Chapter 1 & 2 Quiz Answer Key

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 A)Statement of good health. B)Backdated receipt. C)Warranty. D)Premium receipt.

D)Premium receipt. Reason: When collecting the initial premium, the agent should issue the applicant a premium receipt.

Who may complete a paramedical report? A)An underwriter B)A nursing assistant C)A registered nurse D)A spouse

C)A registered nurse

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? A)Subrogation B)Warranty C)Aleatory D)Adhesion

C)Aleatory

Steven prints a pamphlet to advertise his life insurance business. In the pamphlet, he includes the full name of his insurance agency and the type of insurance that he offers. What else must he include? A)There is nothing else that Steven must include. B)List of his credentials as a producer C)State licensing information D)Address of his principal office

D)Address of his principal office

Another name for a substandard risk classification is A)Declined. B)Elevated. C)Rated. D)Controlled.

C)Rated

Which of the following information about the applicant is NOT included on Part 1 of the application for insurance? A)Gender B)Occupation C)Marital status D)Medical background

D)Medical background

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy? A)Reciprocal B)Nonprofit service organization C)Stock D)Mutual

D)Mutual

Which of the following statements is NOT true concerning insurable interest as it applies to life insurance? A)A debtor has an insurable interest in the life of a lender. B)Business partners have an insurable interest in each other. C)A husband or wife has an insurable interest in their spouse. D)An individual has an insurable interest in his or her own life.

A)A debtor has an insurable interest in the life of a lender.

A tornado that destroys property would be an example of which of the following? A)A peril B)A pure risk C)A loss D)A physical hazard

A)A peril

If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to A)Charge a higher premium. B)Require a yearly medical examination. C)Lower its insurability standards. D)Refuse to issue the policy.

A)Charge a higher premium. Reason: The premium rate will be adjusted to reflect the insurer's increased risk.

Which of the following is the basis for a claim against an insurance policy? A)Misrepresentation B)Loss C)Material change D)Hazard

B)Loss

A participating insurance policy may do which of the following? A)Require 80% participation B)Pay dividends to the policyowner C)Provide group coverage D)Pay dividends to the stockholder

B)Pay dividends to the policyowner

Which of the following insurance options would be considered a risk-sharing arrangement? A)Surplus lines B)Reciprocal C)Stock D)Mutual

B)Reciprocal

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of A)Concealment. B)Waiver. C)Fraud. D)Breach of warranty.

A)Concealment.

If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT A)Erase the incorrect answer and record the correct answer. B)Draw a line through the first answer, record the correct answer, and have the applicant initial the change. C)Note on the application the reason for the change. D)Destroy the application and complete a new one.

A)Erase the incorrect answer and record the correct answer.

An insurer invests the money it receives from premiums paid by its insureds. Which of the following is TRUE regarding the interest earned on these investments? A)It is used to lower premiums. B)It is paid out as dividends. C)It is used to fund executive bonuses D)It is used to increase the death benefit.

A)It is used to lower premiums.

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated? A)Law of large numbers B)Law of masses C)Law of averages D)Law of group evaluation

A)Law of large numbers

The causes of loss insured against in an insurance policy are known as A)Perils B)Losses C)Risks D)Hazards

A)Perils

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? A)Premiums are not tax deductible as a business expense. B)Premiums are tax deductible by the key employee. C)Premiums are tax deductible as a business expense. D)Premiums are taxable to the employee.

A)Premiums are not tax deductible as a business expense.

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT A)Signed waiver of premium. B)Statement of good health. C)Payment of premium. D)Delivery receipt.

A)Signed waiver of premium.

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it? A)Unilateral B)Adhesion C)Conditional D)A legal (but unethical) contract

A)Unilateral

What is a material misrepresentation? A)Concealment B)A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company C)Any misstatement made by an applicant for insurance D)Any misstatement by the producer

B)A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

Which of the following is the basic source of information used by the company in the risk selection process? A)Consumer report B)Application C)Agent's report D)Warranty

B)Application

When the partners of a business develop an arrangement whereby should one of them die or become permanently disabled, the other partners would purchase the interest of the deceased or disabled partner at a predetermined price, this is called a/an A)Executive bonus plan. B)Business continuation plan. C)Key person plan. D)Business overhead expense plan.

