CHAPTER 1: Completeing the App, Underwriting and Delivering the policy

What is the purpose of the buyer's guide?

To allow the consumer to compare the costs of different policies

Insured

person covered by the insurance policy; may or may not be the policy owner

Death Benefit

the amount paid upon the death of the insured in a life insurance policy.

Policyowner

the person entitled to exercise the rights and privalages in the policy

Life insurance

coverage of human lifes

Which of the following statements is NOT true concerning insurable interest as it applies to life insurance? A. A husband or wife has an insurable interest in their spouse. B. An individual has an insurable interest in his or her own life. C. A debtor has an insurable interest in the life of a lender. D. Business partners have an insurable interest in each other.

A debtor has an insurable interest in the life of a lender.

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

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. Personal B. Adhesion C. Unilateral D. Conditional

BAdhesion

insurance policy

a contract between a policy owner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events.

An insurer wants to begin underwriting procedures for an applicant. What source will it consult for the majority of its underwriting information? A. Medical records B. Application C. Interviews D. State records

Application

beneficiary

a person who recieves the benefits of an insurance policy

Applicant or proposed insured

a person applying for insurance

Lapse

policy termination due to nonpayment of premium

Who makes up the Medical Information Bureau? A. Hospitals B. Former insured C. Physicians and paramedics D. Insurers

Insurers

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT

Signed waiver of premium.

Which of the following would qualify as a competent party in an insurance contract? A. The applicant is under the influence of a mind-impairing medication at the time of application. B. The applicant has a prior felony conviction. C. The applicant is intoxicated at the time of application. D. The applicant is a 12-year-old student.

The applicant has a prior felony conviction.

Insurer (principal)

the company who issues an insurance policy

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

Aleatory

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

Adverse Selection

Insuring of risks that are more prone to losses than the average risk

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. Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued. B. Issue the policy anyway and pay the face value to the beneficiary. C. Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved. D. Return the premium to Y's estate, since it has no obligation to pay the death claim.

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

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

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. Defend the report if the agency feels it is accurate. B. Change the report. C. Send an actual certified copy of the entire report to the consumer. D. Respond to the consumer's complaint.

Respond to the consumer's complaint.

Which is the appropriate action by the insurer if a prospective insured submitted an incomplete application? A. Issue a policy anyway since the application has been submitted B. Ask the producer who solicited the policy to complete and resign the application C. Fill in the blanks to the best of the insurer's knowledge D. Return the application to the applicant for completion

Return the application to the applicant for completion

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

When is the earliest a policy may go into effect? A. After the underwriter reviews the policy B. When the application is signed and a check is given to the agent C. When the first premium is paid and the policy has been delivered D. When the insurer approves the application

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

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.

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it? A. A legal (but unethical) contract B. Unilateral C. Adhesion D. Conditional

Unilateral

Why should the producer personally deliver the policy when the first premium has already been paid?

To help the insured understand all aspects of the contract

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.

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. Warranty. B. Premium receipt. C. Statement of good health. D. Backdated receipt.

Premium receipt.

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? A. 7 days B. 10 days C. 3 days D. 5 days

5 days

Which of the following documents delivered to the policy-owner 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

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

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 is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process?

Buyers Guide

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

What do individuals use to transfer their risk of loss to a larger group? A. Insurance B. Insurable interest C. Exposure D. Indemnity

Insurance

If an agent fails to obtain an applicant's signature on the application, the agent must: A. Sign the application for the applicant. B.Sign the application, stating it was by the agent. C.Send the application to the insurer with a note explaining the absence of signature. D.Return the application to the applicant for a signature.

Return the application to the applicant for a signature.

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 beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy. B. The premium would be returned to the insured's estate because the policy was not issued. C. The death claim will be rejected. D. The application will be voided.

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

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant

With the policy

Agent/Producer

a legal representative of an insurance company: the classification of producer usually includes agents and brokers; agents are the agents of the insurer.

premium

the money paid to the insurance company for the insurance policy.;