General Insurance- Life Basics Chap.2 Quiz 2 AD Banker

The process of calculating life insurance net premium requires consideration of all of the following, except:

The morbidity rates to be used Net Premium for life insurance takes into account interest and mortality (not morbidity) factors only. The insured's age and gender are considered mortality factors.

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?

Have the applicant initial the change or start over with a completely new application 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.

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

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

The income-earning ability lost to dependents by the insured's premature death is a way to evaluate an individual's insurance needs. This method is known as the:

Human Life Value The objective of the Human Life Value Approach is to provide the proper amount of coverage as determined by the value of the insured individual to his/her dependents.

Which of the following is true?

The insured and the policyowner are usually the same, but not necessarily. The applicant, insured, and owner might all be different parties, and any changes to the policy must be approved only by the policyowner.

A ___________ settlement is when a terminally ill insured sells his or her life insurance policy to a third party other than an insurance company, for an amount less than the policy's death benefit, but greater than its cash values.

Viatical settlements are a way for a terminally ill insured to sell his or her policy for much needed cash when no other sources are readily available.

A typical life insurance application contains how many parts?

2 A typical life insurance application contains two parts, part 1 is general information and part 2 is medical information.

Which of the following signatures would not be considered valid on an application for insurance?

A minor. Both the producer or agent and the applicant/insured must sign the application unless the guardian is signing for a minor.

A business owner buys a life policy on his own life. He may be all of the following except _______________.

Beneficiary

Which of the following personal uses of life insurance is specifically designed to provide benefits to the policyowner while the insured is still alive?

Cash accumalation Cash accumulation is the only choice given that will provide benefits while the insured is still alive. All of the other choices are available once the insured has died.

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

Conduct further investigation to obtain more information prior to making a decision 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 underwriting criteria taken into account by the insurer in the underwriting of individual life insurance cases, except:

Education level completed Underwriting for educational level completed would be discriminatory.

The Medical Information Bureau (MIB) is formed by:

Insurance companies 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.

The burden of proof falls on the _________ to establish issued policies were in fact delivered to the applicant.

Insurer The insurer has the burden of proving that an issued policy was delivered.

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?

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

Which of the following is not a factor in premium determination?

Reserves Premiums are based on expected mortality, interest, and expenses.

All of the following are examples of a third-party ownership EXCEPT:

S applies for a policy on herself and names her husband as the beneficiary. Third-party ownership exists when the insured and the owner of the policy are different persons.

Who is required to sign a completed application?

The producer. Only the applicant/insured and the producer's signatures are required in an application for insurance.

In determining the proper amount of life insurance, the Needs Analysis Approach takes into consideration all of the following factors, except:

The projected future value of services provided by the insured. The Needs Analysis Approach factors in paying off all bills, creating a lifetime stream of income for the surviving spouse, creating a college fund for surviving children, and paying off the mortgage. Once totaled, this amount is reduced by financial assets already in place.

The person offering him/herself or another person to be insured by the contract best defines the:

Applicant The applicant is the party making the application, offering him/herself or another to be insured. The applicant may possibly also be the insured and/or policyowner, but not necessarily.

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

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

If a premium is collected with a life insurance application and coverage begins immediately for a specific length of time regardless of whether the applicant is ultimately approved by the insurer, the receipt given by the agent is called a(n):

Binding A binding receipt provides coverage for up to 90 days or until a policy is issued or the risk is declined by the insurer. This is also known as a temporary insurance agreement.

A generic brochure developed by the NAIC to provide consumers with descriptions of basic types of life insurance as well as the comparative costs of each is called the _______.

Buyers guide It is required that prospective life insurance buyers receive the NAIC Buyer's Guide to assist them in their life insurance purchase decision.

How does life insurance reduce financial loss upon the insured's death?

By transferring the risk to the insurer For a premium, the applicant can transfer a specific dollar amount of risk to the insurer, thereby reducing but not eliminating the entire risk.

A personal use of life insurance does which of the following?

Creates an immediate estate Life insurance is often described as creating an immediate estate. Annuities are designed to provide protection against living too long.

Which of these modes would result in the insured paying the least annual outlay for life insurance?

Paying premiums on an annual basis is always the least costly premium mode. Paying premiums monthly is usually the most expensive mode. Although some insurers may offer a discount for automatic monthly bank drafts, not all do, so this is not an acceptable choice. Payroll deduction is not a "mode."

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

Permnament 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.

When an individual qualifies for a lower premium or rate than standard risks, the insured is considered a:

Preferred risk

Mortality cost ______ interest (investment earnings) = equals the pure rate.

Minus Mortality cost minus interest (investment return) = net premium (pure rate).

If a medical exam is required as part of the underwriting process, who normally conducts the exam?