B)Business continuation plan.

All of the following are duties and responsibilities of producers at the time of application EXCEPT A)Check to make sure that there are no unanswered questions on the application. B)Change any incorrect statement on the application by personally initialing next to the corrected statement. C)Explain the nature and type of any receipt the producer is giving to the applicant. D)Probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information.

B)Change any incorrect statement on the application by personally initialing next to the corrected statement.

What insurance concept is associated with the names Weiss and Fitch? A)Index used by stock companies B)Guides describing company financial integrity C)Policy dividends D)Types of mutual companies

B)Guides describing company financial integrity

When would a misrepresentation on the insurance application be considered fraud? A)Any misrepresentation is considered fraud. B)If it is intentional and material C)Never: statements by the applicant are only representations. D)When the application is incomplete

B)If it is intentional and material

A life insurance policy has a legal purpose if both of which of the following elements exist? A)Policyowners and named beneficiaries B)Insurable interest and consent C)Underwriting and reciprocity D)Offer and counteroffer

B)Insurable interest and consent

Which of the following statements regarding HIV testing for life insurance purposes is NOT true? A)HIV testing is regulated at the state level. B)Insurers are barred from requesting HIV testing. C)Positive test results will be forwarded to the state's Department of Health if a physician is not selected by the applicant. D)The testing practices must meet the criteria of the U.S. Department of Health and Human Services.

B)Insurers are barred from requesting HIV testing. Reason: It is common for insurers to require HIV testing when an applicant seeks a policy with a large face amount. The insurer must abide by a variety of rules created by its respective state.

Not all losses are insurable, and there are certain requirements that must be met before a risk is a proper subject for insurance. These requirements include all of the following EXCEPT A)The loss produced by the risk must be definite. B)The loss may be intentional. C)The loss must not be catastrophic. D)There must be a sufficient number of homogeneous exposure units to make losses reasonably predictable.

B)The loss may be intentional.

The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as A)Hazard. B)Risk. C)Loss. D)Exposure.

C)Loss.

Which of the following is NOT an example of a business use of Life Insurance? A)Executive Bonuses B)Key Person C)Workers Compensation D)Buy-sell Funding

C)Workers Compensation

Because an agent is using stationery with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of that insurer. What type of agent authority does this describe? A)Implied B)Assumed C)Apparent D)Express

C)Apparent

An underwriter is reviewing the medical questions in the application and needs further information due to a medical situation the applicant had in the past. What will the underwriter require? A)Sworn health affidavit from the applicant B)Statement of Continued Good Health C)Attending Physician Statement D)A complete medical record

C)Attending Physician Statement Reason: The APS is used to obtain medical DETAILS about a specific condition which has shown up in the application; the insurance company orders the information directly from the physician, using a signed authorization which was part of the application.

Which of the following best describes gross annual premium? A)Basic insurance rate plus commissions B)Expense premium C)Net premium plus expenses D)Annual loading

C)Net premium plus expenses Reason:Gross annual premium is net premium plus expenses (loading).

Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value? A)Insured's annual expenses. B)Effect of inflation on income over time. C)Predicted needs of the family after the insured's death. D)Insured's current and future income.

C)Predicted needs of the family after the insured's death.

Who is the owner and who is the beneficiary on a Key Person Life Insurance policy? A)The key employee is the owner and beneficiary. B)The key employee is the owner and the employer is the beneficiary. C)The employer is the owner and beneficiary. D)The employer is the owner and the key employee is the beneficiary.

C)The employer is the owner and beneficiary. Reason: With the key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary.

Which of the following is an example of a producer's fiduciary duty? A)A duty to base all transactions upon the principle of Utmost Good Faith. B)The obligation to tell the truth to the best of one's knowledge C)The trust that a client places in the producer in regard to handling premiums. D)An obligation to state every known fact about the policy the producer is selling.

C)The trust that a client places in the producer in regard to handling premiums.

