Practice questions for insurance test

all of the following are not examples of an insurable interest except: a. John wants to take out life insurance on his assistant after learning about their hobby of sky diving b. jamie wants to take out life insurance on her best friend because she enjoys driving fast cars c. Annie wishes to take out life insurance on her next door neighbor who cannot afford to pay d. Cedric wants to take out life insurance on his wife to help take care of his 13 children in the event of her death

C. Explanation: there is no insurable interest in the other answers.

insurance contracts have certain unique features that differentiate them from other type of contracts. With, insurance the term consideration refers to: a. the premium paid and the statements made on the application b. the underwriting methods the insurers uses to evaluate the application c. the consideration given is the insurer's promise to pay benefits. d. both a & c

D. both a & c

b. the applicant must provide a list of the sources and give permission to contact them. c. the primary source of information used in underwriting will be the application. d. the Medical Information Bureau (MIB) will contact the applicant for additional information.

The signed application is the primary source of underwriting information. A consumer report, while another source of information, is not routinely requested, nor is a list of potential sources to contact. The MIB is a clearinghouse for information and does not contact applicants for any information.

Frances owns a health policy with a monthly premium due date of the 1st of each month. Frances has paid her premium on the 15th of each month for the last 2 years and the insurer has accepted them without any penalty. This is an example of:

a waiver

As an insurance producer, you will have many responsibilities toward your customers. All of the following are NOT responsibilities of the producer EXCEPT: a. Review and explain the coverage after policy issue b. Mail the policy to the policyowner with a thank you note c. Pay the initial premium for the insured if needed to meet a sales goal deadline d. File the policy in the customer's folder at your office until he/she comes by

a. The question is asking which of the answers IS a responsibility of a producer. Be careful with double negative questions. Producers should explain and review the policy with the policyowner after it is issued.

All of the following statements regarding the risk classifications are correct EXCEPT: a. If your policy is issued as a substandard risk, you will have lower premiums than if your are issued as a standard risk. b. If your policy is issued as a preferred risk, you will have lower premiums than if your are issued as a standard risk. c. If your policy is issued as a standard risk, you will have lower premiums than if your are issued as a substandard risk. d. If your policy is issued as a preferred risk, you will have lower premiums than if your are issued as a substandard risk.

a. explanation: If your policy is issued as a substandard risk, you will have higher premiums than if your are issued as a standard risk.

It is a producer's responsibility to disclose information about the policy and the underwriting process to an applicant. Which of the following is the best way to do this? a. Deliver, review, and obtain a receipt for the Buyer's Guide during the presentation. b.Review a disclosure letter during the presentation. c.Mail a disclosure prior to the appointment. d. Deliver, review, and obtain a receipt for the Buyer's Guide at policy delivery.

a. explanation:The Buyer's Guide, containing policy information and underwriting information, should be provided during the presentation. The disclosure letter is mailed after the presentation. Disclosure information should be provided prior to policy delivery.

Who has control over the cash value in a life insurance policy? a. The policyowner b.The insured c. The insurance company d. The applicant

a. Explanation The cash value is owned by the policyowner.

Thomas, Daniel and Rhonda are equal partners in a partnership worth $150,000. They decide to arrange an insured cross-purchase buy-sell agreement. Which of the following statements regarding this arrangement is correct? a. Thomas will purchase and maintain a 25,000 life insurance policy each on the lives of Danial and Rhonda. b. The partnership will purchase and maintain a 50,000 policy on each of the partner's lives. c. If Thomas dies, Daniel and Rhonda will each have a partnership interest of 50,000 d. each individual partner must purchase and maintain a 50,000 policy on each of the other partner's lives.

a. Explanation a cross-sell agreement is an agreement between individual partners in which the surviving partners buy the interest of the deceased partner at a price stipulated in the contract.

A renewable term policy guarantees the insured which of the following? a. The right to continue the policy up to a specific age or date as long as premiums are paid b. To convert the policy to a cash value policy a face amount increase of 150% c.Level premiums for 20 years d. Lifetime protection

a. Explanation: The insured is guaranteed the right to continue the policy up to a specific age or date as long as premiums are paid.