A physician or a nurse Physicians, nurses, or paramedics are the ones who conduct medical exams which may include blood tests, urine tests, EKGs, and medical histories among other things.

A (an)_________ is used when the insured's age, medical history, or amount of coverage does not require a medical exam for underwriting purposes.

Nonmedical application A nonmedical application is used when the insured's age, medical history, or amount of coverage does not call for a medical exam.

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?

Nothing, the insurer has waived its right to that information 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.

Which of the following is used by an insurer to collect information from the applicant/insured for underwriting purposes?

An application A producer collects field underwriting information from the applicant/insured on an insurance application.

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.

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

An applicant's physician to provide information about the applicant's medical history. 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.

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

Gross premium 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 statements correctly describes the difference between gross premium and net premium?

Gross premium is the total amount paid for the policy. Net premium does not include the insurance company's cost of doing business, such as paying claims and other expenses. Gross premium is the total amount a person pays the insurer for his/her coverage. Net premium, sometimes called the "pure premium," does not include business expenses of the insurer.

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

Home office underwriter 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.

In determining the proper amount of life insurance coverage for an insured, the ________ approach measures the projected future earnings and the value of the insured's services in the event of his or her premature death.

Human Life Value The Human Life Value Approach concerns itself with the replacement of future earnings and the value of the insured's services in the event of premature death.

When determining an appropriate amount of life insurance, a producer takes into consideration the existing mortgage and other debt, future education expenses for the client's children and continuing income for his surviving spouse. This approach is known as:

Need analysis When a producer takes into account a variety of factors related to lost future income, he/she is using a needs approach.

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.

The factors necessary for an insurer to calculate a Net Premium are:

Rate of interest assumed and mortality rate. Mortality Rate - Rate of Interest Assumed = Net Premium or Pure Rate.

Martin is age 30 when he applies for life insurance. The underwriter classifies him the same as a person age 40 and his policy is issued with a premium for a person age 40. What substandard rating has been applied to Martin's policy?

Rated up aged. As the name implies, Rated-up Age is a substandard rating assigned to the insured whose insurable characteristics appear to be the same as those for someone much older, resulting in a higher premium than anticipated.

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?

Return the policy to the insurer with a letter of explanation 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.

What is the purpose of determining the proper amount of life insurance needed for a prospective client?

To prevent both over and under insuring. The purpose of determining the proper amount of life insurance to own in the event of premature death is to avoid both over and under insuring of the individual.

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

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

At the time of a life insurance policy delivery, a producer must provide which of the following?

A copy of the illustration that matches the policy for which was approved. An illustration or policy summary must be provided prior to or at the time a policy is delivered. If the policy is not the same as that which was illustrated previously, the client must be given a new illustration matching the policy that is issued. In practice, insurance companies include a matching illustration or summary with every policy approved for delivery.

Which of the following describes group life insurance?

A single policy issued to a business to cover the lives of employees Group insurance is underwritten as a single policy that covers many lives. A policy issued to an individual that covers all family members is still an individual policy. A group specifically formed for the purpose of obtaining insurance is not a valid group under state insurance laws.

An applicant for life insurance realizes several days later that she may have answered a question about a health issue incorrectly. She should do which of the following?

Contact either her agent or the insurance company and make sure they have the correct information The insurance company is entitled to have the most correct information available before it approves a person for insurance. Incorrect information in the application may only be changed before the policy is issued.

Frieda wants coverage until she has paid back her business loan in 10 years. The ideal life insurance policy with the least expense would be:

Decreasing Term Decreasing Term reduces in death benefit as the loan obligation reduces in balance. Term insurance is the least expensive form of insurance as it is temporary and does not build any cash values. The death benefit reduces over the period of the note or loan.

When producer Pete delivers a policy, he should also do which of the following?

Explain the policy fully. It is the producer's or agent's responsibility to deliver the policy, verify the insured has remained in good health, and explain the policy to be sure the insured understands the benefits, including endorsements and riders.

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 the:

Fair Credit Reporting Act The Fair Credit Reporting Act is the only one in the list which may have jurisdiction over information gathered for underwriting purposes.

To purchase the greatest amount of coverage, for the least amount of initial premium, a client would purchase which of the following?

Term policy A person at any given age, for a specified dollar amount of premium, can always own more term insurance than any other class of life insurance, because all they are purchasing is a death benefit (protection) for a temporary period of time.

When an applicant completes the insurance application in its entirety and provides the producer with a premium check, what in effect has taken place?

The applicant is making an offer to the insurer. 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.

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?

The date of the application or upon the completion of any required medical exam (whichever is later) 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.

All of the following are factors that are taken into consideration when using the Human Life Value approach in determining the proper amount of life insurance coverage, except:

the insured's educational background. The insured's educational background is not a factor when using the HLV approach to determine the amount of life insurance needed.