Life Insurance Exam Study: Chapter 1 - Insurance Basics

Which of the following would be considered as having an insurable interest in the party whose life is being insured?

A CEO insuring the life of a key salesperson

What is a warranty?

A promise or a guarantee

When underwriting an individual life or health insurance application, the underwriter may take any following actions EXCEPT:

Accept the risk as substandard and charge the customer better than average rate

Which of the following is NOT an underwriting consideration in the process of underwriting health insurance risks?

Address of the applicant

In life or health insurance, which signatures are requires on the insurance application?

All of the above

Which of the following situations is true concerning insurable interest?

An employer has insurable intrest in its top salesman

In life insurance, when must insurable intrest exist?

At the time of the sale

All of the following are considered to be typical characterists describing the nature of an insurance contract EXCEPT?

Bilateral

Gross premium has the following components: risk, interest, and expenses. Which of the following is NOT classified as an "expense" factor when developing life or health insurance rates?

Chance of a loss

Failure to disclose known facts when filing out an insurance application is an act of?

Concealment

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is

Conditional

Applicant Andy was issued a receipt that states his coverage will begin either on the date of his application or the date of his physical (if required), whichever is last, and if he was insurable on that date. Which type of interim insuring agreement did Andy's agent issue him?

Conditional receipt

All of the following are necessary to the formation of a contractual agreement EXCEPT a(n)

Counter offer

Which statement best describes the underwriting process?

Determining what the risk is, classifying the risk as acceptable or not, and then classifying the risk for rating purposes

The authority of an insurance agent, which is spelled out in the written words of the agency contract between the agent and the insurer is called

Expressed authority

All of the following are sources of insurability, excpet:

Fair Credit Reporting Act

Which of the following is NOT a factor in determining a premium?

Grace period

All of the following statements are true, EXCEPT:

Insurable interest must be maintained throughout the life of the contract

Which of the following is not a part of the Fair Credit Reporting Act?

It allows the agent to share information and observations with the insurance company concerning the applicant

What principle does the insurance company use to help them adequately predict the number of claims expected in a given year?

Law of Large Numbers

In order to accurately predict losses an insurance company uses what law?

Law of large numbers

A _________ is something that had the insurance company been aware of, the information would have affected how or if the policy was issued.

Material statement

Which mode of premium will incur a service fee?

Monthly, by check

Which of the following is NOT a source of insurability information used in the underwriting process for individual life or health insurance policies?

National Association of Insurance Commissioners (NAIC)

The characteristic that insurance contracts are Unilateral contracts means

Only insurers can be sued for not paying benefits

With regards to reinsurance, which insurance company is called the ceding insurer?

Originating company

Phil purchased a participating policy. Which of the following statements is true concerning his policy?

Participating companies allow Phil to participate in receiving dividend

What is the term given to causes of loss that are insured in both life and health insurance policies?

Perils

Smoking is an example of a?

Physical hazard

The amount of premium the insurance company charges the customer is called gross premium. What is "Gross Premium?"

Probability of a loss - the companys investement return + a load

Which of the following types of risk are insurable?

Pure risks

A form of insurance between insurers is called?

Reinsurer

All statements made by an applicant on a life insurance application are considered to be?

Representations

While Harriet is completing her insurance application questions to the best of her knowledge. These statements are referred to as?

Representations

Which term is defined as "the chance of a loss?"

Risk

Which of the follwoing best details the underwriting process for life insurance?

Selection, classification, and rating of risks

What is consideration defined as?

Something of value exchanged between each party of the contract

Insurance Company XYZ is a nonparticipating insurance company. What is another name for Company XYZ?

Stock Company

Which of the following is FALSE concerning an agent?

The agent can make changes to the contract

At the time of application, Joe paid his insurance premium up front. Joe's insurance coverage began immediately and will be in effect until he is otherwise notified. Which type of receipt did Joe's agent issue him.

The agent issued a binding receipt

Who typically makes the offer in an insurance transcation?

The applicant

In order to form an insurance contract, all of the following statements must be true EXCEPT

The beneficiary must have insurable interest in the insured

In life insurance, the peril covered is death. A peril is defined as:

The cause of a loss

Which of the following is FALSE concerning AIDS/HIV?

The insurer cannot perform an AIDS/HIV test

Which of the following describes the law of large numbers

The more numbers used to establish, the more accurate the statistic will be

According to the law of agency, the agent represents:

The principal

Which of the following issues does NOT need to be examined in order to determina the amount of life insurance that is needed to provide survivor protection?

The race of the insureds

Which of the following best defines insurance?

The transference of risk

The term mutualization refers to:

Transferring control of a company from stock holders to policy owners

According to the law of agency, a principal is represented by

an Agent