Chapter 5: Underwriting and Policy Issue

Under the USA Patriot Act, insurers are required to report receipt of cash payments in excess of

$10,000

The USA Patriot Act was enacted in

2001

All are true statements regarding the underwriting process, EXCEPT:

AIDS and HIV virus exams can be conducted in a discriminatory fashion

When a policyowner cash surrenders a Universal Life insurance policy in it's early years, this may be considered a red flag for a(n)

Anti-Money Laundering violation

When an insurance application is taken by a producer, which of these statements is true?

Any changes made on the application require the applicant's initials

Before a life insurance policy is issued, which of these components of the contract is required?

Applicant's signature on application

An incomplete life insurance application submitted to an insurer will result in which of these actions?

Application will be returned to the writing agent

At what time must a policyowner have insurable interest on the insured in order for the life policy to be valid?

At the time of application

A student pilot can pay regular premium costs for her life insurance policy with the addition of which of the following?

Aviation exclusion

On August 6, D submitted an application for a $50,000 Life Insurance policy and did not pay the initial premium. On August 18, D went to his doctor complaining of chest pains and some tests were given by the doctor. The life policy was delivered by the producer on August 20 and D explains what had recently taken place with the doctor. What action should the producer then take?

Collect initial premium along with a signed health statement

Which of the following correctly explains the actions an agent should take if a customer wants to apply for an insurance policy?

Complete the application and review the information with the customer prior to obtaining the customer's signature, then send the application off to the insurance company

K applies for a life insurance policy on herself and submits the initial premium with the application. She is given a receipt by the agent stating that coverage begins immediately if the application is approved. What kind of receipt was used?

Conditional

What is the purpose of the U.S.A. Patriot Act?

Detect and deter terrorism

From what authority derives the requirement that an insurance application contains a disclosure stating that an investigative consumer report may be obtained on an applicant?

Fair Credit Reporting Act

P has recently signed an application for insurance. The insurer MUST advise her in writing that investigative consumer report may be conducted according to the

Fair Credit Reporting Act

Which Federal law allows an insurer to obtain an inspection report on a potential insured?

Fair Credit Reporting Act

What action should a producer take if the initial premium is NOT submitted with the application?

Forward the application to the insurer without the initial premium

An insurance company may NOT reject a prospective insured's life application on the basis of which of the following factors?

Gender

Which of these actions should a producer take when submitting an insurance application to an insurer? Issue a binding receipt to applicant if no initial premium is submitted Disclose to the applicant the amount of commissions to be earned on this transaction Inform insurer of relevant information not included on the application Arrange for a copy of the Attending Physician Statement (APS) to be sent to the producer

Inform insurer of relevant information not included on the application

Information obtained from a phone conversation to the proposed insured can be found in which of these reports?

Inspection Report

What is being delivered during a policy delivery?

Insurance contract to the proposed insured

What is the purpose of a Policy Summary?

It highlights the critical parts of the policy issued

On January 8, an applicant filled out an application for a life insurance policy but did not include the initial premium. The insurance company approved the application on January 14 and issued the policy January 15. The producer delivered the policy on January 26 and collected the first premium. When did the coverage become effective?

January 26

Which of these factors do NOT play a role in the underwriting of a life insurance policy? Avocations Credit status Marital status Occupation

Marital status

The entity whose sole purpose is sharing medical data among its member companies is called the

Medical Information Bureau (MIB)

P completes an application for a $10,000 life policy, but does not give the producer the initial premium. P's coverage becomes effective when

P receives the policy and pays the premium

Which of these do NOT constitute policy delivery? Policy mailed to applicant Policy mailed to agent Policy delivered to the applicant by the agent Policy issued with a rating

Policy issued with a rating

Q applied for life insurance and submitted the initial premium on January 1. The policy was issued February 1, but it was not delivered by the agent until February 7. Q is dissatisfied and returns the policy February 13. How will the insurer handle this situation?

