MO Health and Life Insurance Exam

Pure Death Protection

- if the insured dies during this term, the policy pays the death benefit to the beneficiary - if the policy is canceled or expires prior to the insured's death, nothing is payable at the end of the term - there is no cash value or other living benefits

Elements of a Legal Contract

1. Agreement- offer and acceptance 2. Consideration 3. Competent parties 4. Legal Purpose

Four Elements of a Legal Contract

1. Competent Parties 2. Legal Purpose 3. Agreement 4. Consideration

An applicant is denied insurance because of information found on a consumer report. Which of the following requires that the insurance company supply the applicant with the name and address of the consumer reporting company? A Fair Credit Reporting Act B Consumer Privacy Act C Conditional receipt D Disclosure rule

A

Which is generally true regarding insureds who have been classified as preferred risks? A Their premiums are lower. B They can borrow higher amounts off of their policies. C They can decide when to pay their monthly premiums. D They keep a higher percentage of any interest earned on their policies.

A

Which of the following includes information regarding a person's credit, character, reputation, and habits? A Consumer report B Consumer history C Insurability report D Agent's report

A

Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? A Standard risk is representative of the majority of people. B Standard risk pays a higher premium than a substandard risk. C Standard risk requires extra rating. D Standard risk is also known as high exposure risk.

A

Which of the following is a risk classification used by underwriters for life insurance? A Standard B Poor C Normal D Excellent

A The three ratings classifications that denote the risk level of insureds are standard, substandard, and preferred. This classification system helps insurers to decide if an insured should pay a higher premium

rated

A policy issued with an extra premium charge because of physical impairment or dangerous hobby.

replacement

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

Suspicious Activity Report (SAR)

A report that must be filed whenever a firm suspects that transactions of $5000 or more may be related to illegal activities

Qualified Plan

A retirement plan that meets the IRS guidelines for receiving favorable tax treatment.

Material Misrepresentation

A statement that, if discovered, would alter the underwriting decision of the insurance company. If intentional-- Fraud

Conditional Contract

A type of an agreement in which both parties must perform certain duties and follow rules of conduct to make the contract enforceable. The insured must pay the premium and provide proof of loss in order for the insurer to cover the claim

Decreasing Term

A type of life insurance that features a level premium and a death benefit that decreases each year over the duration of the policy. -usually used with morg.

Free Look Period

An amount of time provided to an insured in order to examine the insurance policy.

Standard Risk

An applicant or insured who is considered to have an average probability of a loss based on health, vocation and lifestyle.

Life Settlement

An arrangement that allows the policyowner sell their existing life insurance policy to a third party for compensation.

Preferred Risk

An insurance classification for applicants who have a lower expectation of incurring loss, and who, therefore, are covered at a reduced rate.

AML

Anti-Money Laundering Law

Agreement

Applicant makes an offer when submitting an application

Who might receive dividends from a mutual insurer? A Agents B Policyholders C Subscribers D Stockholders

B A mutual insurer has no stock, and is owned by the policyholders. Since they may receive a dividend (not guaranteed), such policies are known as participating policies. Dividends received by policyholders of a mutual insurer are not taxable.

Which of the following documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years? A buyer's guide B policy summary C notice regarding replacement D privacy notice

B A policy summary usually includes all the listed information, and must be delivered along with a new policy.

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

B 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 due premium and have the insured sign the statement of continued good health.

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? A It will likely be lower because the applicant is a preferred risk. B It will likely be higher because the applicant is a substandard risk. C It will likely be the average premium issued to standard risks. D The applicant's habits and health do not affect the premiums.

B 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.

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 A Offer and acceptance. B Conditions. C Consideration. D Legal purpose.

B Conditions are part of the policy structure. Consideration is an essential part of a contract.

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

Beneficiary's consent.

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant: A Within 30 days after the first premium payment was collected. B Prior to filling out an application for insurance. C With the policy. D Upon issuance of the policy.

C 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

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? A On the application date B When the agent submits the application to the company and the company issues a conditional receipt C When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health D On the designated effective date

C 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.

Competent parties

Competent in the eyes of the law. legal age. mentally competent

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

D 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.

Federal Credit Reporting Act

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

conditional receipt

In Life and Health insurance, a Conditional Receipt provides that if premium accompanies the application, coverage shall be in force from the date of application (whether the policy has yet been issued or not) Remember, there is never any coverage unless the premium has been paid!

Annually renewable term policies provide a level death benefit for a premium that

Increases Anually

IOLI

Investor-Originated Life Insurance

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. Violates the principle of insurable interest

Term Insurance

Life insurance coverage for a specified period of time, less expensive than whole

unilteral contract

Only one of the parties of the contract is legally bound to do anything. The insured makes no legally binding promises. BUT insurer is legally bound to pay losses covered by policy in force

Mutual Companies

Owned by the policy owners and issue participating policies.

agent report

Part of the application process but does not become part of the contract

Premium Receipt

Receipt given to the applicant by the producer or insurer, as proof of a premium payment.

Dividends

Return of excess premiums and are non taxable

Representations

Statements made by the applicant on the insurance application that are believed to be true, but are not guaranteed to be true.