Why should the producer personally deliver the policy when the first premium has already been paid? A)To find out how the family has been doing since the initial presentation B)To make sure the policy is not stolen or lost C)To help the insured understand all aspects of the contract D)To ensure the producer gets paid commission

C)To help the insured understand all aspects of the contract Reason: It is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.

Which of the following is NOT a goal of risk retention? A)To increase control of claim reserving and claims settlements B)To fund losses that cannot be insured C)To minimize the insured's level of liability in the event of loss D)To reduce expenses and improve cash flow

C)To minimize the insured's level of liability in the event of loss

Which of the following is NOT a government insurance program? A)Old-age, Survivors and Disability Insurance (Social Security) B)Medicare C)Medicaid D)Federal Deposit Insurance Corporation (FDIC)

D)Federal Deposit Insurance Corporation (FDIC)

Which of the following is the closest term to an authorized insurer? A)Certified B)Licensed C)Legal D)Admitted

D)Admitted

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? A)Good health B)Adhesion C)Conditional D)Aleatory

D)Aleatory

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? A)As of the policy delivery date B)As of the first of the month after the policy issue C)As of the policy issue date D)As of the application date

D)As of the application date

Which of the following is NOT an example of insurable interest? A)Business partners in each other B)Employer in employee C)Child in parent D)Debtor in creditor

D)Debtor in creditor

Which authority is NOT stated in an agent's contract but is required for the agent to conduct business? A)Apparent B)Assumed C)Express D)Implied

D)Implied

The Medical Information Bureau (MIB) was created to protect A)Insurance departments from lawsuits by policyowners. B)Insureds from unreasonable underwriting requirements by the insurance companies. C)Medical examiners that perform insurance physical examinations. D)Insurance companies from adverse selection by high risk persons.

D)Insurance companies from adverse selection by high risk persons.

Who makes up the Medical Information Bureau? A)Hospitals B)Former insured C)Physicians and paramedics D)Insurers

D)Insurers

After issuing a policy, an insurance company discovers that the policyholder concealed information on the application. The insurance company wants to cancel the policy and give back the money the policyholder has paid. This is an example of A)Refund. B)Contestability. C)Renewal. D)Rescission.

D)Rescission.

An insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible? A)It is impossible to transfer a policy. B)The insured would have to surrender his policy to the insurer, and his friend could then ask to buy it. C)The insured can transfer the policy to his friend and then notify the insurer of the change. D)The insured will need a written consent of the insurer.

D)The insured will need a written consent of the insurer.

Which of the following is NOT required on an illustration used in the sale of a life insurance policy? A)Generic name of policy B)Name of insurer C)Underwriting or rating classification upon which the illustration is based D)The name of the primary and secondary beneficiaries

D)The name of the primary and secondary beneficiaries

Which is the primary source of information used for insurance underwriting? A)Application B)Applicant interviews C)Medical records D)Private investigations

A)Application

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe? A)Conditional B)Contingent C)Aleatory D)Unilateral

A)Conditional

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is A)Conditional. B)Aleatory. C)Personal. D)Unilateral.

A)Conditional.

Something of value exchanged between the insurer and the insured is considered an A)Consideration. B)Offer. C)Acceptance. D)Legal capacity.

A)Consideration.

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 A)Issue the policy anyway and pay the face value to the beneficiary. B)Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved. C)Return the premium to Y's estate, since it has no obligation to pay the death claim. D)Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued.

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

Which of the following best describes the MIB? A)It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance. B)It is a government agency that collects medical information on the insured from the insurance companies. C)It is a member organization that protects insured against insolvent insurers. D)It is a rating organization for health insurance.

A)It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance Reason: The Medical Information Bureau (MIB) is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT A)Other insurance coverages. B)Family health history. C)Alcohol and tobacco consumption. D)Recent surgeries.

A)Other insurance coverages.

