Insurance Chapter 1

What is policy replacement?

A new policy is issued while an existing policy is terminated or reissued with a reduction in cash value

The term "illustration" in a life insurance policy refers to

A presentation of non guaranteed elements of a policy

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 a warranty?

An absolutely true statement upon which the validity of the insurance policy depends.

What is the term for a person who seeks insurance from an insurer?

Applicant

What is the key source underwriters use for information about the applicant?

Application

What must the policy summary for a life insurance policy be delivered to the policyowner?

At the time of policy delivery

When must insurable interest exist in a life insurance policy?

At the time of the application

What is considered prohibited information on a consumer report?

Bankruptcies of more than 10 years old Civil suits Record of arrest or convictions of crimes Any other negative information regarding a customer's delinquency, late payments, or insolvency

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?

Conditional

Health contracts are prepared by insurers and must be accepted by the insured on an 'as is' basis. This describes what aspect of a health insurance contract?

Contract of adhesion

At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?

Either on the date of the application or the date of the medical exam (whichever occurs last)

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?

Fair Credit Reporting Act

What are the field underwriter responsibilities?

Helping prevent adverse selection The proper solicitation of applicants Completing the application Obtaining the required signatures Collecting the initial premium and issuing the receipt Delivering the policy

What is insurable interest?

If you don't lose money from an risk event, you cannot purchase an insurance policy to cover that event.

What type of report provides information about the applicant's hobbies, habits and financial status?

Inspection report

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 partners or someone who has a financial obligation to the policy owner

What report is used to assess risk associated with a health insurance applicant's lifestyle and character?

Investigative consumer report

Insurance is a contract that protects the insured from what?

Loss

An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?

Material misrepresentation

Health insurance contracts are unilateral. What does that mean?

Only one party makes a legally enforceable promise

What are the two components that every insurance application has?

Part 1 general information, and part 2 medical information

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will

Pay the policy proceeds only if it would have issued the policy

What is adverse selection?

People who are more likely to submit insurance claims are seeking insurance more often than preferred risks.

How can health insurance policies be delivered to the insured?

Personally delivered by the agent or mailed

What risk classification would typically qualify for lower premiums?

Preferred risk

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

The Federal Fair Credit Reporting Act does what?

Regulates consumer reports

What is the best way to handle incomplete insurance applications?

Return the application to the applicant for completion

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 insurer do?

Send the application back to the applicant for signature

What are the three types of risk rating classifications in life insurance?

Standard, substandard, and preferred

What law protects consumers from the circulation of inaccurate or obsolete information?

The Fair Credit Reporting Act

If an applicant does not receive a copy of the new insurance policy, who would be held responsible?

The agent

Whose responsibility is it to determine that all the questions on an insurance application are answered?

The agent

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.

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

If the 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

Who must have insurable interest i the insured?

The policy owner

What is insurance underwriting?

The process of risk selection and classification

What are Investigative consumer reports or inspection reports?

They are general reports of the applicant's finances, character, work, hobbies, and habits

What are consumer reports?

They include written and/or oral information regarding a consumer's credit, character, reputation, or habits collected from employment records, credit reports, or other public sources.

How is information obtained for an investigative consumer report?

Through interviews with the applicant's associates, friends, and neighbors

During which stage in the insurance process fo 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 health 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

What are misrepresentations?

Untrue statements on the application that could void the contract

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

In insurance, when is the offer usually made on a contract?

When the insurance application is submitted

In insurance, when is the offer usually made on contract?

When the insurance application is submitted

In forming an insurance contract, when does an acceptable usually occur?

When the insurer approves a prepaid application

In forming an insurance contract, when does an acceptance usually occur?

When the insurer approves a prepaid application

When does an insurance policy go into effect?

When the policy is delivered and the premium is paid

When must the policy summary for a life insurance policy be delivered to the policy owner?

at the time of policy delivery

What two elements are necessary for a life insurance contract to have a legal purpose?

insurable interest and consent

What document describes the specific information about a policy?

policy summary

What is underwriting?

risk selection and classification process

What are representations?

written or oral statements made by the applicant that are considered true to the best of the applicant's knowledge