CH 2
standard, preferred and substandard.
The three classifications for risks are
Universal Life All premiums paid to a Universal Life Policy are placed in the policy's cash value account. The mortality charge (cost of protection) and expenses are then deducted from the cash value account.
A life insurance premium is paid each month. The insurer then subtracts a mortality and expense charge from the policy's cash value. This best describes which of the following life insurance policies?
Replacement
Any transaction in which a new life policy or annuity is to be purchased, and the producer knows, or should know, that existing contract(s) will be: lapsed, forfeited, surrendered, terminated, reduced in value, amended with a reduction in benefit or term, have a reduced cash value, or is subjected to borrowing, is best known as a __________.
Applicants must consent to be tested for HIV and be informed that testing for HIV may determine insurability.
Applicants must consent to be tested and be informed that testing for ________ may determine insurability.
Physicians, nurses, or paramedics are the ones who conduct medical exams which may include blood tests, urine tests, EKGs, and medical histories among other things.
If a medical exam is required as part of the underwriting process, who normally conducts the exam?
If the applicant is a minor, a guardian must sign the application.
If an applicant is a minor, who signs the application?
Application Unlike Property and Casualty insurance, for a life insurance policy to be valid, insurable interest need only exist at the time of application when the policy is issued.
In order for a life insurance policy to be valid, insurable interest must exist at time of _________.
The policy is in force--coverage began when the insurer sent the policy Since the initial premium has been paid and the policy was issued as applied, legal delivery occurs when the policy is issued by the insurer. It is at this point that a legal contract exists, since the check accompanying the application is the offer, and the issued policy is the acceptance of the offer.
K meets with an insurance producer, completes an application, and writes a check for the initial premium. The producer submits the application and the premium to the insurer, and a policy is issued and mailed to the producer. Two weeks later, K has neither shown up to pick up the policy nor returned the producer's calls. Which of the following statements is correct?
The test results The HIV Consent Form specifically addresses who may receive test results, most often it is the insured's doctor.
The HIV Consent Form specifies which types of individuals may receive __________.
Insurer
The cost of any required medical exams in the underwriting process is paid by the:
1,000 Mortality tables show the death rate per 1,000, similar to how policy premiums are based on, a rate per $1,000 of coverage.
The mortality rate is based on mortality tables which show life expectancy and the death rate per _______ people living in the U.S
Home office underwriter It is ultimately up to the insurer's home office underwriter to determine whether or not the insured is an acceptable risk or not and at what rate classification.
Ultimately it is up to the _______ to determine if the proposed insured is an acceptable risk.
The applicant has the right to challenge the inaccurate or incomplete information Any inaccurate or incomplete information found in any report may be challenged by the applicant under the Fair Credit Reporting Act.
What happens if an applicant discovers that there has been inaccurate or incomplete information in any report used during the underwriting process for life insurance?
On the date the policy is delivered and premium collected The policy will go into effect upon delivery and collection of the premium. No contract is effective until both parties have provided the required consideration.
When a producer receives an application for life insurance that is completed and signed, but without premium payment, when does coverage start?
Increase Additional charges are included in modes other than annual to offset the lost interest earnings and increased administration costs.
When an insured decides to change her mode of premium payment from annually to monthly, the total premium due would:
Premiums are based on expected mortality, interest, and expenses.
Which of the following are factors in premium determination?
XYZ will send the policy to the producer for delivery to the insured After a policy is issued, it must be sent to the producer, who will then deliver it to the insured.
XYZ Insurer has decided to issue a policy to a particular applicant. What is the next step in this insurance transaction?
A policy summary Policy summaries detail premiums, cash values, interest rates, and cash surrender values of a particular policy for a specific insurance prospect.
A personalized computer-generated illustration detailing premiums, cash values, interest rates, and surrender values is called __________.
Policy summaries detail premiums, cash values, interest rates, and cash surrender values of a particular policy for a specific insurance prospect.
A personalized computer-generated illustration detailing premiums, cash values, interest rates, and surrender values is called __________.
Applicant/Insured The insurable interest relationship must exist between the applicant and insured, at the time of application and policy issuance, in order for the contract to be valid.
An insurable interest must exist between the _______ and the ________ at the time of application for life insurance to be valid.
