Chapter 1: completing the application, underwriting, and delivering the policy

Another name for a substandard risk classification is

rated Substandard risk classification is also referred to as 'rated' since these policies could be issued with the premium rated-up, resulting in a higher premium

Which of the following includes information regarding a persons credit, character, reputation, and habits?

Consumer report Consumer reports include written and/or oral information regarding a consumers credit, character, reputation, and habits collected by a reporting agency, from employment records, credit reports, and other public sources.

What is the definition of a unilateral contract?

One-sided: only one party makes an enforceable promise An insurance contract is unilateral in that only one of the parties to the contract is legally bound to do anything

Which of the following is a risk of classification used by underwriters for life insurance? A. Excellent B. Standard C. Poor D. Normal

Standard

If an insurer issued a policy based on an application that had unanswered questions, which of the following will be TRUE?

The policy will be interpreted as if the insurer waived its right to have an answer on the application.

When John 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 a standard. John was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will...

Issue the policy anyway and pay the face value to the beneficiary The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last. As long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for

Which of the following best describes the aleatory nature of an insurance contract?

Exchange of unequal values. And aleatory contract is a contract in unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss by the insurer.

Which of the following individuals must have insurable interest in the insured

Policy owner/applicant The policy owner must have an insurable interest in the insured (his/her own life if the policy owner and the insured is the same person), or in the life of a family member or a business partner

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?

The producer (agent)

Insurance policies are not drawn up through negotiations, and an insurer has little to say about its provisions. What contract characteristic does this describe?

Adhesion. A contract of Adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as it is written

An applicant is denied insurance because of the 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?

FCRA. The Fair Crediting Act governs what information can be collected and how the information can be used

Which of the following is NOT the consideration in a policy? A. The promise to pay cover losses B. The application given to a prospective insured C. Something of value exchanged between parties D. The premium amount paid at the time of application

The application given to a prospective insured. Consideration is something of value that is transferred between the two parties to form a legal contract

An insured pays $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?

Aleatory

All of the following are requirements for life insurance illustrations EXCEPT: A. They must differentiate between guaranteed and projected amounts B. They must be part of the contract C. they may only be used as approved D. They must identify nonguaranteed values

They must be part of the contract. An illustration may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list non-guaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values.

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 agent should not use white out, erase or obliterate any answers given to a question on an application. It could prevent an insurer from contesting the application, should it be necessary