ch 1 completing the application, underwriting, and delivering the policy
Which of the following is the basic source of information used by the company in the risk selection process? A Warranty B Consumer report C Application D Agent's report
Application
Who makes up the Medical Information Bureau? A Insurers B Hospitals C Former insured D Physicians and paramedics
Insurers
Which of the following would provide an underwriter with information concerning an applicant's health history? A A medical examination B The agent's report C The inspection report D The Medical Information Bureau
The Medical Information Bureau
Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained? A 3 days B 5 days C 10 days D 14 days
3 days
An 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
Aleatory
Stranger-originated life insurance policies are in direct opposition to the principle of A Insurable interest. B Law of large numbers. C Good faith. D Indemnity.
Insurable interest.
A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will A Pay the policy proceeds up to an established limit. B Not pay the policy proceeds under any circumstances. C Automatically pay the policy proceeds. D Pay the policy proceeds only if it would have issued the policy.
Pay the policy proceeds only if it would have issued the policy.
Which of the following will be included in a policy summary? A Premium amounts and surrender values B Copies of illustrations and application C Comparisons with similar policies D Primary and secondary beneficiary designations
Premium amounts and surrender values
Which is the appropriate action by the insurer if a prospective insured submitted an incomplete application? A Fill in the blanks to the best of the insurer's knowledge B Return the application to the applicant for completion C Issue a policy anyway since the application has been submitted D Ask the producer who solicited the policy to complete and resign the application
Return the application to the applicant for completion
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
The Fair Credit Reporting Act
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 Contract of adhesion B Acceptance C Consideration D Legal purpose
Consideration
If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT A Note on the application the reason for the change. B Destroy the application and complete a new one. C Erase the incorrect answer and record the correct answer. D Draw a line through the first answer, record the correct answer, and have the applicant initial the change.
Erase the incorrect answer and record the correct answer.
An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n) A Attending Physician Statement. B Inspection report. C Medical Information Bureau report. D Medical examination.
Inspection report.
What is the purpose of a conditional receipt? A It serves as proof that the applicant has been determined insurable. B It is given only to applicants who fully prepay the premium. C It is intended to provide coverage on a date prior to the policy issue. D It guarantees that a policy will be issued in the amount applied for.
It is intended to provide coverage on a date prior to the policy issue.
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.
Disputes regarding consumer report information.
Which of the following best details the underwriting process for life insurance? A Reporting and rejection of risks B Selection, classification, and rating of risks C Solicitation, negotiation and sale of policies D Issuance of policies
Selection, classification, and rating of risks
An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of A A prearranged funeral plan. B A viatical settlement. C Third-party ownership. D A STOLI policy.
A STOLI policy.
A life insurance policy has a legal purpose if both of which of the following elements exist? A Offer and counteroffer B Policyowners and named beneficiaries C Insurable interest and consent D Underwriting and reciprocity
Insurable interest and consent
When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will A Issue the policy anyway and pay the face value to the beneficiary. B Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved. C Return the premium to Y's estate, since it has no obligation to pay the death claim. D Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued.
Issue the policy anyway and pay the face value to the beneficiary.
Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT A Other insurance coverages. B Family health history. C Alcohol and tobacco consumption. D Recent surgeries.
Other insurance coverages.
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 Backdated receipt. B Warranty. C Premium receipt. D Statement of good health.
Premium receipt.
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.
A debtor has an insurable interest in the life of a lender.
Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe? A Unilateral B Conditional C Personal D Adhesion
Adhesion
In insurance, an offer is usually made when A An applicant submits an application to the insurer. B The insurer approves the application and receives the initial premium. C The agent hands the policy to the policyholder. D An agent explains a policy to a potential applicant.
An applicant submits an application to the insurer.
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 Aleatory B Unilateral C Conditional D Contingent
Conditional
As a field underwriter, a producer is responsible for all of the following tasks EXCEPT A Obtain appropriate signatures on the application for insurance. B Issue the policy that is requested. C Help prevent adverse selection. D Solicit business that will fall within the insurer's underwriting guidelines.
Issue the policy that is requested.
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.
Signed waiver of premium
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
When an insurer's underwriter approves coverage
When is the earliest a policy may go into effect? A When the insurer approves the application B After the underwriter reviews the policy C When the application is signed and a check is given to the agent D When the first premium is paid and the policy has been delivered
When the application is signed and a check is given to the agent
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.
Whether an insurable interest exists between the individuals.
