AD Banker Chp 2
If a copy of the application, which led to a life insurance policy being issued, is attached to the policy: A It is considered part of the entire contract B It is a way for the insurer and policyowner to evidence who the producer was at the time of application C It can be used by the insurance company later on if the insured wants to increase their coverage instead of using a new one D It is provided merely as a convenience to the policyowner so that they will have a record of the transaction
A. If a copy of the application is attached to the policy it becomes part of the entire contract and information contained within or left out can be the basis upon which the insurance company can challenge a claim during the contestable period.
All of the following are things a producer should do when meeting with the client after the policy has been issued, except:
Disclose the amount of commission earned on the sale The producer should explain the policy to be sure the client understands the benefits, including any ratings, endorsements, and riders.
In a replacement transaction, the insurer that is having its policy replaced is known as the _______ insurer.
Existing The existing insurer is the insurer who has a policy subject to replacement.
Medical exams are requested in all of the following situations, except:
Low amount of premium Medical examinations are usually requested by the insurer after determining if the amount of coverage, age of applicant, or his/her health history warrants the examination. Premium has nothing to do with it.
In a STOLI/IOLI transaction, what are the insureds basically doing?
Selling their mortality to another for up-front cash
If a medical exam is required as part of the underwriting process, who normally conducts the exam?
A physician or nurse Physicians, nurses, or paramedics are the ones who conduct medical exams which may include blood tests, urine tests, EKGs, and medical histories among other things.
A (an)_________ is used when the insured's age, medical history, or amount of coverage does not require a medical exam for underwriting purposes.
Nonmedical application A nonmedical application is used when the insured's age, medical history, or amount of coverage does not call for a medical exam.
The National Do Not Call Registry requires companies to update their list at least once every ______ days.
31
Confidential information shared by the producer to the insurer and does not become part of the policy is the __________.
Agent's Report An agent's report is a personal statement submitted by the producer to the insurer about information the agent would like to share with the insurer on a confidential basis that they may have learned during the application process while at the applicant's home or place of business.
The human life value approach in determining the amount of life insurance someone needs takes into consideration all of the following, except: A Occupation B The number of cars the insured and family members own C Personal and financial information D Planned retirement age
B. Number of cars The human life value approach takes into consideration the individual's age and gender, the individual's occupation, the individual's annual wage and employment benefits, and the individual's planned retirement age.
Which of the following is not a factor in premium determination? A Interest B Expenses C Reserves D Mortality
C Premiums are based on expected mortality, interest, and expenses.
Interest earned on premiums paid to an insurer helps to ________ the premiums charged. A Standardize B Increase C Lower D Stabilize
C. Lower Interest earned on premiums assists in premium rate reduction.
The insurance company must meet requirements under the _____ when gathering information about an applicant from a third party. A FINRA B NAIC C FCRA D SEC
C. FCRA The insurance company must meet requirements under the FCRA when gathering information about an applicant from a third party.
J buys a life insurance policy specifically intending for the death benefit to be used to cover estate taxes. What is the correct term for using life insurance in this way?
Estate conservation Using life insurance proceeds to pay estate taxes is a means of "conserving" the estate for the heirs.
In a replacement transaction, the insurer that is having its policy replaced is known as the _______ insurer.
Existing
The term 'mode' refers to the:
Frequency of premium payments Mode refers to the frequency of premium payment, such as monthly or annually.
Applicants must consent to be tested and be informed that testing for ________ may determine insurability.
HIV Applicants must consent to be tested for HIV and be informed that testing for HIV may determine insurability.
When an insurer accounts for the interest and mortality factors, then adds additional charges to meet all costs of a contract, it derives __________.
The gross premium Insurer expenses (loading) are added to the net premium rate to enable an insurer to meet all costs under the contract, such as operating costs, commissions, medical examination costs, etc.
What information must appear on the policy summary provided to a life insurance client?
The producer's name and address The producer's name and address along with the address of the insurance company must appear on the policy summary.
