Life/Health - A.D. Banker - Chapter 2
All of the following are true regarding an Attending Physician's Statement (APS), except: A Applicants must sign a release in order for their physician to respond to an APS request B They are used in cases where the application or medical records reveal conditions that require further explanation C An MIB report can be used in place of an APS D The insurer pays the physician for completing and forwarding the APS
C An Attending Physician's Statement (APS) is used in cases in which the individual application and/or medical reports reveal conditions for which more information is required. An applicant must sign a written release to enable a release of the APS. The insurer pays for this.
What should the producer do, if the insured is in the hospital with a heart condition pending surgery on the day the newly issued policy was to be delivered and initial premium collected? A Return the policy to the insurer with a letter of explanation B Deliver the policy to an immediate family member and collect any outstanding premium C Hold onto the policy until the insured is discharged from the hospital and then deliver the policy D Collect additional premium at the time of delivery to reflect the higher risk the insurer now faces
A Producers must return the policy to the insurer if they know that the insured's health status has materially changed since the time of application.
The MIB is used in the underwriting of all of the following types of insurance, except: A Disability Income B Auto and Homeowners C Life D Critical Illness
B The MIB's Underwriting Services are used exclusively by MIB-member life and health insurance companies to assess an individual's risk and eligibility during the underwriting of life, health, disability income, critical illness, and long-term care insurance policies.
An applicant for life insurance realizes several days later that she may have answered a question about a health issue incorrectly. She should do which of the following? A Wait to find out if she is approved for the insurance first, and then she can let the company know she may have made a mistake B Contact either her agent or the insurance company and make sure they have the correct information C Nothing. Answers in the application must only be true to the best of her knowledge at the time she submits the application D Hope that nothing happens in the first year after the policy is issued, because after that it won't matter if the answer was or wasn't correct
B The insurance company is entitled to have the most correct information available before it approves a person for insurance. Incorrect information in the application may only be changed before the policy is issued.
The person who submits an application for insurance is always referred to as the _______.
B The person who submits an application for insurance is always referred to as the applicant.
A typical life insurance application contains how many parts? A 2 B 1 C 4 D 3
A A typical life insurance application contains two parts, part 1 is general information and part 2 is medical information.
Upon receipt of all of the necessary information, the home office underwriters can issue the coverage applied for in all of the following ways, except: A Declined B Substandard C Standard D Preferred
A Declined means that the policy would not be issued. The other choices indicate an acceptable risk at different pricing based on insurability.
_______________ is the process of selection, classification and rating, and determining if someone is insurable. A Home office underwriting B The agent's report C Completing the application D Field underwriting
A Home office underwriting is the process of selection, classification and rating, and determining if someone is insurable.
Interest earned on premiums paid to an insurer helps to ________ the premiums charged. A Lower B Stabilize C Increase D Standardize
A Interest earned on premiums assists in premium rate reduction.
Policy __________ are the net premiums paid plus interest earned and reflect potential insurance contract obligations. A Assumptions B Dividends C Reserves D Liabilities
C A reserve is maintained by an insurer in order to meet future potential obligations and is also required by State insurance laws.
If a client chooses to pay premiums other than annually, what can he or she expect? A Better client service B Lower overall total premium costs C Additional charges to offset lost interest, earnings, and increased administrative costs D Higher surrender charges on some policies
C Additional charges are included in modes other than annual to offset the lost interest earnings and the increased administration costs.
Which of the following best describes producer field underwriting? A Conducting blood pressure readings, taking the applicant's pulse, and drawing blood B Interviewing the applicant's neighbors about the applicant's morals and character C Obtaining the applicant's medical records, conducting a credit history check, and logging in to the MIB D Taking the time to probe beyond the stated questions on the application based upon the applicant's responses
D Probing beyond the stated questions in the application based upon the applicant's responses is field underwriting. The producer does not engage in any of the other listed activities.
