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

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

aleatory

what is a warranty in insurance contract

an absolutely true statement upon which the validity of the insurance contract is based

In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT

applicant's past income

which is the primary source of information used for insurance underwriting

application

which of the following is the basic source of information used by the company in the risk selection process

application

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?

as of the application date

when must insurable interest exist in a life insurance policy

at the time of application

what is insurance underwriting

The process of risk selection and classification

when does an insurance policy go into effect

When the policy is delivered and the premium is paid

what is policy replacement

a new policy is issued while an existing policy is terminated or reissued with a reduction in cash value

the term illustration in a life insurance policy refers to

a presentation of non guaranteed elements of a policy

who is a field underwriter

agent/producer

when must the policy summary for a life insurance policy be delivered to the policy owner

at the time of policy delivery

which of the following is NOT true regarding a certificate of authority

it is issued to group insurance participants

insurance is a contract that protects the insured from what

loss

health insurance contracts are unilateral. what does that mean

only one party makes a legally enforceable promise

what is adverse selection

people whoa re more likely to submit insurance claims are seeking insurance more often than preferred risks

what are the 3 types of risk rating classifications in life insurance

standard, substandard, and preferred

if an applicant does not receive a copy of the new insurance policy, who would be held responsible

the agent

whose responsibility is it to determine that all the questions on an insurance application are answered

the agent's

what law protects consumers from the circulation of inaccurate or obsolete information

the fair credit reporting act

In terms of parties to a contract, which of the following does NOT describe a competent party?

the person must have at least completed secondary education

What two elements are necessary for a life insurance contract to have a legal purpose?

insurable interest and consent

what do individuals use to transfer their risk of loss to a larger group

insurance

what entities make up the medical information bureau

insurers

what are the four elements of an insurance contract

agreement (offer and acceptance) consideration competent parties legal purpose

which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process

buyer's guide

If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to

charge a higher premium

when a change needs to be made on the application for insurance which is best method for correcting the information

complete a new application or ask the applicant to initials the correction on the original 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

consideration

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

considered true to the best of the applicant's knowledge

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

consumer report

health contracts are prepared by insurers and must be accepted by the insured on an as is basis. this describes what aspect of a health insurance contract

contract of adhesion

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

a producer agent must do all the following when delivering a new policy to the insured except

disclose commissions earned from the sale of the policy

At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?

either on the date of the application or the date of the medical exam (whichever occurs last)

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

an underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering an

inspection report

what are the three main instances when insurable interest exists in life insurance

insuring your own life the life of family member life of a business partners or someone who has a financial obligation to the policy owner

what report is used to assess risk associated with a health insurance applicant's lifestyle and character

investigative consumer report

what type of report provides information about the applicant's hobbies, habits, and financial status

investigative consumer report

Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT

other insurance coverages

how can health insurance policies be delivered to the insured

personally delivered by the agent or mailed

What document describes the specific information about a policy?

policy summary

which of the following documents delivered to the policy owner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years

policy summary

what risk classification would typically qualify for lower premiums

preferred risk

what term describes the fee a person pays an insurance company to receive coverage

premium

which of the following will be included in policy summary

premium amounts and surrender values

Most agents try to collect the initial premium for submission with the application. When an agent collects the initial premium from the applicant, the agent should issue the applicant a

premium receipt

if an insurer needs to obtain information about the applicant from investigator, what is the insurer required to do

provide the applicant a disclosure authorization notice

which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles

representative of majority of people

what is the best way to handle incomplete insurance applications

return application to the applicant for completion

which is the appropriate action by the insurer if a prospective insured submitted an incomplete application

return the application to the applicant for completion

the insurer discovered that one of the applicants for life insurance missed a couple of questions on the application, what must the insurer do with the application

return to the applicant for completion

what is the main responsibility of a company's underwriting unit

risk selection

If an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do?

send the application back to the applicant for signature

what is the purpose of the agent's report during the application process

the agent's report discusses the agent's personal observations about the proposed insured that may be help in the underwriting process

if an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern

the existence of insurable interest between the applicant and the insured

who must have insurable interest in the insured

the policy owner

how is information obtained for an investigation consumer report

through interviews with the applicant's associates, friends, and neighbors

why should the producer personally deliver the policy when the first premium has already been paid

to help the insured understand all aspects of the contract

during which stage in the insurance process do insurers evaluate information that identifies adverse selection risks

underwriting

what is the name of the process that insurance companies use to determine whether or not applicant is insurable

underwriting

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

unilateral

in health insurance contracts, the insured is not legally bound to any particular action; however, the insurer is obligated to pay for losses covered by the policy, what contract element does this describe

unilateral

which of the following is a statement that is guaranteed to be true, and if untrue may breach an insurance contract

warranty

When would a misrepresentation on an insurance application be considered fraud?

when it is intentional and material

when would a misrepresentation be considered material

when it may alter the underwriting decision

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?

when the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable statement of good health

in insurance, when is the offer usually made on a contract

when the insurance application is submitted

in forming an insurance contract, when does an acceptance usually occur

when the insurer approves a prepaid application

if a policy includes a free-look period of at least 10 days, the buyer's guide may be delivered to the application no later than

with the policy