6 - Life Insurance Underwriting and Policy Issue

Generally, the party who delivers an insurance policy to the new policyowner is A) the sales agent. B) the underwriter. C) the state's chief financial officer. D) the insurance company's home office.

A) the sales agent. The policy is normally delivered by the sales agent to the policyowner due to it's important legal nature and should be explained by the agent.

An agent accepts a $3,500 premium for a $100,000 life policy and issues a binding receipt. The applicant agrees to a medical examination to be taken in two weeks, but is accidentally killed days later. How much will the company pay? A) $200,000. B) $100,000. C) $3,500. D) $0.

B) $100,000. A binding receipt would force the insurance company to pay the $100,000 benefit.

Part 3 of the application contains what? A) The medical report. B) The agent's report of personal observations about the insured. C) Questions concerning the insured's health history. D) General questions about the proposed insured.

B) The agent's report of personal observations about the insured. Part 3 of the application is termed the agent's (or producer's) report. This is where the agent reports personal observations about the proposed insured.

Underwriting may be required in all of the following situations EXCEPT when? A) an applicant has a history of poor health. B) an applicant is married. C) an applicant has poor credit history. D) a face amount of insurance exceeds $100,000.

B) an applicant is married. Being married does not trigger underwriting action.

An agent's report (Part III of the application) provides additional information about the A) applicant's hazardous activities or hobbies, such as scuba diving or skydiving. B) rates the agent used in determining the applicant's premium. C) applicant's financial condition, character, purpose of the sale, how long the agent has known the applicant. D) medical history of both the applicant and the applicant's family.

C) applicant's financial condition, character, purpose of the sale, how long the agent has known the applicant. Part III of the application provides additional information about the applicant's financial condition, character, purpose of the sale, how long the agent has known the applicant.

Which type of receipt initially guarantees coverage even if the proposed insured is eventually found to be uninsurable and rejected? A) Approval receipt. B) Initial premium receipt. C) Guaranteed receipt. D) Binding receipt.

D) Binding receipt. Under a binding receipt, coverage is guaranteed even if the proposed insured is found to be uninsurable and lasts until the insurer formally rejects the application.

The MIB (Medical Information Bureau) does NOT help to? A) detect misrepresentations. B) control the cost of insurance. C) identify fraudulent information. D) alert applicants of medical problems.

D) alert applicants of medical problems. The MIB is a nonprofit trade organization which maintains medical information about individuals. Information from the MIB is used by life and health insurers. This helps insurance companies from adverse selection by applicants.

Which of the following statements BEST defines a material fact? A) A misrepresentation of a fact about an applicant. B) A concealment of a known fact by the applicant. C) A false statement of a fact by the applicant. D) A fact that may affect an applicant being accepted or rejected.

D) A fact that may affect an applicant being accepted or rejected. A fact that may affect an applicant being accepted or rejected could be classified as a material fact.

Personally delivering a life policy is advantageous to the agent for all of the following reasons EXCEPT? A) Completing required replacement forms. B) Building client's trust and confidence in the agent's abilities. C) Reviewing the contract provisions, exclusions, and riders. D) Reinforcing the need of the life policy and preventing a potential lapse.

A) Completing required replacement forms. Completing required replacement forms should be performed at the time the application is taken, not after policy is issued and delivered.

An applicant's general character and reputation is an example of information that is disclosed by the? A) inspection report. B) medical report. C) application. D) credit report.

A) inspection report. The inspection report provides information about the applicant's character, lifestyle, and financial stability.

Which of the following statements regarding the Fair Credit Reporting Act (FCRA) is CORRECT? A) Consumer reports are final in nature and cannot be disputed by an applicant. B) If requested to do so, the insurance company must provide the actual consumer report to the applicant. C) If an applicant for insurance is rejected based on a consumer report, the name of the reporting agency must be kept confidential. D) Applicants must be notified within a short period of time that their credit report has been requested.

D) Applicants must be notified within a short period of time that their credit report has been requested. Applicants must be notified normally within three days that the report has been requested.

Which type of receipt is most commonly given when a person applies for insurance and pays the premium? A) Binding. B) Temporary. C) Preliminary. D) Conditional.

