Life Insurance Basics

All of the following are factors that an underwriter could use to select and classify risk EXCEPT AMorals. BOccupation. CAvocation. DNational origin.

d The company will discriminate in favor of good risks and not of poor risks; however, it cannot discriminate unfairly by using factors such as race or national origin in their underwriting.

An applicant wants to buy a policy that has a cash value element. Which type should she buy? ATerm BPermanent CStock DInvestment

b Unlike term insurance, permanent insurance provides lifetime death protection and a savings or cash value option.

What does "liquidity" refer to in a life insurance policy? AThe policyowner receives dividend checks each year. BThe insured receives payments each month in retirement. CCash values can be borrowed at any time. DThe death benefit replaces the assets that would have accumulated if the insured had not died.

c Liquidity in life insurance refers to availability of cash to the insured through cash values.

If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT AErase the incorrect answer and record the correct answer. BDraw a line through the first answer, record the correct answer, and have the applicant initial the change. CNote on the application the reason for the change. DDestroy the application and complete a new one.

a An agent should not use white-out, erase or obliterate any answers given to a question on an application. It could prevent an insurer from contesting the application, should it be necessary.

For how many years is an insurer required to maintain a complete file of its advertisements? A1 year B2 years C4 years D5 years

c Each agent and agency must keep a file of all advertising printed, published or prepared by the agency along with records of the advertising's distribution. Files must be maintained for a period of 4 years.

Why should the producer personally deliver the policy when the first premium has already been paid? ATo find out how the family has been doing since the initial presentation BTo make sure the policy is not stolen or lost CTo help the insured understand all aspects of the contract DTo ensure the producer gets paid commission

c 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.

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? AIt will likely be higher because the applicant is a substandard risk. BIt will likely be the average premium issued to standard risks. CThe applicant's habits and health do not affect the premiums. DIt will likely be lower because the applicant is a preferred risk.

a Applicants are considered substandard risks because of physical condition, personal or family history of disease, occupation, or dangerous habits. Substandard risks are usually issued a higher premium than standard risks.

All of the following are true of key person insurance EXCEPT AThe key employee is the insured. BThe plan is funded by permanent insurance only. CThere is no limitation on the number of key employee plans in force at any one time. DThe employer is the owner, payor and beneficiary of the policy.

b Key Person coverage may be funded by any type of life insurance.

Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process? AInsurance Index BPolicy Summary CIllustrations DBuyer's Guide

d The Buyer's Guide is a consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process. It is a generic guide that does not address the specific policy of the insurer, instead explaining life insurance in a way that the average consumer can understand.

Which of the following premium modes would result in the highest annual cost for an insurance policy? AMonthly BQuarterly CSemi-annual DAnnual

a If the policyowner chooses to pay the premium more frequently than annually, there will be an additional charge (loading) because the company will not have the premium to invest for a full year, and the company will have additional expenses in billing the premium.

Which of the following would NOT fall into the category of costs associated with death? ADay to day expenses of maintaining the family BThe expense of a vacation for surviving family members CFuneral expenses DFinal medical expenses of the insured

b These costs would take into account the final medical expenses of the insured, funeral expenses, and day to day expenses of maintaining the family including rent or mortgage payments, car payments, utilities, groceries, etc.

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? AAgent's Report BUnderwriter's Report CInspection Report DMedical Information Bureau's report

c Inspection reports cover moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies. Companies that use inspection reports are subject to the rules outlined in the Fair Credit Reporting Act.

Person A has an insurable interest in Person B and wants to insure B's life. A will be the policy beneficiary. Which of the following is true? APerson B must have an insurable interest in Person A. BPerson A must be related to the insured by blood. CPerson A must be an irrevocable beneficiary. DPerson B must consent to be insured in writing.

d If an individual has an insurable interest in the life of another person and wishes to insure the life of that person, that other person must consent in writing or sign the application.

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT ADelivery receipt. BSigned waiver of premium. CStatement of good health. DPayment of premium.

b 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.