Have the applicant initial the change or start over with a completely new application The easiest and most practical method would be for the applicant to initial any change; however, some insurers might prefer an entirely new application be completed.
During the application process, a mistake is made by the applicant in answering one of the health questions and needs to be corrected. What is the best way to go about this?
Additional charges to offset lost interest, earnings, and increased administrative costs Additional charges are included in modes other than annual to offset the lost interest earnings and the increased administration costs.
If a client chooses to pay premiums other than annually, what can he or she expect?
Conduct further investigation to obtain more information prior to making a decision When the home office underwriter receives MIB codes that are inconsistent with information provided on the application, the underwriter is required to conduct a further investigation to obtain more information prior to making an underwriting decision. Underwriting decisions cannot be based solely on MIB codes since there could be a reasonable explanation for the discrepancy.
If a home office underwriter obtains MIB codes inconsistent with information provided on the application, what is the underwriter required to do?
Waiver of Premium
If an insured is concerned about being unable to pay the premiums on his or her whole life policy in the event of a total disability, which of the following riders should be added to the policy?
Preferred Individuals who meet certain requirements (such as ideal health, height and weight, low occupational stress, etc.) are preferred risks.
If an insured pays a premium that is lower than others that are in the same class, this insured is considered to be rated as?
Notice Regarding Replacement
If it is known or should be known by the agent that an existing policy is going to be lapsed, forfeited, surrendered or terminated in favor of a new policy, the agent must submit a:
FCRA The insurance company must meet requirements under the FCRA when gathering information about an applicant from a third party.
The insurance company must meet requirements under the _____ when gathering information about an applicant from a third party.
The producer's name and address The producer's name and address along with the address of the insurance company must appear on the policy summary.
What information must appear on the policy summary provided to a life insurance client?
Past life insurance owned The sources of underwriting include the application, medical exams, an attending physician's statement, the medical information bureau, an inspection report, and the agent's report.
Which of the following is not a major source of underwriting information?
A typical life insurance application contains two parts, part 1 is general information and part 2 is medical information.
A typical life insurance application contains how many parts?
Inspection An Inspection Report is a general report of the applicant's finances, character, morals, work, hobbies, and other habits.
A(n) ________ report is a general report of the applicant's finances, character, morals, work, hobbies, and other habits.
Education level completed Underwriting for educational level completed would be discriminatory.
All of the following are underwriting criteria taken into account by the insurer in the underwriting of individual life insurance cases, except:
A copy of the check A copy of the application, if attached to the policy, becomes part of the entire contract along with any amendments, riders, or endorsements.
All of the following become part of the entire contract, except:
Reimburse the applicant for any surrender charges that may be incurred as a result of the transaction Reimbursing the applicant for any surrender charges that may be incurred is not permitted, but may indicate an improper replacement.
In a replacement sale all of the following are producer responsibilities, except:
Auto and Homeowners Excellent! The MIB's Underwriting Services are used exclusively by MIB-member life and health insurance companies to assess an individual's risk and eligibility during the underwriting of life, health, disability income, critical illness, and long-term care insurance policies.
The MIB is used in the underwriting of all of the following types of insurance, except:
Insurers The primary purpose of the Medical Information Bureau (MIB) is to collect adverse medical information about an applicant's health that is known to insurers to which the applicant has previously applied for coverage.
The MIB obtains its information from which of the following?
Estate creation occurs when policy proceeds are paid to survivors. Estate conservation occurs when those proceeds are used to pay estate taxes An estate is created every time a policy is bought, because the purchase creates a pool of money that will be paid out at death as long as the policy is in force. At that point the promise becomes a reality. Estate conservation assumes wealth has already been created during one's life and needs to be protected from taxes and loans due at the death of the insured.
The difference between Estate Creation and Estate Conservation is that
An application A producer collects field underwriting information from the applicant/insured on an insurance application.
Which of the following is used by an insurer to collect information from the applicant/insured for underwriting purposes?
Cash accumulation Cash accumulation is the only choice given that will provide benefits while the insured is still alive. All of the other choices are available once the insured has died.
Which of the following personal uses of life insurance is specifically designed to provide benefits to the policyowner while the insured is still alive?
