Exam FX Completing the Application, Underwriting, and Delivering the Policy

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

A. Change any incorrect statement on the application by personally initialing next to the corrected statement *Any changes to information on an application must be initiated by the applicant.

What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act? A. $100 per violation B. Revocation of license C. $2,500 D. $1,000

C. $2,500 *An individual who willfully violates this Act enough to constitute a general pattern or business practice will be subject to a penalty of up to $2,500

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

C. Buyer's Guide *The Buyer's Guide is a consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process. It is a generic guide that does not address the specific policy of the insurer, instead explaining life insurance in a way the average consumer can understand.

Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report A. Must be advised that a copy of the report is available to anyone who requests it B. May sue the reporting agency in order to get inaccurate data corrected C. Must be informed of the source of the report D. Are entitled to obtain a copy of the report from the party who ordered it.

C. 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.

When is the earliest a policy may go into effect? A. After the underwriter reviews the policy B. When the application is signed and a check is given to the agent C. When the first premium is paid and the policy has been delivered D. When the insurer approves the application

B. When the application is signed and a check is given to the agent *The policy can be effective as early as the date of the application, if the premium is submitted with the application and the policy is issued as applied for.

Which of the following is NOT an example of insurable interest? A. Employer in employee B. Child in parent C. Debtor in creditor D. Business partners in each other

C. Debtor in creditor *The three recognized areas in which insurable interest exists are as follows: a policyowner insuring his or her own life, the life of a family member, or the life of a business partner, key employee, or someone who has a financial obligation to them. A debtor does not have an insurable interest in the creditor.

A producer agent must do all of the following when delivering a new policy to the insured EXCEPT A. Collect any premiums 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

C. Disclose commissions earned from the sale of the policy *A producer must explain policy provisions, exclusions, and riders at the time of delivery, as well as the rating procedures, especially if the policy is rated differently than applied for. The producer must also collect any due premium and have the insured sign the statement of continued good health.

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

C. Fair Credit Reporting Act *The Fair Credit Reporting Act governs what information can be collected and how the information can be used.

An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin. A. On the designated effective date B. On the application date C. When the agent submits the application to the company and the company issues a conditional receipt D. When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health

D. When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health *If the initial premium is not paid with the application, the agent will be required to collect the premium at the time of policy delivery. In this case, the applicant will most likely need to fill out a Statement of Good Health.

A producer agent must do all of the following when delivering a new policy to the insured EXCEPT A. Disclose commissions earned from the sale of the policy. B. Explain the policy provisions, riders, and exclusions C. Collect any premium due D. Explain the rating procedures if the policy is rated differently than applied for

A. Disclose commissions earned from the sale of the policy. *A producer must explain policy provisions, exclusions, and riders at the time of delivery, as well as the rating procedures, especially if the policy is rated differently than applied for. The producer must also collect any due premium and have the insured sign the statement of continued good health.

Which of the following individuals must have insurable interest in the insured? A. Producer B. Policyowner C. Beneficiary D. Underwriter

B. Policyowner *The policyowner must have an insurable interest in the insured (his/her own life if the policyonwer and the insured is the same person), or in the life a family member or a business partner

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

A. To allow the consumer to compare the costs of different policies *The buyer's guide provides generic information about life insurance policies and allows the consumer to compare the costs of different policies. The policy summary provides specific information about the issued policy, as well as the insurer's 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? A. 3 days B. 5 days C. 10 days D. 14 days

A. 3 days *Investigative consumer reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date of the report was requested.

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

A. Conditional *The contract is formed on the basis that certain conditions are met

Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives? A. Medical information B. Inspection Report C. Agent's Report D. General information

A. 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.

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will A. Pay the policy proceeds only if it would have issued the policy B. Pay the policy proceeds up to an established limit C. Not pay the policy proceeds under any circumstances D. Automatically pay the policy proceeds

A. Pay the policy proceeds only if it would have issued the policy *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.

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 contact element does this describe? A. Unilateral B. Unidirectional C. Aleatory D. Conditional

A. Unilateral *In a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy.

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contact characteristic does this describe? A. Personal B. Adhesion C. Unilateral D. Conditional

B. 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.

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. Binding contracts B. Contracts of adhesion C. Unilateral contracts D. Aleatory contracts

B. 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.

All of the following information about the applicant is identified in the General Information section of a life insurance application EXCEPT A. Occupation B. Education C. Age D. Gender

B. Education *Education is not an underwriting factor nor is it information included on the application

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. Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued B. Issue the policy anyway and pay the face value to the beneficiary C. Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved D. Return the premium to Y's estate, since it has no obligation to pay the death claim

B. Issue the policy anyway and pay the face value to the beneficiary *The conditional receipt says the 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 the policy is issued exactly as applied for.

