AD Banker Life and Health Chapter 2 Exam Questions
Insurance premiums are paid in advance and insurance companies invest these premiums assuming a certain rate of ________ will be earned which will reduce the amount of premium needed to fund the future liability of the policy death benefit.
Interest
The insured's age on the policy issue date is called:
Issue age/original age
What class of insurance uses a separate account for cash value accumulation; may help protect against inflation; and an requires an Insurance license and FINRA registration to sell?
Variable Insurance
______________/_________ __________________ are selling an owned insurance policy to a third party for less than the death benefit but more than the cash values in order to obtain funds when no other sources are readily available.
Viatical/Life Settlements
What is the formula for Gross Premium?
Net Premium (pure rate) + Loading (insurer expenses) = Gross Premium
A typical life insurance application contains ____ parts.
2 (part 1 is general information and part 2 is medical information)
A policy is considered to have been received how many months after the date of issuance if premiums have been paid to date?
6
Which can a home office underwriter solely use to determine insurability of an applicant based on age, medical history, and amount of coverage?
A Nonmedical Application
All of the following are true regarding a Nonmedical Application, EXCEPT: A) A nonmedical application is used when a policy requested does not require a medical examination for underwriting. B) A nonmedical application guarantees an applicant can avoid a medical exam or testing C) Health questions on the application are asked by the producer and are the only medical information required initially. D) On the basis of answers provided in a nonmedical application, the underwriter may order additional medical testing, such as collection of blood and urine, EKG, physician exam, etc., prior to accepting the proposed insured.
A nonmedical application guarantees an applicant can avoid a medical exam or testing
All of the following are true regarding a Graded (Lien) Plan, EXCEPT: A) A graded death benefit usually provides 50% of the face amount to start and increases to the full face amount over 1-2 years. (the substandard premium does not change) B) A graded plan is one type of a rated policy C) A graded (lien) plan is generally used with senior life insurance plans to provide minimal benefits without a medical examination D) A surcharge is calculated by adding 25% of the base rate to the standard premium
A surcharge is calculated by adding 25% of the base rate to the standard premium
An __________ ____________ is a personal statement submitted by the producer to the insurer regarding the applicant's financial condition, any personal knowledge of the applicant, etc. This information remains confidential between the producer and the insurer, and it does not become part of the entire contract.
Agent's Report
All of the following are true about the Attending Physician Statement (APS), EXCEPT: A) Used in cases in which the individual application and/or medical reports reveal conditions of which more information is required. B) The applicant's treating physician will complete this as part of the applicant's medical history. C) An applicant must sign a written release to enable a release of the APS. D) An APS is always required for elderly applicants
An APS is always required for elderly applicants
All of the following are true regarding an Attending Physician's Statement (APS), except: A) Applicants must sign a release in order for their physician to respond to an APS request B) They are used in cases where the application or medical records reveal conditions that require further explanation C) An MIB report can be used in place of an APS D) The insurer pays the physician for completing and forwarding the APS
An MIB report can be used in place of an APS
The sale of an annuity to replace an existing annuity that results in a surrender charge for the annuity that is being replaced and does not confer a substantial financial benefit over the life of the contract to the purchaser so that a person would reasonably believe the purchase is unnecessary is called:
An Unnecessary Replacement Annuity
All of the following are examples of sources of underwriting except: A) The application B) Medical information from exams, an attending physicians statement, or an MIB report C) DMV or Consumer reports D) An agent's personal relationship with the applicant E) Hazardous activity questionnaire
An agent's personal relationship with the applicant (The agent's report is used for underwriting but details of a personal relationship would not be included)
An _______________ is a person applying to be insured under an insurance contract (not necessarily the insured).
Applicant
An _______________ is a written formal request by an applicant to an insurer requesting the insurer issue a policy based upon information contained in the application.
Application
Which underwriting source is primarily used when an application reveals conditions for which more medical information is required?
Attending Physician's Statement
The MIB is used in the underwriting of all of the following types of insurance, EXCEPT: A) Disability Income B) Auto and Homeowners C) Life D) Critical Illness
Auto and Homeowners
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): A) Approval Receipt B) Binding Receipt C) Acceptance Receipt D) Conditional Receipt
Binding Receipt (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.)
The type of receipt that provides immediate coverage during the underwriting period (rather than a specified number of days) until a policy is issued or the application is declined, is called:
Binding receipt/temporary insurance agreement
If an agent or insurer makes a presentation comparing the cost of life insurance which does not recognize the time value of money, the agent must present which of the following: A) Life Insurance Surrender Cost Index B) Life Insurance Net Payment Cost Index C) Life Insurance Illustrations D) Both A and B E) A, B, and C
Both A and B (The Life Insurance Surrender Cost Index and the Life Insurance Net Payment Cost Index)
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 _______.
