Americas's Professor L&H CH.1-7 Quizz review questions

Chad owns a $100,000 Life policy with a Double Indemnity Rider. He accidentally runs into a boat and is killed instantly. How much will the Insurer pay?

$200,000

Carl owns a $250,000 Life policy with a Triple Indemnity Rider. While running a marathon he suffers a fatal heart attack. How much will the Insurer pay?

$250,000 The Insurer will pay the face value of the policy ($250,000) only because Carl died of natural causes, not an accident. The Triple Indemnity Rider would have paid $750,000 had Carl died from an accident .

John and Carol are a married couple in their early twenties. John has worked full time at the local factory for 3 years. It is his first job. John is killed in a tragic golfing accident. Carol is eligible for which of the following: Select one: a.John's retirement benefits, but not until age 65. b.A single lump sum survivor benefit of $255. c.A monthly check in the amount of John's PIA. d.Enrollment in Medicare.

A single lump sum survivor benefit of $255. Until one has worked for 10 years (40 quarters), the only Social Security benefit is the burial benefit. The Social Security payments for the first 10 years really are used to fund benefits for others who have worked longer than 10 years. Sorry John and Carole, that is the way the system is designed.

Which of the following statements regarding AD&D Insurance is CORRECT? Select one: a.AD&D policies do not provide death benefits, just dismemberment benefits. b.AD&D policies cover accidents only, NOT sickness. c.AD&D policies are required to be added to all Life policies. d.AD&D policies are reimbursement contracts.

AD&D policies cover accidents only, NOT sickness. Perfect - and a big deal on the exam!

Who sells insurance to a client and owes a fiduciary duty to an insurance company?

Agent

Offer plus acceptance equals?

Agreement.

Under an insurance policy, either the Insurer or the Insured may receive disproportionate payment under the concept of: Select one: a.Adhesion b.Conditional c.Aleatory d.Unilateral

Aleatory The insurance exam is overflowing with trivia like this. Insurance policies are an example of a situation where unequal payment may occur - either party may pay far more than it receives. This type of contract is referred to as aleatory. The video covers these terms so that you don't need to memorize them - you will "recall them when you see them" on the exam.

The Fair Credit Reporting Act: Select one: a.Prohibits Insurers from obtaining credit reports without consent of the applicant. b.Allows consumers to insert a corrective statement in a consumer report. c.Requires Insurers to provide the applicant with copies of all reports. d.Allows an Insurer to obtain consumer investigative reports without notifying the applicants.

Allows consumers to insert a corrective statement in a consumer report. We all have the right to insert a corrective statement in our consumer reports. The Fair Credit Reporting Act also gives us the right to contact the consumer reporting company to inquire about material in the reports. It is not, however, the Insurer who provides that information.

Each of the following statements regarding MIB (Medical Information Bureau) is correct EXCEPT? Select one: a.MIB information is supplied by member insurance companies. b.MIB was formed by member insurance companies. c.MIB is regulated by the Fair Credit Reporting Act. d.An applicant's MIB report may show the amount of insurance for which the applicant previously applied.

An applicant's MIB report may show the amount of insurance for which the applicant previously applied. MIB can't report the amount of insurance applied for or whether a policy has been issued.

Who can alter an insurance policy? Select one: a.An executive officer of the company. b.The agent.

An executive officer of the company. The agent has no authority to alter a policy - that can only be done by the company officials designated in the policy. This warns the consumer that the agent has no authority to make changes in a policy. This is found in the "Entire Contract Provision."

Which of the following statements is true concerning the agency relationship?

An insurance broker owes a fiduciary duty to the client.

Which of the following statements is true concerning the producer's agency relationship?

An insurance producer owes a fiduciary duty to an insurance company.

Ms. L applies for life insurance but does not make an initial premium payment. Her actions constitute? Select one: a.An invitation to negotiate for the purchase of life insurance. b.An offer to purchase life insurance.

An invitation to negotiate for the purchase of life insurance.

The premium mode which results in the greatest cost savings over the life of the policy is:

Annual Premium Of the answers available in this question, the greatest cost savings come with the Annual Premium. The fewer payments, the less expensive the insurance company's collection costs - and the company can invest that premium for a longer time. Even better would be a one-time, up-front payment - that would be the best in terms of cost savings for the policy owners.