When determining an appropriate amount of life insurance, a producer takes into consideration the existing mortgage and other debt, future education expenses for the client's children and continuing income for his surviving spouse. This approach is known as: A The DIME method of insurance planning B The NAIC Model C Human life value D Needs analysis
D When a producer takes into account a variety of factors related to lost future income, he/she is using a needs approach.
A business owner buys a life policy on his own life. He may be all of the following except _______________. A Beneficiary B Owner C Applicant D Insured
A The insured may not be the beneficiary of his own policy. The owner and the applicant may also be the insured.
Normally, when the insurer determines that the insured is an acceptable risk, the insurer will send the policy to the ____________. A Policyowner B Producer C Beneficiary D Insured
B Normally, the insurer will mail the issued policy to the producer for delivery so that if any outstanding premium is due, it can be collected, if a statement of good health is required, it can be obtained, and any questions the applicant has about the policy can be answered.
A ____________ account is an amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A Separate B Reserve C Loan D General
B A reserve is an amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability.
Capital liquidation assumes: A Only the amount invested will be liquidated B The balance of the account will reduce over a period of time once payout begins C The payout will only include interest and the balance remains the same D The balance of the account will increase over time once payout begins
B Capital liquidation assumes both principal (capital) and interest are liquidated over the relevant time period to provide the required income for the dependents. This will cause the balance to decrease and benefits are paid.
Which of these modes would result in the insured paying the least annual outlay for life insurance? A Monthly automatic bank draft B Annual C Semi-annual payroll deduction D Quarterly
B Paying premiums on an annual basis is always the least costly premium mode. Paying premiums monthly is usually the most expensive mode. Although some insurers may offer a discount for automatic monthly bank drafts, not all do, so this is not an acceptable choice. Payroll deduction is not a "mode."
Which of the following is not a factor in premium determination? A Expenses B Reserves C Mortality D Interest
B Premiums are based on expected mortality, interest, and expenses.
If a client is unsure about whether or not he/she can obtain coverage or how much it would cost, what can the producer suggest to see what the insurer can do without tying up any of the client's funds? A Submit a term life application B Issue a binding receipt C Submit a trial application D Submit a whole life application
C A trial application is one submitted without a premium. The policy would not take effect until the policy is issued by the insurer, delivered by the agent, and the premium is paid. It is used when insurability and pricing are in doubt.
Information from a third party collected by the insurance company in the application for insurance and during underwriting of the policy may be subject to the jurisdiction of the: A Fair Claims Reporting Act B Unfair Claims Practices Act C Fair Credit Reporting Act D Deceptive Trade Practices Act
C The Fair Credit Reporting Act is the only one in the list which may have jurisdiction over information gathered for underwriting purposes.
In a replacement transaction, all of the following are insurer duties and responsibilities, except: A Maintain copies of the information provided by the producer B Abide by the state required holding period for all replacement documentation C Contact the client to assure that they understand the transaction D Notify the existing insurer
C The Replacing Insurer's responsibilities include: upon receiving proper notification with the new application, the replacing insurer must notify the existing insurer of the planned replacement, maintain copies of the information regarding replacement for a specified period of time as mandated by the state.
At the time of a life insurance policy delivery, a producer must provide which of the following? A A copy of the insurance company's most recent annual report B A copy of the fact finding data collected on the initial sales appointment C A copy of the Buyers Guide to Health Insurance, if interest was expressed in buying health insurance D A copy of the illustration that matches the policy for which was approved
D An illustration or policy summary must be provided prior to or at the time a policy is delivered. If the policy is not the same as that which was illustrated previously, the client must be given a new illustration matching the policy that is issued. In practice, insurance companies include a matching illustration or summary with every policy approved for delivery.
Which of the following describes group life insurance? A A single policy issued to a group of individuals who have formed an alliance to obtain life insurance at reduced rates. B Multiple policies issued to an employer to cover a specific group of executives C A single policy issued to an individual covering husband, wife and children D A single policy issued to a business to cover the lives of employees
D Group insurance is underwritten as a single policy that covers many lives. A policy issued to an individual that covers all family members is still an individual policy. A group specifically formed for the purpose of obtaining insurance is not a valid group under state insurance laws.
