition? A) At any time B) At no time C) within 6 months of the effective date of coverage D) within 12 months of the effective date coverage
C) Withing 6 months of the effective date of coverage A long term care policy cannot deny claim for losses incurred more than 6 months from the effective date of coverage because of pre-existing condition.
If a company has a Simplified Employee Pension Plan, what type of plan is it? A) A qualified plan for small business B) the same as a 401(k) plan C) The same as an IRA, with the same contribution limits D)An undefined contribution plan for large businesses
A) A qualified plan for a small business A Simplified Employee Penson (SEP) is a type of non qualified plan suited for the small employer or self employed. A SEP is an employer- sponsored IRA with an expanded contribution rate up to 25% of compensation or specified maximum contribution amount.
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 A) Conditions B) Consideration C) Legal purpose D) Offer and acceptance
A) Conditions Conditions are part of the police structure. Consideration is an essential part of a contract.
All of the following information about the applicant is identified in the General Information section of a life insurance application EXCEPT? A)Education B) Age C) Gender D) Occupation
A) Education Education is not an underwriting factor nor is it information included on the application.
Fixed annuities provide all of the following EXCEPT? A) Hedge against inflation B) Equal monthly payments for life C) Minimum guaranteed rate of interest D) Future income payments
A) Hedge Against inflation Fixed annuities invest premium payments into a general account- a safe and conservative investment portfolio. They also provide a specified dollar amount for each annuity payment regardless of the purchasing power of the money. Variable annuities premiums are invested in securities, hopefully maintaining a constant purchasing power, therefore providing protection against inflation.
A 65 year old enrolls for benefits under Medicare Part B and submits an application for a Medicare Supplement policy two months later. For which of the following reasons may the insurer deny the application? A) Material Misrepresentation B) Health Status C) Claims Experience D) Medical Condition
A) Material Misrepresentation Under the Omnibus Reconciliation Act (OBRA) Medicare supplement insurance may not be denied due to applicants health status, claims experience, or medical condition during the first 6 months that the applicant is both 65 or older and enrolled in Medicare Part B. This six months is referred to as the open enrollment period.
Who might receive dividends from a mutual insurer? A) Policyholders B) Subscribers C) Stock holders D) Agents
A) Policyholders A mutual insurer has no stock and is owned by the policyholder. since they may receive a dividend( not guaranteed), Such policies are known as participating policies. Dividends received by policyholders of a mutual insurer are not taxable.
Which of the following is an example of a producer being involved in a unfair trade practice of rebating? A) Telling a client that his first premium will be waived if he purchases the insurance policy today B) inducing the insured to drop a policy in favor of another one when it is not in the insureds best interest C) Charging a client a higher premium for the same policy as another client in the same insuring class D) Making deceptive statements about a competitor
A) Telling a client that is first premium will be waived if he purchases the insurance policy today Rebating is defined as offering any inducement in the sale of insurance products that it not specified in the policy, including money, reductions in commissions, promises, and personal services. Both the offer and acceptance of rebate are illegal
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 information EXCEPT the applicant's A) Ancestry B) Credit History C) Habits D) Prior Insurance
Ancestry
Which of the following is NOT required on a application for variable life insurance policy? A) Questions designed to assist the insurer in determining suitability of the insurance B) A statement explaining the use of separate accounts in a variable insurance C) A statement that the death benefit may be variable or fixed D) A statement that cash values may increase or decrease based on the separate accounts
B) A statement explaining the use of separate accounts in a variable insurance. There is no requirement that applications for variable life insurance policies contain a statement explaining separate accounts to the applicant
Under a Key Person disability income policy, premium payments A) Are made by the business and are tax-deductible B) Are made by the business and are not tax-deductible C) Are made by the employee and are not tax-deductible D) Are made by the employee and are tax-free
B) Are made by the busines and are not tax-deductible Premiums are nondeductible to the business; however, benefits are received tax free by the business
All of the following apply to short-term disability plans EXCEPT A) A benefit period of 26 weeks is most common for group plans B) Both group and individual plans are renewable C) Group plans can provide benefit periods of up to 52 weeks D) individual plans can provide benefit periods of up to 2 years
B) Both group and individual plans are renewable Short term disability plans are not renewable
The medical information Bureau (MIB) was created to protect? A) Medical examiners that perform insurance physical examinations B) Insurance companies from adverse selection by high risk persons C) Insurance departments from lawsuits by policyowners D) Insureds from unreasonable underwriting requirements by the insurance companies
B) Insurance companies from adverse selection by high risk persons The MIB make information available to underwriters to assist them in the underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals
On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are A) Guaranteed B) Not taxable since the IRS treats them as a return of a portion of the premium paid. C) Paid at a fixed rate every year D) Taxable as ordinary income.
