practice exam Chapter 1 - Completing the application, underwriting, and Deli

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it? A. Unilateral B. Adhesion C. Conditional D. A legal (but unethical) contract

A. Unilateral *In a unilateral contract, only one of the parties to the contract is legally bound to do anything.

Which is the primary source of information used for insurance underwriting? A. Applicant interviews B. Medical record C. Private investigations D. Application

D. Application *The application contains the most of the information used for underwriting purposes. This is why its completeness and accuracy are so crucial.

Which of the following is NOT and essential element of an insurance contract? A. Counteroffer B. Consideration C. Agreement D. Legal Purpose

A. Counter offer *In order for insurance contracts to be legally binding, they must have four essential elements: Agreement (offer and acceptance), consideration, competent parties, and legal purpose. Counteroffer is not required.

In a survivorship policy, when does the insurer pay the death benefit? A. Upon the last death B. Upon the first death C. Half at the first death, and half at the second death D. If the insured survives to age 100

A. Upon the last death *Suvivorship life pays on the last death rather than upon the first death.

Something of value exchanged between the insurer and the insured is considered an A. Legal capacity B. Consideration C. Offer D. Acceptance

B. Consideration * Consideration is something of value that each party to an insurance contract gives to the other

Which of the following individuals must have insurable interest in the insured? A. Producer B. Policy owner C. Beneficiary D. Acuary

B. Policyowner*Policyowner must have insurable interest in the insured, i.e. in his/her own life if the policyowner and the insured is the same person, or in the life of a family member or business partner.

Which of the following documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years? A. A privacy notice B. A Buyer's Guide C. A policy summary D. A notice regarding replacement

C. A Policy Summary*A policy summary usually includes all the listed information, and must be delivered along with a new policy.

Which of the following best describes annually renewable term insurance? A. It requires proof of insurability at each renewal B. Neither the premium nor the death benefit is affected by the insured's age C. It provides annually increasing death benefit D. It is level term insurance

D. It is level term insurance *Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost

Another name for a substandard risk classification is A. Elevated B. Rated C. Controlled D. Decline

B. Rated*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.

Who makes up the Medical Information Bureau (MIB)? A. Former insured B. Physicians and paramedics C. Insurers D. Hospitals

C. Insurers *The MIB is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have discovered.

Another name for a substandard risk classification is A. Elevated B. Rated C. Controlled D. Declined

B. Rated *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.

All of the following information about the applicant is identified in the General information section of a life insurance application EXCEPT A. Gender B. Occupation C. Education D. Age

C. Education *Education is not an underwriting factor nor is it information included on the application

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

C. Exchange of unequal values *An aleatory contract is a contract in which unequal amounts or values are exchanges. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.

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

C. One-sided: only one party makes an enforceable promise. *An insurance contract that is unilateral in that only one of the parties to the contract is legally bound to do anything.

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. The completed application is submitted D. The insurer approves the application and receives the initial premium

C. The completed application is submitted *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 a policy.

In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT: A. Applicant's past income B. Applicant's past medical history C. Applicant's present physical condition D. Applicant's present occupation

A. Applicant's past income*In classifying a risk, the Home Office underwriting department will look at the applicant's past medical history, present physical condition, occupation, habits and morals.

A participating insurance policy may do which of the following? A. Require 80% participation B. Pay dividends to the policyowner C. Provide group coverage D. Pay dividends to the stockholder

B. Pay dividends to the policyholder *A participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs.

What is the purpose of the buyer's guide? A. To list all policy riders B. To provide information about the issued policy C. To allow the consumer to compare the costs of different policies D. To provide the name and address of the agent/producer issuing the policy.

C. To allow the consumer to compare the costs of different policies.*The buyer's guide provides generic information about life insurance policies and allows the consumer to compare the costs of different policies. The policy summary provides specific information about the issued policy, as well as the insurer's information.

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. Charge a higher premium *The premium rate will be adjusted to reflect the insurer's increased risk.

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 A. Warranty B. Premium receipt C. Statement of good health D. Backdated receipt

B. Premium receipt *When collecting the initial premium, the agent should issue the applicant a premium receipt

In forming an insurance contract, when does acceptance usually occur? A. When an insured submits an application B. When an insurer's underwriter approves coverage C. When an insurer delivers the policy D. When an insurer receives an application

B. When an insurer's underwriter approves coverage *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 a policy.

Which of the following statements is NOT true concerning insurable interest as it applies to life insurance? A. Business partners have an insurable interest in each other B. A husband or wife has an insurable interest in their spouse C. An individual has an insurable interest in his or her own life D. A debtor has an insurable interest in the life of a lender.

D. A lender has an insurable interest in the life of a lender *A lender has an insurable interest in the life of a debtor, but only to the extent of the debt. The debtor does not have an insurable interest in the life of a lender.