All of the following elements are necessary for the formation of a legal contract except: a. a written contract b. compentent parties c. consideration d. legal purpose

a. a written contract

Troy had paid six years of premiums for his life insurance policy at the time he was killed. the insurance company paid 500,000 dollars in life insurance benifts to his wife. This is an example of a: a. aleatory contract b. contract of adhesion c. unilateral contract d. excutory contract

a. aleatory contract explantion: one of the characteristics of an insurance contract is that the exchange of values may be unequal. The amount of death benifits far exceeded the total amount of premium that was paid

A contract that includes conditions that must be satisfied before any of the parities to the contract are expected to perform is called a? a. conditional contract b. personal contract c. uniliateral contract d. aleatory contract

a. conditional contract.

Tampa Assurance Company doing business in Florida would be considered what type of company in Florida? a. domestic b. foreign c. alien d. international

a. domestic

A producer for BIG Insurance Company has a provision in his producer contract that gives him authority to use the company logo on his stationary and business cards. This is an example of : a. express authority b. apparent authority c. implied authority d. legal authority

a. express authority

who does a licensed agent legally represent in an insurance transcation? a. insurer b. insured c. department of insurance d. NAIC

a. insurer

What is implied authority?

authority given to the producer by the insurer that is not formally expressed or communicated

A contract where only one party makes enforceable promises is called: a. a contract of adhesion b. a unilateral contract c. a conditional contract d. an aleatory contract

b.

Joe completes a life insurance application on June 3 and receives a conditional receipt from his agent. Joe dies on June 10 from injuries sustained from an auto accident. Which of the following statements is correct? a. If Joe did not purchase the policy with an accidental death benefit rider, no benefits will be paid. b. If Joe would have been approved as applied for, his beneficiaries will receive the full death benefit. c. No benefits will be paid since the policy had not been approved. His estate will receive a full premium refund. d. If Joe would have been approved as applied for, his beneficiaries will receive a partial death benefit.

b.

Insurers underwrite life insurance risks using a number of factors. Which of the following would have the lowest premium? Assume that all will qualify as a standard risk. a. Robert who is age 31 b. Susan who is age 31 c. Joe who is age 50 d. Mary who is age 50

b. explanation: Age and gender will factor in if all other consideration are equal. The youngest female would have the lowest life insurance premium.

Which of the following statements regarding a conditional receipt is correct? a. It is given when the application is completed. b. It is given only if the initial premium has been submitted with the signed application. c. It is given at the time of policy delivery. d. It is given pending acceptance by the applicant of additional riders.

b. explanation: The conditional receipt means that if the coverage is accepted as applied for and an initial premium is submitted with the application, the policy will be in force from the date the application is signed. The receipt is not provided simply by completing the application. At the time of policy delivery, the policy has been approved and coverage is not conditional. It is also not given pending acceptance of additional riders and changes in the policy.

A primary consideration as to occupational risk in the underwriting of health insurance is: a. length of employment. b.type of employment. c. past work experience. d. financial history

b. explanation: There are 2 major considerations regarding occupational risk when underwriting health insurance: one is the probability of disability; the other is the average severity of disability. Thus, the type of employment one is engaged in and the classification it is given is very important.

If a premium payment has not been given with the application, the policy becomes effective only when the producer delivers the policy and: a. explains its provisions and leaves a receipt for policy delivery. b. explains its provisions and obtains the initial premium and a signed statement of continued good health. c. explains its provisions and provides a conditional receipt. d. obtains a signed application and statement of continued good health.

b. explanation: When the initial premium has not been paid at the time of application, in addition to other delivery requirements, the producer must obtain a statement of continued good health along with the first premium. The signed application must be submitted at the time of application, not policy delivery.

which of the following statements pertaining to key-person life is correct? a. the insured key person controls the policy. b. the policy is a company-owned asset. c. at the death of the key person, proceeds are paid to his or her beneficiary d. the owner of a company cannot be considered a key person.

b. explanation: key person insurance is insurance purchase by the company on the life of an employee or employees whose loss would have adverse effects on the company.

Joe and Jane, both insureds, purchased a life policy that will pay a death benefit upon the first death. Joe and Janie purchased a: a. Spousal policy. b. Joint life policy. c. Whole life policy. d. Survivorship life policy.

b. By definition, a Joint life policy is one which pays the full face amount upon the death of the first insured.