Buyer's Guide
Life insurance (other than term) may develop ______ _______ over time, which may later be borrowed or withdrawn prior to the death of the insured.
Cash Value
When the initial premium is not paid with the application, what must the producer do before coverage can begin?
Collect the premium and obtain a signed Statement of Good Health from the applicant/insured at time of policy delivery
What is the Life Insurance Net Payment Cost Index used for? A) Comparing the cost of similar policies based on determining the guaranteed cash surrender value, if any, available at the end of the 10th and 20th policy years. B) Comparing the cost similar policies based on the death benefit payable after a surrender period of 10 or 20 years C) Showing the cash accumulation in a life policy over a minimum of 20 years on both a "guaranteed" and a "nonguaranteed" basis
Comparing the cost similar policies based on the death benefit payable after a surrender period of 10 or 20 years
What type of receipt provides that coverage is effective as of the date of application or date of completed medical exam (if required), whichever is later, as long as the insurer would have issued the policy as standard or better?
Conditional
__________ includes any attempt by the existing insurer or agent to deter a policyowner from the replacement of existing life insurance or an annuity (This does not include late payment reminders or reinstatement offers)
Conservation
A personal use of life insurance does which of the following? A) Creates an immediate estate B) Creates an insurable interest C) Compensates a business for the death of a key person D) Provides protection against living too long
Creates an immediate estate
Upon receipt of all of the necessary information, the home office underwriters can issue the coverage applied for in all of the following ways, except: A) preferred B) substandard C) declined D) standard
Declined (Declined means that the policy would not be issued.)
In life insurance, the Buyer's Guide is required to be provided not later than at the time of policy ___________.
Delivery
The ____________ __________ is the date when insurance coverage begins.
Effective date
______________ _______________ provides money to pay any estate taxes or loans which must be satisfied upon the death of the insured, preserving the insured's estate.
Estate Conservation
The _________ ___________ is the insurer whose policy is or will be changed or terminated through a replacement
Existing Insurer
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: A) Fair Claims Reporting Act B) Unfair Claims Practices Act C) Fair Credit Reporting Act D) Deceptive Trade Practices Act
Fair Credit Reporting Act
What type of policy has a specified amount of coverage, benefits and premium with no inflation protection(so purchasing power is reduced)
Fixed Insurance
An insurer is required to deliver a life insurance policy to the owner in order to start the:
Free look period
If an applicant has engaged in high risk hobbies (skydiving, scuba diving, motorcycle racing), a ____________ __________ ________________ will be required to determine, based on the risk and frequency, if those activities will affect insurability
Hazardous Activity Questionnaire
Part one of an application contains general information, including all of the following, EXCEPT: A) sex/gender B) marital status C) residence D) Height/Weight E) date of birth
Height/Weight
__________ ____________ _____________- is coverage on one named insured, may be of any classification or type, and the policyowner receives a policy and maintains control.
Individual Life Insurance
A STOLI transaction is best defined as which of the following?
Inducing insureds who do not need and cannot afford life insurance to buy a policy and sell it for cash
An _________ _________, also known as a _____________ ____________ __________, is a general report of an applicant's finances, character, morals, work, hobbies, and other habits which can be completed by the insurer or a third-party provider. The applicant must be made aware of any information gathering
Inspection Report, Consumer Investigative Report
The ___________ ______________ is the relationship that must exist between the applicant and insured, at the time of application and policy issuance, in order for the contract to be valid.
Insurable Interest. (An individual has an insurable interest in his or her own self. Insurable interest also exists if a financial or economic loss by the owner results in the event that the insured dies.)
What happens if a policy is issued with questions unanswered on the application submitted?
It is assumed the information is immaterial to the issuance of the policy and the insurer waives its right to challenge a claim based on the incomplete application
Which of the following products are offered by insurers to protect families from the financial setback of a family member's premature death?
Life insurance
Immediate funds available upon death to pay creditors, taxes and final expenses, as well as cash values available for policy loans, withdrawals, and full surrenders is called:
Liquidity
Medical exams are requested in all of the following situations, except: A) Past health history B) High amounts of coverage C) Low amount of premium D) Insured's advanced age
Low amount of premium
Interest earned on premiums paid to an insurer helps to ________ the premiums charged.
Lower
Interest earned on premiums paid to an insurer helps to ________ the premiums charged. A) Lower B) Stabilize C) Increase D) Standardize
Lower
Mortality cost ______ interest (investment earnings) = equals the net premium. A) Divided by B) Minus C) Plus D) Multiplied by
Minus (Mortality cost minus interest (investment return) = net premium (pure rate).)