SAR

Suspicious Activity Report

Adhesion

Take-it-or-leave-it basis by insurer. No negotiations

In insurance, an offer is usually made when

The completed application is submitted

Aleatory Contract

The exchange of value is unequal.

Breach of Warranty

The failure of a product to meet the terms of its warranty. Statement made by applicants for life and health policies are usually not considered warranties except in case of fraud. Grounds for voiding the policy or return of premium

How is it determined whether an insurer is allowed to write business in a state?

The insurer's domicile or location of incorporation will determine whether a company is domestic, foreign, or alien.

underwriting

The process of reviewing, accepting or rejecting applications for insurance.

Field Underwriter

The technical name given to the insurance producer of an insurer who does not have binding authority to grant coverage.

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it?

Unilateral

Misrepresentation

Untrue statements that could void the contract

indemnity

a payment for damage or loss

Policy Summary

a written statement describing the features and elements of the policy being issued

field unerwriter

agent in companies front line.

agent

agent of the insurer

Declined Risks

applicants who are rejected

Nonforfeiture Values

benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses

Consideration

binding force in any contract. Each party gives to one another. The consideration on part of the insurer is the promise to pay in the event of loss

Liquidation of an estate

converting a person's net worth into a cash flow

life insurance

coverage of human lives

Return of Premium

dictates the method that will be used to calculate the return premium when the policy is cancelled before the expiration date

producer

includes agents and brokers

Adverse Selection

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

agent/producer

legal representative of insurance company

illustration

nonguaranteed elements of a policy

legal purpose

not against public policy. Must have both: insurable interest and consent

insured

person covered by the insurance policy may or may not be the policy owner

beneficiary

person who receives benefits of an insurance policy

lapse

policy termination due to non payment or premium

deferred

postponed or delayed

Level Premium Term

provides a level death benefit and a level premium during the policy term

Statement of Good Health

required if premium is paid at policy delivery

Insurance is the transfer of:

risk

Insurable Interest

something of value that, if lost, would cause you financial harm

Application

starting point and basic source of info used by the company in the risk selection process 1. basic info 2. medical info

Securities

stocks and bonds

Term Life Insurance

temporary insurance that pays only a death benefit and is in effect for a specific period of time

Face Amount

the amount of benefit stated in the life insurance policy

cash value

the amount of money a whole life policyholder would receive if the policy were surrendered before death or maturity

death benefit

the amount paid upon death of the person insured through life insurance

endow

the cash value of a whole life policy has reached the contractual face amount

insurer

the company that issues the insurance policy

Contract Adhesion

the insured must accept the entire contract with all of its terms and conditions. Take-it-or-leave-it basis by insurer to the insured party

Attained Age

the insured's age at the time the policy is issued or renewed

premium

the money paid to the company for the policy

policy owner

the person entitled to exercise the rights and privileges of the company

Level Premium

the premium that does not change throughout the life of a policy

Rating Classification

used in deciding whether or not the applicant should pay a higher or lower premium

Variable Life Insurance

whole life insurance that invests the cash value of the policy in stocks or other high-yielding securities

STOLI

- Stranger-Orignated Life Insurance

Sources of Underwriting Information

- application - agent's report - inspection report - physical inspection - physical examination

Annually Renewable Term

-premium increases each year -Renews each year without proof of insurability -Premiums increase due to attained age

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

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

Buyer's Guide

A booklet that describes insurance policies and concepts, and provides general information to help an applicant make an informed decision.

Warrenty

Absolute true statement

ART

Annually renewable term

If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to: A Refuse to issue the policy. B Charge a higher premium. C Require a yearly medical examination. D Lower its insurability standards.

B

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? A As of the policy issue date B As of the application date C As of the policy delivery date D As of the first of the month after the policy issue

B If the full premium was submitted with the application and the policy was issued as requested, the policy coverage effective date would generally coincide with the date of application.

Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information contained in his or her report, the reporting agency must: A Change the report. B Send an actual certified copy of the entire report to the consumer. C Respond to the consumer's complaint. D Defend the report if the agency feels it is accurate.

C

What is the major difference between a stock company and a mutual company? A Number of producers B Types of whole life policies C Ownership D Amount of death benefit

C Mutual companies are owned by policyholders, while stock companies are owned by stockholders.

On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are A Taxable as ordinary income. B Guaranteed. C Not taxable since the IRS treats them as a return of a portion of the premium paid. D Paid at a fixed rate every year.

C With participating policies, policyowners are entitled to dividends, which, in the case of mutual companies, are nontaxable because they are considered a return of excess premiums.

conditional

Certain conditions must be met in order for policy to pay-out.

Which of the following best describes the MIB? A It is a government agency that collects medical information on the insured from the insurance companies. B It is a member organization that protects insured against insolvent insurers. C It is a rating organization for health insurance. D It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance.

D

Which of the following best details the underwriting process for life insurance? A Solicitation, negotiation and sale of policies B Issuance of policies C Reporting and rejection of risks D Selection, classification, and rating of risks

D

applicant

a person applying for insurance

Investor-owned life insurance (IOLI)

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

insurance policy

a contract between a policy owner and insurance company which agrees to pay the insured or beneficiary for loss caused by special events

Policy maturity

in life policies, the time when the face value is paid out

Fixed Life Insurance

contracts that offer guaranteed minimum or fixed benefits