If an applicant is a minor, who signs the application?
Their guardian
When are Errors and Omissions claims filed?
When clients file a report or a complaint Claims are filed due to client reports (complaints) and for a number of reasons, including negligence or inadequacy.
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 Only a policy summary requires that the producer disclose their name and address.
How does life insurance reduce financial loss upon the insured's death?
By transferring the risk to the insurer For a premium, the applicant can transfer a specific dollar amount of risk to the insurer, thereby reducing but not eliminating the entire risk.
In order to receive a stock dividend, the policyowner must own ____________. A Variable universal life B Common stock of the insurer C Equity indexed life D Variable life
B. Stock dividends are paid to common stockholders when declared by the board of directors.
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 Meet the applicant at a local coffee shop where there will be plenty of eyewitnesses to the delivery B Obtain a policy delivery receipt from the applicant whenever and wherever policy delivery takes place C Have an applicant's family member take a picture of the applicant receiving the policy from the producer D Have the applicant stop by the producer's office where agency workers can personally witness the delivery
B. The standard industry practice and the one most practical is to have the producer obtain a policy delivery receipt when the policy is delivered.
The mortality rate is based on mortality tables which show life expectancy and the death rate per _______ people living in the U.S. A 100,000 B 100 C 10,000 D 1,000
1,000 Mortality tables show the death rate per 1,000, similar to how policy premiums are based on, a rate per $1,000 of coverage.
A generic brochure developed by the NAIC to provide consumers with descriptions of basic types of life insurance as well as the comparative costs of each is called the _______.
Buyer's Guide It is required that prospective life insurance buyers receive the NAIC Buyer's Guide to assist them in their life insurance purchase decision.
When an insured decides to change her mode of premium payment from monthly to annually, the total premium due would:
Decrease Additional charges are included in modes other than annual to offset the lost interest earnings and increased administration costs. For this reason, the annual mode is the least amount of total premium outlay.
Which of the following would be considered a good result from an underwriter's action when an individual Life Insurance Policy is issued as applied for?
Issued standard To be issued standard is the most favorable action listed, as the coverage requested is issued at the rate that was quoted.
The needs analysis approach in determining the amount of coverage someone needs takes into consideration all of the following, except:
Receiving raises and bonuses by the insured over the years The needs analysis approach considers debts, medical bills, final expenses, spousal lifetime income, mortgage retirement, children's education funds, and possibly an emergency fund.
In a replacement sale all of the following are producer responsibilities, except:
Reimburse the applicant for any surrender charges that may be incurred as a result of the transaction Reimbursing the applicant for any surrender charges that may be incurred is not permitted, but may indicate an improper replacement.
Expense loading ___________ from company to company.
Varies Expense loading is a cost area that can vary from company to company based on its operations and efficiency. These factors are used by all insurers.
All of the following activities could cause an insurance purchase to be treated as a STOLI, except: A Change the policy ownership and beneficiary designations B Keep paying policy premiums until the insured dies, and then file a claim C Fill out the application for life insurance on behalf of the insured D Pay for the policy they acquire from the policyowner
C After the investors have paid for the policy, they will change the ownership and beneficiary designations. The investors will also have to pay premiums to keep the policy in force. Upon death of the insured the investors will file a claim for the death benefit.
An applicant's signature on an application indicates what? A That the statements made are guaranteed to be true in all respects B That it is up to the insurer to discover the truth C That their statements are true D That the producer had coached them through the process
C. The applicant is representing that statements on the application are true to the best of their knowledge and belief.
If a client is unsure about whether or not he/she can obtain coverage or how much it would cost, what can the producer suggest to see what the insurer can do without tying up any of the client's funds? Submit a trial application B Issue a binding receipt C Submit a term life application D Submit a whole life application
Submit a trial application A trial application is one submitted without a premium. The policy would not take effect until the policy is issued by the insurer, delivered by the agent, and the premium is paid. It is used when insurability and pricing are in doubt.
