Part 1 (General) - Completing the Application, Underwriting and Delivering the Policy
A producer will be required to obtain a statement of good health from a 45-year-old applicant under which of the following circumstances? A: The proposed insured's check for the initial premium has been returned because of insufficient funds. B: The proposed insured suffered from rheumatic fever as a child. C: The proposed insured's brother died of a heart attack at age 43. D: The application and initial premium were submitted 5 weeks before a standard policy was issued.
A: The proposed insured's check for the initial premium has been returned because of insufficient funds. Since the premium was insufficient, the payment was not considered an initial premium and therefore a statement of continued good health will be required at delivery.
Unless revoked in writing by the applicant, how long will a HIPAA disclosure form be valid for the insurer to use when needed in underwriting on an individual? A: 24 months B: 12 months C: Unlimited D: 36 months
D: 36 months A HIPAA consent form stays valid under law for three years unless the applicant revokes the insurers right in writing.
All of the following are money laundering signals that would have to be reported to the federal government EXCEPT: A: Using a fake id B: Masking funds from illegal activities C: Paying a Single Premium for a legitimate policy D: Buying a policy with illegal intent
C: Paying a Single Premium for a legitimate policy Paying a single premium for a policy is not a money laundering activity unless it correlates with an illegal activity.
If an insured is found to be a substandard risk which of the following actions will the insurer most likely take? A: Rate the policy and charge a high premium B: Decline the policy C: Issue the contract as Standard D: Require the insured to pay for underwriting costs
A: Rate the policy and charge a high premium If a policy is Substandard, the policy will most likely be rated-up which entails a higher premium than standard risk.
H is a wealthy senior who is approached with the idea of buying a policy just to sell it back to an investor for money when H is still alive. This transaction would be: A: Stranger originated Life Insurance B: A legal Policy C: Whole Life D: Term Life
A: Stranger originated Life Insurance Stranger Originated Life Insurance (STOLI) is a practice in which an investor induces an insured to buy a policy with the intention of the insured sell the policy while they are alive for profit.
A producer decides to deliver an approved policy to the proposed insured at their home. This is an example of: A: personal delivery B: constructive delivery C: mail delivery D: issued delivery
A: personal delivery When an agent hand delivers a policy, it is considered personal delivery.
A contract of adhesion is a: A: take it or leave it contract B: Conditional Contract right C: Unilateral Contract right D: bilateral contract right
A: take it or leave it contract A contract of adhesion is a take it or leave it proposition which means there is no give or take and the contract cannot be changed.
If an application is incomplete which of the following is most likely to occur? A: The policy will be approved and corrected later B: The policy will not be approved until the application is corrected C: The agent will have to pay for the policy D: The insurer will require the applicant to select a new policy
B: The policy will not be approved until the application is corrected If a policy is incomplete, it will be returned to the agent to make all necessary corrections and the agent then forwards back to underwriting.
All of the following are REQUIRED elements of initial consideration EXCEPT: A: Initial Premium B: adding a long term care rider C: Application and Medical Exam, if required D: Only answers A and C
B: adding a long term care rider Initial Consideration takes place when the initial premium is paid at the time of application and the medical exam is completed if required by underwriting.
The fine for willful violation of the Fair Credit Reporting Act is? A: $1,500 B: $5,000 C: $2,500 D: The amount of loss caused to the customer
C: $2,500
J applied for a life policy without paying any premium. Three weeks into underwriting, J has been diagnosed with a dread disease. The insurer will take which of the following actions? A: The insurer will provide coverage as long as J pay as premium now B: The insurer will now have to give free coverage C: The insurer will deny coverage D: None of the Above
C: The insurer will deny coverage Since no payment was given at application time, there is no consideration for coverage and the insurer will deny the policy because of the change of health of the insured.
Each of the following is true regarding Underwriting EXCEPT: A: it is a process done by underwriters at the insurer's home office B: it is a system devised to prevent adverse selection C: it is a process that states anyone who applies will receive a policy D: it is done before a policy is issued and will ultimately determine who will receive coverage
C: it is a process that states anyone who applies will receive a policy Underwriting is a process to prevent adverse selection, who are uninsurable applicants that would cause the insurer immediate and certain loss.
H has applied for the policy and answered all questions as truthfully as she could. In addition, H also paid the premium when she applied for the policy. H has given: A: Initial Premium B: An Application C: Consideration D: Initial Consideration
D: Initial Consideration When H paid the premium at application time, proper payment along with a truthful, complete application constitutes initial consideration.