Which of the following premium modes will result in the least total dollar outlay over the life of the policy?

Annually Although the Weekly premium mode would have the lowest individual premium payments, it would have the highest total dollar outlay over the policy's life. So, to save money in the long-run, "buy in bulk." The Annual Premium Mode will save you the most dollars over the life of the policy. It is less expensive for the insurance company to collect the policy once a year rather than on a more frequent basis.

The Simultaneous Death Act applies to the simultaneous death of the Insured and the:

Beneficiary

Underwriting involves each of the following activities EXCEPT: Select one: a.Placing an applicant in the appropriate rate group. b.Carefully investing premium dollars to achieve returns. c.Predicting future losses. d.Reviewing applicant information.

Carefully investing premium dollars to achieve returns. The insurance company's financial wizards invest the premium money. That isn't a task for which the underwriter has any training. Again, this is an "EXCEPT" question where we are searching for the false answer - something our brain doesn't want to do.

Each of the following statements regarding Social Security Retirement benefits is correct EXCEPT: Select one: a.A worker must have fully insured status to be eligible for retirement benefits. b.The benefit amount will vary if the worker retires early or late. c.Congress can change benefit levels. d.Retirement benefits will be reduced if the worker has retirement income from a company-sponsored retirement plan.

D. Retirement benefits will be reduced if the worker has retirement income from a company-sponsored retirement plan. The good news is that your Social Security retirement benefits are NOT reduced if you have a separate retirement plan. Your Social Security benefits may be taxed but they won't be lost simply because you have another retirement program.

An AD&D Rider will cover which of the following? Select one: a.Death in combat (for military only). b.Death by a sudden major heart attack. c.Death while on a regularly scheduled flight. d.Suicide.

Death while on a regularly scheduled flight. Death while on a regularly scheduled flight is the best answer. I am assuming that the cause of the death was the plane crashing. Although the could have been caused by flight attendant strangulation, that is probably not the case. As is true with many test questions, more information would be helpful but you won't get it!

The 10-Day Free Look provision is initiated by the:

Delivery Receipt The 10-Day Free Look provision is initiated when the policy becomes effective. In the list of answers, the only one that could indicate that the policy has become effective is the agent giving the applicant a delivery receipt when delivering the policy. Not a nice question. A key point that we will see later is that there is a Free Look provision with individual policies but not with group policies.

Each of the following is a factor in calculating gross premium EXCEPT: Select one: a.Interest. b.Risk. c.Expenses. d. Dividends.

Dividends.

Each of the following statements regarding noncontributory plans is correct EXCEPT? Select one: a.Each employee must be given the right to select individual benefit levels. b.The employer pays for the coverage. c.All eligible employees are automatically covered. d.The plan may use a probationary period to determine when the employee is eligible to participate in the group insurance.

Each employee must be given the right to select individual benefit levels.

Each of the following statements regarding the Fair Credit Reporting Act is true EXCEPT? Select one: a.FCRA allows consumers to dispute information within their Credit Report. b.FCRA requires Insurers to notify an applicant if a Consumer Investigative Report will be used. c.FCRA requires Insurers to share credit report information with the applicant. d.FCRA governs the Consumer Reporting Agencies that assemble information about consumers.

FCRA requires Insurers to share credit report information with the applicant.

A conditional receipt accomplishes each of the following EXCEPT?

Guarantees that the permanent policy will be issued.

Amy accidentally provided false information on an application. Before the policy was issued, she notified the agent of the mistake. What is the agent's proper course of action?

Have Amy correct the mistake and initial the change.

Under Social Security, a worker that is fully insured would be eligible for each of the following benefits EXCEPT: Select one: a.Disability benefits b.Survivor benefits c.Retirement benefits d.Hospital benefits

Hospital benefits Hospital benefits are paid under a health insurance coverage, such as under Medicare or Medicaid. Social Security does not provide for health coverage such as hospital expenses.

What does a Multiple Indemnity Rider do?

Increases the death benefit by a specified multiple if the death occurs as the direct result of an accident.

A risk management technique that transfers risk is: Select one:

Insurance. The only risk management technique in the list that actually transfers the risk to another is insurance. Although insurance will transfer some of the risk, it won't transfer all risk. An example of this is that the Insured under a property policy has to pay the deductible. But, as a very general rule, we can say that insurance involves the transfer of risk.

