LIFE INSURANCE BASICS

What is the maximum amount of time that an application for life insurance may be backdated? A. 3 months B. 6 months C. 1 year D. One year It varies from insurer to insurer.

A. 3 months No policy in Ohio can take effect more than 3 months prior to the original application date, therefore allowing an agent to backdate a policy applicant's age if his/her birthday was less than 3 months ago.

Which of the following applicants could the insurer charge a higher rate of premium and not violate regulations regarding unfair discrimination? A. An applicant who has been a victim of domestic abuse B. An applicant who is a smoker C. An applicant who was born in another country D. An applicant who is legally blind

B. An applicant who is a smoker Smoking or not smoking is a rating factor.

An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n) A. Attending Physician Statement. B. Inspection report. C. Medical Information Bureau report. D. Medical examination.

B. 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 applicant's finances, character, work, hobbies, and habits.

How many days does the viator have to rescind a contract after receiving the viatical settlement proceeds? A. 3 business days B. 10 calendar days C. 15 calendar days D. Viatical settlement contracts cannot be rescinded.

C. 15 calendar days Each viatical settlement contract must provide the viator with an unconditional right to rescind the contract for at least 15 calendar days after receipt of the viatical settlement proceeds.

What does "liquidity" refer to in a life insurance policy? A. The policyowner receives dividend checks each year. B. The insured receives payments each month in retirement. C. Cash values can be borrowed at any time. D. The death benefit replaces the assets that would have accumulated if the insured had not died.

C. Cash values can be borrowed at any time. Liquidity in life insurance refers to availability of cash to the insured through cash values.

Another name for a substandard risk classification is A. Declined. B. Elevated. C. Rated. D. Controlled.

C. Rated. Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium.

Which of the following would NOT be included in a policy summary? A. The underwriting office's name and address B. The generic name of the policy C. The date the summary was prepared D. An evaluation of the applicant's medical records

D. An evaluation of the applicant's medical records In Ohio, a policy summary would also include the name and address of the agent, amounts of coverage and cost comparison indexes.

Who must approve viatical settlements? A. An actuary for the insurer B. The applicant C. The Governor D. The Superintendent

D. The Superintendent The Superintendent must approve all viatical settlements.

An insurer wants to begin underwriting procedures for an applicant. What source will it consult for the majority of its underwriting information? A. State records B. Medical records C. Application D. Interviews

C. Application The application contains most of the information used for underwriting purposes. This is why its completeness and accuracy are so crucial.

How long must insurers keep a copy of a basic life policy illustration on file? A. 3 years after the policy terminated B. 5 years after the illustration was created C. Until the next examination by the Department D. 2 years after first use

A. 3 years after the policy terminated Insurers must keep a copy of basic illustrations on file for 3 years after the policy is no longer in force.

Which of the following statements regarding HIV testing for life insurance purposes is NOT true? A. HIV testing is regulated at the state level. B. Insurers are barred from requesting HIV testing. C. Positive test results will be forwarded to the state's Department of Health if a physician is not selected by the applicant. D. The testing practices must meet the criteria of the U.S. Department of Health and Human Services.

B. Insurers are barred from requesting HIV testing. It is common for insurers to require HIV testing when an applicant seeks a policy with a large face amount. The insurer must abide by a variety of rules created by its respective state.

Which of the following is NOT an example of insurable interest? A. Employer in employee B. Child in parent C. Debtor in creditor D. Business partners in each other

C. Debtor in creditor The three recognized areas in which insurable interest exists are as follows: a policyowner insuring his or her own life, the life of a family member (relative or spouse), or the life of a business partner, key employee, or someone who has a financial obligation to them. A debtor does not have an insurable interest in the creditor.

Who makes up the Medical Information Bureau? A. Insurers B. Hospitals C. Former insured D. Physicians and paramedics

A. 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.

In Ohio, the written statement that describes all relevant elements of the policy must be titled A. Statement of Policy Cost and Benefit Information. B. The Policy Illustration. C. The Buyer's Guide. D. The Policy Provisions.

A. Statement of Policy Cost and Benefit Information.

Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value? A. Effect of inflation on income over time. B. Predicted needs of the family after the insured's death. C. Insured's current and future income. D. Insured's annual expenses.

B. Predicted needs of the family after the insured's death. The Human Life Value Approach to determining the value of an individual's life requires the calculation of probable future earnings of the insured, which involves wages, expenses, inflation, amount of time until retirement, and the time value of money. Predicted needs of the family after the insured's death are used in the needs approach.

Which is the primary source of information used for insurance underwriting? A. Medical records B. Private investigations C. Application D. Applicant interviews

C. Application The application contains most of the information used for underwriting purposes. This is why its completeness and accuracy are so crucial.

Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process? A. Insurance Index B. Policy Summary C. Illustrations D. Buyer's Guide

D. Buyer's Guide The Buyer's Guide is a consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process. It is a generic guide that does not address the specific policy of the insurer, instead explaining life insurance in a way that the average consumer can understand.

All of the following are characteristics of group life insurance EXCEPT A. Group life insurance is written as a master policy. B. Individuals covered under the policy receive a certificate of insurance. C. Certificate holders may convert coverage to an individual policy without evidence of insurability. D. Premiums are determined by the age, sex and occupation of each individual certificate holder.

D. Premiums are determined by the age, sex and occupation of each individual certificate holder. Premiums are determined by the age, sex and occupation of the entire group, not for each individual insured.

Which of the following best describes the MIB? A. It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance. B. It is a government agency that collects medical information on the insured from the insurance companies. C. It is a member organization that protects insured against insolvent insurers. D. It is a rating organization for health insurance.

A. It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance. The Medical Information Bureau (MIB) is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

When a viator sells a life insurance policy, A. Collateral assignment is given to the insurance company. B. Absolute assignment is given to the viatical settlement company. C. Collateral assignment is given to the viatical settlement company. D. Absolute assignment is given to the insurance company.

B. Absolute assignment is given to the viatical settlement company. A viatical settlement is an agreement entered into between a viatical settlement company and a viator, in which the company pays compensation in return for the viator's assignment, transfer, sale, devise or bequest of the death benefit or ownership of the insurance policy to the viatical settlement company.

Which of the following is usually true of a participating life insurance policy? A. Assesses premiums against stockholders. B. Pays dividends to policyowners. C. May be converted to a term life policy. D. Pays dividends to stockholders.

B. Pays dividends to policyowners. Participating is a term used to refer to any insurance policy that distributes its dividends by cash payments, reduced premiums, units of paid-up life insurance, a savings program, or by the purchase of term insurance.

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? A. Board of directors is the owner, and the board of directors pays the premium. B. Company is the owner, and the company pays the premium. C. Executive is the owner, and the executive pays the premium. D. Company is the owner, but the executive pays the premium.

C. Executive is the owner, and the executive pays the premium. Executive buys the policy and pays the premium, and the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income.

How must a replacing producer respond to an applicant wishing to replace existing life insurance? A. The producer must provide the applicant with a Notice Regarding Replacement. B. The producer must collect the existing policies and turn them over to the replacing insurer. C. The producer must request the permission of the existing insurer. D. The producer has no specific duties.

A. The producer must provide the applicant with a Notice Regarding Replacement. In a replacement transaction, a producer must present to the applicant a Notice Regarding Replacement, signed by both the applicant and the producer.

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant A. Prior to filling out an application for insurance. B. With the policy. C. Upon issuance of the policy. D. Within 30 days after the first premium payment was collected.

B. With the policy. If a life insurance policy contains a free-look period of at least 10 days, the buyer's guide can be delivered with the policy. If it doesn't, the buyer's guide must be delivered prior to accepting the initial premium.

Insurers may only use a buyer's guide that has been approved by the NAIC no longer than what time period before use? A. 1 year B. 6 months C. 90 days D. 30 days

B. 6 months Insurers must use the most current buyer's guide, approved by the National Association of Insurance Commissioners (NAIC) no later than 6 months prior to use.

How are state Insurance Guaranty Associations funded? A. By their members - authorized insurers B. By the Department of Insurance C. By NAIC D. By the Government

A. By their members - authorized insurers Guaranty Associations are funded by their members: all authorized insurers are required to contribute to a fund to provide for the payment of claims for insolvent insurers.

Under what circumstances may a life insurance agent deliver a policy that is dated up to 3 months before the application was taken? A. To make a policy effective during a period when the agent's appointment was in force B. To shorten the period of contestability C. To avoid an increase in premium rate for the insured D. To meet sales quotas established by the insurer

C. To avoid an increase in premium rate for the insured Agents may backdate policies up to 3 months in order to obtain a better premium rate for the insured.

A viatical settlement is arranged between a viatical company and a/an A. Lender. B. Terminally ill insured. C. Insurance producer. D. Beneficiary.

B. Terminally ill insured. Under a viatical settlement, a terminally ill individual transfers his or her life insurance policy in return for an immediate cash settlement.

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will A. Automatically pay the policy proceeds. B. Pay the policy proceeds only if it would have issued the policy. C. Pay the policy proceeds up to an established limit. D. Not pay the policy proceeds under any circumstances.

B. Pay the policy proceeds only if it would have issued the policy. The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.

When must insurable interest exist in a life insurance policy? A. At the time of policy delivery B. When there is a change of the beneficiary C. At the time of loss D. At the time of application

D. At the time of application In life insurance, insurable interest must exist at the time of application.

Which of the following would provide an underwriter with information concerning an applicant's health history? A. The Medical Information Bureau B. A medical examination C. The agent's report D. The inspection report

A. The Medical Information Bureau An agent's report and inspection report provide personal information. Medical exams provide information on current health. Only the MIB will provide information about an applicant's medical history.