Loading includes all of the following, except: A) Mortality B) Medical exam costs C) Producer commissions D) Operating expenses
Mortality (The mortality rate is used to determine net premium. Loading are additional charges to net premium to derive gross premium.)
By using a _________ __________, a life insurer can determine the average life expectancy for each age group, based on the year of birth, and thus estimate of how much money the insurer will need to pay for death claims each year.
Mortality Table
When determining an appropriate amount of life insurance, an agent 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:
Needs Analysis
What class of policy is issued by stock insurers and does not pay policy dividends.
Non-Participating Insurance
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
Which of the following types of life insurance provides the largest portion of all coverage in force? A) Ordinary B) Variable C) Industrial D) Group
Ordinary
What class of policy is issued by mutual insurers (dividends considered return of excess premium).
Participating Insurance
What type of insurance has a premium higher than term when other factors equal, protection continues to age 100 or until surrendered, and provides cash accumulation?
Permanent Whole Life Insurance
A type of coverage with a small face amount ($50,000 or less), typically purchased to pay the burial expenses of the insured is called a:
Pre-need Plan
Individuals who meet certain requirements and qualify for lower premiums because of ideal health, height and weight, thus having a longer than average life expectancy, are called:
Preferred risks
_______________ are calculated based on expected mortality, interest, and expenses
Premiums
Which of the following best describes 'Capital Liquidation' in an effort to meet an income objective? A) Principal is paid out B) Principal and earnings are paid out C) Principal is paid out but investment earnings are reinvested D) Investment earnings are paid out
Principal and earnings are paid out (In a capital liquidation strategy both principal and earnings are paid out over the anticipated time period in order to meet the income objective. Each payment would be the same as any investment earnings shortfall would be offset by principal liquidations.)
All of the following are correct about the Conditional Receipt, EXCEPT: A) Provides that coverage is effective as of the date of application or date of completed medical exam (if required), whichever is later, as long as the insurer would have issued the policy as standard or better. B) This receipt provides conditional coverage even if the underwriting process has not been completed. C) If an applicant is a substandard risk, there is no conditional coverage. D) Provides immediate coverage
Provides immediate coverage
The premium for a _________ ___ ____ policy is that of a standard risk, but for an insured 5 to 10 or more years older than the actual age of the proposed insured.
Rated-up Age
In a replacement sale all of the following are producer responsibilities, except: A) Reimbursing the applicant for any surrender charges that may be incurred as a result of the transaction B) Provide copies of the notice regarding replacement and any sales proposals to the applicant and replacing insurer C) Complete a notice regarding replacement with applicant and producer signatures D) Obtain information regarding the in force policies including name and policy numbers
Reimburse the applicant for any surrender charges that may be incurred as a result of the transaction
______________ is any transaction in which new life insurance or an annuity is to be purchased and it is known that the existing contract will be: Lapsed, forfeited, surrendered, terminated, converted to reduced paid-up insurance, continued as extended term insurance, reduced in value by the use of nonforfeiture benefits or other policy values, amended to reduce the benefit or term in which the coverage would remain in force, reissued with a reduction in cash value, or pledged as collateral
Replacement
Individuals who have the same health, habits, sex/gender, and occupational characteristics as those reflected in the mortality table with an average life expectancy are labeled __________ risks.
Standard
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 term life application B) Issue a binding receipt C) Submit a trial application D) Submit a whole life application
Submit a trial application
Individuals who are not acceptable at standard rates because of poor health, bad habits, or occupational hazards and thus have hight risk exposure are called:
Substandard risks
Providing funds for surviving spouses and dependents is called:
Survivor Protection
Which type of rated policy calculates a surcharge by adding 25% of the base rate to the standard premium for each "Table" number based on the condition causing the substandard rating. (There are 10 standard tables used)? A) Tabular Rate B) Flat Rate C) Rated-up Age D) Lien
Tabular Rate
All of the following are true about calculating a Net Premium, EXCEPT: A) Mortality Cost - Interest (investment return) = Net Premium (pure rate) B) Takes into account Expenses C) Takes into account interest D) Takes into account mortality factors
Takes into account Expenses (Net premium calculations exclude the expense component (loading))
Which of the following best describes producer field underwriting? A) Conducting blood pressure readings, taking the applicant's pulse, and drawing blood B) Interviewing the applicant's neighbors about the applicant's morals and character C) Obtaining the applicant's medical records, conducting a credit history check, and logging in to the MIB D) Taking the time to probe beyond the stated questions on the application based upon the applicant's responses
Taking the time to probe beyond the stated questions on the application based upon the applicant's responses
A young couple just starting out on a limited budget, but having a large need for life insurance coverage, most likely would be best suited for ________ life insurance:
Term
What type of insurance has the lowest premium outlay, temporary coverage for short term need , no cash value, and the benefit can be level, increasing, or decreasing?