An applicant submits an application without the first premium payment. This constitutes a/an?

Invitation.

The Law of Large Numbers:

Is used to determine premiums based on historical loss figures. This is an example of how you are going to have to "process" the information you have learned by applying that information to a particular question. The test writers are constantly changing questions but rarely test on a new topic. So, we have to be flexible and quick on our feet so that we can recognize something that is stated in a new manner. By predicting losses based on historical figures, the Law of Large Numbers assists the Insurer in setting premium rates. You can do this!

Insurance:

It Decreases risk.

Each of the following statements regarding insurance is true EXCEPT: Select one: a.It involves the transfer of risk. b.It involves the Insured paying a premium to transfer all risk to the insurance company.

It involves the Insured paying a premium to transfer all risk to the insurance company.

Which of the following statements regarding an AD&D policy is CORRECT?

It provides a death benefit, so the Insured should name a beneficiary.

Which of the following statements regarding MIB is CORRECT? Select one: a.Medical information is supplied to MIB by the member insurance companies. b.MIB provides applicant financial information to Insurers. c.MIB provides a method for applicants to compare prices among various insurance company premiums. d.MIB provides applicant credit information to Insurers.

Medical information is supplied to MIB by the member insurance companies.

Molly changes her premium mode so that she makes her premium payments more frequently. Will this make her insurance more or less expensive each year?

More expensive

Which type of insurance company is owned by its policyholders? Select one: a.Stock Company b.Mutual Company

Mutual Company

Jack named his wife Nancy as the beneficiary under his life policy with their daughter Cassie as the contingent beneficiary. Jack's policy contained a Common Disaster Provision. Jack and Nancy were both in an accident. Jack died immediately and Nancy died 95 days later as a result of injuries suffered in the accident. The Insurer will pay the benefits under Jack's policy to which of the following? Select one: a.Cassie b.Nancy and Cassie will each receive 50% of the benefits. c.Jack's estate d.Nancy

Nancy Because Nancy lived longer than the 60 days required by the Common Disaster Provision, she will receive the death benefit under Jack's policy.

The creation of a contract requires each of the following elements EXCEPT?

Negotiation and notarization. At least from the Insured's side, there is no negotiation in an insurance transaction - which is why insurance policies are referred to as contracts of adhesion. The Insured is stuck with the the Insurer's terms in the contract. Also, there is no requirement that insurance policies be notarized by a notary public.

The creation of a contract requires each of the following EXCEPT? Select one: a.Agreement. b.Consideration. c.Negotiation. d.Legal purpose.

Negotiation.

The Fair Credit Reporting Act prevents the Insurer from: Select one: a.Using a consumer investigative report as the basis for denying the application. b.Obtaining a consumer investigative report without notifying the applicant. c.Using the consumer credit report as the basis for denying the application. d.Using the consumer investigative report as the basis for rating the policy.

Obtaining a consumer investigative report without notifying the applicant. This is a sneaky point under the Federal Fair Credit Reporting Act. FCRA requires the Insurer to provide advance notice if an investigative (inspection) report may be obtained. However, the Insurer doe NOT need to provide notice under FCRA if a mere credit report will be obtained. However, most insurance companies provide notice of both and state law may require notice of both. But FCRA only requires notice to be given if an investigative (inspection) report may be obtained. The exam is full of this kind of trivia. Be careful! Also, the question may be poorly written or written by an unsophisticated test writer.

Unilateral means:

Only one party to the contract makes a legally enforceable promise.

The time period one must be employed before becoming eligible for group Disability Income or Health Insurance is known as the:

Probationary period New Point: Unfortunately, "Probationary Period" and "Waiting Period" are used rather interchangeably in the insurance industry. Technically, a Probationary Period is the time period before an employee becomes eligible to purchase group insurance. After the policy becomes effective, there may be a further "Waiting Period" before coverage becomes effective or claims will be paid. This is very confusing because the terms don't have precise meaning in the industry and are often used differently from company to company. Think of new employees who are "on probation." They won't be eligible to purchase coverage until the end of the "Probationary Period."

