Chapter 5 - Life Insurance Underwriting and Policy Issue
In order for coverage on a non-medical insurance application to take effect the same day, the producer must collect a signed application and
the initial premium Explanation: Coverage begins on the day in which the producer collects the initial premium and has the applicant sign the life insurance contract
Which of the following correctly explains the actions an agent should take if a customer wants to apply for an insurance policy?
Complete the application and review the information with the customer prior to obtaining the customer signature, then send the application off to the insurance company Explanation: if the customer wants to apply for an insurance company, the agent need to complete the application and review the information with the customer prior to obtaining the customer signature, then send the application off to the insurance company
Which of these terms accurately defines an underwriter's assessment of information on a life insurance application?
Risk classification Explanation: Underwriitng, another term for risk selection, is the process of reviewing the many characteristics that make up the risk profile of an applicant to determine if the applicant is insurable and, if so, at standard or substandard rates
When a policyowner cash surrenders a Universal Life insurance policy in it's early years, this may be considered a red flag for a(n)
Anti-Money Laundering violation Explanation: When a policyowner cash surrenders a Universal Life insurance policy in it's early years, this may be considered a red flag for a Anti Money Laundering violation
All are true statements regarding the underwriting process, EXCEPT:
AIDS and HIV virus exams can be conducted in a discriminatory fashion Explanation: AIDS and HIV testing must be conducted in a uniform fashion and cannot be discriminatory. The true statements are Signed consent from the applicant must be provided in order to test AIDS and HIV virus, The cost of any examination is paid by the insurer, and the original application is the primary source of information used in the underwriting process
When an insurance application is taken by a producer, which of these statements is true?
Any changes made on the application require the applicant's initials Explanation: The producer should have the applicant initial any changes made on the application
Any changes made on an insurance application requires the initials of whom?
Applicant Explanation: When an applicant makes a mistake int he information given to an agent in completing the application, the applicant can have the agent correct the information but the applicant must initial the correction
What is the initial source of underwriting for an insurance policy?
Application containing statement from the insured Explanation: The initial source of underwriting for an insurance policy is the application containing statements from the insured
Who is NOT required to sign a life insurance application?
Beneficiary Explanation: Adult insured, policyowner, and agent arre individuals must sign a life insurance application EXCEPT beneficiary
On Aug. 6, D submitted an application for a $50,000 Life insurance policy and did not pay the initial premium. On Aug. 18, D went to his doctor complaining of chest pains and some tests were given by the doctor. The life policy was delivered by the producer on Aug. 20 and D explains what had recently taken place with the doctor. What action should the producer then take?
Collect initial premium along with a signed health statement Explanation: In this situation, the producer should deliver the policy obtained the premium payment along with a signed health statement
T applies for a life insurance policy and is told by the producer that the insurer is bound to the coverage as of the date of the application or medical examination, whichever is later. Assuming that T is an acceptable risk, what item is given to T?
Conditional receipt Explanation: A conditonal receipt binds the insurer to coverage as of the date of the application or medical exam, provided the proposed insured is determined to be an acceptable risk
Which of these actions should a producer take when submitting an insurance application to an insurer?
Inform insurer of relevant information not included on the application Explanation: One of the actions a producer should take when submitting an application is to advise the insurer of any other relevant information not contained in the application
A Medical Information Report (MIB) report may disclose which of the following
Prior use of marijuana Explanation: A MIB may disclose lifestyle habits such as drugs, drinking, overating and smoking
A(n)___________contained in a life insurance policy states that the policy will NOT cover certain risks
exclusion Explanation: An exclusion contained in a life insurance policy states that the policy will NOT cover certain risks
Under the USA Patriot Act, insurers are required to report receipt of cash payments in excess of
$10,000 Explanation: The anti-money laundering provisions of the USA Patriot Act requires insurers to report any cash payments received that are greater than $10,000
What is being delivered during a policy delivery?
Insurance contract to the proposed insured Explanation: Policy deliver refers to the delivery of the insurance contract to the applicant
ABC Insurance Company has accepted a life insurance application which contains unanswered questions. The company then makes the application part of the life contract. In this situation, the insurer has
waived one of its legal rights Explanation: If an insurer accepts an application that contains unanswered questions and makes the application part of the life contract the company has waived one of it legal rights
Which of these do NOT constitute policy delivery?
Policy issued with a rating Explanation: Policy mailed to applicant, policy mailed to agent, policy delivered to the applicant by the agent are consitute delivery of the policy EXCEPT issuing a rating policy
A $20,000 life insurance policy application is completed, however, the producer does not collect the initial premium. At what point does the coverage go into effect?
When the applicant receives the policy and pays the initial premium Explanation: Coverage on this policy becomes effective when the applicant receives the policy and pays the initial premium
What is the purpose of the U.S.A. Patriot Act?
detect and deter terrorism Explanation: The purpose of the U.S.A. Patriot Act is to detect and deter terriorism
On January 8, an applicant filled out an application for a life insurance policy but did not include the initial premium. The insurance company approved the application on January 14 and issued the policy January 15. The producer delivered the policy on January 26 and colleted the first premium. When did the coverage become effective?