Term
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)
Which of the following is true? A) The insured and the policyowner are always the same B) Any changes to a policy must be approved by both the insured and policyowner in writing C) The insured and the policyowner are usually the same, but not necessarily D) The applicant, insured, and policyowner must approve any changes to a policy in writing
The insured and the policyowner are usually the same, but not necessarily
An applicant for life insurance pays the agent the initial premium and receives a Conditional Receipt in return. If the policy was to be issued as substandard, but the applicant dies prior to policy issue, what is the result?
The insurer will refund any premiums paid
Which rating classification is typically used in the senior marketplace so that policies can be issued without a medical exam?
The lien plan
Who is required to sign a completed application?
The producer and applicant (insured)
All of the following are true about Constructive/Legal Delivery EXCEPT: A) Occurs only if the premium was paid at the time of application. B) Once the insurer issues the policy, a legal contract has been formed since the policy becomes the acceptance. C) Once the insurer mails the policy to the producer, it is considered constructively or legally delivered by the insurer. D) The producer is absolved of responsibility to obtain delivery signatures and explain policy benefits to the policyowner/insured.
The producer is absolved of responsibility to obtain delivery signatures and explain policy benefits to the policyowner/insured. (The producer still has this responsibility)
What information must appear on the policy summary provided to a life insurance client? A) A copy of the producer's license B) The producer's name and home address C) The producer's name and address D) The producer's agency's name and address
The producer's name and address
In determining the proper amount of life insurance, the Needs Analysis Approach takes into consideration all of the following factors, except: A) The projected future value of services provided by the insured B) The payoff of any outstanding mortgage balance C) The paying off of personal debts, medical bills, and final expenses D) The creation of college funds for surviving children
The projected future value of services provided by the insured
When the insured and the owner of the policy are different persons this is known as:
Third Party Ownership
If a trial life insurance application is submitted, when would the coverage take effect?
When the policy is delivered by the agent and the premium is paid
Why have Stranger Originated Life Insurance (STOLI) transactions been illegal in California since 2010?
absence of legitimate insurable interest
California law requires that the purchaser of life insurance be provided with a copy of the NAIC Buyer's Guide to Life Insurance not later than the time of _________ __________.
policy delivery
The individual whose life is covered under the policy and whose death results in the payment of the policy proceeds to the beneficiary is called:
the Insured
What is the primary source of information used for underwriting purposes?
the application
A___________ application is one submitted without a premium. The policy would not take effect until the policy is issued by the insurer, delivered by the agent and the premium is paid.
trial
Premiums paid in advance are considered __________ premiums until coverage has been provided, and the insurer has "earned" the right to retain the premium.
unearned
At the time of a life insurance policy delivery, a producer must provide which of the following? A) A copy of the insurance company's most recent annual report B) A copy of the fact finding data collected on the initial sales appointment C) A copy of the Buyers Guide to Health Insurance, if interest was expressed in buying health insurance D) A copy of the illustration that matches the policy for which was approved
A copy of the illustration that matches the policy for which was approved
Which of the following describes group life insurance? A) A single policy issued to a group of individuals who have formed an alliance to obtain life insurance at reduced rates. B) A single policy issued to a business to cover the lives of employees C) Multiple policies issued to an employer to cover a specific group of executives D) A single policy issued to an individual covering husband, wife and children
A single policy issued to a business to cover the lives of employees
If a client chooses to pay premiums other than annually, what can he or she expect?
Additional charges to offset lost interest, earnings, and increased administrative costs
The name used to indicate the insured's age at time of policy renewal is the ________ age.
Attained
The insured's age at any given point in time (typically used at renewal or conversion) is called:
Attained Age
An applicant for life insurance realizes several days later that she may have answered a question about a health issue incorrectly. She should do what? A) Wait to find out if she is approved for the insurance first, and then she can let the company know she may have made a mistake B) Nothing. Answers in the application must only be true to the best of her knowledge at the time she submits the application C) Contact either her agent or the insurance company and make sure they have the correct information D) Hope that nothing happens in the first year after the policy is issued, because after that it won't matter if the answer was or wasn't correct
Contact either her agent or the insurance company and make sure they have the correct information
A group plan is designed to insure all of the following, except: A) Employees B) Debtors C) Members D) Creditors
Creditors (Creditors may be the owner of the plan, but not the insured.)
