South Carolina LA&H Chapter 3: Life Insurance Basics

What is the document an underwriter may require at delivery for a policy that was issued with an insufficient premium ?

Statement of Good Health

Which risk classification requires the highest premium?

Substandard

In order for a vatical settlement to be legal, the insured must be _________________.

Terminally Ill

Which of the following is NOT a source of information used in the underwriting of applicants for individual life insurance policies? The Commissioners' Standard Ordinary Mortality Table The insurance application A medical examination An inspection report or credit report

The Commissioners' Standard Ordinary

What is the basic source of information for life insurance underwriting and policy issue?

The application

Underwriters are concerned with something known as "adverse selection," which means:

The greater tendency of poorer risks to apply for and obtain insurance.

When an applicant for life insurance pays a premium at the time of application and is given a conditional receipt, coverage may take effect automatically upon:

The insurer finding that the condition of insurability has been satisfied.

Which of the following is NOT correct about a Viatical Settlement?

The insurer will require proof of insurable interest prior to approval

If Jamie buys a policy on herself and names Grace as the beneficiary, what is Jamie?

The owner and the insured

What period begins upon delivery of a policy?

The right to examine, or free look period, Begins when the policy is delivered

When is the first premium due on a life insurance policy?

The time of application

Why do people buy life insurance?

To protect against the financial risk of dying too soon

What document is required when a policy is delivered with an insufficient premium?

Statement of Good Health

The Life and Accident and Health Insurance Guaranty Association will pay covered claims when a member insurer becomes insolvent, but the maximum liability for all death benefits payable to any one person shall not exceed:

$300,000

How many policies would it take to implement a cross purchase buy-sell agreement in a three partner business?

6

The name for a consumer publication that describes the types of coverage and provides general information to help the applicant compare different policies and decide whether the proposed coverage is appropriate, is:

A Buyer's Guide

When does a conditional receipt become effective?

A conditional receipt is effective on the later of the completed application, or any medical exam

In the rating of a life insurance policy, a "preferred risk" is an applicant who has:

A low risk occupation and follows a healthy lifestyle.

When the insurer needs additional information about a particular health issue they will request a(n) ______________________________.

APS (Attending Physician Statement)

Who makes up the Life and Accident and Health Insurance Guaranty Association in South Carolina?

All licensed Life and Health Insurers

Which of the following would NOT be a risk factor when determining life insurance premiums?

Applicant's income

The most important source of underwriting information is _____________________________.

Application

With regard to life insurance policies, loading refers to

Assignment of the appropriate share of the company's operating expenses to each policy

In the life insurance field, "insurable interest" must exist:

At the time application is made for the insurance (or when the policy takes effect.)

When must insurable interest be proven in life insurance?

At the time of application

All of the following are living benefits of life insurance EXCEPT: Loan-values Last expenses Retirement income Cash withdrawals

Last expenses

The insurer must provide the __________________________ and ________________________ at the time of application unless there is a _____________________________.

Buyer's Guide; Policy Summary

Which is regarded as constructive delivery?

Company mails policy to policyowner

Life insurance can be used to pay estate costs at death. We say life insurance here allows you to _____________________.

Conserve your Estate

Life insurance can be used to create money where none existed before. We say that life insurance _________________________________.

Creates an Estate

If two business owners purchase life insurance purchase life insurance on each other to buy out the other's family upon their death, what is this called?

Cross purchase buy sell agreement

Because the agent must perform certain duties during the solicitation of insurance, he/she is considered to be the ______________________________.

Field Underwriter

What is true about premium payment modes?

Greater frequency equates to higher premium

What are the four ways to classify life insurance policies?

Group policy vs. individual contract; Permanent life vs. Term Life; Participating vs. Nonparticipating; Fixed vs. Variable

If a company wants to test for ________________ it needs a separate consent form.

HIV/AIDS

When we determine the amount of life insurance needed based on your estimated future earnings, the method we use is called _____________________.

Human Life Value

What are two methods for determining the amount of life insurance which may be required and how do they differ?

Human Life Value and Needs

Which of the following is a method of determining the amount of life insurance that should be purchased by the applicant based on their projected future earnings?

Human life value approach

How is a life settlement different from a vatical settlement?