The purpose of the Fair Credit Reporting Act is to: Select one: a.Provide fair and accurate consumer credit reporting. b.Ensure that all people are treated equally, regardless of credit background.

Provide fair and accurate consumer credit reporting.

An applicant was denied insurance based on information contained in his or her credit report. The applicant may: Select one: a.Receive the name and address of the consumer reporting agency from the Insurer. b.Obtain a copy of the report by making a request to the Insurer. c.Require that the Insurer disregard the credit report in the underwriting process. d.Sue the Insurer for violation of the Federal Fair Credit Reporting Act.

Receive the name and address of the consumer reporting agency from the Insurer. Under the Fair Credit Reporting Act, the Insurer never has an obligation to give the applicant a copy of the consumer report. The applicant should contact the consumer reporting company for that information. Thus, the Insurer must supply the applicant with the name and address of the consumer reporting company. Denying insurance based on a credit report is not a violation of FCRA.

Under the Fair Credit Reporting Act, the Insured is entitled to:

Receive the name and address of the reporting agency from the Insurer.

Sally wants to buy Life Insurance covering Mike. Which of the following statements is true?

Sally needs to have an insurable interest in Mike and obtain Mike's consent on the policy application.

A life insurance applicant gives consideration to the Insurer in return for?

The Insurer's promise to pay a claim.

Each of the following statements regarding the Fair Credit Reporting Act is correct EXCEPT? Select one: a.The applicant must be notified that the Insurer will be using a Consumer Investigative Report. b.The applicant has the right to request a copy of the Credit Report if an adverse underwriting decision is made. c.The applicant must give consent before an Insurer can access any consumer reports. d.The applicant has the right to demand that any mistakes in the credit report be investigated and corrected.

The applicant must give consent before an Insurer can access any consumer reports. Although an applicant must be notified before an inspection (investigative) report may be obtained, the Fair Credit Reporting Act does not require notice to be given to an applicant prior to obtaining the applicant's credit report (although many Insurers automatically wisely provide that notice). Watch out - when you get to your state materials, most state rules require notice to be given in advance that either a credit or investigative report will be obtained.

The Fair Credit Reporting Act entitles the applicant to review information obtained by:

The consumer reporting agency.

Jack and Nancy are both killed in a car accident. Jack has a Life policy that names Nancy as the primary beneficiary and their daughter, Cassie as the contingent beneficiary. Under the Common Disaster Clause, who will receive the death benefit if Nancy lived 5 minutes longer than Jack? Select one: a.One half to the Insured's estate and one half to the daughter (Cassie). b.The daughter (Cassie). c.The Insured's estate. d.The primary beneficiary's estate.

The daughter (Cassie).

The primary source of moral character information is:

The inspection report.

Assume that no conditional receipt is used. If the premium has been paid and the medical exam taken, a policy's coverage becomes effective when? Select one: a.The policy is physically delivered to the applicant. b.The policy is issued by the insurance company.

The policy is physically delivered to the applicant.

Jack named Nancy as his Life policy beneficiary. Nancy dies but Jack forgot to name another beneficiary. Several years later, Jack died but Nancy was still named as beneficiary. What will happen?

The policy proceeds will be paid to Jack's estate. Jack would not have wanted to have the money go to Nancy's estate. If the primary beneficiary dies first, the money goes to the owner's estate unless a contingent beneficiary had been named. This is tricky stuff.

A contingent beneficiary will receive the death benefit only if: Select one: a.The primary beneficiary dies before the Insured. b.The Insured dies before the primary beneficiary.

The primary beneficiary dies before the Insured.

Which of the following is required for a worker to be eligible for disability benefits under Social Security?

The worker must have fully insured status.

A business insures its key executive. This is an example of? Select one: a.First Party Ownership b.Third Party Ownership

Third Party Ownership

The fact that the Insurer makes a promise but the Insured does not make a promise relates to the concept of?

Unilateral

Mr. Z submits an application with premium to his life insurance producer. The producer gives Mr. Z a conditional receipt . Prior to the time Mr. Z takes a medical examination, he is considered to be? Select one: a.Temporarily Insured b.Uninsured

Uninsured

Abe's insurance company issued a policy even though Abe's application was incomplete. Which legal concept will require the insurance company to provide coverage?

