Chapter 2 Life Basics Quiz

An Errors & Omissions policy primarily covers the liability of: A A producer or agency B A paramedical examiner C An insurer D An applicant

A A producer or agency

To purchase the greatest amount of coverage, for the least amount of initial premium, a client would purchase which of the following? A A term policy B A participating policy C A variable life policy D An ordinary life policy

A A term policy

By what means does the client acknowledge that an insurer may use services and information provided by third parties to gather information during the underwriting process? A By signing the application B By signing the check given to the producer for the modal premium C By verbally acknowledging that the producer informed him or her about the Fair Credit Reporting Act D By accepting a copy of the Fair Credit Reporting Act brochure from the producer

A By signing the application

In determining the proper amount of life insurance coverage for an insured, the ________ approach measures the projected future earnings and the value of the insured's services in the event of his or her premature death. A Human Life Value B Capital Liquidation C Needs Analysis D Capital Retention

A Human Life Value

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 Needs analysis B Human life value C The DIME method of insurance planning D The NAIC Model

A Needs analysis

A producer must include their name and address on which of the following? A A buyer's guide B A policy summary C An insurance policy's cover page D Any policy amendment or rider

B A policy summary

The person who submits an application for insurance is always referred to as the _______. A Owner B Applicant C Insured D Beneficiary

B Applicant

How does life insurance reduce financial loss upon the insured's death? A By eliminating the risk B By transferring the risk to the insurer C Through applicant risk retention strategies D Through reinsurance risk techniques

B By transferring the risk to the insurer

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 Declined C Standard D Substandard

B Declined

Which of the following statements correctly describes the difference between gross premium and net premium? A The net premium is the cost per $1,000 of insurance, the gross premium excludes insurance company expenses B 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 C 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 D 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 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

All of the following are examples of a third-party ownership, EXCEPT: A J is named as the owner and beneficiary of G's policy B S applies for a policy on herself and names her husband as the beneficiary C J applies for his life insurance policy and names his trust as the owner and beneficiary D T applies for and owns his 2-year old son's policy, but names his wife beneficiary

B S applies for a policy on herself and names her husband as the beneficiary

A completed application and a check were submitted by a producer to an insurer on behalf of the applicant. A conditional receipt was given. The insured died prior to the insurer issuing the policy however the check was no good. What is the result? A The claim will be paid only if it can be shown that the funds were in the account at the time the check was written and given to the producer B Since the check did not clear the bank there is no coverage C The insurer will pay the claim once they receive a new check D The amount of the premium will be deducted from the claim payment

B Since the check did not clear the bank there is no coverage

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 Trial receipt B Temporary insurance agreement C Conditional receipt D Acceptance approval receipt

B Temporary insurance agreement

Which rating classification is typically used in the senior marketplace so that policies can be issued without a medical exam? A The flat amount B The lien plan C Rated up age D Substandard table rate

B The lien plan

Which of the following listed policies has the best likelihood of keeping pace with inflation? A Universal Life B Variable Universal Life C Straight Whole Life D Term

B Variable Universal Life

Industrial life insurance is typically sold in face amounts of: A $5,000 multiples B $10,000 to $20,000 C $1,000 or less D Up to $50,000

C $1,000 or less

Which of the following describes group life insurance? A A single policy issued to an individual covering husband, wife and children B Multiple policies issued to an employer to cover a specific group of executives C A single policy issued to a business to cover the lives of employees D A single policy issued to a group of individuals who have formed an alliance to obtain life insurance at reduced rates.

C A single policy issued to a business to cover the lives of employees

Which of the following is a personal use of life insurance? A Compensating a business for the death of a key person B Creating an insurable interest C Creating an immediate estate D Providing protection against living too long

C Creating an immediate estate

In life insurance, the Buyer's Guide is required to be provided not later than at the time of policy ___________. A Issuance B Application C Delivery D Renewal

C Delivery

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? A The licensed producer has the applicant's implied authority to make any necessary changes to the application on the applicant's behalf B The producer should simply make a note in the agent report section of the application describing the error and what the true response was supposed to be C Have the applicant initial the change or start over with a completely new application D Submit the application as is and see if the insurance company catches the mistake