Medical exams are requested in all of the following situations, except: A Past health history B High amounts of coverage C Low amount of premium D Insured's advanced age
D Medical examinations are usually requested by the insurer after determining if the amount of coverage, age of applicant, or his/her health history warrants the examination. Premium has nothing to do with it.
A young couple just starting out on a limited budget, but having a large need for life insurance coverage, most likely would be best suited for ________ life insurance:
D Term is for the price conscious. It provides the largest amount of coverage for the lowest premium initially.
Which of the following statements correctly describes the difference between gross premium and net premium? A Gross premium is the total amount paid for the policy. Net premium does not include the insurance company's cost of doing business, such as paying claims and other expenses B Gross premium is what the insured pays to the insurance company each month; Net premium is what the agent's commission is based on C Net premium is the total paid to the insurance company each month; Gross premium is described in terms of the number of dollars per $1000 a person pays for his/her insurance D The net premium is the cost per $1,000 of insurance, the gross premium excludes insurance company expenses
A Gross premium is the total amount a person pays the insurer for his/her coverage. Net premium, sometimes called the "pure premium," does not include business expenses of the insurer.
All of the following are examples of a third-party ownership, EXCEPT: A S applies for a policy on herself and names her husband as the beneficiary B J applies for his life insurance policy and names his trust as the owner and beneficiary C T applies for and owns his 2-year old son's policy, but names his wife beneficiary D J is named as the owner and beneficiary of G's policy
A Third-party ownership exists when the insured and the owner of the policy are different persons.
If a premium is collected with a life insurance application and coverage begins immediately for a specific length of time regardless of whether the applicant is ultimately approved by the insurer, the receipt given by the agent is called a(n): A Approval Receipt B Binding Receipt C Acceptance Receipt D Conditional Receipt
B A binding receipt provides coverage for up to 90 days or until a policy is issued or the risk is declined by the insurer. This is also known as a temporary insurance agreement.
Which of the following best describes a Statement of Good Health? A It is the producer's authority to raise the rate if the insured does not appear to be in good health at the time of policy delivery B It verifies that the insured has not suffered a serious illness or injury requiring surgery or hospitalization since the application date C It is a sworn oral statement made by the insured at time of delivery which allows for coverage to come into effect D It is what comes along with the policy at the time of delivery confirming the underwriting class the insured falls into if the policy was issued standard or better
B Generally, this is used when the policy was issued with an outstanding premium requirement to assure the issuer that the health status of the insured has not significantly changed since the time of application.
Which of the following receipts states that coverage will begin immediately for a specific length of time, regardless of whether the applicant is ultimately approved for coverage by the insurer? A Acceptance approval receipt B Temporary insurance agreement C Conditional receipt D Trial receipt
B If premium is paid, coverage will begin immediately for a specific length of time regardless of whether the applicant is ultimately approved by the insurer. This may also be referred to as a temporary insurance agreement or a binding receipt.
Industrial life insurance is typically sold in face amounts of: A $5,000 multiples B $1,000 or less C $10,000 to $20,000 D Up to $50,000
B Industrial Life policies provide benefits of $1,000 or less.
Industrial Life Insurance is also referred to as a: A Participating Policy B Debit Policy C Nonparticipating Policy D Group Policy
B Industrial life policies are also known as home service and debit policies where premiums are collected by a Debit Agent.
A generic brochure developed by the NAIC to provide consumers with descriptions of basic types of life insurance as well as the comparative costs of each is called the _______. A Policy Summary B Buyer's Guide C Sales Illustration D Consumer Information Kit
B It is required that prospective life insurance buyers receive the NAIC Buyer's Guide to assist them in their life insurance purchase decision.