Part 2 of the application consists of all of the following information, except: A) medical background, past and present health B) any medical visits, hospitalizations, or surgeries in recent years C) medical status of immediate family members, ages and causes of their death D) date of birth, gender
Date of birth, gender
Industrial Life Insurance is also referred to as a: A) Participating Policy B) Debit Policy C) Nonparticipating Policy D) Group Policy
Debit Policy (Industrial life policies are also known as home service and debit policies where premiums are collected by a Debit Agent)
The __________ ___________ is the date when insurance coverage ends.
Expiration Date
The insurance company must meet requirements under the _____ when gathering information about an applicant from a third party. A) FINRA B) SEC C) FCRA D) NAIC
FCRA (Fair Credit Reporting Act)
In a _______ ________ rated policy, a flat additional premium may be assessed on a temporary (1 to 5 years) or permanent basis.
Flat Rate
What class of policy offers the policyowner more flexibility in terms of premiums, investment objectives and other policy benefits and have the potential to provide greater cash accumulation than whole life policies?
Flexible Insurance (Universal and Variable Universal)
All of the following are characteristics of Term Insurance, except: A) High premium outlay in the early years B) No cash or loan value C) Can be written separately or with other types of insurance as a rider D) Will expire at an attained age or after a specified period of time
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.)
_______________ is the process of selection, classification and rating, and determining if someone is insurable. A) Home office underwriting B) The agent's report C) Completing the application D) Field underwriting
Home office underwriting
Under what circumstances should the producer obtain a statement of good health?
If no premium was paid at time of application and the policy is now being delivered
The Needs Analysis Approach always assumes the death of the insured to be:
Immediate
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: A) The DIME method of insurance planning B) The NAIC Model C) Human life value D) Needs analysis
Needs analysis
__________ insurance policies do not pay dividends to policyowners. A) Participating B) Risk retention C) Nonparticipating D) Reciprocal
Nonparticipating (Participating policies pay dividends, a refund of excess premiums. Mutual companies may issue participating policies. Nonparticipating policies issued by Stock companies do not pay dividends to policyholders.)
A signed statement by the applicant as to whether replacement of existing life insurance or annuity is involved in a transaction is called the:
Notice Regarding Replacement
If premiums were submitted at the time of application, when is a life insurance policy considered constructively or legally delivered by the insurer?
Once the insurer mails the issued policy as applied for to the producer
When net premiums paid plus additional interest earned are set aside for future claims and possible contract obligations (liabilities) these are called:
Policy Reserves
Who has the ownership rights in a policy? A) Applicant B) Beneficiary C) Insured D) Policyowner
Policyowner (The policyowner and insured are usually the same, but not necessarily)
Normally, when the insurer determines that the insured is an acceptable risk, the insurer will send the policy to the ____________. A) Policyowner B) Producer C) Beneficiary D) Insured
Producer (Normally, the insurer will mail the issued policy to the producer for delivery so that if any outstanding premium is due, it can be collected, if a statement of good health is required, it can be obtained, and any questions the applicant has about the policy can be answered.)
The ___________ _________ is the insurer that issues a new policy which is a replacement of an existing policy or annuity contract
Replacing Insurer
Policy __________ are the net premiums paid plus interest earned and reflect potential insurance contract obligations.
Reserves
_________ transactions occur when a person with no insurable interest in the life of another induces that person to purchase a life insurance policy with the sole intent of becoming the beneficiary and profiting upon the death of the insured.
STOLI
What is the purpose of a Life insurance illustration (AKA Basic Illustration)? A) Comparing the cost of similar policies based on determining the guaranteed cash surrender value, if any, available at the end of the 10th and 20th policy years. B) Comparing the cost similar policies based on the death benefit payable after a surrender period of 10 or 20 years C) Showing the cash accumulation in a life policy over a minimum of 20 years on both a "guaranteed" (maximum cost of insurance, minimum interest credits) and a "nonguaranteed" (current cost of insurance and interest credits assumptions) basis
Showing the cash accumulation in a life policy over a minimum of 20 years on both a "guaranteed" (maximum cost of insurance, minimum interest credits) and a "nonguaranteed" (current cost of insurance and interest credits assumptions) basis
The four phases of transacting insurance include:
Solicitation, negotiation, execution of a contract, and handling matters subsequent to a contract
What type of a receipt provides immediate coverage during the underwriting period (rather than a specified number of days) until a policy is issued or the application is declined?
Temporary insurance agreement
All of the following regarding Medical Examinations for the purpose of Insurance underwriting are true, EXCEPT: A) The Applicant pays for the cost of the medical exam B) Conducted by physicians or nurses who provide results of an examination and information regarding the applicant's present health. C) Examinations are usually requested by the insurer after determining if the amount of coverage, age of applicant or his/her health history warrant the examination. D) The results of the Medical Examination is the only report that might be copied and made part of the policy.