Tampa Assurance Company doing business in Texas would be considered what type of company in Texas? a. domestic b. foreign c. alien d. international

b. foreign

Insurance contracts require that for you to purchase life insurance, you must have an insurance interest in the insured. Which of the following would be considered an insurable interest? a. the policyowner is expect to suffer financially if a loss occurs. b. the policyowner is expected to suffer finanically if a loss occurs c. the beneficiary must be expected to benefit from a loss d. the policyowner must be related to the insured.

b. the policyowner is expected to suffer financially if a loss occurs

Two insurance principles used in the construction and execution of insurance contacts are: a. offer and acceptance and exchange of consideration b. utmost good faith and the doctrine of reasonable expectations c. waiver and estoppel d. expressed and implied authority

b. utmost good faith and the doctrine of reasonable expectations

Joe recently purchased a life insurance policy on his life and is scheduled for his medical exam 3 days later. Which of the following statements is correct concerning Joe's application? a. If Joe received a conditional receipt, his policy becomes effective immediately. b. If Joe received a conditional receipt, his policy goes into effect after his application is approved by the company. c. If Joe received a conditional receipt, his policy becomes effective after his medical exam is completed, if the insurance company ultimately approves the application as applied for. d. If Joe did not received a conditional receipt, his policy becomes effective after his medical exam is completed.

c. explanation: A conditional receipt is given after the application is completed and signed by all parties. The initial premium has been paid and is sent the the company for underwriting. If the application is accepted as applied for, the coverage is effective as of the date of initial payment, or the time on which the last of requirement has been completed, such having the health examination performed.

oe and Jane purchased a new home with a new mortgage. Since they are on a tight budget, Jane is concerned that she would not be able to make the mortgage payments if Joe were to die prematurely. Which of the following policy types would you recommend to Joe and Jane? a. Level term b. Universal life c. Decreasing term d. Whole life

c. Explanation Decreasing term insurance provides high levels of life insurance initially and then decreases with age. It is often used as mortgage protection life insurance, targeted to decrease along with your mortgage balance. If the insured dies before the mortgage is paid, the insurance will pay the balance.

Joey is a 25 year old CPA and wants to purchase a policy that grows cash value quickly. Which of the following policy types would you recommend for Joey to purchase? a. Whole life b. Straight Life c. 20-Pay Whole life d. 20 year level term

c. This contract is based on paying premiums for a certain number of years or to a stipulated age.

Your obligations that are contained in your agency contract would be considered: a. apparent authority b. implied authority c. expressed authority d. legal authority

c. expressed authority

under the laws of agency, which of the following is correct? a. the agent is the principal b. the company is the agent c. the producer is the agent and the company is the principle d. the producer is the principle and the company is the agent

c. the producer is the agent and the company is the principal

This insurance principle states that both the applicant and insurer have a responsibility to be completely honest with each other a. formal offer and acceptance b. reasonable expectations c. utmost good faith d. legal purpose

c. utmost good faith

Joe sells insurance for Large Insurance Company only. Joe would be considered what type of insurance producer? a. independent producer b. direct response producer c. captive or exclusive producer d. mga producer

captive or exclusive producer

When meeting with an applicant for health insurance, an insurance producer notices a pack of cigarettes in the applicant's shirt pocket, even though the applicant says he has been a nonsmoker for 10 years. Which of the following best describes the producer's responsibility? a. Ignore the fact, since it is the insurer's responsibility to identify such information. b. Insist that the applicant change his response to the question on the application. c. Change the answer on the application after the appointment. d. Provide an agent's report to the insurer explaining what he observed.

d. explanation: A producer's responsibility as a field underwriter is to observe situations that may not be detected by the home office underwriting department and report these findings to the insurer. Asking an applicant to reconsider an answer to a question on the application is allowable, but up to the judgment of the producer; he is not obligated to do so. It is illegal for a producer to change a response on a signed application as it is wrong to ignore what you have observed.

Joe purchased a 20-pay life policy when he was age 30. What will happen when Joe is age 50? a. The policy pays Joe an income stream for the remainder of his life b. The policy endows c. The policy ends d. The policy becomes paid up for life

d. This contract is based on paying premiums for a certain number of years or to a stipulated age. For example, a 30 year old purchases a 20-pay life policy. The policyowner will pay premiums until age 50.

With a proper or casualty policy, an insurable interest must exist: a. at the inception of the contract b. as long as the insured lives c. at the insured's death d. at the time of claim

d. at the time of claim

Insurance sold through mass media advertising, typically with the customer responding by calling an advertised telephone number to purchase coverage, describes what type of distribution system? a. direct writer b. internet system c. franchise system d. direct response

d. direct response

which of the following does not follow the principle of indemnity? a. compensatory damages b. special damages c. general damages d. punitive damages

d. punitive damages

What are punitive damages?

damages that are intended to punish the offender and discourage others from repeating the same offense