In terms of parties to a contract, which of the following does NOT describe a competent party? A The person must be mentally competent to understand the contract. B The person must have at least completed secondary education. C The person must not be under the influence of drugs or alcohol. D The person must be of legal age.
The person must have at least completed secondary education.
If an insurer requires a medical examination of an applicant in connection with the application for life insurance, who is responsible for paying the cost of the examination? A The examiner B The applicant C The insurer D The cost of the examination will be waived.
The insurer
A producer agent must do all of the following when delivering a new policy to the insured EXCEPT A Disclose commissions earned from the sale of the policy. B Explain the policy provisions, riders, and exclusions. C Collect any premium due. D Explain the rating procedures if the policy is rated differently than applied for.
Disclose commissions earned from the sale of the policy.
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 Representation B Adhesion C Consideration D Good faith
Consideration
An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that? A Inspection Report B Medical Information Bureau's report C Agent's Report D Underwriter's Report
Inspection Report
Which of the following is NOT an example of insurable interest? A Business partners in each other B Employer in employee C Child in parent D Debtor in creditor
Debtor in creditor
If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to A Charge a higher premium. B Require a yearly medical examination. C Lower its insurability standards. D Refuse to issue the policy.
Charge a higher premium.
When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is A Conditional. B Aleatory. C Personal. D Unilateral.
Conditional
When must insurable interest exist in a life insurance policy? A At the time of loss B At the time of application C At the time of policy delivery D When there is a change of the beneficiary
At the time of application
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 Legal purpose. B Offer and acceptance. C Conditions. D Consideration.
Conditions
An applicant is denied insurance because of information found on a consumer report. Which of the following requires that the insurance company supply the applicant with the name and address of the consumer reporting company? A Consumer Privacy Act B Conditional receipt C Disclosure rule D Fair Credit Reporting Act
Fair Credit Reporting Act
Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract? A Indemnity B Representation C Warranty D Concealment
Warranty
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
To allow the consumer to compare the costs of different policies
Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives? A Agent's Report B General Information C Medical Information D Inspection Report
Medical Information
An applicant who receives a preferred risk classification qualifies for A Higher premiums than a person who receives a sub-standard risk. B Higher premiums than a person who receives a standard risk. C Lower premiums than a person who receives a standard risk. D Dividends payable for lack of claims.
Lower premiums than a person who receives a standard risk.
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 Send an actual certified copy of the entire report to the consumer. B Respond to the consumer's complaint. C Defend the report if the agency feels it is accurate. D Change the report.
Respond to the consumer's complaint.
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
When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health
The Medical Information Bureau (MIB) was created to protect A Medical examiners that perform insurance physical examinations. B Insurance companies from adverse selection by high risk persons. C Insurance departments from lawsuits by policyowners. D Insureds from unreasonable underwriting requirements by the insurance companies.
Insurance companies from adverse selection by high risk persons.
An insurance contract must contain all of the following to be considered legally binding EXCEPT A Competent parties. B Beneficiary's consent. C Offer and acceptance. D Consideration.
Beneficiary's consent.
Which of the following information about the applicant is NOT included in the General Information section of the application for insurance? A Marital status B Medical background C Gender D Occupation
Medical background
Which of the following best describes the aleatory nature of an insurance contract? A Policies are submitted to the insurer on a take-it-or-leave-it basis B Exchange of unequal values C Only one of the parties being legally bound by the contract D Ambiguities are interpreted in favor of the insured
Exchange of unequal values
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 Insurance Index B Policy Summary C Illustrations D Buyer's Guide
Buyer's Guide
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
Conditional
Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as A Contracts of adhesion. B Unilateral contracts. C Aleatory contracts. D Binding contracts.
Contracts of adhesion.
All of the following are duties and responsibilities of producers at the time of application EXCEPT A Explain the nature and type of any receipt the producer is giving to the applicant. B Probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information. C Check to make sure that there are no unanswered questions on the application. D Change any incorrect statement on the application by personally initialing next to the corrected statement.
Change any incorrect statement on the application by personally initialing next to the corrected statement.
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.
Considered true to the best of the applicant's knowledge.
Which of the following includes information regarding a person's credit, character, reputation, and habits? A Consumer history B Insurability report C Agent's report D Consumer report
Consumer report
Which of the following reports will provide the underwriter with the information about an insurance applicant's credit? A Any federal report B Consumer report C Inspection report D Agent's report
Consumer report
In the underwriting 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.
It will likely be higher because the applicant is a substandard risk.
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-sided: 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.