If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about A. Which individual will pay the premium B. Whether an insurable interest exists between the individuals C. The gender of the applicant D. The type of policy requested

B. Whether an insurable interest exists between the individuals *An insurable interest must exist at the time the policy issued. Some relationships are automatically presumed to qualify as an insurable interest, e.g., spouses, parents, children, and certain business relationships.

The 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 *In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured received a large benefit for a small price.

What describes the specific information about a policy? A. Buyer's guide B. Producer's report C. Policy summary D. Illustrations

C. Policy summary *A policy summary describes the features and elements of the specific policy for which a person is applying.

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 * A conditional contract requires both the insurer and policy owner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.

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 *Conditions are part of the policy structure. Consideration is an essential part of a contract.

An applicant signs an application for $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant is killed in auto accident the next day A. The beneficiary would receive $25,000 if it was determined that the insured qualified for the policy applied for B. The premium would be returned to the insured's estate because the policy was not issued. C. The company could reject the death claim because the UW process was never completed D. The company could reject the app on the basis that the insured's death was not caused by an ongoing medical problem.

A. The beneficiary would receive $25,000 if it was determined that the insured qualified for the policy applied for. *The conditional receipt provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable either on the date the application was signed or the date of the medical examination, if one is required.

An agent tries to sell insurance over the phone to the applicant who appears to be confused, but is eventually able to give enough information for the application to be completed. After the policy was issued, the agent talked to the insured's family, and they explained that the insured was recovering from a surgery and might have been under the influence of medication at the time of application. Which of the following is true? A. The policy is not legal; agents cannot sell insurance over the phone B. The policy may be voided if it can be proven that the applicant was not capable of making a buy decision at the time of application C. The policy will remain in force as long as there are no material misrepresentations on the application D. The policy is legal since the applicant was able to give all required information

B. The policy may be voided if it can be proven that the applicant was not capable of making a buying decision at the time of application *When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent. Because the applicant was confused, it is possible she was suffering from pain or could have been affected by medication, or was having other issues; therefore, if it can be proven that the applicant was incapable of making a buying decision during the application and acceptance process, the policy would be voided.

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. When the application is signed and the check is given to the agent *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.

If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT A. Draw a line through the first answer, record the correct answer, and have the applicant initial the change. B. Note on the application the reason for the change C. Destroy the application and complete a new one D. Erase the incorrect answer and record the correct answer

D. Erase the incorrect answer and record the correct answer *An agent should not use white-out, erase or obliterate any answers given to a question on an application. It could prevent an insurer from contesting the application, should it be necessary.

All other factors being equal, the least expensive first-year premium payment is found ina) Increasing Term b) Decreasing Term c) Level Term d) Annually Renewable Term

d) Annually Renewable Term *Annually Renewable Term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.

An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin? A. When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health B. On the designated effective date C. On the application date D. When the agent submits the application to the company and the company issues a conditional receipt.

A. When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health*If the initial premium is not paid with the application, the agent will be required to collect the premium at the time of policy delivery. In this case, the applicant will most likely need to fill out a Statement of Good Health

Representations are written or oral statements made by the applicant that are A. Immaterial to the actual acceptability of the insurance contract B. Considered true to the best of the applicant's knowledge C. Guaranteed to be true D. Found to be false after further investigation

B. Considered to be true to the best of the applicant's knowledge *Representations are statements made by an applicant that they believe to be true.

If an agent fails to obtain an applicant's signature on the application, the agent must A. Sign the application B. Send the application to the insurer with a note explaining the absence of signature C. Return the application to the applicant for a signature D. Sign the application for the applicant

C. Return the application to the applicant for a signature *All applications must have the appropriate authorized signatures

Which of the following would be considered a nonmedical insurance application? A. An application that does not ask any questions about the applicant's medical history B. An application submitted with the Agent's report C. Any application for life insurance D. An application on which the medical information is completed by the applicant and agent only

D. Application on which the medical information is completed by the applicant and agent only*An application on which all of the questions, including medical history questions, do not need to be completed by medical professionals, and may be completed by the applicant and the agent.

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

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

Which statement is NOT true regarding a Straight Life policy? A. Its premium steadily decreases over time, in response to its growing cash value B. The face value of the policy is paid to the insured at age 100 C. It usually develops cash value by the end of the third policy year D. It has the lowest annual premium of the three types of Whole Life policies

A. Its premium steadily decreases over time, in response to its growing cash value *Straight Life policies charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit.

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. Pay the policy proceeds only if it would have issued to policy*The conditional receipt says the 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 as a standard risk, and the policy is issued exactly as applied for.

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

B. Insurable interest and consent *To ensure legal purpose of a life insurance policy, it must have both insurable interest and consent.

Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information? A. Consumer Privacy Act B. The Fair Credit Reporting Act C. Unfair Trade Practices Law D. The Guaranty Association

B. The Fair Credit Reporting Act *The purpose of the FCRA is to protect consumers against the circulation of inaccurate or obsolete information and to ensure that consumer reporting agencies are fair and equitable in their treatment of consumers.

When must an insurable interest exist in a life policy? A. When there is a change of the beneficiary B. At the time of loss C. At the time of application D. At the time of policy delivery

C. At the time of application *In life insurance, insurable interest must exist at the time of application

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is A. Personal B. Unilateral C. Conditional D. Aleatory

C. Conditional *The contract is formed on the basis that certain conditions are met

In terms of parties to a contract, which of the following does NOT describe a competent party? A. The person must not be under the influence of drugs or alcohol B. The person must be of legal age C. The person must be mentally competent to understand the contract D. The person must have at least completed secondary education

D. The person must have at least completed secondary education *The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to under the contract, and not under the influence of drugs or alcohol.

Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process? A. Illustrations B. Buyer's guide C. Insurance Index D. Policy Summary

B. Buyer's Guide*The Buyer's Guide is a consumer publication that explains Life Insurance in general terms in order to assist the applicant in the decision-making process. It is a generic guide that does not address the specific policy of the insurer, instead explaining life insurance in a way that the average consumer can understand.

In the UW process, it was determined that the applicant for life insurance is in poor health and has some dangerous habits. Which of the following is true concerning the policy premium? A. It will likely be the average premium issued to standard risks B. The applicant's habits and health do not affect the premiums C. It will likely be lower because the applicant is a preferred risk D. It will likely be higher because the applicant is a substandard risk.

D. It will likely be higher because the applicant is a substandard risk *Applicants are considered substandard risks because of physical condition, personal or family history of disease, occupation, or dangerous habits. Substandard risks are usually issued a higher premium than standard risks.

According to the Fair Credit Reporting Act, all of the following would be considered negative information about a consumer EXCEPT A. Failure to pay off a loan B. Disputes regarding consumer report information C. Tax delinquencies D. Late payments

B. Disputes regarding consumer report information *As defined by the Act, negative information includes information regarding a customer's delinquencies, late payments, insolvency or any other form of default. Customer disputes are not considered negative information, and, in fact, must be included in consumer reports.

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? A. As of the application date B. As of the policy delivery date C. As of the first of the month after the policy issue D. As of the policy issue date

A. As of the application date *If the full premium was submitted with the application and the policy was issued as requested, the policy coverage effective date would generally coincide with the date of application.

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 insurer violated? A. Consideration B. Good faith C. Representation D. Adhesion

A. Consideration * The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

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

A. Lower premiums than a person who receives a standard risk *The preferred risk category is reserves for those persons with a superior physical condition, lifestyle, and habits.

Why Y applied for insurance and paid the initial premium on august 14, he was issued a condition receipt. During the UW process, the insurance company found no reason to reject the risk for classify it other than as standard. Y was killed in an auto accident August 22, before the policy was issued. In this case, the insurance company will:

Issue the policy anyway and pay the face value to the beneficiary *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.

All other factors being equal, what would the premium be like in a survivorship life policy as compared to the premium in a joint life policy? A. As high B. Half the amount C. Lower D. Higher

C. Lower * Suvivorship Life is much the same as Joint Life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life

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

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. Conditional B. Contingent C. Aleatory D. Unilateral

A. Conditional *A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? A. Consideration B. Legal Purpose C. Contract of adhesion D. Acceptance

A. Consideration *Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.

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

A. It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance.*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.

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

A. Signed Waiver of premium*The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a Statement of Good Health from the applicant at the time of policy delivery. Waiver of Premium is a rider that can be added to a life insurance policy, and not something to be obtained from the applicant.

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

B. Inspection report *Inspection reports cover moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies. Companies that use inspection reports are subject to rules outlined in the FCRA.

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 *The term "illustration" means a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years.

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

C. Standard risk is representative of the majority of people *Standard risks are representative of the majority of people in their age and with similar lifestyles. They are the average risk.

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant A. Upon issuance of the policy B. Within 30 days after the first premium payment was collected C. Prior to filling out an application for insurance D. With the policy

D. With the policy *If a life insurance policy contains a free-look period of at least 10 days, 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.

If a policy includes a free-look period of at least 10 days, the Buyer's guide may be delivered to the applicant A. With the policy B. Upon issuance of the policy C. Within 30 days after the first premium payment was collected D. Prior to filling out an application

A. With the policy * If a life insurance policy contains a free-look period of at least 10 days, 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.