Policy was returned within the free-look period, premium will be fully refunded

A Medical Information Report (MIB) report may disclose which of the following Prior preferred rating Prior use of marjuana Prior lapsing of policy Prior bankruptcy judgement

Prior use of marjuana

All of these are considered sources of underwriting information about an applicant EXCEPT Inspection Report Credit Report Rating Services Medical Information Bureau

Rating Services

Which factors are taken into consideration when an insurance company determines the premium rate for a Whole Life policy on an applicant? Geographical location Source of income Risk classification Marital status

Risk classification

Which of these terms accurately defines an underwriter's assessment of information on a life insurance application?

Risk classification

P is a producer who notices 5 questions on a life application were not answered. What actions should P take?

Set up a meeting with the applicant to answer the remaining questions

Upon delivery of a rated life insurance policy, the Producer must obtain each of the following EXCEPT Signed HIPAA disclosure Signed amendment Signed statement of Good Health The required premium

Signed HIPAA disclosure

What would the Medical Information Bureau (MIB) identify?

Testing positive for marijuana use from a previous screening

Which of the following statements is CORRECT about an agent who is taking an insurance application?

The agent should have the applicant initial any changes made on the application

Any changes made on an insurance application requires the initials of whom?

The applicant

On delivery of a policy, a signed statement of good health is typically requested if

The application was submitted without the initial premium

K is an agent who takes an application for individual life insurance and accepts a check from the client. He submits the application and check to the insurance company, however the check was never signed by the applicant. If the application is approved, when will coverage be effective?

The date the agent delivered the policy, collected the initial premium, and obtained a good health statement from the insured

Upon policy delivery, a signed good health statement is requested from the applicant. Why would this be necessary?

The initial premium was NOT submitted with the application

Why is an applicant's signature required on a life insurance application?

To attest that the statements on the application are accurate to the best of the applicant's knowledge

Which parts of a life insurance policy are guaranteed to be true?

Warranty

When does a life insurance contract become effective if the initial premium is not collected during the application process?

When producer delivers policy and collects initial premium

A $20,000 life insurance policy application is completed, however the producer does not collect the initial premium. At what point does the coverage go into effect?

When the applicant receives the policy and pays the initial premium

An agent gives a conditional receipt to a client for an insurance policy after collecting the initial premium. When will the policy become effective?

When the conditions of the receipt are met

A statement made by an insured in an insurance application that must be true to the best of one's knowledge and which becomes a part of the contract is known as

a representation

An applicant's medical information received from the Medical Information Bureau (MIB) may be furnished to the

applicant's physician

A life insurance application must be signed by all of these EXCEPT the policyowner the agent the insured (if an adult) beneficiary

beneficiary

T applies for a life insurance policy and is told by the producer that the insurer is bound to the coverage as of the date of the application or medical examination, whichever is later. Assuming that T is an acceptable risk, what item is given to T?

conditional receipt

D the agent met with a prospect and ended up selling an insurance policy. While filling out the insurance application, D makes a mistake. In this situation D MUST

correct the information and have the prospect initial the change

An underwriter determines that an applicant's risk should be recategorized due to a health issue. This policy may be issued with a(n)

exclusion for the medical condition

M completes an application for life insurance but does not pay the initial premium. All of these actions must occur before M's policy goes into effect EXCEPT policy is delivered free-look period has expired insurance company issues policy initial premium is collected

free-look period has expired

The underwriting process involves all of these EXCEPT for

policy loan

Consumer reports requested by an underwriter during the application process of a life insurance policy can be used to determine

probability of making timely premium payments

In order for coverage on a non-medical insurance application to take effect the same day, the producer must collect a signed application and

the initial premium

n order for coverage on a non-medical insurance application to take effect the same day, the producer must collect a signed application and

the initial premium

ABC Insurance Company has accepted a life insurance application which contains unanswered questions. The company then makes the application part of the life contract. In this situation, the insurer has

waived one of its legal rights