The Applicant pays for the cost of the medical exam (The Insurer pays for the cost of the medical exam)
When the initial premium is not paid with the application, what happens if the applicant is not in good health at the time of policy delivery?
The agent is to return the policy to the insurer for further underwriting
All of the following are true about the beneficiary of a policy, EXCEPT: A) The beneficiary can be one or more "parties" named in the policy to receive the policy's benefits if the insured dies while the contract is in force B) The beneficiary cannot be the insured C) The beneficiary can be the owner/applicant D) The beneficiary could be the insured, owner, and/or applicant
The beneficiary could be the insured, owner, and/or applicant
Regarding completing the application and field underwriting of a life insurance policy, which one of the following is false? A) The life insurance application is the last source of information for an insurer underwriting a potential risk B) It is the producer's responsibility to probe beyond the stated questions contained in the application; this is known as field underwriting C) If a copy of the life insurance application is attached to the policy it becomes part of the entire contract D) An application is a written formal request by an applicant to an insurer requesting the insurer issue a policy based upon information contained in the application
The life insurance application is the last source of information for an insurer underwriting a potential risk (Actually: The life insurance application is the PRIMARY source of information for an insurer underwriting a potential risk, not the LAST.)
The human life value approach in determining the amount of life insurance someone needs takes into consideration all of the following, except: A) Occupation B) Personal and financial information of those living at home with the insured C) The number of cars the insured and family members own D) Planned retirement age
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, the individual's planned retirement age, and personal and financial information of family members living at home.)
If an applicant is a minor, who signs the application?
Their guardian
A misdemeanor which occurs if an agent or insurer recommends the replacement or conservation of an existing policy by use of materially inaccurate presentation or comparison of an existing contract's premiums, benefits, dividends, and values:
Twisting
What is it called if an agent or insurer recommends the replacement or conservation of an existing policy by use of a materially inaccurate presentation or comparison of an existing contract's premiums, benefits, dividends, and values?
Twisting
What are the two kinds of flexible insurance?
Universal and Variable Universal
Why should a producer collect a premium at the time the application is completed?
Without it, coverage cannot go into effect, as there would be a lack of consideration
All of the following are examples of solicitation, EXCEPT: A) Advertising by print media, radio, television, or mail B) Seeking opportunities to conduct sales appointments with potential clients C) Contacting referrals obtained from new and existing clients D) Workshopping lead generation strategies
Workshopping lead generation strategies
What is The Life Insurance Surrender Cost Index use for? A) Comparing the cost of similar policies based on determining the guaranteed cash surrender value, if any, available at the end of the 10th and 20th policy years. B) Comparing the cost similar policies based on the death benefit payable after a surrender period of 10 or 20 years C) Showing the cash accumulation in a life policy over a minimum of 20 years on both a "guaranteed" and a "nonguaranteed" basis
comparing the cost of similar policies based on determining the guaranteed cash surrender value, if any, available at the end of the 10th and 20th policy years.
The amount charged to cover each policy's share of expenses of operation (salaries, commission, premium taxes, and cost of doing business) is called ___________ __________.
expense loading
Life insurance proceeds provide financial assets to create an _____________ ____________ the insured can pass on to survivors
immediate estate
An agent who violates any replacement regulations is liable for an administrative penalty of no less than how many dollars for the first violation?
$1,000
Industrial life insurance is typically sold in face amounts of: A) $5,000 multiples B) $1,000 or less C) $10,000 to $20,000 D) Up to $50,000
$1,000 or less
When replacement is involved, the replacing insurer must provide in its policy or a separate written notice that the applicant has a right to an unconditional refund of all premiums paid within how many days from the date of policy delivery?
30
If a policy is not approved as applied for, the insurer may make:
A 'counteroffer' to the applicant
What is the name of the document that shows the cash accumulation in a life policy over a minimum of 20 years on both a 'guaranteed' (maximum cost of insurance, minimum interest credits) and a 'nonguaranteed' (current cost of insurance and interest credits assumptions) basis?
A basic life insurance illustration
An applicant's signature on an application indicates what?
That their statements are true
Who pays for the cost for HIV testing when a life insurance application is taken out on an insured?