Which of the following would be considered a nonmedical insurance application? A)An application on which the medical information is completed by the applicant and the agent only B)An application that does not ask any questions about the applicant's medical history C)An application submitted with the Agent's Report D)Any application for life insurance

An application on which the medical information is completed by the applicant and the agent only

Which of the following is NOT part of the consent form to an HIV-related test given in New York? A)The description of the test B)Applicant's sexual history C)The purpose of the test D)A person to whom test results may be disclosed

B)Applicant's sexual history

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as A)Juvenile protection provision B)Survivor protection C)Life planning D)Survivorship insurance

B)Survivor protection

In forming an insurance contract, when does acceptance usually occur? A)When an insured submits an application B)When an insurer's underwriter approves coverage C)When an insurer delivers the policy D)When an insurer receives an application

B)When an insurer's underwriter approves coverage

The risk of loss may be classified as A)Named risk and un-named risk. B)High risk and low risk. C)Pure risk and speculative risk. D)Certain risk and uncertain risk.

C)Pure risk and speculative risk.

Which of the following documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years? A)A notice regarding replacement B)A privacy notice C)A buyer's guide D)A policy summary

D)A policy summary

Which of the following types of agent authority is also called "perceived authority"? A)Express B)Implied C)Fiduciary D)Apparent

D)Apparent

All of the following are examples of risk retention EXCEPT A)Self-insurance. B)Premiums. C)Deductibles. D)Copayments.

B)Premiums.

When must the Buyer's Guide be delivered to the proposed insured? A)At the time the first premium is paid B)At the time the appointment is set for the first presentation C)At the time of application D)At policy delivery

C)At the time of application

What term best describes the act of withholding material information that would be crucial to an underwriting decision? A)Leading B)Breach of warranty C)Concealment D)Withholding

C)Concealment

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? A)Representation B)Adhesion C)Consideration D)Good faith

C)Consideration

Which of the following is NOT a characteristic of an insurable risk? A)The loss must be measurable. B)The loss exposure must be large. C)The loss must be catastrophic. D)The loss must be due to chance.

C)The loss must be catastrophic.

Which is generally true regarding insureds who have been classified as preferred risks? A)They can decide when to pay their monthly premiums. B)They keep a higher percentage of any interest earned on their policies. C)Their premiums are lower. D)They can borrow higher amounts off of their policies.

C)Their premiums are lower.

When must insurable interest exist in a life insurance policy? A)At the time of policy delivery B)When there is a change of the beneficiary C)At the time of loss D)At the time of application

D)At the time of application

What is the purpose of key person insurance? A)To provide health insurance to the families of key employees B)To insure retirement benefits are available to all key employees C)To maintain an account that insures the owner of a company remains solvent D)To lessen the risk of financial loss because of the death of a key employee

To lessen the risk of financial loss because of the death of a key employee

Installing deadbolt locks on the doors of a home is an example of which method of handling risk? A)Reduction B)Avoidance C)Transfer D)Self-insurance

A)Reduction

If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about A)Which individual will pay the premium. B)Whether an insurable interest exists between the individuals. C)The gender of the applicant. D)The type of policy requested.

B)Whether an insurable interest exists between the individuals.

A key person insurance policy can pay for which of the following? A)Workers compensation B)Hospital bills of the key employee C)Costs of training a replacement D)Loss of personal income

C)Costs of training a replacement

An applicant wants to buy a life insurance policy in which he can count on receiving the same benefits as stated in the contract. Which type should he buy? A)Variable B)Any type of annuity C)Fixed D)Permanent

C)Fixed

An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer's classification in Wyoming? A)Domestic B)Unauthorized C)Foreign D)Alien

C)Foreign

What method do insurers use to protect themselves against catastrophic losses? A)Pro rata liability B)Risk management C)Reinsurance D)Indemnity

C)Reinsurance

Which of the following is the best reason to purchase life insurance rather than annuities? A)To create regular income payments B)To liquidate a sum of money over a lifetime C)To create an estate D)To liquidate a sum of money over a period of years

C)To create an estate

Which of the following CANNOT be included along with illustrations used to sell life insurance? A)Rating information B)Original death benefit C)Vanishing premium information D)Name of the insurer

C)Vanishing premium information

Which of the following types of insurance policies would perform the function of cash accumulation? A)Credit life B)Increasing term C)Whole life D)Term life