January 26 Explanation: In this situation coverage became effective on the date of th policy was delivered and first premium collected
Q applied for life insurance and submitted the initial premium on January 1. The policy was issued February 1, but it was not delivered by the agent until February 7. Q is dissatisfied and returns the policy February 13. How will the insurer handle this situation?
Policy was returned within the free-look period, premium will be fully funded Explanation: The free look period begins when the policy is delivered to policyowner
Which factors are taken into consideration when an insurance company determines the premium rate for a Whole Life policy on an applicant?
Risk classification Explanation: To determine the premium rate on a Whole Life policy, an insurance company will consider the risk classification of the applicant
P is a producer who notices 5 questions on a life application were not answered. What actions should P take?
Set up a meeting with the applicant to answer the remaining questions Explanation: In this situation, the producer should schedule another appointment with the applicant to complete the unanswered questions
Which of the following statement is CORRECT about an agent who is taking insurance application?
The agent should have the applicant initial any changes made on the application Explanation: An agent who is taking an insurance application should have the applicant initial any changes made on the application
Before a life insurance policy is issued, which of these components of the contract is required?
Applicant's signature on application Explanation: A signature on an application is required before a life policy will be issued
A pilot applies for Life Insurance. The insurer approves the application with a $10 additional monthly premium modification due to the risk involved. The pilot declines the additional premium modification. The insurer will then likely issue the coverage with a(n)
Aviation Exclusion Explanation: The policy in this situation will likely require an Aviation Exclusion
K applies for a life insurance policy on herself and submits the initial premium with the application. She is given a receipt by the agent stating that coverage begins immediately if the application is approved. What kind of receipt was used?
Conditional Explanation: A conditional receipt indicated that certain conditions must be met in order for the insurance coverage to go into effect
Which of these factors do NOT play a role in the underwriting of a life insurance policy?
Martial status Explanation: Marital status does not affect the underwriting of a life insurance policy
The entity whose sole purpose is sharing medical data among its member companies is called the
Medical Information Bureau (MIB) Explanation: The purpose of the MIB is to share medical data among its member companies
The underwriting process involves all of these, EXCEPT for
Policy loan Explanation: A policy loan is not a factor in the underwriting process but credit report, risk classification and application is
Why must an insurance applicant answer all questions on the application?
Statements and representations on the applications are part of the consideration for issuing a policy Explanation: The application statements and representations are part of the consideration for issuing a policy
K is an agent who takes an application for individual life insurance and accepts a check from the client. He submits the application and check to the insurance company, however the check was never signed by the applicant. If the application is approved, when will coverage be effective?
The date the agent delivered the policy, collected the premium, and obtained a good health statement from the insured Explanation: In this situation, coverage will go into effect the date the agent delivers the policy, collects the initial premium, and obtains a good health statement from the insured
An applicant's medical information received from the Medical Information Bureau (MIB) may be furnished to the
applicant's physician Explanation: Information received from the MIB about a propose insured may be released to the proposed insured's physician
A life insurance application must be signed by all of these, EXCEPT
beneficiary Explanation: Beneficiaries are not required to sign an insurance application but the policyowner, the agent and the insured (if an adult) is
The reason for backdating a policy is
to obtain a premium rate based on an earlier age Explanation: The purpose of backdating a life insurance policy is to use premiums based on an earlier age
The USA Patriot Act was enacted in:
2001 Explanation: The USA Patriot Act was enacted in 2001 to detect and defer terrorism
P has recently signed an application for insurance. The insurer MUST advise her in writing that an investigative consumer report may be conducted according to the
Fair Credit Reporting Act Explanation: It requires that an insurance application state that an investigative consumer report may be obtained on an applicant
Before a life policy is issued, which of these contract elements is necessary?
A signed application by the prospect Explanation: A prospect's signature on an application is neccessary before a life policy will be issued
At what time must a policyowner have insurable interest on the insured in order for the life policy to be valid?
At the time of application Explaination: With life insurance, insurable interest must exist only at the policy inception
A student pilot can pay regular premium costs for her life insurance policy with the addition of which of the following?
Aviation exclusion Explanation: A student pilot can pay standard premium costs for her life insurance policy with the addition of an aviation exclusion
Which Federal law allows an insurer to obtain an inspection report on a potential insured?
Fair credit reporting act Explanation: The Fair Credit Reporting Act of 1970 or FCRA established procedures for the collection and disclosure of informtion obtained on consumers through investigtion and credit reports
Information obtained from a phone conversation to the proposed insured can be found in which of these reports?
Inspection reports Explanation: An inspection report may inclufe information obtained by a telephone call to the propsed insured
Which parts of a life insurance policy are guaranteed to be true?
Warranty Explanation: Warranties are statement that are considerd literally true. A warranty that is not literally true in every detail, even if an error, is sufficeient to render a policy void
When does a life insurance contract become effective if the initial premium is not collected during the application process?
