Ch 2
An Attending Physician Statement (APS)
An Attending Physician Statement (APS) is used in cases in which the individual application and/ or medical reports reveal conditions of which more information is required. The applicant's treating physician will complete this as part of the applicant's medical history. An applicant must sign a written release to enable a release of the APS. The insurer pays for this.
In California, every person has an insurable interest in the life and health of all of the following, except:
Any person who agrees to be insured In California, every person has an insurable interest in the life and health of himself/herself, any person on whom he/she depends wholly or in part for education or support, any person under a legal obligation to him for the payment of money or respecting property or services, of which death or illness might delay or prevent the performance, and any person upon whose life any estate or interest vested in him or her depends.
The income-earning ability lost to dependents by the insured's premature death is a way to evaluate an individual's insurance needs. This method is known as the:
Human Life Value Approach The objective of the Human Life Value Approach is to provide the proper amount of coverage as determined by the value of the insured individual to his/her dependents.
If it is known or should be known by the agent that an existing policy is going to be lapsed, forfeited, surrendered or terminated in favor of a new policy, the agent must submit a:
Notice Regarding Replacement Replacement rules require a Notice Regarding Replacement.
If premiums were submitted at the time of application, when is a life insurance policy considered constructively or legally delivered by the insurer?
Once the insurer mails the issued policy as applied for to the producer
What is earned by a life insurer for each day a life insurance policy is in force?
Premiums Premiums are earned by a life insurer for each day the life insurance policy is in force.
Once the gross amount of dollars required to fund an insured's needs has been determined using the needs analysis approach, what is the next step?
Subtract any assets available to fund financial needs after death The next step is to subtract any assets available to fund financial needs after death. This reduces the amount of life insurance required.
Expenses
The amount charged to cover each policy's share of expenses of operation (salaries, commission, and cost of doing business) is called expense loading. This can vary from company to company based on its operations and efficiency
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.
Conservation
includes any attempt by the existing insurer or agent to deter a policyowner from the replacement of existing life insurance or an annuity. This does not include late payment reminders or reinstatement offers.
It is a violation to recommend that an insured of what age or older purchase an 'unnecessary replacement annuity'?
65 It is a violation to recommend that an insured 65 years of age or older purchase an 'unnecessary replacement annuity' which is defined as the sale of an annuity to replace an existing annuity that results in a surrender charge for the annuity that is being replaced and does not confer a substantial financial benefit over the life of the contract to the purchaser so that a person would reasonably believe the purchase is unnecessary.
In a policy summary all of the following must be shown as being guaranteed, except:
Dividends Dividends are never guaranteed.
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 existing insurer is the insurer who has a policy subject to replacement.
Premiums for life insurance are based on all of the following, except:
Expected morbidity Premiums for life insurance are based on expected mortality, interest, and expenses, and these factors are used by all life insurers to determine premiums.
Which of the following best describes a Statement of Good Health?
Generally, this is used when the policy was issued with an outstanding premium requirement to assure the issuer that the health status of the insured has not significantly changed since the time of application. It verifies that the insured has not suffered a serious illness or injury requiring surgery or hospitalization since the application date
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.
A STOLI transaction is best defined as which of the following?
Inducing insureds who do not need and cannot afford life insurance to buy a policy and sell it for cash Investors, producers, or brokers with absolutely no personal or business connection with a person, who induce a purchase of a life insurance policy with the sole intent of selling that policy to institutional investors for an amount less than the death benefit, but greater than the policy's cash value is a STOLI transaction.
The replacement rules apply to which one of the following?
Proposed life insurance that is to replace life insurance issued by a different insurer Replacement rules does not apply to credit life insurance, group life insurance or annuities, conversion of an existing policy, or proposed life insurance that is to replace life insurance issued by the same insurer.
Which rating classification is typically used in the senior marketplace so that policies can be issued without a medical exam?
The lien plan With the lien plan, initially, only the premium would be refunded in case of death. The death benefit increases over time with the full face amount eventually payable. This is generally used with Senior Life Insurance plans to provide minimal benefits without a medical examination.
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. What's on: -A copy of the producer's license -The producer's agency's name and address -The producer's name and home address
Medical Examinations
The results of the Medical Examination is the only report that might be copied and made part of the policy.
The HIV Consent Form specifies which types of individuals may receive __________.
The test results The HIV Consent Form specifically addresses who may receive test results, most often it is the insured's doctor.
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.
A group plan is normally owned by any one of the following, except:
Debtors A group insurance plan is normally owned by an employer, creditor, or association. Who can: -Employers -Associations -Creditors
Which of the following is a false statement regarding insurable interest?
In life insurance, insurable interest must be proven at the time loss or claim In life insurance, insurable interest must exist or be proven at the time of the application, not at time of loss.
When an insured decides to change her mode of premium payment from annually to monthly, the total premium due would:
Increase Additional charges are included in modes other than annual to offset the lost interest earnings and increased administration costs.
The Medical Information Bureau (MIB) is formed by:
Insurance companies The MIB is a member-owned corporation that operates on a not-for-profit basis in the United States and Canada. The MIB's Underwriting Services are used exclusively by MIB-member life and health insurance companies to assess an individual's risk and eligibility during the underwriting of life, health, disability income, critical illness, and long-term care insurance policies.