When producer Pete delivers a policy, he should also do which of the following? A Collect at least 3 referrals B Explain the policy fully C Demand the balance of the annual premium D Collect any amounts due for postage and handling
B It is the producer's or agent's responsibility to deliver the policy, verify the insured has remained in good health, and explain the policy to be sure the insured understands the benefits, including endorsements and riders.
Mortality cost ______ interest (investment earnings) = equals the net premium. A Divided by B Minus C Plus D Multiplied by
B Mortality cost minus interest (investment return) = net premium (pure rate).
Which of the following is included in Part II of a Life Insurance Application? A Marital status B Gender C Date of birth D Family member's age and cause of death
D Part II of the application contains questions pertaining to medical background, present health, any medical visits in recent years, medical status of family members and causes of death of deceased relatives.
The individual who has the ownership rights of a policy is called the: A Insured B Applicant C Policyowner D Beneficiary
C Typically, the owner, insured and applicant would be the same person, but not always, as in the case of third-party ownership (e.g. juvenile policies, key person policies, etc.) In this case, even though the owner is not the insured, he or she still controls every right that the policy affords.
When an insurer accounts for the interest and mortality factors, then adds additional charges to meet all costs of a contract, it derives __________. A The gross premium B The dividends C The policy reserves D The net premium
A Insurer expenses (loading) are added to the net premium rate to enable an insurer to meet all costs under the contract, such as operating costs, commissions, medical examination costs, etc.
Part 2 of the application consists of all of the following information, except: A Date of birth, gender B Past and present health C Surgeries D Hospitalizations
A Part 2 of the application contains questions pertaining to medical background, past and present health, any medical visits, hospitalizations, or surgeries in recent years, medical status of immediate family members, and age and causes of their death.
Loading includes all of the following, except: A Mortality B Medical exam costs C Producer commissions D Operating expenses
A The mortality rate is used to determine net premium. Loading are additional charges to net premium to derive gross premium.
If a medical exam is required as part of the underwriting process, who normally conducts the exam? A The producer's manager in the agency's office B A physician or nurse C The producer D A chiropractor
B Physicians, nurses, or paramedics are the ones who conduct medical exams which may include blood tests, urine tests, EKGs, and medical histories among other things.
J took out a life policy when he was 35. It had a conversion feature that he exercised at age 45. Age 45 is referred to as his ____ age. A Renewal B Effective C Attained D Issue
C Attained age is the insured's age at any point in time, typically used at renewal or conversion.
In determining the proper amount of life insurance, the Needs Analysis Approach takes into consideration all of the following factors, except: A The projected future value of services provided by the insured B The payoff of any outstanding mortgage balance C The paying off of personal debts, medical bills, and final expenses D The creation of college funds for surviving children
A The Needs Analysis Approach factors in paying off all bills, creating a lifetime stream of income for the surviving spouse, creating a college fund for surviving children, and paying off the mortgage. Once totaled, this amount is reduced by financial assets already in place.
The process of calculating life insurance net premium requires consideration of all of the following, except: A The rate of interest assumed B The insured's gender C The morbidity rates to be used D The insured's age
C Net Premium for life insurance takes into account interest and mortality (not morbidity) factors only. The insured's age and gender are considered mortality factors.
Which of the following best describes 'Capital Liquidation' in an effort to meet an income objective? A Principal is paid out B Principal and earnings are paid out C Principal is paid out but investment earnings are reinvested D Investment earnings are paid out
B In a capital liquidation strategy both principal and earnings are paid out over the anticipated time period in order to meet the income objective. Each payment would be the same as any investment earnings shortfall would be offset by principal liquidations.
The human life value approach in determining the amount of life insurance someone needs takes into consideration all of the following, except: A Occupation B Personal and financial information of those living at home with the insured C The number of cars the insured and family members own D Planned retirement age
C The human life value approach takes into consideration the individual's age and gender, the individual's occupation, the individual's annual wage and employment benefits, the individual's planned retirement age, and personal and financial information of family members living at home.