The Insurer
California law requires that the purchaser of life insurance be provided with a copy of a Buyer's Guide to Life Insurance produced by:
The NAIC
Which of the following is not true about life insurance applications? A) Applications for life insurance are typically divided into two parts: General Information and Health History B) The application is confidential communication between the agent and the insurer C) The application may contain all the information underwriting needs to approve the insured D) The application more fully identifies the insured
The application is confidential communication between the agent and the insurer
Capital liquidation assumes: A) Only the amount invested will be liquidated B) The balance of the account will reduce over a period of time once payout begins C) The payout will only include interest and the balance remains the same D) The balance of the account will increase over time once payout begins
The balance of the account will reduce over a period of time once payout begins (Capital liquidation assumes both principal (capital) and interest are liquidated over the relevant time period to provide the required income for the dependents. This will cause the balance to decrease and benefits are paid.)
Which mode would result in the insured paying the least amount per year for life insurance?
Annual
In California, every person has an insurable interest in the life and health of all of the following, except: A) Himself/Herself B) Any person who agrees to be insured C) Any person on whom he/she depends wholly or in part for education or support D) Any person under a legal obligation to him for the payment of money or respecting property or services, of which death or illness might delay or prevent the performance E) Any person upon whose life any estate or interest vested in him or her depends.
Any person who agrees to be insured
J took out a life policy when he was 35. It had a conversion feature that he exercised at age 45. Age 45 is referred to as his ____ age.
Attained
A business owner buys a life policy on his own life. He may be all of the following except the _______________. A) Beneficiary B) Owner C) Applicant D) Insured
Beneficiary
Whose signature is not required on a life insurance application?
Beneficiary (The policyowner has the right to name and change beneficiaries. Beneficiaries do not sign on the application as beneficiaries.)
If a home office underwriter obtains MIB codes inconsistent with information provided on the application, what is the underwriter required to do? A) Refer the case to the state Insurance Department for possible insurance fraud B) Conduct further investigation to obtain more information prior to making a decision C) Issue the policy at a higher premium due to the undisclosed higher risk D) Automatically reject the application and order any premium paid refunded
Conduct further investigation to obtain more information prior to making a decision
In a replacement transaction, all of the following are insurer duties and responsibilities, except: A) Maintain copies of the information provided by the producer B) Abide by the state required holding period for all replacement documentation C) Contact the client to assure that they understand the transaction D) Notify the existing insurer
Contact the client to assure that they understand the transaction
Part 2 of the application consists of all of the following information, except: A) Date of birth, gender B) Past and present health C) Surgeries D) Hospitalizations
Date of birth, gender (Part 2 of the application contains questions pertaining to medical background, past and present health, any medical visits, hospitalizations, or surgeries in recent years, medical status of immediate family members, and age and causes of their death.)
A(n) ________ report is a general report of the applicant's finances, character, morals, work, hobbies, and other habits.
Inspection
What is the relationship that must exist between the applicant and insured, at the time of application and policy issuance, in order for the contract to be valid?
Insurable interest
The date on which insurance coverage is no longer in effect is referred to as the _________ date.
Expiration
Which of the following statements correctly describes the difference between gross premium and net premium? A) Gross premium is what the insured pays to the insurance company each month; Net premium is what the agent's commission is based on B) Net premium is the total paid to the insurance company each month; Gross premium is described in terms of the number of dollars per $1000 a person pays for his/her insurance C) The net premium is the cost per $1,000 of insurance, the gross premium excludes insurance company expenses D) 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 commissions and other expenses
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 commissions and other expenses
An insurance plan owned by an employer, creditor or association, providing coverage for the employees, debtors, or members, refers to:
Group Life Insurance
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 MIB obtains its information from which of the following? A) Producer's agencies B) Hospitals C) Physicians D) Insurers
Insurers
Which of the following best describes a Statement of Good Health? A) It is a sworn oral statement made by the insured at time of delivery which allows for coverage to come into effect B) It is what comes along with the policy at the time of delivery confirming the underwriting class the insured falls into if the policy was issued standard or better C) It is the producer's authority to raise the rate if the insured does not appear to be in good health at the time of policy delivery D) It verifies that the insured has not suffered a serious illness or injury requiring surgery or hospitalization since the application date
It verifies that the insured has not suffered a serious illness or injury requiring surgery or hospitalization since the application date
Which one of the following will pay the highest premium for a life insurance policy all other factors being equal? A) Male age 65 B) Female age 65 C) Male age 70 D) Female age70
Male age 70
A signed statement by the applicant as to whether replacement of existing life insurance or annuity is involved in a transaction is the:
Notice Regarding Replacement
An application is submitted without the initial premium. Upon delivery of an issued policy, the producer is responsible for all of the following, except: A) Collect the initial premium B) Obtain a Statement of Good Health, verifying the insured has not suffered injury or illness since the application date. C) If the applicant is not in good health, the producer will send the policy back to the insurer for further underwriting. D) Perform a medical exam
Perform a medical exam
What should a producer do if the policy applied for is issued at a higher rate than was expected?