A producer 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. Disclose commissions earned from the sale of the policy * A producer must explain policy provisions, exclusions, and riders at the time of delivery, as well as the rating procedures, especially if the policy is rated differently than applied for. The producer must also collect any due premium and have the insured sign the statement of continued good health.

Which of the following statements regarding HIV testing for insurance purposes is NOT true? A. The testing practices must meet the criteria of the U.S. Department of Health and Human Services. B. HIV testing is regulated at the state level C. Insurers are barred from requesting HIV testing D. Positive test results will be forwarded to the state's Department of Health if a physician is not selected by the applicant.

C. Insurers are barred from requesting HIV testing. *It is common for insurers to require HIV testing when an applicant seeks a policy with a large face amount. The insurer must abide by a variety of rules created by its respective state.

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 *Any unanswered questions need to be answered before the policy is issued. If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived its right to have an answer for the question, and will not be able to deny coverage late because of unanswered questions.

An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin? A. On the designated effective date B. On the application date C. When the agent submits the application to the company and the company issues a conditional receipt D. When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable statement of good health

D. When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable statement of good health. *If the initial premium is not paid with the application, the agent will be required to collect the premium at the time of policy delivery. In this case, the applicant will most likely need to fill out a Statement of Good Health.

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

Which of the following types of risk will result in the highest premium? A. Substandard risk B. Standard Risk C. Preferred risk D. All risks pay equal premiums

A. Substandard risk *The "substandard" rating indicates that an individual represents an under-average insurance risk because of physical condition, personal or family history of disease, occupation, habits or hobbies. This rating incurs the highest premium if policy is issued.

Which is the appropriate action by the insurer if a prospective insured submitted an incomplete application? A. Issue a policy anyway since the application has been submitted B. Ask the producer who solicited the policy to complete and resign the application C. Fill in the blanks to the best of the insurer's knowledge D. Return the application to the applicant for completion

D. Return the application to the applicant for completion *Any unanswered questions need to be answered before the policy is issued. If the insurer receives incomplete applications, they need to be returned to the applicants for completion.

The responsibility of making certain that an application is filled out completely, correctly, and to the best of his or her own knowledge is the responsibility of whom? A. The beneficiary of the applicant B. The insurance company D. The applicant D. The producer

D. The producer *It is the responsibility of the producer (agent) to make sure an application for insurance is filled out correctly

What is the purpose of a conditional receipt? A. It is intended to provide coverage on a date earlier than the date of the issuance of the policy B. It guarantees the applicant the policy will be issued in the amount applied for in the application C. It serves as proof that the agent has determined the applicant to be fully insurable for coverage by the insurance company D. It is given by the agent only to applicants who fully prepay all scheduled premiums in advance of policy issue.

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

Which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount? A. Universal life B. Flexible life C. Variable life D. Adjustable life

A. Universal life *The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.

In comparison to consumer reports, which of the following describes a unique characteristic of investigative reports? A. The customer has no knowledge of this action B. The customer's associates, friends, and neighbors provide the report's data. C. They provide additional information from an outside source about a particular risk D. They provide information about a customer's character and reputation.

B. The customer's associates, friends, and neighbors provide the report's data *Both consumer reports and investigative consumer reports provide additional information from an outside source about a customer's character and reputation, and both types of reports are used under the Fair Credit Reporting Act. The main difference is that the information for investigative consumer reports is obtained through an investigation and interviews with associates, friends, and neighbors of the consumer.

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 report * Consumer reports include written/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.

Which of the following is a risk classification used by underwriters for Life Insurance? A. Normal B. Excellent C. Standard D. Poor

C. Standard*The three ratings classifications that denote the risk level of insured are standard, substandard, and preferred. This classification system helps insurers to decide if an insured should pay a higher premium.

Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information contained in his or her report, the reporting agency must A. Respond to the consumer's complaint B. Defend the report if the agency feels it is accurate C. Change the report D. Send an actual certified copy of the entire report to the consumer

A. Respond to the consumer's complaint *The consumer has the right to request the information on the report, the reasons for turn down and any adverse underwriting decisions. The reporting agency is required to respond to the consumer's complaint, and, if necessary, to reinvestigate the report.

The insurer discovered that one of the applicants for life insurance missed a couple of questions on the application. What should the insurer do with the application? A. Return to the applicant for completion B. Answer the missed questions for the applicant C. Acknowledge the missed questions with a signature and continue the policy issue process D. Proceed with issuing a policy

A. Return to the applicant for completion. * Any unanswered questions need to be answered before the policy is issued. If the insurer receives incomplete applications, they need to be returned to the applicants for completion.

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

D. Premium amounts and surrender values *A policy summary must be delivered along with the policy and will provide the producer's name and address, the insurance company's home office address, the generic name of the policy issued, and premium, cash value, surrender value and death benefit figures for specific policy years.