C)Whole life

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? A)Legal purpose B)Contract of adhesion C)Acceptance D)Consideration

D)Consideration

If an insured changes his payment plan from monthly to annually, what happens to the total premium? A)Stays the same B)Doubles C)Increases D)Decreases

D)Decreases

An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act? A)Independent agency marketing BI)llegal C)Insurance telemarketing D)Direct response marketing

D)Direct response marketing

All of the following are factors that an underwriter could use to select and classify risk EXCEPT A)Morals. B)Occupation. C)Avocation. D)National origin.

D)National origin.

Which of the following best describes gross annual premium? A)Annual loading B)Basic insurance rate plus commissions C)Expense premium D)Net premium plus expenses

D)Net premium plus expenses

When an individual purchases insurance, what risk management technique is he or she practicing? A)Avoidance B)Sharing C)Retention D)Transfer

D)Transfer

All of the following are true of key person insurance EXCEPT A)The key employee is the insured. B)The plan is funded by permanent insurance only. C)There is no limitation on the number of key employee plans in force at any one time. D)The employer is the owner, payor and beneficiary of the policy.

B)The plan is funded by permanent insurance only.

For what reason may a life insurance producer backdate a life insurance policy? A)To make a policy effective during a period when the agent's appointment was in force B)To shorten the period of contestability C)To avoid an increase in premium rate for the insured D)To meet sales quotas established by the insurer

C)To avoid an increase in premium rate for the insured

Which of the following factors is NOT considered by an underwriter when determining the premium rates for an individual seeking insurance? A)Race B)Age C)Medical history D)Sex

A)Race

Which rule would apply if an agent knows an applicant is going to cash in an old policy and use the funds to purchase new insurance? A)Replacement rule B)Reinstatement rule C)Conversion rule D)Disclosure rule

A)Replacement rule

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become A)Older. B)More active. C)Larger. D)Smaller.

C)Larger.

An insurer invests the money it receives from premiums paid by its insureds. Which of the following is TRUE regarding the interest earned on these investments? A)It is used to lower premiums. B)It is paid out as dividends. C)It is used to fund executive bonuses DPIt is used to increase the death benefit.

A)It is used to lower premiums.

In insurance, an offer is usually made when A)The completed application is submitted. B)The insurer approves the application and receives the initial premium. C)The agent hands the policy to the policyholder. D)An agent explains a policy to a potential applicant.

A)The completed application is submitted.

What is a foreign insurer? A)An insurer with licensed agents who are citizens in more than one country B)An insurer with a home office in another state C)An insurer with a home office in another country D)An insurer with licensed agents doing business in other countries

B)An insurer with a home office in another state

What documentation grants express authority to an agent? A)Agent's contract with the principal B)Agent's insurance license C)Fiduciary contract D)State provisions

A)Agent's contract with the principal

In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT A)Applicant's past income. B)Applicant's past medical history. C)Applicant's present physical condition. D)Applicant's present occupation.

A)Applicant's past income.

Which of the following is usually true of a participating life insurance policy? A)Assesses premiums against stockholders. B)Pays dividends to policyowners. C)May be converted to a term life policy. D)Pays dividends to stockholders.

B)Pays dividends to policyowners.

All of the following are characteristics of group life insurance EXCEPT A)Certificate holders may convert coverage to an individual policy without evidence of insurability. B)Premiums are determined by the age, sex and occupation of each individual certificate holder. C)Group life insurance is written as a master policy. D)Individuals covered under the policy receive a certificate of insurance.

B)Premiums are determined by the age, sex and occupation of each individual certificate holder.

Which of the following statements is an accurate comparison between private and government insurers? A)Private insurers provide insurance in areas where the government will not. B)Private insurers may be authorized to transact insurance by state insurance departments. C)Insurance provided by the government is called federal insurance. D)Private insurers offer fewer lines of insurance than government insurers.

B)Private insurers may be authorized to transact insurance by state insurance departments.