B) Not taxable since the IRS treats them as a return of a portion of the premium paid. with participating policies, policyowners are entitled to dividends, which in the case of mutual companies are nontaxable because they are considered a return of excess premiums
Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information contained in a consumer or investigative report, the reporting agency must A) Send an actual certified copy of the entire report to the consumer B) Respond to the consumers compliant C) Defend the report if the agency feels it is accurate D) Change the report
B) Respond to the consumers compliant The consumer has the right to request the information on the report, the reasons for turn down and any adverse underwriting decisions. The reporting agency is required to respond to the consumers complaint, and, it necessary to reinvestigate the report
in comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports? A) The customer has no knowledge of this action B) The costumers associates, friends, and neighbors provide the report's data C) They provide additional information from an outside source about a particular risk D) They provide information about a customers character and reputation.
B) The costumers associates, friends, and neighbors provide the report's data. Both consumer reports and investigative reports provide additional information form an outside source about a customers character and reputation and both types of reports are used under the fair credit report act. the main difference is that the information for investigative consumer report is obtained through investigative interviews with associates, friends, and neighbors of the consumer
The insured had his wife named as the beneficiary of his life insurance policy. To ensure that his wife had income for life after the insured's death, he chose the life income settlement option. The amount of payments will be determined by taking into account all of the following EXCEPT A) Face amount of the policy B) The insureds age at death C) The beneficiary's life expectancy D) Projected interest rates
B) The insureds age at death The insureds age at death will not be considered but the longer the life expectancy of the recipient the lower the payments will be
An insured make regular contributions to his Health Savings Account. How are those contributions treated in regards to taxation? A) They are taxed as income B) They are tax deductible C) they are considered after-tax contributions D) they are not deductible
B) They are tax deductible An individual covered by a high deductible health plan can make a tax-deductible contribution to an HSA and use it to pay for out-of-pocket medical expenses
All of the following are requirements for life insurance illustrations EXCEPT? A) They must differentiate between guaranteed and projected amounts B) They must be part of the contract C) They may only be used as approved D) They must identify nonguaranteed values
B) They must be part of the contract An illustration may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list nonguaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed.
What is the purpose of a disclosure statement in life insurance policies? A) To protect agents and insurers against lawsuits B) To explain features and benefits of a proposed policy to consumer C) To obtain important underwriting information from the applicant D) To help consumers compare policy prices
B) To explain features and benefits of a proposed policy to the consumer Disclosure statements will help the applicants to make more informed and educated decisions about their choices in life insurance.
A medical expense policy that establishes the amount of benefit paid based upon the prevailing charges which fall within the standard range of fees normally charged for a specific procedure by a doctor of similar training and experienced in that geographic area is know as A) Gatekeepers B) Usual, customary, and reasonable C) Relative-value schedule D) Benefit schedule
B) Usual, customary, and reasonable The usual, customary and reasonable approach for determining insurance benefits is based upon the fees normally charged for specific procedures in the geographic location where the services are provided.
which of the following describes MIB? A) it is a rating organization for health insurance B) it is a nonprofit organization that maintains underwriting information on applicants for life and health insurance C) It is a government agency that collects medical information on the insured from the insurance companies D) it is a member organization that protects insured against insolvent insurers
B) it is a nonprofit organization that maintains underwriting information on applicants for life and health insurance
Which of the following would be considered a nonqualified retirement plan? A) Keogh Plan B) Roth IRA C) Split-dollar plan D) 401(k)
C ) split-dollar plan Examples of nonqualified plans are individual annuities and deferred compensation plans for highly paid executives, split-dollar insurance arrangements, and Section 162 executive bonus plans.