Which of the following is not true about life insurance applications? A Applications for life insurance are typically divided into two parts: General Information and Health History B The application is confidential communication between the agent and the insurer C The application may contain all the information underwriting needs to approve the insured D The application more fully identifies the insured
B Which of the following is not true about life insurance applications? A Applications for life insurance are typically divided into two parts: General Information and Health History B The application is confidential communication between the agent and the insurer C The application may contain all the information underwriting needs to approve the insured D The application more fully identifies the insured
Which of the following is a type of rating that does not involve an extra premium being assessed? A Sub-standard B Rated up age C The lien plan D The flat rate
C With the lien plan, initially, only the premium would be refunded in case of death. The death benefit increases over time with the full face amount eventually payable. This is generally used with Senior Life Insurance plans to provide minimal benefits without a medical examination.
A personal use of life insurance does which of the following? A Creates an immediate estate B Creates an insurable interest C Compensates a business for the death of a key person D Provides protection against living too long
A Life insurance is often described as creating an immediate estate. Annuities are designed to provide protection against living too long.
Which of the following receipts states that coverage will begin immediately for a specific length of time, regardless of whether the applicant is ultimately approved for coverage by the insurer? A Temporary insurance agreement B Acceptance approval receipt C Trial receipt D Conditional receipt
A If premium is paid, coverage will begin immediately for a specific length of time regardless of whether the applicant is ultimately approved by the insurer. This may also be referred to as a temporary insurance agreement or a binding receipt.
Which of the following types of life insurance provides the largest portion of all coverage in force? A Ordinary B Variable C Industrial D Group
A Ordinary life insurance represents the largest portion of all life insurance in force in the United States.
All of the following are characteristics of Term Insurance, except: A High premium outlay in the early years B No cash or loan value C Can be written separately or with other types of insurance as a rider D Will expire at an attained age or after a specified period of time
A Term Insurance is characterized by a low initial premium outlay when the insured is young and increases as the insured's age advances.
If a home office underwriter obtains MIB codes inconsistent with information provided on the application, what is the underwriter required to do? A Refer the case to the state Insurance Department for possible insurance fraud B Conduct further investigation to obtain more information prior to making a decision C Issue the policy at a higher premium due to the undisclosed higher risk D Automatically reject the application and order any premium paid refunded
B When the home office underwriter receives MIB codes that are inconsistent with information provided on the application, the underwriter is required to conduct a further investigation to obtain more information prior to making an underwriting decision. Underwriting decisions cannot be based solely on MIB codes since there could be a reasonable explanation for the discrepancy.
Who is required to sign a completed application? A The producer's manager B Any insurance company officer C The producer D The beneficiary
C Only the applicant/insured and the producer's signatures are required in an application for insurance.
__________ insurance policies do not pay dividends to policyowners. A Participating B Risk retention C Nonparticipating D Reciprocal
C Participating policies pay dividends, a refund of excess premiums. Mutual companies may issue participating policies. Nonparticipating policies issued by Stock companies do not pay dividends to policyholders.
Which of the following is true? A The insured and the policyowner are always the same B Any changes to a policy must be approved by both the insured and policyowner in writing C The insured and the policyowner are usually the same, but not necessarily D The applicant, insured, and policyowner must approve any changes to a policy in writing
C The applicant, insured, and owner might all be different parties, and any changes to the policy must be approved only by the policyowner.
The insurance company must meet requirements under the _____ when gathering information about an applicant from a third party. A FINRA B SEC C FCRA D NAIC
C The insurance company must meet requirements under the FCRA (Fair Credit Reporting Act) when gathering information about an applicant from a third party.
What information must appear on the policy summary provided to a life insurance client? A A copy of the producer's license B The producer's name and home address C The producer's name and address D The producer's agency's name and address
C The producer's name and address along with the address of the insurance company must appear on the policy summary.