Waiver, also known as estoppel

Molly is injured in a work-related accident. Molly is considering filing a negligence lawsuit against her employer.

Work Comp is Molly's sole remedy - she cannot win a lawsuit against the employer. We say that work comp is the employee's sole remedy against the employer. However, the worker may have other benefits available, such as Social Security that will also provide benefits.

To be fully insured under OASDI rules, one must have been employed for at least: Select one: a.180 days b.30 months c.3 years d.40 quarters

40 quarters

In order to qualify for AD&D coverage, the accident must directly cause death within how many days?

90 days My accident occurred on Interstate 90, thus I must die within 90 days to collect under the AD and D rider.

With group insurance, the Insured receives: Select one: a. An appointment letter. b. A certificate of insurance. c. A letter of coverage. d. A copy of the insurance policy.

A certificate of insurance. Insureds under a group policy don't own and don't receive the policy. The employer owns and receives the policy. The workers simply get a certificate of insurance indicating that they are covered. The laws refer to this as a "certificate of insurance" but in reality it is simply a membership card along with a booklet explaining the key coverages.

An employee covered under an employer group policy will receive which written document that outlines coverage and provides evidence that group coverage is in effect? Select one: a.A rider. b.A policy. c.A certificate of insurance. d.An extension.

A certificate of insurance. The employer receives the group policy. The Certificate of Insurance is given to the employees in the group to provide a summary of the policy's coverage. Most employees don't want to read the entire policy - all they want is the summary of coverage provided by the Certificate.

Who established the MIB (which used to be called the Medical Information Bureau)? Select one: a.A group of doctors. b.The federal government. c.A group of insurance companies. d.The insurance commissioner.

A group of insurance companies. MIB is a private organization formed by and owned by a group of life and health insurance companies.

Under AD&D Insurance, what does the capital sum represent?

A lump sum, half of the face value, paid for accidental dismemberment of a primary body part. "Gotta" know this! The capital sum is half the policy's face value (principal sum). I get that for the loss of one key body part. If I lost two key body parts, I get the principal sum

Paul has a Group Health plan at work. His employer pays the whole premium and Paul does not have to pay anything for the coverage. What is this type of plan called?

A noncontributory plan. If there is "no contribution" by Paul, this is a "noncontributory" plan. I know this is a bit confusing, but after you use these terms a bit, you will get more comfortable with them.

An applicant has an insurable interest in each of the following situations EXCEPT?

A parent in his or her child's care provider. My child care provider can easily be replaced. I can't argue that I have a significant financial interest in that person's life or health.

If only 5% of a company's employees choose insurance coverage, this presents what type of issue?

an adverse selection issue This appears to be an adverse selection issue. Likely, only the sick employees are buying insurance. This will dramatically increase the expenses for the Insurer and the cost for the Insured.

To determine the applicant's financial standing, an underwriter would most likely use a/an?

credit report

Which of the following statements regarding a single employer group plan for a new business is CORRECT? Select one: a."Experience" rating will be used because of the group's long experience claim's history. b.Proof of insurability is always required for new enrollees. c.The plan will always be contributory. d.Proof of insurability will not be required and the Insurer will use "community" rating.

d.Proof of insurability will not be required and the Insurer will use "community" rating.

Each of the following groups is eligible for group life or health insurance EXCEPT: Select one: a.employee groups b.association groups c.family groups d.government worker groups

family groups

Under the Fair Credit Reporting Act, the Producer must inform the client of the rights regarding consumer investigative reports at the time: Select one: a.the policy is delivered. b.of application.

of application.

Each of the following may be a reason for denying a policy EXCEPT: Select one: a.sex (gender) b.age c.health d.occupation

sex (gender)

Each of the following is true regarding a Stranger Originated Life Insurance (STOLI or IOLI) transaction EXCEPT: Select one: a.they permit life insurance to be sold to an investor or broker. b.they are used to prevent money laundering by criminals and terrorists. c.the investor or broker is able to circumvent the typical state laws requiring the owner of the policy to have an insurable interest in the Insured. d.death benefits are paid to an investor or broker rather than a traditional beneficiary.

they are used to prevent money laundering by criminals and terrorists. Update note: The investor who purchases the STOLI or IOLI is also known as a broker.