Chap 4 Exam Underwriting

When establishing premiums, insurers express the rate as a: A) flat rate per risk. B) cost per insured individual. C) percentage of the policy's face amount. D) cost per $1,000 of face amount.

D

Which of the following premium factors has the greatest effect on life insurance premium calculations? A) interest. B) mortality. C) expense. D) health.

Mortality Mortality Interest Expense

A life insurance gross premium is: A) mortality costs plus loading. B) interest plus expense less mortality. C) net single premium plus mortality. D) net single premium plus expense.

Net Single Premium + Expense

Bob works as a dentist and mountain climbs, skis, and flies airplanes in his spare time. When he applies for a life insurance policy, the agent's and Bob's signatures will be required on all of the following documents EXCEPT: A) the report issued by the Medical Information Bureau. B) the application. C) a questionnaire regarding Bob's aviation activities. D) a form authorizing the insurer to obtain investigative consumer reports and medical information.

A

Regular notices sent to policyowners for payment of their life insurance policy premiums reflect: A) gross single premium. B) net level premium. C) net single premium. D) gross premium.

D The gross premium is what policyowners are required to pay. The net single premium can be defined as the single amount needed today to fund the future benefit.

Each application for life insurance requires the signature of all of the following EXCEPT: A) the policyowner, if different from the insured. B) the proposed insured. C) the beneficiary. D) the agent.

The beneficiary

The annual premium on Rhoda's life insurance policy is due December 1, 2007. She paid the premium, which was for: A) 2006 B) 2007 C) 2008 D) any year she designates.

2008 All life insurance premiums are payable in advance. Thus, a premium due on December 1, 2007, was applied to 2008. Reference: 4.8 in the License Exam Manual

Which of the following statements pertaining to inspection reports and credit reports on life insurance applicants is NOT correct? A) Inspection reports are requested regardless of the size of the policy. B) The size of the policy being requested generally determines whether an inspection report is ordered by the underwriting department. C) Information contained in inspection reports usually is obtained through interviews with employers, neighbors and associates of the proposed insured. D) Applicants with unfavorable credit ratings are poor prospects for life insurance.

A Inspection reports usually are obtained from several knowledgeable sources by insurance companies on applicants who apply for large amounts of life insurance. An applicant's poor credit rating can mean unreliable premium payments, causing the insurance company to lose money.

A mortality table reflects: A) the average number of deaths that will occur during a given year for a given age group of individuals. B) who among a given group of individuals will die within a given year. C) the average life span for any given individual. D) the declining probability of death as the age of a given group of individuals increases.

A

A producer has met his responsibility of explaining the sources of insurability to an insurance applicant when he explains that: A) the primary source of information used in underwriting will be the application. B) a consumer report must be requested. C) the Medical Information Bureau (MIB) will contact the applicant for additional information. D) the applicant must provide a list of the sources and give permission to contact them.

A

Bernice has placed her home telephone number on the National Do-Not-Call Registry. In which of the following cases is the call prohibited? A) Wanda, Bernice's friend, gave Bernice's phone number to a personal financial advisor who calls to seek an appointment. B) Bernice requested information about a policy from an insurer with whom she has not dealt before. The insurer's agent calls to give her this information. C) A representative of a local political organization calls to solicit a contribution. D) Bernice applied for a policy with the Assured Insurance Company. Assured's agent calls to discuss her application.

A

Which of the following statements pertaining to a life insurance policy application is CORRECT? A) An agent must be very specific when listing an applicant's occupation on an application. B) The applicant's signature is required on an application, but the agent's signature is not. C) If an applicant's age is shown erroneously on a life insurance application as 28 instead of 29, this could result in a premium quote that is higher than it should be. D) An application is not part of the legal contract between insurer and insured, even when it is attached to the policy.

A

All of the following statements pertaining to life insurance premiums are correct EXCEPT: A) in establishing premium rates, a company must assume it will earn a high rate of interest on its invested premiums. B) the expense factor in premium rate-making frequently is referred to as loading. C) an insurance company invests the premium money it collects to earn interest. D) for an insurance company, the costs of doing business must be reflected in its premiums.

A An insurance company must assume that it will earn no more than a conservative rate of interest on its invested premiums. The company is committed to the interest rate it guaranteed its policies will pay.

In the underwriting of insurance policies, some amount of discrimination is: A) present in many cases, because of differing levels of risk. B) permissible only when 2 people of equal risk are charged different rates. C) forbidden by federal statutes. D) illegal in all cases.

A Legitimate discrimination can occur, to a certain degree, in the underwriting of an insurance policy. For instance, two individuals of the same race and sex may present very different risks to an insurer and will be charged different rates based on credible supporting information.

AGC Publishing applied for key-person life insurance on its chief executive officer. Which of the following parties must sign the application? A) The CEO and another officer of AGC. B) The CEO, another officer of AGC, and the agent handling the application. C) An officer of AGC and the agent handling the application. D) The CEO and the agent handling the application.

B CEO Another officer of AGC Agent Each life insurance application requires the signatures of the proposed insured and the agent who solicits the application. If the policyowner is a firm or corporation, one or more partners or officers other than the proposed insured must sign the application. As a result, the CEO, an officer of AGC, and the agent handling the application must all sign the insurance application.

During the underwriting process, an insurer may do all of the following EXCEPT: A) contact the Medical Information Bureau to check on the applicant's medical history. B) order a consumer report to provide details on the applicant's reputation, character, and habits. C) order a credit report. D) order a criminal background check.

D Cannot order a criminal background check

Mortality is Life insurance Morbidity is Health Insurance

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