Ch.1: Completing the Application, Underwriting, and Delivering the Policy
An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?
aleatory
what is a warranty in insurance contract
an absolutely true statement upon which the validity of the insurance contract is based
In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT
applicant's past income
which is the primary source of information used for insurance underwriting
application
which of the following is the basic source of information used by the company in the risk selection process
application
The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective?
as of the application date
when must insurable interest exist in a life insurance policy
at the time of application
what is insurance underwriting
The process of risk selection and classification
when does an insurance policy go into effect
When the policy is delivered and the premium is paid
what is policy replacement
a new policy is issued while an existing policy is terminated or reissued with a reduction in cash value
the term illustration in a life insurance policy refers to
a presentation of non guaranteed elements of a policy
who is a field underwriter
agent/producer
when must the policy summary for a life insurance policy be delivered to the policy owner
at the time of policy delivery
which of the following is NOT true regarding a certificate of authority
it is issued to group insurance participants
insurance is a contract that protects the insured from what
loss
health insurance contracts are unilateral. what does that mean
only one party makes a legally enforceable promise
what is adverse selection
people whoa re more likely to submit insurance claims are seeking insurance more often than preferred risks
what are the 3 types of risk rating classifications in life insurance
standard, substandard, and preferred
if an applicant does not receive a copy of the new insurance policy, who would be held responsible
the agent
whose responsibility is it to determine that all the questions on an insurance application are answered
the agent's
what law protects consumers from the circulation of inaccurate or obsolete information
the fair credit reporting act
In terms of parties to a contract, which of the following does NOT describe a competent party?
the person must have at least completed secondary education
What two elements are necessary for a life insurance contract to have a legal purpose?
insurable interest and consent
what do individuals use to transfer their risk of loss to a larger group
insurance
what entities make up the medical information bureau
insurers
what are the four elements of an insurance contract
agreement (offer and acceptance) consideration competent parties legal purpose
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
buyer's guide
If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to
charge a higher premium
when a change needs to be made on the application for insurance which is best method for correcting the information
complete a new application or ask the applicant to initials the correction on the original application
because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements except
consideration
Representations are written or oral statements made by the applicant that are
considered true to the best of the applicant's knowledge
which of the following includes information regarding a person's credit, character, reputation, and habits
consumer report
health contracts are prepared by insurers and must be accepted by the insured on an as is basis. this describes what aspect of a health insurance contract
contract of adhesion
contracts that are prepared by one party and submitted to the other party on a take it or leave it basis are classified as
contracts of adhesion
a producer agent must do all the following when delivering a new policy to the insured except
disclose commissions earned from the sale of the policy
At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?
either on the date of the application or the date of the medical exam (whichever occurs last)
An applicant is denied insurance because of information found on a consumer report. Which of the following requires that the insurance company supply the applicant with the name and address of the consumer reporting company?
fair credit reporting act
an underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering an
inspection report
what are the three main instances when insurable interest exists in life insurance
insuring your own life the life of family member life of a business partners or someone who has a financial obligation to the policy owner
what report is used to assess risk associated with a health insurance applicant's lifestyle and character
investigative consumer report
what type of report provides information about the applicant's hobbies, habits, and financial status
investigative consumer report
Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT
other insurance coverages
how can health insurance policies be delivered to the insured
personally delivered by the agent or mailed
What document describes the specific information about a policy?
policy summary
which of the following documents delivered to the policy owner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years
policy summary
what risk classification would typically qualify for lower premiums
preferred risk
what term describes the fee a person pays an insurance company to receive coverage
premium
which of the following will be included in policy summary
premium amounts and surrender values
Most agents try to collect the initial premium for submission with the application. When an agent collects the initial premium from the applicant, the agent should issue the applicant a
premium receipt
if an insurer needs to obtain information about the applicant from investigator, what is the insurer required to do
provide the applicant a disclosure authorization notice
which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles
representative of majority of people
what is the best way to handle incomplete insurance applications
return application to the applicant for completion
which is the appropriate action by the insurer if a prospective insured submitted an incomplete application
return the application to the applicant for completion
the insurer discovered that one of the applicants for life insurance missed a couple of questions on the application, what must the insurer do with the application
return to the applicant for completion
what is the main responsibility of a company's underwriting unit
risk selection
If an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do?
send the application back to the applicant for signature
what is the purpose of the agent's report during the application process
the agent's report discusses the agent's personal observations about the proposed insured that may be help in the underwriting process
if an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern
the existence of insurable interest between the applicant and the insured
who must have insurable interest in the insured
the policy owner
how is information obtained for an investigation consumer report
through interviews with the applicant's associates, friends, and neighbors
why should the producer personally deliver the policy when the first premium has already been paid
to help the insured understand all aspects of the contract
during which stage in the insurance process do insurers evaluate information that identifies adverse selection risks
underwriting
what is the name of the process that insurance companies use to determine whether or not applicant is insurable
underwriting
If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it?
unilateral
in health insurance contracts, the insured is not legally bound to any particular action; however, the insurer is obligated to pay for losses covered by the policy, what contract element does this describe
unilateral
which of the following is a statement that is guaranteed to be true, and if untrue may breach an insurance contract
warranty
When would a misrepresentation on an insurance application be considered fraud?
when it is intentional and material
when would a misrepresentation be considered material
when it may alter the underwriting decision
An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin?
when the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable statement of good health
in insurance, when is the offer usually made on a contract
when the insurance application is submitted
in forming an insurance contract, when does an acceptance usually occur
when the insurer approves a prepaid application
if a policy includes a free-look period of at least 10 days, the buyer's guide may be delivered to the application no later than
with the policy