Chapter 1: Completing the App, UW, and Delivering the Policy

All of the following are requirements for life insurance illustrations...

1) They must differentiate between guaranteed and projected amounts 2) They may only be used as approved 3) They must identify nonguaranteed values

What are the four elements of an insurance contract?

1. Agreement (offer & acceptance) 2. Consideration (cash) 3. Competent parties 4. Legal purpose

What two elements are necessary for a life insurance contract to have a legal purpose?

1. Insurable interest 2. Consent

What are the three types of risk rating classifications in life insurance?

1. Standard 2. Substandard 3. Preferred

If a consumer requests additional info concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?

5 days

What is policy replacement?

A new policy is issued while an existing policy is terminated or reissued with a reduction in cash value

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 policy summary

The term "illustration" in a life insurance policy refers to...

A presentation or depiction that includes nonguaranteed elements of a policy over a period of years

Who is a field underwriter?

Agent/Producer

What is a warranty in an insurance contract?

An absolutely true statement upon which the validity of the policy depends

When must insurable interest exist in a life insurance policy?

At the time of application

When must the policy summary for a life insurance policy be delivered to the policyowner?

At the time of the policy delivery

When a change needs to be made on the application for insurance, which is the best method for correcting the information?

Complete a new application or ask the applicant to initial the correction on the original application

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is...

Conditional

Health contracts are prepared by insurers and must be accepted by the insured on an as is basis. This describes what aspect of a health insurance contract?

Contract of adhesion

During which stage in the insurance process do insurers evaluate information that identifies adverse selection risks?

Underwriting

What is the name of the process that insurance companies use to determine whether or not an applicant is insurable?

Underwriting

In health insurance contracts, the insured is not legally bound to any particular action; however, the insurer is obligated to pay for losses covered by the policy. What contract element does this describe?

Unilateral

When would a misrepresentation on an insurance application be considered fraud?

When it is intentional and material

When would a misrepresentation be considered material?

When it may alter the underwriting decision

In insurance, when is the offer usually made on a contract?

When the insurance application is submitted

In forming an insurance contract, when does an acceptance usually occur?

When the insurer approves a prepaid application

When does an insurance policy go into effect?

When the policy is delivered and the premium is paid

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...

With the policy

What type of report provides information about the applicant's hobbies, habits and financial status?

Investigative Consumer Report

At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?

Either on the date of the application or the date of the medical exam (whichever occurs last)

What do individuals use to transfer their risk of loss to a larger group?

Insurance

What entities make up the Medical Information Bureau?

Insurers

Fraud

Intentional misrepresentation or deceit with the intent to induce a person to part with something of value.

What report is used to assess risk associated with a health insurance applicant's lifestyle & character?

Investigative Consumer Report

What best describes the MIB?

It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance

What is the purpose of a conditional receipt?

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

Insurance is a contract that protects the insured from what?

Loss

Health insurance contracts are unilateral. What does this mean?

Only one party makes a legally enforceable promise

What is adverse selection?

People who are more likely to submit insurance claims are seeking insurance more often than preferred risks

How can health insurance policies be delivered to the insured?

Personally delivered by the agent or mailed

What document describes the specific information about a policy?

Policy summary

What risk classification would typically qualify for lower premiums?

Preferred risk

What term describes the fee a person pays an insurance company to receive coverage?

Premium

If an insurer needs to obtain info about the applicant from investigators, what is the insurer required to do?

Provide the applicant a Disclosure Authorization Notice

What is the best way to handle incomplete insurance applications?

Return the application to the applicant for completion

What is the main responsibility of a company's underwriting unit?

Risk selection

If an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do?

Send the application back to the applicant for signature

What law protects consumers from the circulation of inaccurate or obsolete information?

The Fair Credit Reporting Act

If an applicant does not receive a copy of the new insurance policy, who would be held responsible?

The agent

Whose responsibility is it to determine that all the questions on an insurance application are answered?

The agent's

What is the purpose of the agent's report during the application process?

The agent's report discusses the agent's personal observations about the proposed insured that may help in the underwriting process.

In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports?

The consumer's associates, friends, and neighbors provide the report's data

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern?

The existence of insurable interest between the applicant and the insured

Who must have insurable interest in the insured?

The policyowner

What is insurance underwriting?

The process of risk selection and classification

How is the information obtained for an investigative consumer report?

Through interviews with the applicant's associates, friends and neighbors

Adverse Selection

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