ExamFX - Completing the Application, Underwriting, and Delivering the Policy

A life insurance policy has a legal purpose if both of which of the following elements exists? A. Underwriting and reciprocity B. Offer and counteroffer C. Policyowners and named beneficiaries D. Insurable interest and consent

Insurable interest and consent

If only one party to an insurance contract has made a legally enforceable promise, which kind of contract is it? A. Unilateral B. Adhesion C. Conditional D. A legal (but unethical) contract

A

Which of the following types will result in the highest premium? A. Substandard Risk B. Standard Risk C. Preferred Risk. D. All risks pay equal premiums

A. Substandard risk indicates that an individual represents an under-average insurance risk because of physical condition, or family history of disease, occupation, habits, or hobbies. This rating incurs the highest premium if policy is issued.

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT A. Signed wavier of premium B. Statement of good health C. Payment of premium D. Delivery receipt

A. The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a statement of good health from the applicant at the time of policy delivery. Waiver of premium is a rider that can be added to a life insurance policy, and not something to be obtained from the applicant.

The insurer discovered that one of the applicants for life insurance missed a couple of questions on the application. What must the insurer do with the application? A. Return to the applicant for completion B. Answer the missed questions for the applicant C. Acknowledge the missed questions with a signature and continue the policy issue process D. Proceed with issuing a policy

A. Any unanswered questions need to be answered before the policy is issued. If the insurer receives incomplete applications, they need to be returned to the applicants for completion.

What are the 4 elements of a legal contract?

Agreement (offer and acceptance), consideration, competent parties, and legal purpose

Which of the following would provide an underwriter with information concerning an applicant health history? A. The inspection report B. The Medical Information Bureau C. A medical examination D. The agent's report

B Medical exams provide information on current health. Only the MIB will provide information about an applicants medical history.

Which of the following is NOT an example of a valid insurable interest? A. Business partners in each other's lives B. Employer in key employee's life C. Child in parents lives D. Debtor in the life of the creditor

D

Stranger-originated life insurance policies are in direct opposition to the principle of A. Indemnity B. Insurable interest C. Law of large numbers D. Good faith

B. Because the purchaser of a STOLI doesn't know the insured, or have any interest in the insured longevity, SOLI policies violate the principle of insurable interest

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: A. Prior to filling out an application for insurance B. With the policy C. Upon issuance of the policy D. Within 30 days after the first premium payment was collected

B. If a life insurance policy contains a free-look period of at least 10 days, the buyers guide can be delivered with the policy, if it doesn't, the buyers guide must be delivered prior to accepting the initial premium

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? A. Adhesion B. Conditional C. Aleatory D. Good health

C 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.

An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that? A. Agent's report B. Underwriters report C. Inspection Report D. Medical Information Bureau's Report

C.

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? A. Contract of adhesion B. Acceptance C. Consideration D. Legal purpose

C.

In an insurance contract, the insurer is the only party who makes a legally enforceable promise. What kind of contract is this?

Conditional - A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of conditions on either the insurer or policyowner.

What makes a contract binding?

Consideration

What describes the specific information about a policy? A. Illustrations B. Buyer's Guide C. Producers Report D. Policy Summary

D. A policy summer describes the features and elements of the specific policy for which a person is applying

If an insurer issued a policy based on the application that had unanswered questions, which of the following will be TRUE? A. The policy will be interpreted as if the insured did not have an answer to the question B. The policy will be void C. The insurer may deny coverage later, because of the information missing on the application D. The policy will be interpreted as if the insurer waived its right to have an answer on the application.

D. Any unanswered questions need to be answered before the policy is issued. If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived its right to have an answer for the question, and will not be able to deny coverage later because of unanswered questions.

A producer agent must do all of the following when delivering a new policy to the insured EXCEPT A. Collect any premiums due B. Explain the rating procedures if the policy is rated differently than applied for C. Disclose commissions earned from the sale of the policy D. Explain the policy provisions, riders, and exclusions

Disclose commissions earned from the sale of the policy - A 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. The producer must also collect any premiums and have the insured sign the statement of continued good health.

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 benefits claim is denied? A. Waiver B. Utmost Good Faith C. Estoppel D. Material Misrepresentation

Material Misrepresentation - A material representation will affect whether or not a policy is issued. If the insured had been truthful, it is very likely that the policy would not be issued.

Elements of a Legal Contract - Offer and Acceptance: What is the difference between offer and acceptance?

Offer is when the applicant makes an offer when submitting the application. Acceptance is when the insurers underwriter approves the application and issues a policy

Who is the policyowner?

The person entitled to exercise the rights and privilege's in the policy

Who is the beneficiary?

The person who receives the benefits of an insurance plan

What is an insurance policy?

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

Who is the applicant or proposed insured?

a person applying for insurance

What is insurance?

a transfer of risk of loss. The cost of an insured loss is transferred over to the insurer and spread among other insured

What is a contract?

an agreement between two or more parties enforceable by law.

What is adverse selection?

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

What does lapse mean?

policy termination due to nonpayment of premiums

What is a death benefit?

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

Agent/Producer represents who?

they are a legal representative of an insurance company