Completing the Application, Underwriting, & Delivering the Policy

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

If an agent fails to obtain an applicant's signature in the application, the agent must a. Return the application to the applicant for a signiture b. Sign the application for the applicant c. Sign the application, stating it was by the agent d. Send the application to the insurer with a note explaining the absence of signiture

a

Insurance is a contract by which one seeks to protect another from a. Loss b. Exposure c. Uncertainty d. Hazards

a

Untrue statements on the application unintentionally made by insureds that, if discovered, would alter the underwriting decision of the insurance company, are called a. Material misrepresentations b. Fraudulent statements c. Warranties d. Common errors

a

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as a. Contracts of adhesion b. Unilateral contracts c. Aleatory contracts d. Binding contracts

a - Insurance policies are written by the insurer and submitted to the insured on a take-it-or-leave-it basis; The insured does not have any input into the contract, but simply adheres to the contract

The Federal Fair Credit Reporting Act a. Regulates consumer reports b. Protects customer privacy c. Regulates telemarketing d. Prevents money laundering

a - The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insured violated? a. Consideration b. Good faith c. Representation d. Adhesion

a - The binding force in any contract is consideration

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

a - The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam (whichever occurs last), as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for

Which of the following individuals must have insurable interest in the insured? a. Producer b. Policyowner c. Beneficiary d. Underwriter

b

Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? a. Standard risk is also known as high exposure risk b. Standard risk is representative of the majority of people c. Standard risk pays a higher premium than a substandard risk d. Standard risk required extra rating

b

What describes the specific information about a policy? a. Producer's report b. Policy summary c. Illustrations d. Buyer's guide

b - A policy summary describes the features and elements of the specific policy for which a person is applying

What is a definition of a unilateral contract? a. If one party makes a condition, the other party can counteroffer b. One-sided: only one party makes an enforceable promise c. Two or more parties go into a contract understanding there may be an unequal exchange of value d. One author: the company wrote the contract; the insured must accept it as written

b - An insurance contract is unilateral in that only one of the parties to the contract is legally bound to do anything

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant no later than a. Prior to filling out an application for insurance b. With the policy c. Upon issuance of the policy d. Within 30 days after the first premium payment was collected

b - If a life insurance policy contains a free-look period, the buyer's guide can be delivered with the policy; If it doesn't, the buyer's guide must be delivered prior to accepting the initial premium

Which of the following information about the applicant is NOT included in the General Information section of the application for insurance? a. Marital status b. Medical background c. Gender d. Occupation

b - Part 1: General Information of the applicant includes the general questions about the applicant, including name, age, address, birth date, gender, income, marital status, & occupation

Which of the following best describes the MIB? a. It is a rating organization for health insurance b. It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance c. It is a government agency that collects medical information on the insured from the insurance companies d. It is a member organization that protects insured against insolvent insurers

b - The Medical Information Bureau (MIB) is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals

When is the earliest a policy may go into effect? a. After the underwriter reviews the policy b. When the application is signed and a check is given to the agent c. When the first premium is paid and the policy has been delivered d. When the insurer approves the application

b - The policy can be effective as early as the date of the application, if the premium is submitted with the application and the policy is issued as applied for

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

c

What do individuals use to transfer their risk of loss to a larger group? a. Exposure b. Indemnity c. Insurance d. Insurable Interest

c

Which is the primary source of information used for insurance underwriting? a. Medical records b. Private investigations c. Application d. Applicant interviews

c

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. Personal b. Unilateral c. Conditional d. Adhesion

c - A conditional contract requires both the insurer and the policyowner the meet certain conditions before the contract can be executed, unlike other types of policies which puts the burden of condition on either the insurer or the policyowner

If an insurance company wishes to order a consumer report on an applicant to assist in the underwriting process, and if a notice of insurance information practices has been provided, the report may contain all of the following information EXCEPT the applicant's a. Habits b. Prior insurance c. Ancestry d. Credit history

c - Consumer Reports include written &/or oral information regarding a consumer's: - credit - character - reputation - habits

Which of the following reports will provide the underwriter with the information about an insurance applicant's credit? a. Agent's report b. Any federal report c. Consumer report d. Inspection report

c - Consumer reports include written and/ or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources

What is the purpose of a conditional receipt? a. It serves as proof that the applicant has been determined insurable b. It is given only to applicants who fully prepay the premium c. It is intended to provide coverage on a date prior to the policy issue d. It guarantees that a policy will be issued in the amount applied for

c - Coverage commences on the date of the application or the date of a medical examination (whichever is later), on the condition that the applicant is determined to be insurable at the rate applied for

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

c - In insurance, the offer is usually made by the applicant in the form of the application; Acceptance takes place when an insurer's underwriter approves the application and issues the policy

Which of the following is NOT an essential element of an insurance contract? a. Agreement b. Legal purpose c. Counteroffer d. Consideration

c - In order for insurance contracts to be legally binding, they must have four essential elements: agreement (offer & acceptance), consideration, competent parties, and legal purpose

Another name for substandard risk classification is a. Declined b. Elevated c. Rated d. Controlled

c - Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium

If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to a. Require a yearly medical examination b. Lower its insurability standards c. Refuse to issue the policy d. Charge a higher premium

d

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 by the policy. What contract element does this describe? a. Unidirectional b. Aleatory c. Conditional d. Unilateral

d

When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will a. Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved b. Return the premium to Y's estate, since it has no obligation to pay the death claim c. Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued d. Issue the policy anyway and pay the face value to the beneficiary

d

Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information? a. Unfair Trade Practices Law b. The Guaranty Association c. Consumer Privacy Act d. The Fair Credit Reporting Act

d

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

d - Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency had 5 days to provide the consumer with additional information