An insured had a 10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28 how much would the beneficiary receive from the policy? A) $0 B)$200 C)$9,800 D)$10,000
C) $9,800 In this scenario, the death occurred within the mandatory 30-day grace period. Past due premium would be subtracted form the face amount of the policy.
If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? A) 10 days B) 3 days C) 5 days D) 7 days
C) 5 days consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to proved the consumer with the additional information
Which of the following statements is not true concerning insurable interest as it applies to life insurance? A) A married person has a insurable interest int their spouse B) An individual has an insurable interest in their own life C) a debtor has an insurable interest in the life of a lender D) Business partners have an insurable interest in each other
C) A debtor has an insurable interest in the life of a lender A lender has an insurable interest in the life of a debtor, but only to the extent of the debt. The debtor does not have insurable interest in the life of the lender.
Which of the following statements is NOT true concerning insurable interest as it applies to life insurance? A) A married person has an insurable interest in their spouse. B) An individual has an insurable interest in their own life C) A debtor has an insurable interest in the life of a lender D) Business partners have an insurable interest in each other
C) A debtor has an insurable interest in the life of a lender. A lender has an insurable interest in the life of a debtor but only to the extent of the debt. The debtor does not have insurable interest in the life of the lender
The term illustration in a life insurance policy refers to A) Pictures accompanying a policy B) charts and graphs C) a presentation of non guaranteed elements of a policy D) A depiction of policy benefits and guarantees
C) A presentation of nonguaranteed elements of a policy The term illustration means a presentation or depiction that includes nonguaranteed elements of a policy of a individual or group life insurance over a period of years
An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe? A) Adhesion B) Conditional C) Aleatory D) Good Health
C) Aleatory In an aleatory contract, unequal amounts between payments and benefits. In this instance, the insured receives a large benefit for a small price
In classifying a risk, the Home Office underwriting department will look at all of the following except? A) Applicants present physical condition B) Applicants present occupation C) Applicants past income D) Applicants past medical history
C) Applicants past income In classifying a risk, the home office underwriting department will look at the applicants past medical history, present physical condition, occupation, habits and morals.
Occasional visits by which of the following medical professionals will NOT be covered under LTC's home health care? A) Licensed practical nurses B) Community- based organization professionals C) Attending physician D) Registered nurses
C) Attending physicians Home health care is care provided in one's home and could include occasional visits to the persons home by the registered nurses, Licensed practical nurses, licensed vocational nurses, or community-based organizations like hospice. Home health care might include physical therapy and some custodial care such as meal preparations.
An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe? A) Aleatory B) Unilateral C) Conditional D) Contingent
C) Conditional A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.
Contracts that are prepared by one party and submitted to the other party on a take it or leave it basis are classified as A) Aleatory contracts B) Binding contracts C) Contracts of adhesion D) Unilateral contracts
C) Contracts of adhesion Insurance policies are written by the insurer on a take-it- or leave it basis. the insured does not have any input into the contract but simply adheres to the contract
An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n) A) Medical examination B) Attending physician statement C) Inspection report D) Medical information Bureau report
C) Inspection Report An inspection report may be ordered about an applicant from an independent investigating firm or credit agency. It is a general report of the applicants finances, character, work, hobbies, and habits.
Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT? A) Alcohol and tobacco consumption B) Recent surgeries C) Other insurance coverages D) Family health history
C) Other insurance coverages Part 2 of the application contains questions regarding the applicants health history. Part 1 of the application includes questions regarding current coverage being applied for as well as any other insurance coverage with the same or other insurers.
which of the following are the main factors taken into account when calculating residual disability benefits? A) Employees full time status and length of disability B) present earnings and standard cost of living C) present earnings and earnings prior to disability D) earnings prior to disability and the length of disability
C) Present earnings and earnings prior to disability Residual disability will help pay for loss of earnings by making up the difference between the employees present earnings and what they were earning prior to disability.
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT? A) The interest is credited at a rate specified by the policy B)The policyholder has the right to withdraw the accumulations at anytime C)The interest is not taxable since it remains inside the insurance policy D) The annual dividend is retained by the company
C) The Interest is not taxable since it remains inside the insurance policy The interest credited under this option is taxable, whether or not the policyowner receives it.
An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. what dividend option could she use? A) Reduction of premium B) Accumulation at interest C) paid-up option D) One-year term
C) paid-up option With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.
An investor buys a life policy on an eldely person in order to sell it for a life settlement. This is an example of A) A prearranged funeral plan B) A viatical settlement C) Third party ownership D) A STOLI policy
D) A STOLI policy Stranger originated life insurance (STOLI) policies are usually purchased by people who have no relationship with the insured with the intention of selling them for life settlements
Which of the following best describes the concept that the insured pays a small amount of premium for a larger amount of risk on the part of the insurance company? A) Adhesion B)Subrogation C)Warranty D)Aleatory
D) Aleatory An insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk.
Which of the following statements regarding Business Overhead Expense policies is NOT true? A) Premiums paid for BOE are tax-deductible B) Any benefits received are taxable to the business C) Leased equipment expenses are covered by the plan D) Benefits are usually limited to six months
D) Benefits are usually limited to six months Business Overhead Expense (BOE) insurance is sold to small business owners for the purpose of reimbursing the policyholder for business overhead expenses during a period of total disability, premiums are tax-deductible for a business but any benefits received are taxable as income. Overhead expenses, including equipment and employee salaries are covered by the plan. Salaries and profits of the employer are not protected.
Which of the following is NOT an essential element of insurance contract? A) Consideration B) Agreement C) Legal purpose D) Counteroffer
D) Counteroffer In order for insurance contracts to be legally binding, they must have four essential elements: agreement(offer and acceptance), consideration, competent parties, legal purpose. Counteroffer is not required
Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information? A) Unfair Trade Practices Law B) The Guaranty Association C) Consumer Privacy Act D) The Fair Credit Reporting Act
D) Fair Credit Reporting Act The purpose of the fair credit reporting act is to protect consumers against the circulation of inaccurate or obsolete information and to ensure that consumer reporting agencies are fair and equitable in their treatment of consumer.
Which of the following will be included in a policy summary? A) Copies of illustrations and application B) Comparisons with similar policies C) Primary and secondary beneficiary designations D) Premium amounts and surrender values
D) 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 would provide an underwriter with information concerning an applicants health history? A) A Medical examination B) The agents report C) The inspection report D) The medical information bureau
D) The Medical Information Bureau An agents report and inspection report provide personal information. medical exams provide information on current health. Only the MIB will provide information about an applicants medical history.
What is the purpose of a disclosure statement in life insurance policies? A) To obtain important underwriting statement from the applicant B) To help consumers compare policy prices C) To protect agents and insurers against lawsuits D) To explain features and benefits of a proposed policy to the consumer
D) To explain features and benefits of a proposed policy to the consumer. Disclosure statements will help the applicants to make more informed and educated decisions about their choices of insurance.
In forming an insurance contract, when does acceptance usually occur? A) When an Insurer delivers the policy B) When an insurer receives an application C) When an insured submits an application D) When an insurer's underwriter approves coverage
D) When an insurer's underwriter approves coverage In insurance the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurers underwriter approves the application and issues a policy.