D) Conditional. The producer issues a conditional receipt to the applicant when the application and premium are collected. The conditional receipt denotes that coverage will be effective once certain conditions are met.

The process by which an insurer "saves age" is known as? A) the assignment provision. B) policy rating. C) the grace period. D) back dating.

D) back dating. Back dating is a process by which an insurer "saves age" so that the applicant will qualify for a lower premium.

All of the following are part of the underwriting process EXCEPT? A) The application. B) The policy loan. C) The inspection reports. D) The classification.

B) The policy loan. A policy loan is not a factor in the underwriting process.

Which of the following statements pertaining to the Medical Information Bureau (MIB) is CORRECT? A) Information obtained by the MIB is available to all physicians. B) Applicants may request that MIB reports be attached to their policies. C) The MIB is operated by a national network of hospitals. D) The MIB provides assistance in the underwriting of life insurance.

D) The MIB provides assistance in the underwriting of life insurance. A source of underwriting information that specifically focuses on an applicant's medical history is the Medical Information Bureau (MIB).

An insurance applicant's character and reputation can be found in which of the following reports? A) Agent report. B) Inspection report. C) Credit report. D) Medical Information Bureau report.

B) Inspection report. The purpose of these reports is to provide a picture of an applicant's general character and reputation, mode of living, finances, and any exposure to abnormal hazards. Investigators or inspectors may interview employees, neighbors, associates of the applicant, and the applicant.

The primary distinction between the insurability and approval types of conditional receipts is when? A) the coverage goes into effect. B) the medical exam is given. C) the applicant pays the initial premium. D) the applicant proves insurable.

A) the coverage goes into effect. With the approval receipt, coverage is effective only after the applicant has been approved by the insurer. With the insurability receipt, coverage is effective when the applicant pays the initial premium, on the condition that the applicant proves to be insurable.

M receives from an agent a conditional insurability receipt for the premium deposit. M enters the hospital and is diagnosed as having a terminal illness BEFORE the medical exam is given. In this situation, the company would? A) request an updated medical report and make a decisionon on the applicant's insurability. B) issue the policy if M qualified at the time of the application. C) decline M's policy and return the premium. D) retain the premium and ask that a new application be submitted.

B) issue the policy if M qualified at the time of the application. With a conditional receipt, the underwriting decision is based on the applicants health at the time of the application.

All of the following acts constitute delivery of the policy in the eyes of the law EXCEPT? A) Mailing the policy to the applicant. B) Personally delivering the policy by the agent. C) Issuing a rated policy. D) Mailing the policy to the agent.

C) Issuing a rated policy. All of these constitute delivery of the policy EXCEPT issuing a rated policy.

The agent's report is found where in the application? A) Part IV. B) Part II. C) Part I. D) Part III.

D) Part III. Part III of the application is termed the agent's report or producer's report. This is where the agent reports personal observations about the proposed insured. Because the agent represents the interests of the insurance company, the agent is expected to complete this part of the application fully and truthfully.

Where would information about a prospective insured's lifestyle be found? A) Medical report. B) MIB report. C) Inspection report. D) Application.

C) Inspection report. The purpose of these reports is to provide a picture of an applicant's general character and reputation, mode of living, finances, and any exposure to abnormal hazards. Investigators or inspectors may interview employees, neighbors, associates of the applicant, and the applicant.

If an agent realizes that an applicant has made an error on an insurance application, the agent MUST? A) verify the correct information with the applicant and then modify the application without initialing the changes. B) correct the information and the applicant initial the changes. C) complete a new application. D) modify the application and have it notorized without obtaining the applicant's consent.

B) correct the information and the applicant initial the changes. If a mistake has been found on an application, the agent must correct the information and have the applicant initial the changes.

Which of the following laws require an insurance company to notify an applicant in writing that an investigative consumer report may be made on him? A) Freedom of Information Act. B) Medical Information Bureau Disclosure Act. C) Fair Credit Reporting Act. D) Uniform Provision Law.

C) Fair Credit Reporting Act. To protect the rights of consumers for whom an inspection report or credit (or consumer) report has been requested, Congress enacted the Fair Credit Reporting Act of 1970.