In a vatical settlement the insured is terminally ill and the proceeds are non-taxable. In a Life settlement the insured is not terminally ill but rather does not need the insurance and the proceeds are partly taxable.

Legal delivery requires ___________________________________ and ________________________________.

In person delivery; explanation

What are the two things that have to be proven in order to purchase life insurance on another adult?

Insurable interest and written permission.

The _______________________ and _________________________ always sign the application.

Insured; Agent

Regardless of who created the advertising, the ____________________ is responsible.

Insurer

Which of the following is NOT a duty of the field underwriter? Issue the policy Deliver the policy Complete the application Solicit the business

Issue the policy

What is the most common approach for "rating" life insurance applicants who are deemed to be substandard risks?

Issuing a policy in the amount applied for, but with a premium higher than for a standard risk

Life insurance is the most practical means of meeting obligations arising from an individual's premature death because

It creates an immediate estate

Which of the following statements about the average number of people who die each year is true?

It is called the mortality rate

Bill Wilson wants to obtain a life insurance policy on his employee, Kenneth Myers, and to name Kenneth's wife, Susan Myers, as the beneficiary. Signatures of which of the following would be legally required on the application?

Kenneth and Bill

The ________________________________________________ was created to protect policy owners and insured in the event of insurer insolvency.

LA&H Guaranty Association

When using the Needs Approach to determine the amount of life insurance, the two basic needs we identify are _____________ and ________________.

Lump sum needs; Ongoing Income needs

What is the name of the organization which collects adverse medical information on applicants?

MIB (Medical Information Bureau)

The insurer may also request a report of what other companies might have discovered during a previous application through the ___________________________. An applicant cannot be _________________________________ based on the information obtained.

MIB (Medical Information Bureau); Declined/Rated

All of the following statements pertaining to life insurance are correct EXCEPT:

Margaret applies for a life insurance policy on the life of a friend. From the standpoint of insurable interest, the application will be approved.

On May 1, Megan applied for a $250,000 life insurance policy and was given a conditional receipt for payment of the first premium. On May 5, Megan took a required medical exam, which she passed. The insurance company issued the policy as applied for on May 15, and the Producer delivered it to Megan on May 18. On what date was Megan's conditional receipt effective?

May 5

What payment mode would require the most premium to be paid for the life of a policy?

Monthly

The three factors that determine premiums are: ________________________, _______________________, and _______________________.

Mortality; Income; Expenses

What documents must provided to an applicant during replacement?

Notice Regarding Replacement and copies of Illustration

All of the following are factors in rate making in life insurance except: Mortality rate Loading of expenses Interest rate assumption Number of suicides

Number of suicides

What is the preferred method for correcting a mistake on an application? What should you never do?

On a paper application., the best thing to do is destroy the app and start over. Never erase or use white out.

With key employee insurance , the business is the _______________ and the _____________________.

Owner, Beneficiary

Mutual companies sell ___________________ policies and stock companies sell _____________________ policies.

Participating; Non-Participating

The two ways to classify life insurance based on how long the policy lasts are: __________________ and _______________________.

Permanent; Term

What are the three parts of the life insurance application? Which does not become part of the contract?

Personal Info on Applicant; Medical information; Agent/Producer Report. The confidential report to the underwriter does not become part of the entire contract.

The person who purchases the policy and Parys the premium is the _________________

Policyowner

Which of the following risk classifications would require the lowest premium?

Preferred

The three risk classifications are called ________________________________, __________________________, and ___________________________.

Preferred, Standard, Substandard

When and to whom are life insurance premiums paid?

Premiums are payable in advance to the company or its authorized representative

The process of reviewing the characteristics that make up the risk profile of a life insurance applicant is known as:

Underwriting

What is the preferred action the agent should take if a mistake is made while completing the application?

Void the application and start a new one

If the insured is not entirely satisfied with the policy issued, she may return it to the insurance company for voiding and receive a refund of premium at which of the following times?

Within a specified period from the date the contract is delivered

Angela and Jovan are married. They purchase life insurance policies on each other. Angela was unfaithful and they divorced. Would the life insurance contracts still be legally enforceable when either one dies

Yes. Insurable interest must exist only at the time of contract formation.

Mr. Jones applies for and is issued a life insurance policy. Eighteen months later the company discovers an unanswered question in the application. Which of the following best fits this situation?

no changes to the policy: the company is assumed to have waived the question