Completing the Application, Underwriting, and Delivering the Policy
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.
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
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 no later than
With the policy
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
premium receipt
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
Which of the following is NOT the consideration in a policy?
The application given to a prospective insured
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.
In terms of parties to a contract, which of the following does NOT describe a competent party?
The person must have at least completed secondary education.
What is insurance underwriting?
The process of risk selection and classification
How may insurance policies be delivered to insureds?
They may either be personally delivered by an agent or mailed.
How is the information obtained for an investigative consumer report?
Through interviews with the applicant's associates, friends, and neighbors
What is the purpose of the buyer's guide?
To allow the consumer to compare the costs of different policies
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 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
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?
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
When is the earliest a policy may go into effect?
When the application is signed and a check is given to the agent.
In insurance, when is the offer usually made on a contract?
When the insurance application is submitted.
In forming an insurance contract, when does acceptance usually occur?
When the insurer provides a prepaid application.
When does an insurance policy go into effect?
When the policy is delivered and the premium is paid
At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?
Either the date of the application or the date of the medical exam (whichever occurs last)
What two elements are necessary for a life insurance contract to have a legal purpose?
Insurable interest and consent.
What do individuals use to transfer their risk of loss to a larger group?
Insurance
What entities make up the Medical Information Bureau?
Insurers
What are the three main instances when insurable interest exists in life insurance?
Insuring your own life, the life of a family member, or the life of a business partner or someone who has a financial obligation to the policyowner.
What type of report may be used to assess risks associated with an applicant's lifestyle and character?
Investigative Consumer Report
What type of report provides information about the applicant's hobbies, habits, and financial status?
Investigative consumer report
A producer must do all of the following when delivering a new policy to the insured EXCEPT
Disclose commissions earned from the sale of the policy.
If an applicant does not receive a copy of the new insurance policy, who would be held responsible?
The agent
What is a 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. It must be delivered along with a new policy.
Who is a field underwriter?
Agent/Producer
What are the four elements of an insurance contract?
Agreement (offer and acceptance), consideration, competent parties, and legal purpose
What is a warranty in an insurance contract?
An absolutely true statement upon which the validity of the insurance contract is based.
What is the best way to handle incomplete insurance applications?
Any unanswered questions need to be answered before the policy is issued. Return the application to the applicant for completion.
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 policy owner?
At the time of policy delivery
An insurance contract must contain all of the following to be considered legally binding EXCEPT
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?
Buyer's guide
If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to
Charge a higher premium
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
Conditions
Representations are written or oral statements made by the applicant that are
Considered true to the best of the applicant's knowledge.
Insurance contracts are prepared by insurers and must be accepted by the insured on an as-is basis. This describes what characteristic of an insurance contract?
Contract of adhesion
Insurance is a contract that protects the insured from what?
Loss
Insurance contracts are known as unilateral. What does that 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.
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 information about the applicant from investigators, what is the insurer required to do?
Provide the applicant a Disclosure Authorization Notice
Another name for a substandard risk classification is
Rated
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 signnature
What are the three types of risk rating classifications in life insurance?
Standard, substandard, and preferred
Which of the following types of risk will result in the highest premium?
Substandard risk
What law protects consumers from the circulation of inaccurate or obsolete information?
The Fair Credit Reporting Act
Who must have insurable interest in the insured?
The Policyowner