Completing the Application, Underwriting, and Delivering the Policy
An insurance contract must contain all of the following to be considered legally binding EXCEPT A. Offer and acceptance. B. Consideration. C. Competent parties. D. Beneficiary's consent.
. Beneficiary's consent.
Which of the following statements is NOT true concerning insurable interest as it applies to life insurance? A. Business partners have an insurable interest in each other. B. A husband or wife has an insurable interest in their spouse. C. An individual has an insurable interest in his or her own life. D. A debtor has an insurable interest in the life of a lender.
A debtor has an insurable interest in the life of a lender.
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. A policy summary B. A notice regarding replacement C. A privacy notice D. A buyer's guide
A policy summary
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
Adhesion
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. Unilateral B. Conditional C. Personal D. Adhesion
Adhesion
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. Aleatory B. Good health C. Adhesion D. Conditional
Aleatory
In insurance, an offer is usually made when A. An applicant submits an application to the insurer. B. The insurer approves the application and receives the initial premium. C. The agent hands the policy to the policyholder. D. An agent explains a policy to a potential applicant.
An applicant submits an application to the insurer.
Which is the primary source of information used for insurance underwriting? A. Application B. Applicant interviews C. Medical records D. Private investigations
Application
Which of the following is the basic source of information used by the company in the risk selection process? A. Consumer report B. Application C. Agent's report D. Warranty
Application
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
When must insurable interest exist in a life insurance policy? A. At the time of loss B. At the time of application C. At the time of policy delivery D. When there is a change of the beneficiary
At the time of application
An insurance contract must contain all of the following to be considered legally binding EXCEPT A. Consideration. B. Competent parties. C. Beneficiary's consent. D. Offer and acceptance.
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? A. Policy Summary B. Illustrations C. Buyer's Guide D. Insurance Index
Buyer's Guide
All of the following are duties and responsibilities of producers at the time of application EXCEPT A. Change any incorrect statement on the application by personally initialing next to the corrected statement. B. Explain the nature and type of any receipt the producer is giving to the applicant. C. Probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information. D. Check 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 stateme
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
The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract? A. Personal B. Unilateral C. Conditional D. Adhesion
Conditional
When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is A. Conditional. B. Aleatory. C. Personal. D. Unilateral.
Conditional.
Representations are written or oral statements made by the applicant that are A. Immaterial to the actual acceptability of the insurance contract. B. Considered true to the best of the applicant's knowledge. C. Guaranteed to be true. D. Found to be false after further investigation.
Considered true to the best of the applicant's knowledge.
Which of the following reports will provide the underwriter with the information about an insurance applicant's credit? A. Any federal report B. Consumer report C. Inspection report D. Agent's report
Consumer report
Which of the following reports will provide the underwriter with the information about an insurance applicant's credit? A. Any federal report B. Consumer report C. Inspection report D. Agent's report
Consumer report Consumer reports include written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.
Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as A. Aleatory contracts. B. Binding contracts. C. Contracts of adhesion. D. Unilateral contracts.
Contracts of adhesion.
Which of the following is NOT an example of insurable interest? A. Business partners in each other B. Employer in employee C. Child in parent D. Debtor in creditor
Debtor in creditor
A producer agent must do all of the following when delivering a new policy to the insured EXCEPT A. Collect any premium due. B. Explain the rating procedures if the policy is rated differently than applied for. C. Disclose commissions earned from the sale of the policy. D. Explain the policy provisions, riders, and exclusions.
Disclose commissions earned from the sale of the policy.
All of the following information about the applicant is identified in the General Information section of a life insurance application EXCEPT A. Education. B. Age. C. Gender. D. Occupation.
Education.