A life insurance applicant pays the initial premium at the time of application and receives a Conditional Receipt. If coverage is issued as applied for, when did coverage go into effect?A The date of the application or upon the completion of any required medical exam (whichever is later) B The date the policy was issued C The date the policy was delivered D The day the check clears the bank
The date of the application or upon the completion of any required medical exam (whichever is later) In the case of a Conditional Receipt, the coverage is effective as of the date of the application or upon the completion of any required medical exam, unless it is declined within a stipulated period.
A(n) ________ report is a general report of the applicant's finances, character, morals, work, hobbies, and other habits. A Inspection B Motor vehicle C Attending physician's D Agent's
A An Inspection Report is a general report of the applicant's finances, character, morals, work, hobbies, and other habits.
The date on which insurance coverage is no longer in effect is referred to as the _________ date. A Expiration B Policy C Renewal D Conversion
A The expiration date is when insurance coverage ends.
There are ______ methods available to determine the income objective after the death of the client for planning purposes. A 2 B 5 C 3 D 4
A. The two methods are the capital liquidation and the capital retention/conservation approaches.
When a producer receives an application for life insurance that is completed and signed, but without premium payment, when does coverage start? A On the date the policy is delivered and premium collected B On the date the application is received C 30 days after the application is received D At the end of the free-look period
A. On the date the policy is delivered and premium collected The policy will go into effect upon delivery and collection of the premium. No contract is effective until both parties have provided the required consideration.
What should a producer do if the policy applied for is issued at a higher rate than was expected? A Deliver the policy to the applicant and have the home office reduce the commission payout to cover the higher premium B Personally deliver the policy, explain the rating, reinforce the value of the policy, and collect the additional premium C 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 D Immediately return the policy to the home office because the applicant will never accept it
B. By personally delivering the policy the producer can explain the rating, reinforce the value of the policy and obtain any home office requirements such as signatures and additional premium in order to put the policy in force.
Under what circumstances should the producer obtain a statement of good health?
If no premium was paid at time of application and the policy is now being delivered The producer must also get a Statement of Good Health from the applicant/insured at the time of policy delivery that verifies that the insured has not suffered injury or illness, had any surgeries, or been admitted to a hospital since the application date.
Debit life insurance is classified as which of the following?
Industrial Debit life insurance is classified as industrial life or home service life insurance.
The burden of proof falls on the _________ to establish issued policies were in fact delivered to the applicant.
Insurer The insurer has the burden of proving that an issued policy was delivered.
Which of the following best describes 'Capital Retention/Conservation' in an effort to meet an income objective?
Investment earnings are paid out In a capital retention/conservation strategy only the investment earnings are paid out the principal is retained or conserved for future purposes. Each payment would fluctuate as it would be based on the earnings and no principal would be used to make up for any shortfalls.
B was 42 when the life insurance policy was issued. 42 is referred to as the ______ age of the policy.
Original The issue (original) age of the insured is the age on the policy issue date. The attained age is the insured's age at any point in time typically used at renewal or conversion. The effective date is the date when insurance coverage begins, and the expiration date is the date in which insurance coverage ends.
Which of the following is included in Part I of a Life Insurance Application?
Part I of the application contains general questions about the applicant, such as gender, marital status, residence, date of birth, occupation, and past and present life insurance.
What is the primary reason why States have 'outlawed' Stranger/Investor Originated Life Insurance (STOLI) transactions?
At policy inception there is a lack of insurable interest If a policy is issued without proper insurable interest it becomes a wager contract which is prohibited by State insurance law.
The name used to indicate the insured's age at time of policy renewal is the ________ age.
Attained
Which of the following best describes 'Capital Liquidation' in an effort to meet an income objective? A Investment earnings are paid out B Principal is paid out C Principal and earnings are paid out D Principal is paid out but investment earnings are reinvested
C. In a capital liquidation strategy both principal and earnings are paid out over the anticipated time period in order to meet the income objective. Each payment would be the same as any investment earnings shortfall would be offset by principal liquidations.