A policy sent by certified mail is an example of: A: personal delivery B: constructive delivery C: issued delivery D: confirmed delivery
B: constructive delivery Constructive delivery is any alternative to actual personal delivery and may be mailed.
A practice in which a stranger investor induces an insured to apply for a policy with the intention of selling it later for profit is an example of: A: STOLI B: APS C: FDIC D: None of the Above
A: STOLI Stranger Originated Life Insurance (STOLI) is a practice in which an investor induces an insured to buy a policy with the intention of the insured sell the policy while they are alive for profit.
Which life insurance applications must contain a question regarding replacement? A: Term Life B: Whole Life C: No applications require replacement questions D: All applications require replacement questions
D: All applications require replacement questions All life policies require a question regarding replacement.
Which of the following are required legal elements of a contract? A: Offer and Acceptance B: Consideration C: Competent Parties and Legal Purpose D: All of the Above
D: All of the Above A contract is a legal agreement and is enforceable by law when all four elements of offer/acceptance, consideration, competent parties, and legal purpose are met.
Which of the following parties have to comply with USA Patriot Act/Anti-money Laundering requirements? A: Insurers B: Banks C: Lenders D: All of the Above
D: All of the Above All financial institutions must comply with USA Patriot Act/Anti-money Laundering requirements.
Which of the following may be used in underwriting? A: MIB B: APS C: Medical Information D: All of the Above
D: All of the Above During Underwriting, the Medical Information Bureau, Attending Physicians Statement and Medical Info are all reports used to assess risk.
Warranties are: A: Statements made that are guaranteed to be true B: Are not commonly used in modern insurance law C: Are considered to be a strict standard in which to answer a question D: All of the Above
D: All of the Above Warranties are guaranteed statements that are not used much in modern insurance law because they are such a strict standard.
A customer tried to use a fake id during an insurance transaction and the agent had to file a Suspicious Activity Report under law. One could assume a minimum of ______ was involved in the transaction. A: $4,000 B: $5,000 C: $2,000 D: $10,000
B: $5,000 Under the U.S. Patriot Act, when suspicious behavior involving $5,000 or more occurs in an insurance transaction, a suspicious activity report must be filed with FinCEN.
B is applying for a life policy. During the application, B disclosed that he had several heart issues a few years ago, but that the doctor said he was in good health. If the insurer wants to look more deeply into B's heart issues, which of the following reports will the company most likely use? A: Paramedical B: APS C: MIB D: Consumer Report
B: APS The Attending Physician Statement is a short set of questions sent to the insured's doctor by underwriting in regards to a specific health concern.
In a contract when one party can walk away from the agreement at any time while the other party is bound, this is an example of a A: Aleatory Contract right B: Conditional Contract right C: Unilateral Contract right D: None of the Above
C: Unilateral Contract right When one party to a contract is bound while the other is not is a unilateral contract right.
K is applying for a $10,000,000 life insurance policy. Because of the large face amount, the insurer wants to look deeply into K's lifestyle. Which of the following consumer reports will the insurer most likely initiate? A: MIB B: APS C: inspection report D: Consumer Report
C: inspection report An inspection report is when an insurer looks in-depth into an insured's lifestyle, occupation and economic standing, especially when the insured applies for a large face amount.
Before a life insurance application is signed, it is always advised that the producer: A: ask the insured for more money than the premium quote B: to share the commission with the applicant C: to make sure all questions are answered completely and no mistakes are made D: to call the underwriter and ask if the agent can drop off the policy at their house
C: to make sure all questions are answered completely and no mistakes are made
Insurable Interest is a relationship defined by; A: Financial gain if one were to die. B: Whoever pays the premium. C: Whoever the named beneficiary is. D: Financial or emotional loss.
D: Financial or emotional loss. insurable interest in one's life is dictated by having an emotional and/or financial loss exposure based on an insured's death.
Written notice of an Investigative Report must be given within ______ advance notice before the report beings. A: 5 days B: 3 days C: 30 days D: 0 days
3 day An Investigative Report must give the insured no later than 3 days advance notice in writing before the report will begin.
If the insurer finds a Material Misrepresentation during the underwriting process: A: The insurer can refuse to issue any contract that would have been made B: The insurer must give the insured a second chance to tell the truth C: The insurer will factor fraud into the premium cost D: The insure must issue coverage because it is the agent's job to guarantee the insured tell the truth
A: The insurer can refuse to issue any contract that would have been made If an insurer finds fraud while underwriting, they are most likely to deny or refuse to issue any benefits.
When must insurable interest exist in life insurance? A: When an application is taken B: When a beneficiary is named C: When a policy is delivered D: When an initial premium installment is paid
A: When an application is taken In life insurance, insurable interest must only exist at policy application.