An applicant is denied insurance because of 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? A. Conditional receipt B. Disclosure rule C. Fair Credit Reporting Act D. Consumer Privacy Act
Fair Credit Reporting Act
When would a misrepresentation on the insurance application be considered fraud? A. Never: statements by the applicant are only representations. B. When the application is incomplete C. Any misrepresentation is considered fraud. D. If it is intentional and material
If it is intentional and material
A life insurance policy has a legal purpose if both of which of the following elements exist? A. Offer and counteroffer B. Policyowners and named beneficiaries C. Insurable interest and consent D. Underwriting and reciprocity
Insurable interest and consent
A life insurance policy has a legal purpose if both of which of the following elements exist? A. Policyowners and named beneficiaries B. Insurable interest and consent C. Underwriting and reciprocity D. Offer and counteroffer
Insurable interest and consent
What do individuals use to transfer their risk of loss to a larger group? A. Insurance B. Insurable interest C. Exposure D. Indemnity
Insurance
The Medical Information Bureau (MIB) was created to protect A. Medical examiners that perform insurance physical examinations. B. Insurance companies from adverse selection by high risk persons. C. Insurance departments from lawsuits by policyowners. D. Insureds from unreasonable underwriting requirements by the insurance companies.
Insurance companies from adverse selection by high risk persons.
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. Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved. B. Return the premium to Y's estate, since it has no obligation to pay the death claim. C. Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued. D. Issue the policy anyway and pay the face value to the beneficiary.
Issue the policy anyway and pay the face value to the beneficiary.
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.
In the underwriting process, it was determined that the applicant for life insurance is in poor health and has some dangerous habits. Which of the following is true concerning the policy premium? A. It will likely be the average premium issued to standard risks. B. The applicant's habits and health do not affect the premiums. C. It will likely be lower because the applicant is a preferred risk. D. It will likely be higher because the applicant is a substandard risk.
It will likely be higher because the applicant is a substandard risk.
An applicant who receives a preferred risk classification qualifies for A. Higher premiums than a person who receives a sub-standard risk. B. Higher premiums than a person who receives a standard risk. C. Lower premiums than a person who receives a standard risk. D. Dividends payable for lack of claims.
Lower premiums than a person who receives a standard risk.
An applicant who receives a preferred risk classification qualifies for A. Lower premiums than a person who receives a standard risk. B. Dividends payable for lack of claims. C. Higher premiums than a person who receives a sub-standard risk. D. Higher premiums than a person who receives a standard risk.
Lower premiums than a person who receives a standard risk.
Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report A. Are entitled to obtain a copy of the report from the party who ordered it. B. Must be advised that a copy of the report is available to anyone who requests it. C. May sue the reporting agency in order to get inaccurate data corrected. D. Must be informed of the source of the report.
Must be informed of the source of the report.
All of the following would be considered an insurance transaction EXCEPT A. Negotiating coverage. B. Obtaining an insurance license. C. Soliciting a policy. D. Advising a policyholder regarding a claim.
Obtaining an insurance license.
What is a definition of a unilateral contract? A. One author: the company wrote the contract; the insured must accept it as written. B. If one party makes a condition, the other party can counteroffer. C. One-sided: only one party makes an enforceable promise. D. Two 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.
Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT A. Family health history. B. Alcohol and tobacco consumption. C. Recent surgeries. D. Other insurance coverages.
Other insurance coverages.
A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will A. Automatically pay the policy proceeds. B. Pay the policy proceeds only if it would have issued the policy. C. Pay the policy proceeds up to an established limit. D. Not pay the policy proceeds under any circumstances.
Pay the policy proceeds only if it would have issued the policy.
Which of the following will be included in a policy summary? A. Comparisons with similar policies B. Primary and secondary beneficiary designations C. Premium amounts and surrender values D. Copies of illustrations and application
Premium amounts and surrender values
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. Backdated receipt. B. Warranty. C. Premium receipt. D. Statement of good health.
Premium receipt.
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. Statement of good health. B. Backdated receipt. C. Warranty. D. Premium receipt.
Premium receipt.
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.
The insurer discovered that one of the applicants for life insurance missed a couple of questions on the application. What should the insurer do with the application? A. Acknowledge the missed questions with a signature and continue the policy issue process B. Proceed with issuing a policy C. Return to the applicant for completion D. Answer the missed questions for the applicant
Return to the applicant for completion
The insurer discovered that one of the applicants for life insurance missed a couple of questions on the application. What should the insurer do with the application? A. Return to the applicant for completion B. Answer the missed questions for the applicant C. Acknowledge the missed questions with a signature and continue the policy issue process D. Proceed with issuing a policy
Return to the applicant for completion
Insurance is the transfer of A. Hazard. B. Peril. C. Risk. D. Loss.