What is the purpose of the buyer's guide? A. To provide the name and address of the agent/producer issuing the policy B. To list all policy riders C. To provide information about the issued policy D. To allow the consumer to compare the costs of different policies

D. To allow the consumer to compare the costs of different policies The buyer's guide provides generic information about life insurance policies and allows the consumer to compare the costs of different policies. The policy summary provides specific information about the issued policy, as well as the insurer's information.

When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a(n) A. Aleatory contract. B. Executive bonus. C. Key person policy. D. Fraternal association.

B. Executive bonus. When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called an executive bonus.

The Medical Information Bureau (MIB) was created to protect A. Insurance departments from lawsuits by policyowners. B. Insureds from unreasonable underwriting requirements by the insurance companies. C. Medical examiners that perform insurance physical examinations. D. Insurance companies from adverse selection by high risk persons.

D. Insurance companies from adverse selection by high risk persons. The MIB makes 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.

Which of the following is the best reason to purchase life insurance rather than annuities? A. To liquidate a sum of money over a period of years B. To create regular income payments C. To liquidate a sum of money over a lifetime D. To create an estate

D. To create an estate With insurance, the death benefit creates an immediate estate should the insured die.

Stranger-originated life insurance policies are in direct opposition to the principle of A. Insurable interest. B. Law of large numbers. C. Good faith. D. Indemnity.

A. Insurable interest. Because the purchaser of a stranger-originated life insurance policy doesn't know the insured, or have any interest in the insured's longevity, STOLI policies violate the principle of insurable interest.

How long must insurers keep a copy of a basic life policy illustration on file? A. 5 years after the illustration was created B. Until the next examination by the Department C. 2 years after first use D. 3 years after the policy terminated

D. 3 years after the policy terminated Insurers must keep a copy of basic illustrations on file for 3 years after the policy is no longer in force.

Which of the following terms is used to describe a person, other than a viator, that enters into or effectuates a viatical settlement contract? A. Viatical settlement broker B. Viatical settlement effectuator C. Viatical settlement provider D. Viatical settlement purchaser

C. Viatical settlement provider "Viatical settlement provider" means a person, other than a viator, that enters into or effectuates (makes effective) a viatical settlement contract.

Which of the following statements would best describe the difference between viatical settlements and accelerated death benefits? A. Viaticals are used to fund retirement; accelerated death benefits fund medical expenses. B. Viaticals require higher premiums. C. Viaticals use mortality tables; accelerated death benefits are determined by morbidity. D. Viaticals are funded by a third party; accelerated death benefits are provided by the insurer that issued the original policy.

D. Viaticals are funded by a third party; accelerated death benefits are provided by the insurer that issued the original policy. Viatical settlements allow someone living with a life threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed, before their death. Viatical settlements are separate contracts in which the insured sells the death benefit to a third party at a discounted rate.

Which is generally true regarding insureds who have been classified as preferred risks? A. They keep a higher percentage of any interest earned on their policies. B. Their premiums are lower. C. They can borrow higher amounts off of their policies. D. They can decide when to pay their monthly premiums.

B. Their premiums are lower. The preferred risk classification indicates that an insured is in excellent physical condition and employs healthy lifestyles and habits. These individuals qualify for lower premiums than those in the other categories.

Which of the following best describes gross annual premium? A. Annual loading B. Basic insurance rate plus commissions C. Expense premium D. Net premium plus expenses

D. Net premium plus expenses Gross annual premium is net premium plus expenses (loading).

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, whichever is later, on the condition that the applicant is determined to be insurable at the rate applied for.

Who is a person, other than a viator, that enters into a viatical settlement contract? A. Provider B. Purchaser C. Effectuator D. Broker

A. Provider "Viatical settlement provider" means a person, other than a viator, that enters into or effectuates (makes effective) a viatical settlement contract.

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT A. The policy is owned by the company. B. Any type of insurance policy may be used. C. The employer pays a bonus to a selected employee to fund the policy. D. It is considered a nonqualified employee benefit.

A. The policy is owned by the company.

An applicant wants to buy a life insurance policy in which he can count on receiving the same benefits as stated in the contract. Which type should he buy? A. Variable B. Any type of annuity C. Fixed D. Permanent

C. Fixed

If someone wants to buy a life insurance policy that will provide lifetime protection against premature death, what type of life insurance policy should that person buy? A. An annuity B. A Modified Endowment Contact C. Term D. Permanent

D. Permanent Unlike term insurance, permanent insurance provides lifetime death protection, including premature death, and a savings or investment option.