AD BANKER EXAM REVIEW FOR CHAPTER 2: Life Insurance Basics

The mortality rate is based on mortality tables which show life expectancy and the death rate per _______ people living in the U.S. 100,000 1,000 10,000 100

1,000

Estate taxes are due _______ after the insured's death. 3 months 9 months 2 years 5 years

9 months

A Consumer Investigative Report is not completed by ___________. A third party provider A company that regularly conducts inspection reports A producer The insurer

A producer (This can be completed by the insurer or a third-party provider)

Which of the following is most likely to pay the highest premium for a disability income policy, all other factors being equal? Age 40, welder, tobacco user Age 30, physician's assistant, non-tobacco user Age 40, accountant, non-tobacco user Age 35, medical assistant, tobacco user

Age 40, welder, tobacco user (tobacco user with the higher risk occupation)

The Attending Physician's Statement (APS) is completed by: An applicant's physician to provide information about the applicant's medical history The agent after the medical questions are answered by the applicant The Medical Information Bureau A physician providing a required medical exam at the time of application

An applicant's physician to provide information about the applicant's medical history (The treating physician will provide information regarding the medical history of the applicant.)

The person who submits an application for insurance is always referred to as the _______. Insured Applicant Owner Beneficiary

Applicant

How does life insurance reduce financial loss upon the insured's death? Through applicant risk retention strategies By eliminating the risk Through reinsurance risk techniques By transferring the risk to the insurer

By transferring the risk to the insurer (For a premium, the applicant can transfer a specific dollar amount of risk to the insurer.)

Which of the following personal uses of life insurance is specifically designed to provide benefits to the policy owner while the insured is still alive? Cash accumulation Estate creation Estate conservation Charitable bequests

Cash accumulation (Cash accumulation is the only choice given that will provide benefits while the insured is still ALIVE)

If a home office underwriter obtains MIB codes inconsistent with information provided on the application, what is the underwriter required to do? Refer the case to the state Insurance Department for possible insurance fraud Conduct further investigation to obtain more information prior to making a decision Automatically reject the application and order any premium paid refunded Issue the policy at a higher premium due to the undisclosed higher risk

Conduct further investigation to obtain more information prior to making a decision. (Underwriting decisions cannot be based solely on MIB codes since there could be a reasonable explanation for the discrepancy.)

All of the following are things a producer should do when meeting with the client after the policy has been issued, except: Disclose the amount of commission earned on the sale Explain the policy to the applicant Review any endorsements and riders Go over the benefits and ratings

Disclose the amount of commission earned on the sale (NEVER disclose personal earnings)

Buying life insurance so that the death benefit will be available for paying estate taxes due upon the death of the insured is known as: Estate conservation Estate creation Survivor protection Preneed planning

Estate conservation (Life insurance can provide the proceeds in which to pay the tax thereby conserving the estate for the heirs.)

An insurance company must adhere to the __________ when gathering information about an applicant from third parties. Federal Trade Commission Act (FTCA) Medical Information Bureau Rules Fair Credit Reporting Act (FCRA) Truth in Underwriting Regulations

Fair Credit Reporting Act (FCRA) (FCRA applies to insurers when gathering information about an applicant from third parties.)

Which of the following is included in Part II of a Life Insurance Application? Gender Date of birth Marital status Family member's age and cause of death

Family member's age and cause of death (Part II of the application contains questions pertaining to medical background)

During the application process, a mistake is made by the applicant in answering one of the health questions and needs to be corrected. What is the best way to go about this? The producer should simply make a note in the agent report section of the application describing the error and what the true response was supposed to be Have the applicant initial the change or start over with a completely new application The licensed producer has the applicant's implied authority to make any necessary changes to the application on the applicant's behalf Submit the application as is and see if the insurance company catches the mistake

Have the applicant initial the change or start over with a completely new application.

If it is known or should be known by the agent that an existing policy is going to be lapsed, forfeited, surrendered or terminated in favor of a new policy, the agent must submit a: Cancellation of Service Notice of Replacement Notice of Conservation Statement of Release

Notice of Replacement (Replacement rules require a Notice of Replacement)

All of the following are acceptable methods of policy delivery?

Personal delivery (w/ signed receipt of delivery) Certified mail( w/ signed receipt of delivery) Registered mail (w/ signed receipt of delivery)

What should a producer do if the policy applied for is issued at a higher rate than was expected? Immediately return the policy to the home office because the applicant will never accept it Deliver the policy to the applicant and have the home office reduce the commission payout to cover the higher premium Have the home office re-issue the policy for a reduced amount of coverage for the original premium quoted so that it will be easier to explain at time of delivery Personally deliver the policy, explain the rating, and reinforce the value of the policy

Personally deliver the policy, explain the rating, and reinforce the value of the policy. (Personally delivering the policy the producer can explain the rating, reinforce the value of the policy and obtain any home office requirement)

When an individual qualifies for a lower premium or rate than standard risks, the insured is considered a: Higher risk Preferred risk Bad risk Substandard risk

Preferred risk (lower premium/rate)

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? Collect additional premium at the time of delivery to reflect the higher risk the insurer now faces Deliver the policy to an immediate family member and collect any outstanding premium Return the policy to the insurer with a letter of explanation Hold onto the policy until the insured is discharged from the hospital and then deliver the policy

Return the policy to the insurer with a letter of explanation. (Must return the policy to the insurer if they know that the insured's health status has materially changed since the time of application.)

When an applicant completes the insurance application in its entirety and provides the producer with a premium check, what in effect has taken place? The applicant is accepting the producer's offer of coverage The applicant is making an offer to the insurer The producer is making an offer of insurance to the applicant The applicant has given the producer the authority to negotiate the terms of the contract with the insurer

The applicant is making an offer to the insurer. (Before acceptance can take place, an offer must first be made. The insurer accepts the offer when the policy is issued.)

If the producer discovers that the applicant is not in good health at time of policy delivery, what should the next step be? Field underwrite in order to determine the additional premium that needs to be collected Obtain copies of any and all medical records and order a medical exam The policy should be returned to the insurer, or the deliver the policy only after the insurer grants permission Hold onto the policy until the client recovers from their condition, then deliver the policy

The policy should be returned to the insurer, or the deliver the policy only after the insurer grants permission. (If not in good health, the policy should be returned to the insurer)

Producer Andy is sent a newly issued policy by his insurer. Andy should now: Notify the insured by phone that a policy has been issued Visit the insured in person to deliver the policy Maintain the policy securely in his office files Review the policy for accuracy and return it to the insurer with his approval

Visit the insured in person to deliver the policy (preferably in person)

Under what circumstances should the producer obtain a statement of good health? At the first client meeting, to determine if an application should be completed When the client wants to obtain a quote At the time of application, in cases where the producer wants to be sure the applicant is not withholding any information If no premium was paid at time of application and the policy is now being delivered

If no premium was paid at time of application and the policy is now being delivered. (Must also get a Statement of Good Health from the applicant/insured at the TIME of policy DELIVERY.)