Ch.1 Completing the Application, Underwriting, and Delivering the Policy

The Federal Fair Credit Reporting Act

The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports.

What is a material misrepresentation?

A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.

Which of the following includes information regarding a person's credit, character, reputation, and habits?

Consumer report

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as

Contracts of adhesion

Which of the following is NOT an example of a valid insurable interest?

Debtor in life of creditor.

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?

5 days

A producer agent must do all of the following when delivering a new policy to the insured EXCEPT

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.

What is the primary source of information used for insurance underwriting?

Application

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

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

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?

Consideration is something of value that each party gives to the other.

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?

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.

Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report

Must be informed of the source of the report

Which of the following information about the applicant is NOT included in the General Info section of the application for insurance? Martial Status Medical background Gender Occupation

Part 1 - General Information of the application includes the general questions about the applicant, including name, age, address, birth date, gender, income, marital status, and occupation. The applicant's medical background is addressed in Part 2 - Medical Information.

Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives?

Part 2 - Medical Information of the application includes information on the prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives.

What describes the specific information about a policy?

Policy Summary PS: Buyers guide is simplified information.

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

Respond to the consumer's complaint and if necessary reinvestigate the report.

Another name for a substandard risk classification is

Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium.

Who makes up the Medical Information Bureau?

The Medical Information Bureau is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have discovered.

An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date?

The date of the medical exam.

If an insurer issued a policy based on the application that had unanswered questions, which of the following will be TURE?

The policy will be interpreted as if the insurer waived its right to have an answer on the application.

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant

With the policy or prior to the initial premium.

In insurance, an offer is usually made when

An applicant submits and application to the insurer

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

An insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk.

An insurance contract must contain all of the following to be considered legally binding EXCEPT Offer and Acceptance Consideration Competent Parties Beneficiary's Consent

Beneficiary's consent

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?

Fair Credit Reporting Act

When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will

Issue the policy anyway and pay the face value to the beneficiary.

What is the purpose of a conditional receipt?

It is intended to provide coverage on a date prior to the policy issue.

Representations are written or oral statements made by the applicant that are

Representations are statements made by an applicant that they BELIEVE to be true. PS: Warranties are GUARANTEED to be true.

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

What is the purpose of disclosure statements in life insurance policies?

To explain features and benefits of a proposed policy to the consumer.