Chapter 1: Completing the Application, Underwriting, and Delivering the Policy

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

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe? A. Conditional B. Unilateral C. Unidirectional D. Aleatory

B. Unilateral

What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act? A. $100 per violation B. Revocation of license C. $2,500 D. $1,000

C. $2,500

The term "illustration" in a life insurance policy refers to A. Pictures accompanying a policy. B. Charts and graphs. C. A presentation of nonguaranteed elements of a policy. D. A depiction of policy benefits and guarantees.

C. A presentation of nonguaranteed elements of a 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? A. Adhesion B. Conditional C. Aleatory D. Good health

C. Aleatory

Which of the following is the basic source of information used by the company in the risk selection process? A. Warranty B. Consumer report C. Application D. Agent's report

C. Application

What is a material misrepresentation? A. Any misstatement made by an applicant for insurance B. Any misstatement by the producer C. Concealment D. A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

D. A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained? A. 3 days B. 5 days C. 10 days D. 14 days

A. 3 days

Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report A. Must be informed of the source of the report. B. Are entitled to obtain a copy of the report from the party who ordered it. C. Must be advised that a copy of the report is available to anyone who requests it. D. May sue the reporting agency in order to get inaccurate data corrected.

A. Must be informed of the source of the report.

An applicant signs an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant dies the following day, which of the following is TRUE? A. The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy. B. The premium would be returned to the insured's estate because the policy was not issued. C. The death claim will be rejected. D. The application will be voided.

A. The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy.

All of the following are duties and responsibilities of producers at the time of application EXCEPT A. Check to make sure that there are no unanswered questions on the application. B. Change any incorrect statement on the application by personally initialing next to the corrected statement. C. Explain the nature and type of any receipt the producer is giving to the applicant. D. Probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information.

B. Change any incorrect statement on the application by personally initialing next to the corrected statement.

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

D. Pay the policy proceeds only if it would have issued the policy.

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? A. 5 days B. 7 days C. 10 days D. 3 days

A. 5 days

In insurance, an offer is usually made when A. An applicant submits an application to the insurer. B. The insurer approves the application and receives the initial premium. C. The agent hands the policy to the policyholder. D. An agent explains a policy to a potential applicant.

A. An applicant submits an application to the insurer.

A producer must do all of the following when delivering a new policy to the insured EXCEPT A. Disclose commissions earned from the sale of the policy. B. Explain the policy provisions, riders, and exclusions. C. Collect any premium due. D. Explain the rating procedures if the policy is rated differently than applied for.

A. Disclose commissions earned from the sale of the policy.

Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT A. Other insurance coverages. B. Family health history. C. Alcohol and tobacco consumption. D. Recent surgeries.

A. Other insurance coverages.

Which of the following will be included in a policy summary? A. Premium amounts and surrender values B. Copies of illustrations and application C. Comparisons with similar policies D. Primary and secondary beneficiary designations

A. Premium amounts and surrender values

Insurance is the transfer of A. Hazard. B. Peril. C. Risk. D. Loss.

C. Risk.

An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of A. A STOLI policy. B. A prearranged funeral plan. C. A viatical settlement. D. Third-party ownership.

A. A STOLI policy.

All of the following are duties and responsibilities of producers at the time of application EXCEPT A. Change any incorrect statement on the application by personally initialing next to the corrected statement. B. Explain the nature and type of any receipt the producer is giving to the applicant. C. Probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information. D. Check to make sure that there are no unanswered questions on the application.

A. Change any incorrect statement on the application by personally initialing next to the corrected statement.

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract? A. Conditional B. Adhesion C. Personal D. Unilateral

A. Conditional

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 A. Conditions. B. Consideration. C. Legal purpose. D. Offer and acceptance.

A. Conditions.

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.

Which of the following best details the underwriting process for life insurance? A. Reporting and rejection of risks B. Selection, classification, and rating of risks C. Solicitation, negotiation and sale of policies D. Issuance of policies

B. Selection, classification, and rating of risks

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe? A. Aleatory B. Unilateral C. Conditional D. Contingent

C. Conditional

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

C. Insurance companies from adverse selection by high risk persons.

Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report A. Must be advised that a copy of the report is available to anyone who requests it. B. May sue the reporting agency in order to get inaccurate data corrected. C. Must be informed of the source of the report. D. Are entitled to obtain a copy of the report from the party who ordered it.

C. Must be informed of the source of the report.

An applicant who receives a preferred risk classification qualifies for A. Dividends payable for lack of claims. B. Higher premiums than a person who receives a sub-standard risk. C. Higher premiums than a person who receives a standard risk. D. Lower premiums than a person who receives a standard risk.

D. Lower premiums than a person who receives a standard risk.

Which of the following information about the applicant is NOT included in the General Information section of the application for insurance? A. Gender B. Occupation C. Marital status D. Medical background

D. Medical background

The Gramm-Leach-Bliley Act was passed to A. Allow insurance companies access to medical information for underwriting purposes. B. Protect private customer information filed with a financial institution. C. Define insurance as interstate commerce. D. Allow consumers access to credit and private consumer reports.

B. Protect private customer information filed with a financial institution.

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT A. Payment of premium. B. Delivery receipt. C. Signed waiver of premium. D. Statement of good health.

C. Signed waiver of premium.

If an insurer requires a medical examination of an applicant in connection with the application for life insurance, who is responsible for paying the cost of the examination? A. The examiner B. The applicant C. The insurer D. The cost of the examination will be waived.

C. The insurer

If an insurer issued a policy based on the application that had unanswered questions, which of the following will be TRUE? A. The policy will be void. B. The insurer may deny coverage later, because of the information missing on the application. C. The policy will be interpreted as if the insurer waived its right to have an answer on the application. D. The policy will be interpreted as if the insured did not have an answer to the question.

C. The policy will be interpreted as if the insurer waived its right to have an answer on the application.

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

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 A. Consideration. B. Legal purpose. C. Offer and acceptance. D. Conditions.

D. Conditions.

Which of the following includes information regarding a person's credit, character, reputation, and habits? A. Consumer history B. Insurability report C. Agent's report D. Consumer report

D. Consumer report

Which of the following reports will provide the underwriter with the information about an insurance applicant's credit? A. Inspection report B. Agent's report C. Any federal report D. Consumer report

D. Consumer report

Which of the following best describes the aleatory nature of an insurance contract? A. Only one of the parties being legally bound by the contract B. Ambiguities are interpreted in favor of the insured C. Policies are submitted to the insurer on a take-it-or-leave-it basis D. Exchange of unequal values

D. Exchange of unequal values

A life insurance policy has a legal purpose if both of which of the following elements exist? A. Underwriting and reciprocity B. Offer and counteroffer C. Policyowners and named beneficiaries D. Insurable interest and consent

D. Insurable interest and consent

What do individuals use to transfer their risk of loss to a larger group? A. Indemnity B. Insurance C. Insurable interest D. Exposure

B. Insurance

An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that? A. Agent's Report B. Underwriter's Report C. Inspection Report D. Medical Information Bureau's report

C. Inspection Report

Whose responsibility is it to make certain that an application for insurance is filled out completely and correctly? A. The beneficiary of the applicant B. The insurance company C. The applicant D. The producer

D. The producer

The Federal Fair Credit Reporting Act A. Regulates consumer reports. B. Protects customer privacy. C. Regulates telemarketing. D. Prevents money laundering.

A. Regulates consumer reports.

All of the following would be considered an insurance transaction EXCEPT A. Negotiating coverage. B. Obtaining an insurance license. C. Soliciting a policy. D. Advising a policyholder regarding a claim.

B. Obtaining an insurance license.