Chp-2: Life Insurance Basics

All of the following become part of the entire contract, except: A Any riders B A copy of the application C The policy itself D A copy of the check

D A copy of the application, if attached to the policy, becomes part of the entire contract along with any amendments, riders, or endorsements.

When an applicant completes the insurance application in its entirety and provides the producer with a premium check, what in effect has taken place? A The producer is making an offer of insurance to the applicant B The applicant has given the producer the authority to negotiate the terms of the contract with the insurer C The applicant is accepting the producer's offer of coverage D The applicant is making an offer to the insurer

D When an application accompanies the initial premium, the applicant is making an offer to the insurer. Before acceptance can take place, an offer must first be made. The insurer accepts the offer when the policy is issued.

An application for insurance is completed and submitted to an insurance company. In order for coverage to be effective immediately, all of the following conditions must be met, except: A The policy is issued at a higher risk than the standard risk applied for B A conditional receipt is issued C A medical exam is not required D The initial premium is submitted with the application

A In order for coverage to be effective immediately, the policy must be issued as applied for.

Which of the following is most likely to pay the highest premium for a disability income policy, all other factors being equal? A Male, age 40, firefighter B Female, age 40, banker C Male, age 40, banker D Female, age 40, firefighter

A Male, age 40, firefighter All things being equal, males have a higher mortality risk. The male with the higher risk occupation will most likely pay the highest premium.

If a client is unsure about whether or not he/she can obtain coverage or how much it would cost, what can the producer suggest to see what the insurer can do without tying up any of the client's funds? A Submit a trial application B Submit a term life application C Issue a binding receipt D Submit a whole life application

A Submit a trial application

Information from a third party collected by the insurance company in the application for insurance and during underwriting of the policy may be subject to the jurisdiction of which of the following? AHIPAA B Fair Credit Reporting Act C USA PATRIOT Act D Unfair Claims Practices Act

B Fair Credit Reporting Act

When an insured decides to change her mode of premium payment from monthly to annually, the total premium due would: A Fluctuate B Increase C Decrease D Remain the same

C Decrease

The person who generally has the rights in the insurance policy is known as the ____________. A Beneficiary B Insurer C Policyowner D Insured

C Policyowner

Which of these modes would result in the insured paying the least annual outlay for life insurance? A Monthly automatic bank draft B Semi-annual payroll deduction C Quarterly D Annual

D Annual

Which of the following is NOT required to sign a completed application? A Insured or guardian B Producer C Applicant D Beneficiary

D Beneficiary The applicant, insured (or guardian if a minor) and the producer's signatures are all required in an application for insurance.

HIPAA's privacy rules are implemented to: A Allow an insurer to obtain investigative, medical, and financial reports to complete the underwriting process B Protect the applicant from providing evidence of insurability finding data collected on the initial sales appointment C Require all insurers to perform testing for HIV D Protect the privacy of all individually identifiable health information

D Protect the privacy of all individually identifiable health information

Which underwriting source is primarily used when an application reveals conditions for which more medical information is required? A Attending Physician's Statement B Agent's Report C Medical Information Bureau Report D Inspection Report

A Attending Physician's Statement

If the producer discovers that the applicant is not in good health at time of policy delivery, what should the next step be? A The policy should be returned to the insurer, or the deliver the policy only after the insurer grants permission B Obtain copies of any and all medical records and order a medical exam C Hold onto the policy until the client recovers from their condition, then deliver the policy D Field underwrite in order to determine the additional premium that needs to be collected

A If the applicant is not in good health, the policy should be returned to the insurer, or the producer may deliver the policy only after the insurer grants permission.

All of the following statements regarding sources of underwriting are correct, except: A The applicant may be denied coverage based solely on the MIB report B A consumer investigative report may include a credit report C A medical exam may be requested based on the amount of coverage being applied for D The agent's report is confidential between the producer and the insurer

A The applicant may not be denied coverage based solely on the MIB report. This report is used as an alert for the insurer to gather additional information and to help detect fraud.

Which of the following is not true about life insurance applications? A Contains two parts: General Information and Health History B Confidential communication between the agent and the insurer C Primary source of underwriting D May contain all the necessary information to determine insurability

B A copy of the application will be included as part of the policy, and is therefore not confidential.

In order for a life insurance policy to be valid, insurable interest must exist at time of _________. A Conversion B Application C Claim D Issuance change to expiration

B Application

In a replacement transaction, the insurer that is having its policy replaced is known as the _______ insurer. A Insolvent B Existing C Conserving D Replacing

B Existing

An insurance company must adhere to the __________ when gathering information about an applicant from third parties. A Federal Trade Commission Act (FTCA) B Fair Credit Reporting Act (FCRA) C Medical Information Bureau Rules D Truth in Underwriting Regulations

B Fair Credit Reporting Act (FCRA)

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: A Cancellation of Service B Notice Regarding Replacement C Statement of Release D Notice Regarding Conservation

B Notice Regarding Replacement

The difference between Estate Creation and Estate Conservation is that A Estate creation results from the accumulation of cash value, and estate conservation use the face amount B Estate creation is one of the uses for life insurance and estate conservation is not C Estate creation occurs when policy proceeds are paid to survivors. Estate conservation occurs when those proceeds are used to pay estate taxes D Estate creation and estate conservation are two names for what is essentially the same goal

C An estate is created every time a policy is bought, because the purchase creates a pool of money that will be paid out at death as long as the policy is in force. At that point the promise becomes a reality. Estate conservation assumes wealth has already been created during one's life and needs to be protected from taxes and loans due at the death of the insured

Medical exams are requested in all of the following situations, except: A Past health history B Insured's advanced age C Low amount of premium D High amounts of coverage

C Low amount of premium Medical examinations are usually requested by the insurer after determining if the amount of coverage, age of applicant, or his/her health history warrants the examination. Premium has nothing to do with it.

A producer provided a conditional receipt to an applicant on May 5 at the time of an application based on a standard risk. The insurer required a routine medical exam, which was completed on May 15. The policy was issued based on a substandard risk on May 20 and the producer delivered the policy on May 22. The effective date of coverage is: A May 5 B May 15 C May 22 D May 20

C Since the policy was not issued as applied for, coverage is not effective until the producer delivers the policy on May 22 and explains the changes in coverage or increased premium due to a substandard risk. The applicant must accept the counteroffer.

J is named in a policy as the individual who is entitled to receive the policy proceeds upon the death of T. Which of the following statements best applies to this scenario? A T is the owner and beneficiary of the policy B J is the insured and beneficiary of the policy C T is the insured in the policy and J is the named beneficiary D J is named as the owner of T's policy

C T is the insured in the policy and J is the named beneficiary

K meets with an insurance producer, completes an application, and writes a check for the initial premium. The producer submits the application and the premium to the insurer, and a policy is issued and mailed to the producer. Two weeks later, K has neither shown up to pick up the policy nor returned the producer's calls. Which of the following statements is correct? A The policy is in force--coverage began when the policy arrived at the producer's office B The policy is not in force--the policy must be physically handed to K for coverage to begin C The policy is in force--coverage began when the insurer sent the policy D The policy is in force--coverage began when the producer accepted K's check

C The policy is in force--coverage began when the insurer sent the policy

A life insurance policy is being applied for on Z's life. In order for the contract to be valid, all of the following have an insurable interest and could be the owner of the policy, except: A Z's business partner B Z C Z's neighbor D Z's spouse

C Z's neighbor Insurable interest is defined as having a relationship which would result in a financial or economic loss if the insured dies. A neighbor is not an example of a party that meets this definition.