Ch. 1 Completing the Application, Underwriting, Delivering the Policy

What is the Consideration part of a policy?

- binding force of the contract - something of value exchanged between parties - premium amount paid at the time of application - promise to pay covered losses

What are the 4 elements required for a contract to be legally binding?

1. Agreement 2. Consideration 3. Competent parties 4. Legal purpose

How long does the insurer/reporting agency have to comply if a consumer requests additional information concerning an investigative consumer report?

5 days

What does the term "illustration" in a life policy refer to? A. A presentation of non-guaranteed elements of a policy B. A depiction of policy benefits and guarantees C. Pictures accompanying a policy D. Charts and graphs

A. A presentation of non-guaranteed elements of a policy

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. Aleatory B. Good health C. Adhesion D. Conditional

A. Aleatory

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

A. Applicant's past income

If the 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 exam C. Lower its insurability standards D. Refuse to issue the policy

A. Charge a higher premium

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company? A. Warranty B. Aleatory C. Adhesion D. Subrogation

B. Aleatory

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 Accepetance D. Consideration

B. Beneficiary's consent

All of the following are duties and responsibilities of producers at the time of application EXCEPT: A. Check to make sure that there are no unanswered questions on the application B. Change any incorrect statement on the application by personally initialing next to the corrected statement C. Explain the nature and type of any receipt the producer is giving to the applicant D. Probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information

B. Change any incorrect statement on the application by personally initialing next to the corrected statement

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. Underwriter's Report B. Inspection Report C. Medical Information Bureau's Report D. Agent's Report

B. Inspection Report

Stranger-originated life insurance policies are in direct opposition to the principle of? A. Indemnity B. Insurable Interest C. Law of large numbers D. Good faith

B. Insurable Interest

What is the purpose of a conditional receipt? A. It is given only to applicants who fully prepay the premium B. It is intended to provide coverage on a date prior to the policy issue C. It guarantees that a policy will be issued in the amount applied for D. It serves as proof that the applicant has been determined insurable

B. It is intended to provide coverage on a date prior to the policy issue

Which of the following documents delivered to the policy-owner includes information about premium accounts, cash values, surrender values, and death benefits for specific policy years? A. A privacy notice B. A buyer's guide C. A policy summary D. A notice regarding replacement

C. A policy summary

When an insurer begins underwriting procedures for an applicant, what will be the main source for its underwriting information? A. State records B. Medical records C. Application D. Interviews

C. Application

Who's responsibility to make certain that an application is filled out completely and correctly?

The producer

What is the purpose of the USA PATRIOT Act?

address social, economic, and global initiatives to fight and prevent terrorist activities

What is a Certificate of Authority?

license required before insurers can transact business in a state

What does a Unilateral contract mean?

one-sided, only one party in the contract is legally bound to do anything (insured makes no promises, insurer promises to pay in event of loss)

What are the two basic parts to an Application?

1. General Information 2. Medical Information

Which of the following is NOT true regarding a Certificate of Authority? A. It is issued to group insurance participants B. It may be necessary for transacting business in a specific state C. It is equivalent to an insurance license D. It is issued by the state department of insurance

A. It is issued to group insurance participants

When must insurable interest exist?

At the time of the application

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

B. Policy-owner

The Federal Fair Credit Reporting Act A. Prevents money laundering B. Regulates consumer reports C. Protects customer privacy D. Regulates telemarketing

B. Regulates consumer reports

When would a misrepresentation on an insurance application be considered fraud? A. When the application is incomplete B. Any misrepresentation is considered fraud C. If it is intentional and material D. Never: statements by the applicant are only representations

C. If it is intentional and material

What does the General Information part of the application include?

name, address, DOB, gender, income, occupation, marital status, etc.

What does the Medical Information part of the application include?

present health, medical visits in recent years, medical status of relatives, cause of death for deceased relatives

What are the SARs rules?

state that plans/procedures must be in place and designed to identify suspicious activity (transactions of $5,000 or more)

What is the key source that underwriters use for information about the applicant?

The application

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

B. Policy summary

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

B. When an insurer's underwriter approves coverage

What is the purpose of a 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 issuing the policy

C. To allow the consumer to compare the costs of different policies

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 is issued as applied for

C. When the application is signed and a check is given to the agent

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. Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved B. Return the premium to Y's estate, si

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

The Medical Information Bureau (MIB) was created to protect?

insurance companies from adverse selection by high risk persons

What is a mutual company?

insurance company owned by the policy owners and issue participating policies

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 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

D. The date of medical exam (if a company gets a receipt of the premium with a conditional receipt, the policy is in effect on the date of the application or date of medical exam, whichever is later)

What is a Stock Company?

insurance company that is owned by the stockholders who provide capital to establish and operate the insurance company and issue nonparticipating policies

What is the purpose of a conditional receipt?

it is intended to provide coverage on a date prior to the policy issue

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

A. Conditional

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

A. Signed waiver of premium

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

A. The person must have at least completed secondary education

An applicant signs an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant is killed in an automobile accident the next day: 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

B. The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy

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

C. Lower premiums than a person who receives standard risk

The Gramm-Leach-Bliley Act was passed to? A. Allow consumers access to credit and private consumer reports B. Allow insurance companies access to medical information for underwriting C. Protect private customer information filed with a financial institution D. Define insurance as interstate commerce

C. Protect private customer information filed with a financial institution

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

C. Return to the applicant for completion

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristics does this describe? A. Contingent B. Aleatory C. Unilateral D. Conditional

D. Conditional

A producer must do all of the following when delivering a new policy to the insured EXCEPT? A. Explain the policy provisions, riders, and exclusions B. Collect any premium due C. Explain the rating procedures if the policy is rated differently than applied for D. Disclose commissions earned from the sale of the policy

D. Disclose commissions earned from the sale of the policy

The Medical Information Bureau (MIB) was created to protect: A. Insurance departments from lawsuits by policy-owners B. Insured's from unreasonable underwriting requirements by the insurance companies C. Medical examiners that perform insurance physical exams D. Insurance companies from adverse selection by high risk persons

D. Insurance companies from adverse selection by high risk persons

Why should the producer personally deliver the policy when the first premium has already been paid? A. To ensure the producer gets paid commission B. To find out how the family has been doing since the initial presentation C. To make sure the policy is not stolen or lost D. To help the insured understand all aspects of the contract

D. To help the insured understand all aspects of the contract

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant no later than: A. Upon issuance of the policy B. Within 30 days after the first premium was collected C. Prior to filling out an application for insurance D. With the policy

D. With the policy

What is the primary criteria in assessing whether an applicant is desirable?

Health Occupation Lifestyle Habits/hobbies

What is the Gramm-Leach-Bliley Act?

states that an insurance company cannot disclose non-public personal information to a nonaffiliated 3rd-party (privacy protection)