What does "liquidity" refer to in a life insurance policy? A)The death benefit replaces the assets that would have accumulated if the insured had not died. B)The policyowner receives dividend checks each year. C)The insured is receiving payments each month in retirement. D)Cash values can be borrowed at any time.

D)Cash values can be borrowed at any time.

Pertaining to insurance, what is the definition of a fiduciary responsibility? A)Helping insureds to file claims B)Performing reviews of insured's coverage C)Offering additional coverage to clients D)Promptly forwarding premiums to the insurance company

D)Promptly forwarding premiums to the insurance company

Adverse selection is a concept best described as A)Underwriters slanting the odds in favor of the company. B)Poor choices of applicants to be covered. C)Only offering coverage to good risks. D)Risks with higher probability of loss seeking insurance more often than other risks.

D)Risks with higher probability of loss seeking insurance more often than other risks.

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? A)The date of policy delivery B)The date of issue C)The date of application D)The date of medical exam

D)The date of medical exam

Jason wants to advertise his life insurance practice. Which of the following must he include in his advertisements? A)The name of all cities in which he has offices B)His insurance certification C)The name of the Commissioner of Insurance D)The name of the city in which he has his principal office

D)The name of the city in which he has his principal office Reason: When a New York insurance agent or broker advertises services, he/she must list the full name of the insurer and the name of the city, town, or village that houses the principal office.

What is the purpose of a conditional receipt? A)It is intended to provide coverage on a date earlier than the date of the issuance of the policy. B)It guarantees the applicant that a policy will be issued in the amount applied for in the application. C)It serves as proof that the agent has determined the applicant to be fully insurable for coverage by the insurance company. D)It is given by the agent only to applicants who fully prepay all scheduled premiums in advance of policy issue.

A)It is intended to provide coverage on a date earlier than the date of the issuance of the policy.

Which of the following premium modes would result in the highest annual cost for an insurance policy? A)Monthly B)Quarterly C)Semi-annual D)Annual

A)Monthly

Which of the following is NOT true regarding the needs approach method of determining the value of an individual's life? A)Need is predicted using the number of years until the insured's retirement. B)Coverage is based on the predicted needs of that family. C)The death of an insured must be premature. D)It must be assumed that the death of the insured will occur immediately.

A)Need is predicted using the number of years until the insured's retirement.

Which of the following will be included in a policy summary? A)Premium amounts and surrender values B)Copies of illustrations and application C)Comparisons with similar policies D)Primary and secondary beneficiary designations

A)Premium amounts and surrender values

When J. applied for a life insurance policy, the agent informed him that a medical exam would be required. The exam may be completed by A)A home office underwriter. B)A paramedic or examining physician at the insurer's expense. C)The agent. D)A physician of the applicant's choice and at his expense.

B)A paramedic or examining physician at the insurer's expense.

A situation in which a person can only lose or have no change represents A)Adverse selection. B)Hazard. C)Pure risk. D)Speculative risk.

C)Pure risk.

Which of the following statements concerning buy-sell agreements is true? A)Premiums paid are deductible as a business expense. B)Benefits received are considered income taxable. C)Buy-sell agreements pay in the event of a medical emergency. D)Buy-sell agreements are normally funded with a life insurance policy.

D)Buy-sell agreements are normally funded with a life insurance policy

A producer agent must do all of the following when delivering a new policy to the insured EXCEPT A)Explain the policy provisions, riders, and exclusions. B)Collect any premium due. C)Explain the rating procedures if the policy is rated differently than applied for. D)Disclose commissions earned from the sale of the policy.

