chpt 1 - Completing the App, UW, and delivering the policy
2 components of life app
1. general info 2. medical info
The term "illustration" in a life insurance policy refers to AA presentation of nonguaranteed elements of a policy. BA depiction of policy benefits and guarantees. CPictures accompanying a policy. DCharts and graphs.
A presentation of nonguaranteed elements of a policy. The term "illustration" means a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years.
Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe? APersonal BAdhesion CUnilateral DConditional
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.
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? ASubrogation BWarranty CAleatory DAdhesion
Aleatory An insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk.
In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT AApplicant's present physical condition. BApplicant's present occupation. CApplicant's past income. DApplicant's past medical history.
Applicant's past income. In classifying a risk, the Home Office underwriting department will look at the applicant's past medical history, present physical condition, occupation, habits and morals.
Which of the following is the basic source of information used by the company in the risk selection process? AWarranty BConsumer report CApplication DAgent's report
Application
When an insurer begins underwriting procedures for an applicant, what will be the main source for its underwriting information? AState records BMedical records CApplication DInterviews
Application The application contains most of the information used for underwriting purposes. This is why its completeness and accuracy are so crucial.
All of the following are duties and responsibilities of producers at the time of application EXCEPT AChange any incorrect statement on the application by personally initialing next to the corrected statement. BExplain the nature and type of any receipt the producer is giving to the applicant. CProbe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information. DCheck to make sure that there are no unanswered questions on the application.
Change any incorrect statement on the application by personally initialing next to the corrected statement. Any changes to information on an application must be initialed by the applicant.
When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is AAleatory. BPersonal. CUnilateral. DConditional.
Conditional. The contract is formed on the basis that certain conditions are met.
Which of the following best describes the aleatory nature of an insurance contract? AAmbiguities are interpreted in favor of the insured BPolicies are submitted to the insurer on a take-it-or-leave-it basis CExchange of unequal values DOnly one of the parties being legally bound by the contract
Exchange of unequal values An aleatory contract is a contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.
A life insurance policy has a legal purpose if both of which of the following elements exist? AUnderwriting and reciprocity BOffer and counteroffer CPolicyowners and named beneficiaries DInsurable interest and consent
Insurable interest and consent To ensure legal purpose of a life insurance policy, it must have both insurable interest and consent.
Adverse Selection
Insuring of risks that are more prone to losses than the average risk
What is the purpose of a conditional receipt? AIt is intended to provide coverage on a date prior to the policy issue. BIt guarantees that a policy will be issued in the amount applied for. CIt serves as proof that the applicant has been determined insurable. DIt is given only to applicants who fully prepay the premium.
It is intended to provide coverage on a date prior to the policy issue. Coverage commences on the date of the application or the date of a medical examination, whichever is later, on the condition that the applicant is determined to be insurable at the rate applied for.
Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives? AInspection Report BAgent's Report CGeneral Information DMedical Information
Medical Information Part 2 - Medical Information of the application includes information on the prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives.
Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report AAre entitled to obtain a copy of the report from the party who ordered it. BMust be advised that a copy of the report is available to anyone who requests it. CMay sue the reporting agency in order to get inaccurate data corrected. DMust be informed of the source of the report.
Must be informed of the source of the report. Under the Fair Credit Reporting Act, if an insurance policy is declined or modified because of information contained in a consumer report, the consumer must be advised and provided with the name and address of the reporting agency.
What is a definition of a unilateral contract? AOne author: the company wrote the contract; the insured must accept it as written. BIf one party makes a condition, the other party can counteroffer. COne-sided: only one party makes an enforceable promise. DTwo or more parties go into a contract understanding there may be an unequal exchange of value.
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.
Under the Fair Credit Reporting Act, if a consumer challenges the accuracy of the information contained in a consumer or investigative report, the reporting agency must ASend an actual certified copy of the entire report to the consumer. BRespond to the consumer's complaint. CDefend the report if the agency feels it is accurate. DChange the report.
Respond to the consumer's complaint. The consumer has the right to request the information on the report, the reasons for turn down and any adverse underwriting decisions. The reporting agency is required to respond to the consumer's complaint, and, if necessary, to reinvestigate the report.
Life Settlement
Selling an EXISTING life policy
Upon policy delivery, the producer may be required to obtain any of the following EXCEPT ASigned waiver of premium. BStatement of good health. CPayment of premium. DDelivery receipt.