Personally deliver the policy, explain the rating, reinforce the value of the policy, and collect the additional premium
The individual who has the ownership rights of a policy is called the: A) Insured B) Applicant C) Policyowner D) Beneficiary
Policyowner
In a replacement transaction, why should the existing policy not be terminated until the replacing policy is issued and delivered?
Potential of new evidence of insurability being required (Since new evidence of insurability may be required, the existing policy should not be terminated until the replacing policy is issued and delivered.)
When an individual qualifies for a lower premium or rate than standard risks, the insured is considered a:
Preferred risk
The needs analysis approach in determining the amount of coverage someone needs takes into consideration all of the following, except: A) debts, medical bills, final expenses B) spousal lifetime income C) mortgage retirement D) children's education funds E) raises and bonuses over the years
Receiving raises and bonuses by the insured over the years
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 and initial premium collected? A) Return the policy to the insurer with a letter of explanation B) Deliver the policy to an immediate family member and collect any outstanding premium C) Hold onto the policy until the insured is discharged from the hospital and then deliver the policy D) Collect additional premium at the time of delivery to reflect the higher risk the insurer now faces
Return the policy to the insurer with a letter of explanation
All of the following are examples of a third-party ownership, EXCEPT: A) S applies for a policy on herself and names her husband as the beneficiary B) J applies for his life insurance policy and names his trust as the owner and beneficiary C) T applies for and owns his 2-year old son's policy, but names his wife beneficiary D) J is named as the owner and beneficiary of G's policy
S applies for a policy on herself and names her husband as the beneficiary
Which of the following receipts states that coverage will begin immediately for a specific length of time, regardless of whether the applicant is ultimately approved for coverage by the insurer? A) Temporary insurance agreement B)Acceptance approval receipt C) Trial receipt D) Conditional receipt
Temporary insurance agreement
All of the following are true of the group life insurance classification, except: A) Two or more labor unions may join together to provide group insurance for collective members. B) The coverage is usually written on a permanent basis providing a cash value as well as a death benefit. C) Group life insurance premiums are less expensive than premiums for individual insurance policies D) Tax advantages are available to small employers in the same or similar industries who form trusts to provide insurance for employees
The coverage is usually written on a permanent basis providing a cash value as well as a death benefit. (Actually, In group life insurance, the coverage is normally written on a renewable term basis providing no cash value or living benefits as are found in individual cash value policies.)
All of the following statements are true regarding HIV testing, except: A) The insured must pay for the cost of testing B) All tests require informed consent C) The results must remain confidential in accordance with privacy protection provisions D) The insurer must pay for the cost of the testing.
The insured must pay for the cost of testing
A producer provided a conditional receipt to an applicant who paid the first premium with the application. The applicant died before a policy was issued. If the insurer denies the claim, which party would have to prove the reasons for its actions if the claim was challenged?
The insurer
Which of the following is a type of rating that does not involve an extra premium being assessed? A) Sub-standard B) Rated up age C) The lien plan D) The flat rate
The lien plan (With the lien plan, initially, only the premium would be refunded in case of death. The death benefit increases over time with the full face amount eventually payable. This is generally used with Senior Life Insurance plans to provide minimal benefits without a medical examination.)
The process of calculating life insurance net premium requires consideration of all of the following, except: A) The rate of interest assumed B) The insured's gender C) The morbidity rates to be used D) The insured's age
The morbidity rates to be used
An applicant submits the initial premium at the time of application and is provided a conditional receipt requiring a medical exam to determine insurability. The applicant is killed in a car accident before the medical exam can be performed. Which of the following statements regarding coverage is correct:
There is no coverage
Which of the following is not a purpose of the life insurance and annuities replacement rules? A) To assure that the producer receives enough information to make an informed recommendation B) To reduce the opportunity for misrepresentation C) To establish penalties for failure to comply with the rules of replacement D) To protect the interests of life insurance and annuity purchasers from the loss of benefits E) To regulate the activities of agents and insurers
To assure that the producer receives enough information to make an informed recommendation (PURCHASER not PRODUCER)
A producer submits a completed application to the insurer along with the premium check after giving the applicant a conditional receipt. If the applicant completes the required medical exam, but dies prior to the insurer issuing a policy as applied for, what is the insurer's responsibility?
To pay the claim in full as long as the conditions of the receipt were fully satisfied by the insurer
Life insurance policy illustration requirements apply to which one of the following? A) Variable life insurance B) Individual and group annuity contracts C) Traditional Whole Life Insurance D) Credit life insurance E) Life insurance policies with no illustrated death benefits on any individual exceeding $10,000.
Traditional whole life insurance