Which of the following best describes producer field underwriting? Obtaining the applicant's medical records, conducting a credit history check, and logging in to the MIB B Interviewing the applicant's neighbors about the applicant's morals and character C Taking the time to probe beyond the stated questions on the application based upon the applicant's responses D Conducting blood pressure readings, taking the applicant's pulse, and drawing blood
C. Probing beyond the stated questions in the application based upon the applicant's responses is field underwriting. The producer does not engage in any of the other listed activities.
Which of the following is a policy not issued with a rating? A Lien Plan B Flat Rate C Preferred Rate D Tabular Rate
C. Preferred Rate Individuals who meet certain requirements and qualify for lower premiums, such as ideal health, height, and weight, are issued at preferred rates. Substandard Risks (Higher Risk Exposure) Individuals who are not acceptable at standard or preferred rates because of health, habits, or occupation, and are issued 'rated policies.'
When an applicant completes the insurance application in its entirety and provides the producer with a premium check, what in effect has taken place? A The applicant is accepting the producer's offer of coverage B The applicant has given the producer the authority to negotiate the terms of the contract with the insurer C The applicant is making an offer to the insurer D The producer is making an offer of insurance to the applicant
C. The applicant is making an offer to the insurer When an application accompanies the initial premium, the applicant is making an offer to the insurer. Before acceptance can take place, an offer must first be made. The insurer accepts the offer when the policy is issued.
In a replacement transaction, all of the following are insurer duties and responsibilities, except:
Contact the client to assure that they understand the transaction The Replacing Insurer's responsibilities include: upon receiving proper notification with the new application, the replacing insurer must notify the existing insurer of the planned replacement, maintain copies of the information regarding replacement for a specified period of time as mandated by the state.
________ insurance policies do not pay dividends to policyowners. A Participating B Risk retention C Reciprocal D Nonparticipating
D Participating policies pay dividends, a refund of excess premiums. Mutual companies may issue participating policies. Nonparticipating policies issued by Stock companies do not pay dividends to policyholders.
All of the following are true of the group life insurance classification, except: A Coverage may be changed only within the Master Contract held by the employer, creditor, or association B The amount of coverage can be for a fixed amount or based on a multiple of earnings C Upon separation of service from an employer plan, the employee has the right to convert to a permanent plan without evidence of insurability D The coverage is usually written on a permanent basis providing a cash value as well as a death benefit
D. In group life insurance, the coverage is normally written on a renewable term basis providing no cash value or living benefits as are found in individual cash value policies.
All of the following are characteristics of Term Insurance, except:
High premium outlay in the early years Term Insurance is characterized by a low initial premium outlay when the insured is young and increases as the insured's age advances.
Ultimately it is up to the _______ to determine if the proposed insured is an acceptable risk.
Home office underwriter It is ultimately up to the insurer's home office underwriter to determine whether or not the insured is an acceptable risk or not and at what rate classification.
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.
Human Life Value The Human Life Value Approach concerns itself with the replacement of future earnings and the value of the insured's services in the event of premature death.
Which of the following types of policies is eligible for policy dividends?
Participating Insurance is either permanent or temporary. Examples of permanent insurance are Whole Life and Endowments, etc. Term is temporary insurance. Participating policies are issued by mutual companies and are eligible for policy dividends if and when declared by the company's board of directors.
The individual who has the ownership rights of a policy is called the:
Policyowner Typically, the owner, insured and applicant would be the same person, but not always, as in the case of third-party ownership (e.g. juvenile policies, key person policies, etc.) In this case, even though the owner is not the insured, he or she still controls every right that the policy affords.
On the day a newly-issued policy was to be delivered and the initial premium collected, the producer discovers that the insured is in the hospital with a heart condition pending surgery. What should the producer do?
Return the policy to the insurer with a letter of explanation Producers must return the policy to the insurer if they know that the insured's health status has materially changed since the time of application.