All of the following statements about the classification of applicants are correct EXCEPT? A) applicants who are preferred risks have premium rates that are generally lower than standard rate risks. B) an individual can be rated as a substandard risk because of a dangerous occupation. C) a substandard applicant can never be rejected outright by the insurer. D) a standard applicant fits the insurer's guidelines for policy issue without special restrictions.

C) a substandard applicant can never be rejected outright by the insurer. This is false. An individual can be rated substandard for a number of reasons and can even be rejected outright.

What type of receipt indicates that certain conditions must be met in order for the insurance coverage to go into effect? A) Unconditional receipt. B) Initial premium receipt. C) Binding receipt. D) Conditional receipt.

D) Conditional receipt. The most common type of premium receipt is the conditional receipt. A conditional receipt indicates that certain conditions must be met in order for the insurance to go into effect. Some companies refer to a conditional receipt as a temporary receipt.

Which of the following statements about the Fair Credit Reporting Act is CORRECT? A) It provides that consumers have the right to question reports made about them by investigative agencies. B) It prohibits insurance companies from obtaining reports on applicants from outside investigative agencies. C) It prohibits insurance companies from rejecting an application based on a credit report. D) It applies to reports about applicants that are made by insurance agents to their companies.

A) It provides that consumers have the right to question reports made about them by investigative agencies. If requested by the applicant, the consumer reporting agency - not the insurance company - must disclose the nature and substance of all information (except medical) contained in the applicant's file.

What's the minimum age of eligibility to enter into a contract for insurance? A) 18. B) 15. C) 21. D) 13.

B) 15. The minimum age to contract for insurance is 15 years.

Which of the following is the purpose of backdating? A) Pay a lower premium. B) Have the issue date correspond to the date of the medical exam. C) Avoid the payment of premium with the application. D) Guarantee the insurability of the applicant.

A) Pay a lower premium. Backdating establishes a policy effective date that is earlier than the present, in order to receive a slight savings in premium.

What risk classification rewards exceptionally good risks which will result in premium rates that are lower than standard risk? A) Preferred risk. B) Superior risk. C) Exceptional risk. D) Premium risk.

A) Preferred risk. Many insurers today reward exceptionally good risks by assigning them to a preferred risk classification. Examples of preferred risk characteristics include: not smoking, weight within an ideal range, and exceptional health.

Which of the following is a source of underwriting information that specifically focuses on an applicant's medical history? A) Inspection report. B) MIB. C) Statement of Good Health. D) Part 3 of application.

B) MIB. The Medical Information Bureau (MIB) is a nonprofit central information agency that was established years ago by several insurance companies to aid in the underwriting process. Its purpose is to serve as a reliable source of medical information concerning applicants and to help disclose cases where an applicant either forgets or conceals pertinent underwriting information, or submits erroneous or misleading medical information with fraudulent intentions.

Which of the following statements pertaining to a life insurance policy application is CORRECT? A) The size of the policy being applied for does not affect the underwriting process. B) If an applicant's age is shown erroneously on a life insurance application as 28 instead of 29, the result may be a premium quote that is higher than it should be. C) The names of both the insured and the beneficiary are indicated on the application. D) The agent's report in the application must be signed by the agent, applicant, and beneficiary.

C) The names of both the insured and the beneficiary are indicated on the application. The names of both the insured and the beneficiary are listed in Part I on the application, along with the insured's age, address, birthdate, sex, income, marital status, and occupation.

Elaine signs an application for a $50,000 nonmedical life policy, pays the first premium, and receives a conditional insurability receipt. If Elaine were killed in an auto accident two days later? A) the premium would be returned to Elaine's family because the policy had not been issued. B) the company could reject the death claim because the underwriting process was never completed. C) her beneficiary would receive $50,000, if Elaine qualified for the policy as applied for. D) the company could reject the application on the basis that death was accidental.

C) her beneficiary would receive $50,000, if Elaine qualified for the policy as applied for. A conditional insurability receipt is given after an application for life insurance is completed and a check for the first premium is also given. As long as the company finds the applicant qualified for the policy at the time of signing, the death benefit will be paid.