Completing the application, underwriting, and delivering the policy

4- essential elements:

1. Agreement- offer and acceptance; 2. Consideration: 3. Competent parties; and 4. Legal purpose.

insurable interest and consent

A life insurance policy has a legal purpose if both of which of the following elements exist?

Medical Information Bureau (MIB)

A membership corporation owned by member insurance companies

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

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

beneficiary's consent

An insurance contract must contain all of the following to be considered legally binding EXCEPT

aleatory

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?

Material Misrepresentation

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?

consideration

An insurer neglects to pay legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

Inspection Report

An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n)

rated

Another name for a substandard risk classification is

aleatory

Exchange of unequal amounts

Erase the incorrect answer and record the correct answer

If a change needs to be made to the application for insurance, the agent may do all the following EXCEPT

When an insurer's underwriter approves coverage

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

An applicant submits an application to the insurer

In insurance, an offer is usually made when

Preferred Risk

Individuals who meet certain requirements and qualify for lower premiums than the standard risk

replacement

Is a practice of terminating an existing policy or letting it lapse, and obtaining a new one.

Stranger-Originated Life Insurance (STOLI)

Life insurance arrangement in which a person with no relationship to the insured purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies.

premium reciept

Most agents try to collect the initial premium for submission with the application. When an agent collects the initial premium from the applicant, the agent should issue the applicant a ?

parties to a contract

Must be capable of entering into a contract in the eyes of the law

Other insurance coverages

Part 2 of the application for life insurance provides questions regarding all of the following except?

standard risk

Person who, according to a company's underwriting standards, is entitled to insurance protection without extra rating or special restrictions.

Agent's Report

Provides the agent's personal observations concerning the proposed insured

The Federal Fair Credit Reporting Act

Regulates consumer reports

Conditional Contract

Requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations.

Premium rated-up

Resulting in a higher premium

Investigative Consumer Report

Similar to consumer reports in that they also provide information on the consumer's character, reputation, and habits.

Insurable Interest

Stranger-originated life insurance (STOLI) policies are in direct opposition to the principle of...

higher

The _____ the risk, the _______ the premium.

life insurance producer

The company's field underwriter

As of the application date

The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective?

Misrepresentations

Untrue statements on the application

Signed waiver of premium

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT

insurance

What do individuals use to transfer their risk of loss to a larger group?

consideration

When an insured makes a truthful statements on the application for insurance and pays the required premium, it is known as which of the following?

When the application is signed and a check is given to the agent.

When is the earliest a policy may go into effect?

If it is intentional and material

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

Their premiums are lower

Which is generally true regarding insureds who have been classified as preferred risks?

application

Which is the primary source of information used for insurance underwriting?

Exchange of unequal values

Which of the following best describes the aleatory nature of an insurance contract?

aleatory

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

debtor in creditor

Which of the following is NOT an example of insurable interest?

standard

Which of the following is a risk classification used by underwriters for life insurance?

application

Which of the following is the best source of information used by the company in the risk selection process?

a debtor has insurable interest in the life of a lender

Which of the following statements is NOT true concerning insurable interest as it applies to life insurance?

Premium amounts and surrender values

Which of the following will be included in a policy summary?

policy summary

Which of these is considered to be a documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific years?

medical information

Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives?

Insurers

Who cannot refuse coverage solely on the basis of adverse information on an MIB report?

Policyowner

Who must have insurable interest in the insured?

To help the insured understand all aspects of the contract

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

Consumer Reports

Written and /or oral statements regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.

NO

_____ premium, ____ coverage

Insurance policy

a contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events

Fair Credit Reporting Act

a law that protects consumers against the circulation of inaccurate or obsolete personal or financial information.

Applicant or proposed insured

a person applying for insurance

Disclose commissions earned from the sale of the policy

a producer agent must do all of the following when delivering a new policy to the insured EXCEPT

USA Patriot Act

address social, economic, and global initiatives to fight and prevent terrorist activities

Change any incorrect statement on the application by personally initialing next to the corrected statement

all of the following are duties and responsibilities of producers at the time of application EXCEPT

conditional

an insurable contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe?

application

an insurer wants to begin underwriting procedures for an applicant. What source will it consult for the majority of its underwriting information

Investor-owned life insurance (IOLI)

another name for a STOLI, where a third-party investor who has no insurable interest in the insured initiates a transaction designed to transfer the policy ownership rights to someone with no insurable interest in the insured and who hopes to make a profit upon the death of the insured or annuitant

Substandard (High Exposure) Risk

applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits.

considerations

because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT

Life insurance

coverage on human lives

USA Patriot Act

enacted in OCT. 26,2001

Fair Credit Reporting Act

established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used

Whether an insurable interest exists between the individuals

if an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about

The policy will be interpreted as if the insurer waived its right to have an answer on the application

if an insurer issued a policy based on the application that had unanswered questions, which of the following will be true?

unilateral

in insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe?

It will likely be higher because the applicant is a substandard risk

in the underwriting process, it was determined that the applicant for life insurance is in poor health and has some dangerous habits. Which of the following is true concerning the policy premium?

risk

insurance is the transfer of risk

adheasion

insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristics does this describe?

Adverse selection

insuring of risks that are more prone to losses than the average risk

Fraud

intentional misrepresentation or deceit with the intent to induce a person to part with something of value

warranty

is an absolutely true statement upon which the validity of the insurance policy depends

Insurance

is the transfer of risk. Insureds' losses are transferred over to the insurer.

Insurable Interest

must exist at the time of the application

producer

must explain policy provisions, exclusions, and riders at the time of delivery, as well as the rating procedures, especially if the policy is rated differently than applied for. They must also collect any due premium and have the insured sign the statement of continued good health.

unilateral contract

only one of the parties to the contract is legally bound to do anything

Insured-

person covered by the insurance policy; may or may not be the policyowner

Beneficiary

person who receives the benefits of an insurance policy

Lapse

policy termination due to nonpayment of premium

Death benefit

policy the amount paid upon the death of the insured in a life insurance policy

Contract of Adhesion

prepared by one of the parties (insurer) and accepted or rejected by the other party (insured)

Adverse Agent/Producer

prone - a legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of insurer

underwriting

risk selection and classification process

consideration

something of value exchanged for something else of value

representations

statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true

Acceptance

takes place when an insurer's underwriter approves the application and issues a policy

Insurer (principal)

the company who issues an insurance policyer

insurance application

the key source underwriters use for information about the applicant

Premium

the money paid to the insurance company for the insurance policy

Policyowner

the person entitled to exercise the rights and privileges in the policy

Insurer's Consideration

the promise to pay for losses

application

the starting point and basic source of information used by a company in the risk selection process

Insurable Interest

to purchase insurance, the policyowner must face the possibility of losing money or something of value in the event of loss

Stranger-Originated Life Insurance (STOLI)

violate the principle if insurable interest

It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance

which of the following best describes the MIB?

warranty

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