One-sided: only one party makes an enforceable promise.
Which of the following would qualify as a competent party in an insurance contract? A The applicant is intoxicated at the time of application. B The applicant is a 12-year-old student. C The applicant is under the influence of a mind-impairing medication at the time of application. D The applicant has a prior felony conviction.
The applicant has a prior felony conviction.
The responsibility of making certain that an application for insurance is filled out completely, correctly, and to the best of his or her knowledge is the responsibility of whom? A The applicant B The producer C The beneficiary of the applicant D The insurance company
The producer
If an insurance company wishes to order a consumer report on an applicant to assist in the underwriting process, and if a notice of insurance information practices has been provided, the report may contain all of the following information EXCEPT the applicant's A Habits. B Prior insurance. C Ancestry. D Credit history.
Ancestry
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.
Applicant's past income.
An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date? A The date of policy delivery B The date of issue C The date of application D The date of medical exam
The date of medical exam
In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports? A They provide information about a customer's character and reputation. B The customer has no knowledge of this action. C The customer's associates, friends, and neighbors provide the report's data. D They provide additional information from an outside source about a particular risk.
The customer's associates, friends, and neighbors provide the report's data.
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
Unilateral
What is the timeframe for filing relevant Suspicious Activity Reports? A Within 30 days of the suspicious transaction B Within 90 days of initial discovery C Within 90 days of the suspicious transaction D Within 30 days of initial discovery
Within 30 days of initial discovery
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 insured against insolvent insurers. D It is a rating organization for health insurance.
It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance.
Which of the following individuals must have insurable interest in the insured? A Producer B Policyowner C Beneficiary D Underwriter
Policyowner
Which of the following is NOT the consideration in a policy? A The application given to a prospective insured B Something of value exchanged between parties C The premium amount paid at the time of application D The promise to pay covered losses
The application given to a prospective insured
Which is generally true regarding insureds who have been classified as preferred risks? A They can borrow higher amounts off of their policies. B They can decide when to pay their monthly premiums. C They keep a higher percentage of any interest earned on their policies. D Their premiums are lower.
Their premiums are lower.
An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied? A Waiver B Utmost Good Faith C Estoppel D Material misrepresentation
Material misrepresentation
What is a material misrepresentation? A Concealment B A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company C Any misstatement made by an applicant for insurance D Any misstatement by the producer
A statement by the applicant that, upon discovery, would affect the underwriting
Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report A Are entitled to obtain a copy of the report from the party who ordered it. B Must be advised that a copy of the report is available to anyone who requests it. C May sue the reporting agency in order to get inaccurate data corrected. D Must be informed of the source of the report.
Must be informed of the source of the report.
Why should the producer personally deliver the policy when the first premium has already been paid? A To find out how the family has been doing since the initial presentation B To make sure the policy is not stolen or lost C To help the insured understand all aspects of the contract D To ensure the producer gets paid commission
To help the insured understand all aspects of the contract
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 policy summary B A notice regarding replacement C A privacy notice D A buyer's guide
A policy summary
If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? A 10 days B 3 days C 5 days D 7 days
5 days
Which of the following is NOT an essential element of an insurance contract? A Counteroffer B Consideration C Agreement D Legal purpose
Counteroffer
An applicant signs an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant dies the following day, which of the following is TRUE? A The application will be voided. B The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy. C The premium would be returned to the insured's estate because the policy was not issued. D The death claim will be rejected.
The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy.
Which is the primary source of information used for insurance underwriting? A Applicant interviews B Medical records C Private investigations D Application
Application
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 first of the month after the policy issue B As of the policy issue date C As of the application date D As of the policy delivery date
As of the application date
All of the following information about the applicant is identified in the General Information section of a life insurance application EXCEPT A Education. B Age. C Gender. D Occupation.
Education
What describes the specific information about a policy? A Buyer's guide B Producer's report C Policy summary D llustrations
Policy summary
The Federal Fair Credit Reporting Act A Regulates consumer reports. B Protects customer privacy. C Regulates telemarketing. D Prevents money laundering.
Regulates consumer reports.
Which of the following is a risk classification used by underwriters for life insurance? A Poor B Normal C Excellent D Standard
Standard
What is the purpose of a disclosure statement in life insurance policies? A To protect agents and insurers against lawsuits B To explain features and benefits of a proposed policy to the consumer C To obtain important underwriting information from the applicant D To help consumers compare policy prices
To explain features and benefits of a proposed policy to the consumer