A consumer report: A: provides credit background from public sources. B: allows the insurer to ask friends, family and work associates about the insured's lifestyle. C: is illegal for a company. D: is never used in underwriting.
A: provides credit background from public sources. A consumer report is a basic credit check from public sources like employment records or credit bureau reports. These reports can be written or oral without notice to the insured.
underwriting is the: A: risk selection process B: done by the agent C: the way insurers create policies D: dictated by the beneficiary
A: risk selection process Underwriting is the process in which insurers assess risk on an prospective insured.
Which of the following situations best represents an Aleatory Contract: A: J has sole right to renew the policy. B: Company N is paying a $500,000 claim after only collecting 1 year of premium from a deceased insured. C: Both the insured and insurer must preform specific duties when a loss occurs. D: B gets his policy delivered and requests a change after issuance, but the contact is a "take it or leave it" proposition.
B: Company N is paying a $500,000 claim after only collecting 1 year of premium from a deceased insured. An Aleatory contract means unequal consideration is exchanged between the parties, such as an insurer paying much more money on a claim than they collect in premium from an insured.
The Fair Credit Reporting Act is designed to regulate which of the following? A: How credit unions operate B: How consumer credit information is used C: The type of credit card insurance plans that are sold D: The type of credit life insurance plans that are sold
B: How consumer credit information is used The Fair Credit Reporting Act establishes rules and procedures for how credit must be used in underwriting.
A main concept of the HIPAA disclosure made to an insurance applicant is that: A: It allows insurance carriers lifetime access to the health information of that applicant B: It allows the applicant's health records to be released to the insurance company with whom the application for coverage has been place for underwriting purposes C: The insurance company has unlimited use of the medical information of that applicant for a period of four years D: The insurance company enjoys greater privacy rights with that particular applicant
B: It allows the applicant's health records to be released to the insurance company with whom the application for coverage has been place for underwriting purposes The HIPAA disclosure allows the insurance company to inspect health records during the underwriting process.
Which of the following statements is NOT correct about representations? A: They can be part of the contract. B: The must be true in every respect. C: They are made to influence the insurer to accept the risk. D: They are interpreted liberally by the courts.
B: The must be true in every respect. A Representation is a statement made to the best knowledge of the insured and are not held to be true in every standard.
Which of the following is the CORRECT way to make a change to a life insurance application? A: use white-out B: cross out the error, make the correction and have the parties initial the change C: use pencil and erase if necessary D: use a type writer for the applicant
B: cross out the error, make the correction and have the parties initial the change The proper way to correct an applicant mistake is to cross out the error, make the correction and have all parties initial the change. Never use whiteout or pencil.
STOLI violates: A: premium paying tests B: insurable interest C: federal law D: investor returns
B: insurable interest STOLI or Stranger Originated Life Insurance violates insurable interest because a policy is purchased for profit while the insured is alive.
The contractual term for when coverage will begin is: A: inception B: issue date C: expiration date D: application
B: issue date The issue date is when coverage will legally begin.
When a policy is sent to the insurer it immediately goes to: A: the agent B: underwriting C: the CEO D: the director of insurance
B: underwriting Underwriting is the risk selection process done right after an application is submitted to an insurer.
On which date was the USA Patriot Act/Anti-money Laundering enacted? A: 22-Jun-88 B: 11-Sep-01 C: 26-Oct-01 D: 3-Jun-08
C: 26-Oct-01 The USA Patriot Act/Anti-Money Laundering was enacted on October 26, 2001.
When K applied for a life policy, she never told the agent that she had gone through heart surgery last year. K has just committed? A: A Misrepresentation B: A Warranty C: A Material Misrepresentation D: A Statement
C: A Material Misrepresentation A Material Misrepresentation is when a insured intentionally misstates or withholds important information required to properly underwrite a policy.
H is applying for a life policy on his daughter, who just graduated college. Which parties must sign the application? A: H and his daughter B: Only H C: H, his daughter, and the agent D: H and the agent
C: H, his daughter, and the agent All three parties would be required to sign the policy application because H's daughter, who is a college graduate, is of legal age to sign for herself as the insured.
Standard Issues is an example of: A: A Rider B: Consideration Clause C: Risk Classification D: All of the Above
C: Risk Classification Standard, Preferred, and Substandard are all examples of risk classification which is done at the conclusion of underwriting and determines premium amount.
C is applying for a life policy. In general C is in pretty good shape, does not smoke and will probably live a usual life span. C will probably get approved for which risk class? A: Substandard B: Preferred Risk C: Standard D: Uninsurable Risk
C: Standard Average health and mortality will most likely warrant a standard rate.