Which of the following best describes MIB? A. It is a rating organization for health insurance B. It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance C. It is a government agency that collects medical information on the insured from the insurance companies D. It is a member organization that protects insured against insolvent insurers

B. It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance *The Medical Information Bureau (MIB) is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

What is the purpose of conditional receipt? A. It is given only to applicants who fully prepay the premium B. It is intended to provide coverage on a date prior to the policy issue. C. It guarantees that a policy will be issued in the amount applied for D. It serves as proof that the applicant has been determined insurable

B. 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 insured at the rate applied for.

What is the definition of a unilateral contract? A. If one party makes a condition, the other party can counteroffer B. One-sided: only one party makes an enforceable promise C. Two or more parties go into contract understanding there may be an unequal exchange of value D. One author: the company wrote the contract; the insured must accept it as written

B. 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 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

B. The Medical Information Bureau *An agent's report and inspection report provide personal information. Medical exams provide information on current health. Only the MIB will provide information about an applicant's medical history.

Which of the following is NOT the consideration in a policy? A. The promise to pay covered 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

B. 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 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 application B. The date of medical exam C. The date of policy delivery D. The date of issue

B. The date of medical exam *If the company acknowledge 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, provided that the applicant is found insurable at the rate applied for.

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. Adhesion B. Personal C. Unilateral D. Conditional

D. Conditional *A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.

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 A. Prior to filling out an application for insurance B. With the policy C. Upon issuing of the policy D. Within 30 days after the first premium payment was collected

B. 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.

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

C. Conditional *A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.

Which of the following includes information regarding a person's credit, character, reputation, and habits? A. Insurability report B. Agent's report C. Consumer report D. Consumer history

C. 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.

The Federal Fair Credit Reporting Act A. Regulates B. Prevents money laundering C. Regulates consumer reports D. Protects customer privacy

C. Regulates consumer reports *The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigate reports, or credit reports.

Which of the following best details the underwriting process for life insurance? A. Issuance of policies B. Reporting and rejection of risks C. Selection, classification, and rating of risks D. Solicitation, negotiation and sale of policies

C. Selection, classification, and rating of risks *The underwriting process is accomplished by reviewing and evaluating information about an applicant and applying what is known of the individual against the insurer's standards and guidelines for insurability and premium rates.

Which is generally true regarding insureds who have been classified as preferred risks? A. They can decide when to pay their monthly premiums B. They keep a higher percentage of any interest earned on their polices C. Their premiums are lower D. They can borrow higher amounts off of their policies

C. 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 premium than those in the other categories.

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? A. 7 days B. 10 days C. 3 days D. 5 days

D. 5 days *Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information.

What is material misrepresentation? A. Any misstatement made by an applicant for insurance B. Any misstatement by the producer C. Concealment D. A statement by the applicant that, upon discovery, would affect the underwriting decisions of the insurance company

D. A statement by the applicant that, upon discovery, would affect the underwriting decisions of the insurance company *A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.

When would a misrepresentation on an insurance application be considered fraud? A. Never: statements by the applicant are only representations B. When the applicant is incomplete C. Any misrepresentation is considered fraud D. If it is intentional and material

D. If it is intentional and material *A misrepresentation would be considered fraud if it is intentional and material. Fraud would be grounds for voiding the contract.

Which of the following information about the applicant is NOT included in the General Information section of the application for insurance? A. Gender B. Occupation C. Marital status D. Medical background

D. Medical background *Part 1- General information of the application includes the general questions about the applicant, including name, age, address, birth date, gender, income, marital status, and occupation. The applicant's medical background is addressed in Part 2- Medical information.

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

D. Other insurance coverages *Part 2 of the application contains questions regarding the applicants health history. Part 1 of the application includes questions regarding current coverage being applied for as well as any other insurance coverage with the same or other insurers.

What describes the specific information about a policy? A. Illustrations B. Buyer's guide C. Producer's report D. Policy summary

D. Policy summary *A policy summary describes the features and elements of the specific policy for which a person is applying.

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 they 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

D. 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.

Which of the following would qualify as a competent party in an insurance contract? A. The applicant is intoxicated at the time of application B. The applicant is a 12-year-old student C. The applicant is under the influence of a mind-impairing medication at the time of application D. The applicant has a prior felony conviction

D. The applicant has a prior felony conviction *When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent, it is a legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12-year-old student is considered to be underage in most states and a person under mind-impairing medication most likely would not be mentally competent.

In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports? A. They provide additional information from an outside source about a particular risk B. They provide information about a customer's character and reputation C. The customer has no knowledge of this action D. The customer's associates, friends, and neighbors provide the report's data

D. The customer's associates, friends, and neighbors provide the report's data *Both consumer reports and investigative consumer reports provide additional information from an outside source about a customer's character and reputation, and both types of reports are used under the Fair Credit Reporting Act. The main difference is that the information for investigative consumer reports is obtained through an investigation and interviews with associates, friends and neighbors of the consumer.

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. The gender of the applicant B. The type of policy requested C. Which individual will pay the premium D. Whether an insurable interest exist between the individuals

D. Whether an insurable interest exist between the individuals *An insurable interest must exist at the time the policy is issued. Some relationships are automatically presumed to qualify as an insurable interest, e.g., spouses, parents, children and certain business relationships.