All of the following are true regarding disclosures at the point of sale and issues relating to AIDS, except:
Much like illegal drugs and nicotine, the applicant does not have to provide consent prior to insurer's testing for HIV Insurers must require informed consent before testing for HIV. True -Insurance companies may refuse to issue a policy to individuals based on positive HIV test results -Insurers must avoid unfair discrimination between those in the same underwriting class for the risks of AIDS -Insurers must require the maintenance of strict confidentiality of personal information obtained through testing
Payment modes
Payment modes other than annual may result in higher premiums to offset the lost interest earnings and increased administration costs. For this reason, an annual mode results in the lowest premium outlay while monthly premiums result in the highest. The more frequently premiums are paid, the more expensive the mode of payment.
Normally, when the insurer determines that the insured is an acceptable risk, the insurer will send the policy to the ____________.
Producer Normally, the insurer will mail the issued policy to the producer for delivery so that if any outstanding premium is due, it can be collected, if a statement of good health is required, it can be obtained, and any questions the applicant has about the policy can be answered.
What type of a receipt provides immediate coverage during the underwriting period (rather than a specified number of days) until a policy is issued or the application is declined?
Temporary insurance agreement A Temporary Insurance Agreement is a receipt that provides immediate coverage during the underwriting period (rather than a specified number of days) until a policy is issued or the application is declined.
An applicant's signature on an application indicates what?
That their statements are true The applicant is representing that statements on the application are true to the best of their knowledge and belief.
The Buyer's Guide
The Buyer's Guide provides basic information concerning life insurance, the different types of policies which are sold, and the comparative costs of each.
If the producer discovers that the applicant is not in good health at time of policy delivery, what should the next step be?
The policy should be returned to the insurer, or the deliver the policy only after the insurer grants permission If the applicant is not in good health, the policy should be returned to the insurer, or the producer may deliver the policy only after the insurer grants permission. -Obtain copies of any and all medical records and order a medical exam -Hold onto the policy until the client recovers from their condition, then deliver the policy -Field underwrite in order to determine the additional premium that needs to be collected
When reviewing an application, the underwriter decides to reclassify the risk. What does that mean for the client?
The premium could increase or decrease When reviewing an application, if the underwriter decides to reclassify the risk, this could either increase or decrease the premium.
Which of the following is not a purpose of the life insurance and annuities replacement rules?
To assure that the producer receives enough information to make an informed recommendation The requirements for the replacement of life insurance and annuities contracts have been established to assure that the purchaser receives enough information to make an informed decision. Which is: -To protect the interests of life insurance and annuity purchasers from the loss of benefits -To reduce the opportunity for misrepresentation -To regulate the activities of agents and insurers and establish penalties for failure to comply with the rules
When replacement is involved, the replacing insurer must provide in its policy or a separate written notice that the applicant has a right to an unconditional refund of all premiums paid within how many days from the date of policy delivery?
When replacement is involved, the insurer must provide in its policy or a separate written notice that the applicant has a right to an unconditional refund of all premiums paid within 30 days from the date of policy delivery. 30
The mortality rate is based on mortality tables which show life expectancy and the death rate per _______ people living in the U.S.
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 group plan is designed to insure all of the following, except:
A group plan can cover employees, debtors, and members. Creditors may be the owner of the plan, but not the insured. Creditors
Of the following, which can a home office underwriter solely use to determine insurability of an applicant based on age, medical history, and amount of coverage?
A nonmedical application A Nonmedical Application is used for a policy requested when the applicant's age, medical history or amount of coverage does not require a medical examination for underwriting. Health questions on the application are asked by the producer and are the only medical information required.
Gross Premium
Additional charges (loading) are added to the net premium rate to enable an insurer to meet all costs under the contract, such as operating expenses, commissions, medical examination costs, etc.
Which underwriting source is primarily used when an application reveals conditions for which more medical information is required?
Attending Physician's Statement The Attending Physician's Statement would be ordered by the underwriter to secure the additional medical information.
The insurance company must meet requirements under the _____ when gathering information about an applicant from a third party.
FCRA Notice of Information Practices and Disclosure - Fair Credit Reporting Act (FCRA)
A(n) ________ report is a general report of the applicant's finances, character, morals, work, hobbies, and other habits.
Inspection An Inspection Report is a general report of the applicant's finances, character, morals, work, hobbies, and other habits.
A generic brochure was developed by the ________ to assist prospective buyers of life insurance, which includes descriptions of all the basic types of life insurance and comparisons of their relative costs.
NAIC A buyer's guide is a generic brochure developed by the NAIC to assist prospective buyers of life insurance, which includes descriptions of all the basic types of life insurance, as well as comparative costs of each type of plan.
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.
Which of the following is not a major source of underwriting information?
Past life insurance owned The sources of underwriting include the application, medical exams, an attending physician's statement, the medical information bureau, an inspection report, and the agent's report.
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.
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 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.
Which one of the following will pay the highest premium for a life insurance policy all other factors being equal?
The higher the age group, the higher the mortality rate which translates in to a higher premium and the Mortality Table shows that males have a higher mortality rate than females, therefore based on this statistic, males will pay a higher rate than females. Male age 70
In determining the proper amount of life insurance, the Needs Analysis Approach takes into consideration all of the following factors, except:
The projected future value of services provided by the insured The Needs Analysis Approach factors in paying off all bills, creating a lifetime stream of income for the surviving spouse, creating a college fund for surviving children, and paying off the mortgage. Once totaled, this amount is reduced by financial assets already in place.