Signed waiver of premium. The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a Statement of Good Health from the applicant at the time of policy delivery. Waiver of premium is a rider that can be added to a life insurance policy, and not something to be obtained from the applicant.
Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? AStandard risk is also known as high exposure risk. BStandard risk is representative of the majority of people. CStandard risk pays a higher premium than a substandard risk. DStandard risk requires extra rating.
Standard risk is representative of the majority of people. Standard risks are representative of the majority of people in their age and with similar lifestyles. They are the average risk.
Which of the following types of risk will result in the highest premium? ASubstandard risk BStandard risk CPreferred risk DAll risks pay equal premiums
Substandard risk the substandard rating indicates that an idividual represents an under-average insurance risk becayse of physical condition, personal or family history of disease, occupation, habits or hobbies. this rating occurs the highest prekmium if policy is issued
Which of the following is NOT the consideration in a policy? AThe promise to pay covered losses BThe application given to a prospective insured CSomething of value exchanged between parties DThe 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.
In forming an insurance contract, when does acceptance usually occur? AWhen an insurer delivers the policy BWhen an insurer receives an application CWhen an insured submits an application DWhen an insurer's underwriter approves coverage
When an insurer's underwriter approves coverage In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.
unilateral contract
a characteristic of the policy that states that only one of the parties is legally bound to do anything
Medical Information Bureau
a membership corporation owned by member insurance companies. data collected from insurance agencies is pooled here for each insured.
policy summary
holds specific policy informatin such as premium, benefit, features and elements, years etc
coverage begins
if prem collected upon app - coverage begins at time of application if medical examination and investigation allows if prem not collected upon app - coverage begins when premium is gathered
Aleatory Contract
insurance contracts are aleatory, meaning the amount exchanged are unequal.
buyers guide
offers generic insurance information
insured
person covered by the poicy; may or may not be the policyowner
contract of adhesion
prepared by the insurer and accepted or rejected by the insured. written on a "take it or leave it" basis
the Gramm-Leach-Bliley Act requires 2 disclosures to a customer:
1. when the customer relationship is established 2. before disclosing protected information
Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained? A3 days B5 days C10 days D14 days
3 Days Investigative consumer reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested.
Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained? A3 days B5 days C10 days D14 days
3 days nvestigative consumer reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested.
Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT AConsideration. BLegal purpose. COffer and acceptance. DConditions.
Conditions
following insurance principles has the insurer violated? ARepresentation BAdhesion CConsideration DGood faith
Consideration The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.
Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as AAleatory contracts. BBinding contracts. CContracts of adhesion. DUnilateral contracts.
Contracts of adhesion. Insurance policies are written by the insurer and submitted to the insured on a take- it-or-leave-it basis. The insured does not have any input into the contract, but simply adheres to the contract.
Which is the appropriate action by the insurer if a prospective insured submitted an incomplete application? AIssue a policy anyway since the application has been submitted BAsk the producer who solicited the policy to complete and resign the application CFill in the blanks to the best of the insurer's knowledge DReturn the application to the applicant for completion
Return the application to the applicant for completion Any unanswered questions need to be answered before the policy is issued. If the insurer receives incomplete applications, they need to be returned to the applicants for completion.
insurable interest
the policyowner must face the even of losing something of value if a loss occurs. There must be insurable interest at the time of policy application. The insurer must pay the policy benefit upon a loss whether or not insurable interest still exists.
In insurance, an offer is usually made when AThe insurer approves the application and receives the initial premium. BThe agent hands the policy to the policyholder. CAn agent explains a policy to a potential applicant. DAn applicant submits an application to the insurer.
An applicant submits an application to the insurer. In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.
If an insurance company wishes to order a consumer report on an applicant to assist in the underwriting process, and if a notice of insurance information practices has been provided, the report may contain all of the following information EXCEPT the applicant's APrior insurance. BAncestry. CCredit history. DHabits.
Ancestry. The Fair Credit Reporting Act regulates what information may be collected and how the information may be used. Consumer Reports include written and/or oral information regarding a consumer's credit, character, reputation, and habits collected by a reporting agency from employment records, credit reports, and other public sources. Ancestry is not a relevant factor assessed in these reports.
