Chapter 1

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

What is insurance underwriting?

The process of risk selection and classification

All of the following are requirements for life insurance illustrations EXCEPT

They must be part of the contract.

How is the information obtained for an investigative consumer report?

Through interviews with the applicant's associates, friends and neighbors

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 an applicant is insurable?

Underwriting

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

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

When does an insurance policy go into effect?

When the policy is delivered and the premium is paid

If an applicant does not receive a copy of the new insurance policy, who would be held responsible?

agent

Whose responsibility is it to determine that all the questions on an insurance application are answered?

agents

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?

conditional

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

All of the following information about the applicant is identified in the General Information section of a life insurance application EXCEPT

education

What do individuals use to transfer their risk of loss to a larger group?

insurance

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?

insurer

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 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

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

What is the best way to handle incomplete insurance applications?

Return the 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

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 are the three types of risk rating classifications in life insurance?

Standard, substandard, and preferred

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 help in the underwriting process

What is the purpose of a conditional receipt?

It is intended to provide coverage on a date earlier than the date of the issuance of the policy.

What is adverse selection?

People who are more likely to submit insurance claims are seeking insurance more often than preferred risks.

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

Who must have insurable interest in the insured?

Policyowner

Which of the following will be included in a 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 investigators, what is the insurer required to do?

Provide the applicant a Disclosure Authorization Notice

An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date?

The date of medical exam

What is policy replacement?

A new policy is issued while an existing policy is terminated or reissued with a reduction in cash value

Who is a field underwriter?

Agent/Producer

What are the four elements of an insurance contract?

Agreement (offer and acceptance), consideration, competent parties, and legal purpose

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 an insurance contract?

An absolute true statement upon which the validity of the insurance contract is based

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

When must the policy summary for a life insurance policy be delivered to the policyowner?

At the time of policy delivery

When a change needs to be made on the application for insurance, which is the best method for correcting the information?

Complete a new application or ask the applicant to initial the correction on the original application.

Which of the following includes information regarding a person's credit, character, reputation, and habits?

Consumer report

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

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)

What law protects consumers from the circulation of inaccurate or obsolete information?

Fair Credit Reporting Act

What two elements are necessary for a life insurance contract to have a legal purpose?

Insurable interest and consent

What entities make up the Medical Information Bureau?

Insurers

What are the three main instances when insurable interest exists in life insurance?

Insuring your own life, the life of a family member, or the life of a business partners or someone who has a financial obligation to the policyowner

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