Which of the following parties is deemed to be the owner of a life policy? A: The agent B: The insured C: The applicant D: The beneficiary
C: The applicant The applicant for a life policy will be the owner and therefore have all policy rights.
If a client is turned down for a life policy and one of the factors for being declined was credit, who must send the insured a copy of their credit report? A: The insurer B: The FTC C: The original credit reporting agency D: The Department of Insurance
C: The original credit reporting agency Any copy of a credit report that is owed to an insured is sent by the original credit reporting agency.
If a policy is being replaced, when must the agent forward the notice regarding replacement form to the replacing insurer? A: Once the replacement policy is approved. B: The agent only sends the notice in if initial consideration takes place. C: The agent only has to send it in if the insured asks the agent. D: At the time of replacement application.
D: At the time of replacement application. The notice regarding replacement form must be sent in when the application is sent to the replacing insurer.
Which part of a policy will determine the amount of premium payment? A: Insuring Agreement B: Beneficiary Clause C: Waiver of Premium Ride D: Risk Classification
D: Risk Classification When a policy is approved, the Risk Classification will determine how much a premium for a policy will cost.
T is a life agent who is writing an application. Because T is in a hurry, his handwriting is very difficult to read and the insurer returns the application. What should T do to correct the application? A: Use white-out and redo the application B: Cross out the error and initial for the applicant and insured C: Cross out the whole application and try his best to make all the information fit D: Shred the application and start all over again
D: Shred the application and start all over again When an agent makes a lot of mistakes on an app or there is illegible handwriting, it is advised to shred the application and start over with a new copy.
Which of the following statements is INCORRECT about the USA Patriot Act/Anti-money laundering? A: The agent must report suspicious behavior involving transactions of $5,000 and up. B: FinCEN is the government entity that enforces the act. C: All financial institutions must comply with Anti-money Laundering laws D: The agent has no responsibility to comply with the Anti-money Laundering act
D: The agent has no responsibility to comply with the Anti-money Laundering act. The agent, who is the field underwriter, must be aware of all Anti-Money laundering requirements by not only complying with law, but filing suspicious activity reports and proper training.
An HIV notice and consent form means an insurance company can: A: Take a blood sample from an insurance applicant even if they refuse a test B: Not inform the MIB of a positive result C: Disclose a positive HIV test result to the producer who wrote the application D: Use a positive test result to refuse an offer of coverage
D: Use a positive test result to refuse an offer of coverage An HIV notice and consent form allows the insurer to use a positive test result to deny coverage for an insured.
Of the following parties, all are legally qualified to sign the application for insurance EXCEPT: A: the applicant B: the examining paramedic if a medical exam is required C: the insured D: a minor child
D: a minor child A minor child is not legally able to sign a policy application because they are not a competent party.
A producer takes an application from a proposed insured without receiving payment of the first premium. The producer visits the proposed insured to deliver the policy and is informed that the health of the applicant has deteriorated since the time of application. In this situation, the producer should: A: obtain the premium from the prospect and send it to the company immediately B: rate the policy and obtain any additional premium required C: deliver the policy as it was issued D: refuse to deliver the policy or to accept any premium offered
D: refuse to deliver the policy or to accept any premium offered Since the insured's health has changed and initial premium was NOT paid with the application, the policy should not be offered and no coverage will exist.
All of the following may be required of a producer at delivery EXCEPT: A: obtain extra premium for a rated policy B: explain the policy and all riders C: obtain a statement of good health D: require the insured to reapply
D: require the insured to reapply At delivery an agent may have to collect premium, obtain a statement of good health and explain the policy to the insured.
The conditional receipt specifies all of the following EXCEPT: A: when coverage may possibly begin B: the amount of initial premium paid by the applicant C: the date the application was taken D: that an insured who did not pay premium initially will pay upon delivery
D: that an insured who did not pay premium initially will pay upon delivery Since payment has to be given in order to issue a conditional receipt, an insured who does not pay will not be issued a receipt.
All of the following is CORRECT about Investor Originated Life Insurance EXCEPT: A: it is an illegal transaction B: It is also known as STOLI C: it violates insurable interest D: the department of insurance allows a producer to write one IOLI policy per year
D: the department of insurance allows a producer to write one IOLI policy per year Investor Originated Life Insurance (IOLI) also know as Stranger Originated Life Insurance (STOLI) is a practice in which an investor induces an insured to buy a policy with the intention of the insured sell the policy while they are alive for profit. A producer cannot legally write a IOLI policy at anytime.