C Have the applicant initial the change or start over with a completely new application

The burden of proof falls on the _________ to establish issued policies were in fact delivered to the applicant. A Insured B Policyowner C Insurer D Beneficiary

C Insurer

Which of the following types of life insurance provides the largest portion of all coverage in force? A Variable B Industrial C Ordinary D Group

C Ordinary

A ____________ account is an amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A Separate B Loan C Reserve D General

C Reserve

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: A Universal B Whole C Term D Variable

C Term

Which of the following is not true about life insurance applications? A The application may contain all the information underwriting needs to approve the insured B Applications for life insurance are typically divided into two parts: General Information and Health History C The application is confidential communication between the agent and the insurer D The application more fully identifies the insured

C The application is confidential communication between the agent and the insurer

All of the following are true of a substandard risk, except: A The coverage could be reduced for a period of time B The insured may be rated as older than their actual age C The premium would be discounted D The insured may have a flat additional premium added to their base premium

C The premium would be discounted

Expense loading ___________ from company to company. A Is lower B Is the same C Varies D Is higher

C Varies

Which of the following signatures would not be considered valid on an application for insurance? A The licensed producer B The policyowner C A guardian applicant D A minor insured

D A minor insured

Which of these modes would result in the insured paying the least amount per year for life insurance? A Quarterly B Semi-annual payroll deduction C Monthly automatic bank draft D Annual

D Annual

A business owner buys a life policy on his own life. He may be all of the following except _______________. A Owner B Applicant C Insured D Beneficiary

D Beneficiary

A general description of the basic types of life insurance used to assist prospective purchasers can be found in the: A Illustration B Policy summary C Cost comparison index D Buyer's guide

D Buyer's guide

An applicant for life insurance realizes several days after completing the application that she may have answered a medical question incorrectly. She should do which of the following? A 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 B 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 C Nothing. Answers in the application must only be true to the best of her knowledge at the time she submits the application D Contact either her agent or the insurance company and make sure they have the correct information

D Contact either her agent or the insurance company and make sure they have the correct information

When producer Pete delivers a policy, he should also do which of the following? A Collect at least 3 referrals B Collect any amounts due for postage and handling C Demand the balance of the annual premium D Explain the policy fully

D Explain the policy fully

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 Unfair Claims Practices Act B Fair Claims Reporting Act C Deceptive Trade Practices Act D Fair Credit Reporting Act

D Fair Credit Reporting Act

Mortality cost ______ interest (investment earnings) = equals the net premium. A Multiplied by B Plus C Divided by D Minus

D Minus

Which of the following is standard industry practice for producers in order to prove that they delivered the policy mailed to them from the insurer? A Have the applicant stop by the producer's office where agency workers can personally witness the delivery B Meet the applicant at a local coffee shop where there will be plenty of eyewitnesses to the delivery C Have an applicant's family member take a picture of the applicant receiving the policy from the producer D Obtain a policy delivery receipt from the applicant whenever and wherever policy delivery takes place

D Obtain a policy delivery receipt from the applicant whenever and wherever policy delivery takes place

What should a producer do if the policy applied for is issued at a higher rate than was expected? A Immediately return the policy to the home office because the applicant will never accept it B Have the home office re-issue the policy for a reduced amount of coverage for the original premium quoted so that it will be easier to explain at time of delivery C Deliver the policy to the applicant and have the home office reduce the commission payout to cover the higher premium D Personally deliver the policy, explain the rating, reinforce the value of the policy, and collect the additional premium

D Personally deliver the policy, explain the rating, reinforce the value of the policy, and collect the additional premium

In a replacement sale all of the following are producer responsibilities, except: A Complete a notice regarding replacement with applicant and producer signatures B Provide copies of the notice regarding replacement and any sales proposals to the applicant and replacing insurer C Obtain information regarding the in force policies including name and policy numbers D Reimburse the applicant for any surrender charges that may be incurred as a result of the transaction

D Reimburse the applicant for any surrender charges that may be incurred as a result of the transaction

Who is required to sign a completed application? A Any insurance company officer B The beneficiary C The producer's manager D The producer

D The producer