If an insurer issued a policy based on the application that had unanswered questions, which of the following will be TRUE? AThe policy will be void. BThe insurer may deny coverage later, because of the information missing on the application. CThe policy will be interpreted as if the insurer waived its right to have an answer on the application. DThe policy will be interpreted as if the insured did not have an answer to the question.
BThe insurer may deny coverage later, because of the information missing on the application. Any unanswered questions need to be answered before the policy is issued. If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived its right to have an answer for the question, and will not be able to deny coverage later because of unanswered questions.
Upon policy delivery, the producer may be required to obtain any of the following EXCEPT ADelivery receipt. BSigned waiver of premium. CStatement of good health. DPayment of premium.
Signed waiver of premium. The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a Statement of Good Health from the applicant at the time of policy delivery. Waiver of premium is a rider that can be added to a life insurance policy, and not something to be obtained from the applicant.
Stranger Oriented Life Insurance (STOLI)
a life insurance agreement in which a peroson with no relation to the insured purchases a life policy for that person with the intent of selling it to an investor and profiting when the insured dies. -violates the principle of insurable interest -
Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe? AUnilateral BConditional CPersonal DAdhesion
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 insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that? AInspection Report BMedical Information Bureau's report CAgent's Report DUnderwriter's Report
Inspection Report Inspection reports cover moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies. Companies that use inspection reports are subject to the rules outlined in the Fair Credit Reporting Act.
An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date? AThe date of medical exam BThe date of policy delivery CThe date of issue DThe date of application
The date of medical exam If the company acknowledges receipt of the premium with a conditional receipt, the policy is in effect on the date of the application or the date of the medical exam (whichever is later), provided that the applicant is found insurable at the rate applied for.
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 APrior to filling out an application for insurance. BWith the policy. CUpon issuance of the policy. DWithin 30 days after the first premium payment was collected.
With the policy. If a life insurance policy contains a free-look period of at least 10 days, the buyer's guide can be delivered with the policy. If it doesn't, the buyer's guide must be delivered prior to accepting the initial premium.
Gramm-Leach-Bliley Act
states that an insurance company may not disclose nonpublic personal information to a nonafiliated third party EXCEPT when: 1. the insurer clearly discloses to the customer that the information may be shared with a third party 2. the insured is given opportunity to opt for their information not be shared 3. the consumer is given an explanaition of how the consumer can use a nondisclosure option
suspicious activity repors (SARS)
states that procedures and plans must be in place and designed to identify activity that one owuld deem suspicious of money laundering, terrorism, or other illegal practices
field underwriter
term to describe the agent's role during a Life transaction. responsibilities include but are not limited to: -proper solicitation of applicants -helping prevent adverse selection -completing the app -obtaining required signatures -collecting premium -delivering the policy
SAR reporting
relevant SAR reports must be filed within 30 days of discovery. this takes place on FinCEN form 108
Which is generally true regarding insureds who have been classified as preferred risks? AThey can borrow higher amounts off of their policies. BThey can decide when to pay their monthly premiums. CThey keep a higher percentage of any interest earned on their policies. DTheir premiums are lower. Correct
Their premiums are lower. The preferred risk classification indicates that an insured is in excellent physical condition and employs healthy lifestyles and habits. These individuals qualify for lower premiums than those in the other categories.
All of the following are requirements for life insurance illustrations EXCEPT AThey may only be used as approved. BThey must identify nonguaranteed values. CThey must differentiate between guaranteed and projected amounts. DThey must be part of the contract.
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 nonguaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values.
Why should the producer personally deliver the policy when the first premium has already been paid? ATo find out how the family has been doing since the initial presentation BTo make sure the policy is not stolen or lost CTo help the insured understand all aspects of the contract DTo ensure the producer gets paid commission
To help the insured understand all aspects of the contract It is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.
If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it? AUnilateral BAdhesion CConditional DA legal (but unethical) contract
Unilateral In a unilateral contract, only one of the parties to the contract is legally bound to do anything.
In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe? AUnilateral BUnidirectional CAleatory DConditional
Unilateral In a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy.
USA Patriot act
set in place in october 2001 to combat money laundering requires many establishments to have anti money laundering protocol such as -AML program resource officer -training for employees -program testing
life insurance illustration
presentation or depiction that includes nongauranteeed elements of a life policy over a period of years. must: -distinguish between gauranteed and projected amounts -clearly state it is no part of the contract -identify values that are not part of the contract.