Cash accumulation is the only choice given that will provide benefits while the insured is still alive. All of the other choices are available once the insured has died.
Which of the following personal uses of life insurance is specifically designed to provide benefits to the policyowner while the insured is still alive?
Attending Physician's Statement The Attending Physician's Statement would be ordered by the underwriter to secure the additional medical information.
Which underwriting source is primarily used when an application reveals conditions for which more medical information is required?
Without it, coverage cannot go into effect, as there would be a lack of consideration Collecting the premium at the time of application allows the producer to issue a conditional coverage receipt, which can bring coverage into effect as early as the date of the application, provided all the conditions have been satisfied.
Why should a producer collect a premium at the time the application is completed?
Insurers may refuse to issue a policy to individuals based on positive HIV test results Insurers are required to maintain strict confidentiality of personal information obtained through testing and to obtain informed consent before testing for HIV. Unfair discrimination is never permitted.
What is an insurer permitted to do if and when it discovers during the underwriting process that a proposed insured has AIDS?
The applicant is making an offer to the insurer When an application accompanies the initial premium, the applicant is making an offer to the insurer. Before acceptance can take place, an offer must first be made. The insurer accepts the offer when the policy is issued.
When an applicant completes the insurance application in its entirety and provides the producer with a premium check, what in effect has taken place?
Applicant The person who submits an application for insurance is always referred to as the applicant.
The person who submits an application for insurance is always referred to as the _______.
Lower than standard rate Excellent! A lower rate is issued for a preferred risk as the insured meets the insurance company's higher qualifications such excellent health and no pre-existing conditions.
A policy issued as a preferred risk will be issued with a:
Insurer Medical exams are done at the insurer's expense.
The cost of any required medical exams in the underwriting process is paid by the:
If no premium was paid at time of application and the policy is now being delivered The producer must also get a Statement of Good Health from the applicant/insured at the time of policy delivery that verifies that the insured has not suffered injury or illness, had any surgeries, or been admitted to a hospital since the application date.
Under what circumstances should the producer obtain a statement of good health?
Replacement This is the definition of a replacement.
Any transaction in which a new life policy or annuity is to be purchased, and the producer knows, or should know, that existing contract(s) will be: lapsed, forfeited, surrendered, terminated, reduced in value, amended with a reduction in benefit or term, have a reduced cash value, or is subjected to borrowing, is best known as a __________.
HIV
Applicants must consent to be tested and be informed that testing for ________ may determine insurability.
HIV Applicants must consent to be tested for HIV and be informed that testing for HIV may determine insurability.
Applicants must consent to be tested and be informed that testing for ________ may determine insurability.
Agent's Report An agent's report is a personal statement submitted by the producer to the insurer about information the agent would like to share with the insurer on a confidential basis that they may have learned during the application process while at the applicant's home or place of business.
Confidential information shared by the producer to the insurer and does not become part of the policy is the __________.
Return the policy to the insurer with a letter of explanation Producers must return the policy to the insurer if they know that the insured's health status has materially changed since the time of application.
On the day a newly-issued policy was to be delivered and the initial premium collected, the producer discovers that the insured is in the hospital with a heart condition pending surgery. What should the producer do?
Visit the insured in person to deliver the policy Producers must make sure that policies are delivered to insureds, preferably in person.
Producer Andy is sent a newly issued policy by his insurer. Andy should now:
Two death benefit options, an adjustable death benefit and flexible premiums Two death benefits options are a key characteristic of all forms of universal life insurance. All UL policies permit the policyowner to make changes in both the amount and timing of premium payments, including making no payments at all providing flexible premiums, and the death benefit may be increased or decreased in accordance with the terms and provisions of the policy.
Which of the following are characteristics of universal life insurance policies?
The MIB report reveals past medical concerns and cannot be used as the only medical report for rating or denying an application
Which of the following medical reports cannot be used as the sole basis for rating or denying coverage to an applicant?
Life Insurance
Which of the following products are offered by insurers to protect families from the financial setback of a family member's premature death?
Beneficiary The policyowner has the right to name and change beneficiaries. Beneficiaries do not sign on the application as beneficiaries.
Whose signature is not required on a life insurance application?