Life Basics Chapter 2 Test

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? A) Nothing, the insurer has waived its right to that information B) Require the applicant/insured to answer the questions and re-underwrite the policy C) Increase the policy's premium D) Cancel the policy

A) 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.

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: A) The insured's educational background B) The insured's annual income C) An inflation assumption D) The insured's planned retirement age

A) 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.

A person making application, for themselves or another, to be insured under an insurance policy is called the: A) Fiduciary B) Beneficiary C) Applicant D) Sponsor

C) Applicant One applying for coverage is always the applicant. Typically, the applicant is also both the insured and the owner, but not always, as in a third-party policy.

In order to receive a policy dividend, the policyowner must own a/an __________ policy. A) Ordinary B) Group C) Participating D) Industrial

C) Participating Participating policies are the only policies that may pay dividends to policyowners.

Industrial Life Insurance is also referred to as a: A) Nonparticipating Policy B) Group Policy C) Participating Policy D) Debit Policy

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

__________ 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. A) Senior B) Viatical C) Life Settlement D) Stranger Originated

D) Stranger Originated 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).

An insurable interest must exist between the _______ and the ________ at the time of application for life insurance to be valid. A) Applicant/Insured B) Applicant/Owner C) Insured/Beneficiary D) Owner/Beneficiary

A) Applicant/Insured 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.

The HIV Consent Form specifies which types of individuals may receive __________. A) The underwriter's decision B) The name of the medical lab used and lab work C) The amount and type of policy applied for D) The test results

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

How does life insurance reduce financial loss upon the insured's death? A) Through applicant risk retention strategies B) By transferring the risk to the insurer C) Through reinsurance risk techniques D) By eliminating the risk

B) 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.

The date on which insurance coverage is no longer in effect is referred to as the _________ date. A) Policy B) Expiration C) Renewal D) Conversion

B) Expiration The expiration date is when insurance coverage ends.

What is the primary reason why States have 'outlawed' Stranger/Investor Originated Life Insurance (STOLI) transactions? A) The transaction avoids State taxes B) The insured may not be able to meet the premium requirements C) At policy inception there is a lack of insurable interest D) The 'strangers' or 'investors' are exempt from licensing

C) At policy inception there is a lack of insurable interest If a policy is issued without proper insurable interest it becomes a wager contract which is prohibited by State insurance law.

Insurance covering the liability of a producer or agency is called _______. A) Complaint Protection B) Property and Casualty C) Errors and Omissions D) Inadequacy and Negligence

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

What is an insurer permitted to do if and when it discovers during the underwriting process that a proposed insured has AIDS? A) Insurers can discriminate between individuals of the same class in underwriting for the risk of AIDS B) Insurers can share the test results with the insured's immediate family members and any health professionals listed on the application C) Insurers may refuse to issue a policy to individuals based on positive HIV test results D) The insurer can share information discovered during the underwriting process with the Center for Disease Control as well as state and local health authorities

C) Insurers may refuse to issue a policy to individuals based on positive HIV test results 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.

The Attending Physician's Statement (APS) is completed by: A)The Medical Information Bureau B) The agent after the medical questions are answered by the applicant C) A physician providing a required medical exam at the time of application D) An applicant's physician to provide information about the applicant's medical history

D) 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.

The human life value approach in determining the amount of life insurance someone needs takes into consideration all of the following, except: A) Personal and financial information B) Occupation C) Planned retirement age D) The number of cars the insured and family members own

D) The number of cars the insured and family members own The human life value approach takes into consideration the individual's age and gender, the individual's occupation, the individual's annual wage and employment benefits, and the individual's planned retirement age.