When producer delivers policy and collects initial premium Explanation: Insurance becomes effective on delivery of the policy to the insured and payment of the initial premium to the producer
An agent gives a conditional receipt to a client for an insurance policy after collecting the initial premium. When will the policy become effective?
When the conditions of the receipt are met Explanation: A conditional receipt indicates that certain conditions must be met in order for the insurance coverage to go into effect
An underwriter determines that an applicant's risk should be recategorized due to a health issue. This policy may be issued with a(n)
extra premium Explanation: In this situation, the policy may be issued with an extra premium
Why is an applicant's signature required on a life insurance application?
To attest that the statements on the application are accurate to the best of the applicant's knowledge Explanation: An applicant's signature represents that the statements on the application are true to the best of the applicant's knowledge
Life insurance companies are required to establish and maintain an anti-money laundering compliance program according to which federal regulation?
USA Patriot Act Explanation: It includes provisions intended to prevent the financial services inudustry, including the insurance sector, from being used for money laundering and terriorist financing by criminals and terriorist
Which of the following correctly explains the actions an agent should take if a customer wants to apply for an insurance policy?
Complete the application and review the information with the customer prior to obtaining the customer's signature, then send the application off the to the insurance company Explanation If a customer wants to apply for an insurance policy, the agent should complete the application and review the information with the customer prior to obtaining the customer's signature, then send the application off to the insurance company
What action should a producer take if the initial premium is NOT submitted with the application?
Forward the application to the insurer without the initial premium Explanation: In this situation, the producer should submit the application to the insurance company without the premium. However, if a premium is not paif with the application, the policy will not become vsalif until the initial premium is collected
A life insurance application may be rejected on the basis of all of these factors EXCEPT
Gender Explanation: An insurance company may NOT reject proespective insured's life application on the basis of gender
What is the purpose of a Policy Summary?
It highlights the critical parts of the policy issued Explanation: A policy summary highlights the critical parts of the policy issued and describes the coverages, riders and exclusions
All of these considered sources of underwriting information about an applicant EXCEPT
Rating Sevices Explanation: Inspection report, credit report, and Medical Information Bureau are valid sources to obtain underwritng information about an applicant EXCEPT rating services (A.M. Standard & Poor's)
An incomplete life insurance application submitted to an insurer will result in which of these actions?
Application will be returned to the writing agent Explanation: If the company discovers a mistake or incompletion, it usually returns the application to the producer
Upon policy delivery, a signed good health statement is requested from the applicant. Why would this be necessary?
The initial premium was NOT submitted with the application Explanation: On a delivery of a policy, a signed statement of good health is typically requested if the application was submitted without the initial premium
Agent J takes an application and initial premium from an applicant and sends the application and premium check to the insurance company. The insurance company returns the check back to J because the check is made out to J instead of the insurance company. What action should J take?
Return to the customer, collect a new check made out to the insurace company, and send the new check out to the insurance company Explanation: If an agent receives a check made out to them instead of the insurance company, they should return the check to the customer and collect a new check properly made out to the insurance company
Upon delivery of a rated life insurance policy, the Producer must obtain each of the following EXCEPT
Signed HIPAA disclosure Explanation: Upon delivery of a rated life insurance policy, the Producer must obtained signed amendment, signed statement of good health and the required premium EXCEPT a signed HIPAA disclosure. The HIPAA disclosure should be taken at the time of sale with the application
D the agent met with a prospect and ended up selling an insurance policy. While filling out the insurance application, D makes a mistake. In this situation, D MUST
correct the information and have the prospect initial the change Explanation: If an agent makes an error on an insurance application the agent must correct the information and have the applicant initial the change
A statement made by an insured in an insurance application that must be true to the best of one's knowledge and which becomes a part of the contract is known as:
a representation Explanation: A representation is a statement made by an insured in an insurance application that msut be true to the best of one's knowledge and which becomes a part of the contract
T cash surrenders a recently-issued whole life policy. He also requests that the proceeds be payable to an unrelated third party. T would likely be red-flagged for violation of
anti money laundering rules Explanation: Insurance companies are required to comply with the anti-money laundering provisions of the USA Patriot Act
T is given a receipt After completing a life insurance application and paying the initial premium. Under this situation, T's coverage is
conditional, depending on the insurer's underwriting guidelines Explanation: In this situationl the life insurance coverage is conditional, depending on the insurer's underwriting guidelines1
M completes an application for life insurance but does not pay the initial premium. All of these actions must occur before M's policy goes into effect EXCEPT
free-look period has expired Explanation: In this situation, the poilcy will go into effect after policy is delivered, insurance company issues policy an initial premium is collected EXCEPT the expiration of the free-look period
Consumer reports requested by an underwriter during the application proces of a life insurance policy can be used to determine:
probability of making timely premium payments Explanation: The purpose of thse reports ist to providde a picture of an applicant's general character and reputation, mode of living, finances, and any exposure abnormal hazards