Risk
Insurance is the transfer of A. Peril. B. Risk. C. Loss. D. Hazard.
Risk
Upon policy delivery, the producer may be required to obtain any of the following EXCEPT A. Delivery receipt. B. Signed waiver of premium. C. Statement of good health. D. Payment of premium.
Signed waiver of premium.
Upon policy delivery, the producer may be required to obtain any of the following EXCEPT A. Payment of premium. B. Delivery receipt. C. Signed waiver of premium. D. Statement of good health.
Signed waiver of premium.
Which of the following is a risk classification used by underwriters for life insurance? A. Poor B. Normal C. Excellent D. Standard
Standard
Which of the following would provide an underwriter with information concerning an applicant's health history? A. The inspection report B. The Medical Information Bureau C. A medical examination D. The agent's report
The Medical Information Bureau
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.
Which of the following is NOT the consideration in a policy? A. The premium amount paid at the time of application B. The promise to pay covered losses C. The application given to a prospective insured D. Something of value exchanged between parties
The application given to a prospective insured
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? A. The date of medical exam B. The date of policy delivery C. The date of issue D. The date of application
The date of medical exam
All of the following are requirements for life insurance illustrations EXCEPT A. They must identify nonguaranteed values. B. They must differentiate between guaranteed and projected amounts. C. They must be part of the contract. D. They may only be used as approved.
They must be part of the contract.
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 nonguaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values.
What is the purpose of the buyer's guide? A. To allow the consumer to compare the costs of different policies B. To provide the name and address of the agent/producer issuing the policy C. To list all policy riders D. To provide information about the issued policy
To allow the consumer to compare the costs of different policies
What is the purpose of the buyer's guide? A. To list all policy riders B. To provide information about the issued policy C. To allow the consumer to compare the costs of different policies D. To provide the name and address of the agent/producer issuing the policy
To allow the consumer to compare the costs of different policies
Why should the producer personally deliver the policy when the first premium has already been paid? A. To ensure the producer gets paid commission B. To find out how the family has been doing since the initial presentation C. To make sure the policy is not stolen or lost D. To help the insured understand all aspects of the contract
To help the insured understand all aspects of the contract
Why should the producer personally deliver the policy when the first premium has already been paid? A. To make sure the policy is not stolen or lost B. To help the insured understand all aspects of the contract C. To ensure the producer gets paid commission D. To find out how the family has been doing since the initial presentation
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? A. Unilateral B. Adhesion C. Conditional D. A legal (but unethical) contract
Unilateral
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? A. Conditional B. Unilateral C. Unidirectional D. Aleatory
Unilateral
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? A. Unilateral B. Unidirectional C. Aleatory D. Conditional
Unilateral
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? A. Conditional B. Unilateral C. Unidirectional D. Aleatory
Unilateral In a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy.
In forming an insurance contract, when does acceptance usually occur? A. When an insured submits an application B. When an insurer's underwriter approves coverage C. When an insurer delivers the policy D. When an insurer receives an application
When an insurer's underwriter approves coverage
In forming an insurance contract, when does acceptance usually occur? A. When an insurer delivers the policy B. When an insurer receives an application C. When an insured submits an application D. When an insurer's underwriter approves coverage
When an insurer's underwriter approves coverage
In forming an insurance contract, when does acceptance usually occur? A. When an insurer's underwriter approves coverage B. When an insurer delivers the policy C. When an insurer receives an application D. When an insured submits an application
When an insurer's underwriter approves coverage
When is the earliest a policy may go into effect? A. When the first premium is paid and the policy has been delivered B. When the insurer approves the application C. After the underwriter reviews the policy D. When the application is signed and a check is given to the agent
When the application is signed and a check is given to the agent
If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about A. Which individual will pay the premium. B. Whether an insurable interest exists between the individuals. C. The gender of the applicant. D. The type of policy requested.
Whether an insurable interest exists between the individuals.
If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant A. Upon issuance of the policy. B. Within 30 days after the first premium payment was collected. C. Prior to filling out an application for insurance. D. With the policy.
With the policy.
