Chapter 1: Completing the Application, Underwriting, and Delivering the Policy. QUIZ 1

What is the maximum penalty for habitual willful noncompliance with the fair credit reporting act?

$2,500 NOTE: 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 $2500.

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

Aleatory NOTE: In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price.

In insurance, an offer is usually made when

An agent explains a policy to a potential applicant. NOTE: In insurance, the offer is usually made by the applicant in the form of the applications. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

When would a misrepresentation on the insurance application be considered fraud?

If it is intentional and material NOTE: A misrepresentation would be fraud if it is intentional and material. Fraud would be grounds for voiding the contract.

What is the purpose of conditional receipt?

It is intended to provide coverage on the date prior to the policy issue. NOTE: Coverage commence on the date of the application or the date of medical examination, whichever is later, on the condition that the applicant is determined to be insurable at the rate applied for.

What is a definition of a unilateral contract?

One-sided: only one party makes an enforceable promise. NOTE: an insurance contract is unilateral in that only one of the parties to the contract is legally bound to do anything.

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. NOTE: 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.

If an agent fails to obtain an applicant's signature on the application, the agent must

Return the application to the applicant for a signature. NOTE: All applications must have the appropriate authorized signatures.

An applicant signs an application for a $25.000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant dies the following day, which of the following is true?

The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy. NOTE: The conditional receipt provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable either on the date the application was signed or the date of the medical examination, if one is required.

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?

The date of medical exam NOTE: Note: If the company acknowledges 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 (whichever is later), provided that the applicant is found insurable at the rate applied for.

In terms of parties to a contact, which of the following does not describe a competent party?

The person must have at least completed secondary education. NOTE: the parties to a contract be must capable entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the Influence of drugs or alcohol.

Why should the producer personally deliver the policy when the first premium has already been paid?

To help the insured understand all aspects of the contract NOTE: It is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

Warranty NOTE: A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract,the statement he or she makes are generally not warranties but representations. Representations are statements that are true to the best of applicant's knowledge.

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?

When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health NOTE: Note: 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.

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. NOTE: 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.