D)Disclose commissions earned from the sale of the policy

Which of the following best describes the aleatory nature of an insurance contract? A)Only one of the parties being legally bound by the contract B)Ambiguities are interpreted in favor of the insured C)Policies are submitted to the insurer on a take-it-or-leave-it basis D)Exchange of unequal values

D)Exchange of unequal values

Which of the following would least likely be considered a legitimate need that would be paid by insurance proceeds? A)Vacation travel expenses B)Travel expenses for family to come to the funeral C)Debt cancellation D)Day care

A)Vacation travel expenses

Are insurance company underwriters allowed to discriminate? A)Yes, but not unfairly B)No, higher risks pay higher premium C)No, discrimination is an unfair practice D)Yes, but only for gender

A)Yes, but not unfairly

An insurer has made all of the decisions regarding the provisions included in the insured's policy. The insured finds an objectionable provision and wants to negotiate it with the insurer but is not allowed to do so. Her only options are to reject the policy or accept it as is. Which contract feature does this describe? A)Unilateral B)Conditional C)Personal D)Adhesion

D)Adhesion

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement? A)Term insurance only B)Permanent insurance only C)Universal life insurance only D)Any form of life insurance

D)Any form of life insurance

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost? A)Stop-loss B)Consideration C)Reasonable expectations D)Indemnity

D)Indemnity

Which statement regarding insurable risks is NOT correct? A)Insurance cannot be mandatory. B)The insurable risk needs to be statistically predictable. C)An insurable risk must involve a loss that is definite as to cause, time, place and amount. D)Insureds cannot be randomly selected.

D)Insureds cannot be randomly selected.

Which of the following is NOT true regarding a Certificate of Authority? A)It may be necessary for transacting business in a specific state. B)It is equivalent to an insurance license. C)It is issued by the state department of insurance. D)It is issued to group insurance participants.

D)It is issued to group insurance participants

For the purpose of insurance, risk is defined as A)An event that increases the amount of loss. B)The uncertainty or chance of loss. C)The certainty of loss. D)The cause of loss.

B)The uncertainty or chance of loss.

Which of the following best details the underwriting process for life insurance? A)Issuance of policies B)Reporting and rejection of risks C)Selection, classification, and rating of risks D)Solicitation, negotiation and sale of policies

C)Selection, classification, and rating of risks

Which of the following is a risk classification used by underwriters for life insurance? A)Normal B)Excellent C)Standard D)Poor

C)Standard

In insurance transactions, fiduciary responsibility means A)Maintaining a good credit record. B)Being liable with respect to payment of claims. C)Commingling premiums with agent's personal funds. D)Handling insurer funds in a trust capacity.

D)Handling insurer funds in a trust capacity.

Insurance companies may be classified according to the legal form of their ownership. The type of company organized to return any surplus money to their policyholders is A)A stock company. B)A mutual insurer. C)A reciprocal company. D)A fraternal insurer.

B)A mutual insurer.

With respect to the business of insurance, a hazard is A)The basic reason for an insured to purchase insurance. B)Any condition or exposure that increases the possibility of loss. C)The risk taken when performing something dangerous. D)The tendency of poorer risks to seek insurance more often than better risks.

B)Any condition or exposure that increases the possibility of loss.

The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called A)Sharing. B)Avoidance. C)Transfer. D)Reduction.

B)Avoidance.

Joe, Larry, and Curly own a small business. They have made a legal arrangement which states that if one of them dies or becomes disabled, the other two will be able to buy the partner's shares. Which term best describes this arrangement? A)Buy-up Distribution B)Business Continuation C)Shares Distribution D)Business Partner Disability Provision

B)Business Continuation

The authority granted to an agent through the agent's contract is referred to as A)Absolute authority. B)Express authority. C)Apparent authority. D)Implied authority.

B)Express authority.

Attempting to determine how much insurance an individual would require based upon their financial objectives is known as A)Viatical approach. B)Needs approach. C)Human life value approach. D)Estate planning.

B)Needs approach.

Insurance producers must ensure that contracts they recommend are in the best interest of the insured. This is called A)Underwriting. B)Suitability. C)Client protection. D)Approval.

B)Suitability.

The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as A)Implied warranty. B)Utmost good faith. C)Reasonable expectations. D)A warranty.

B)Utmost good faith.

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as A)Aleatory contracts. B)Binding contracts. C)Contracts of adhesion. D)Unilateral contracts.

C)Contracts of adhesion.

Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? A)Standard risk requires extra rating. B)Standard risk is also known as high exposure risk. C)Standard risk is representative of the majority of people. D)Standard risk pays a higher premium than a substandard risk.

C)Standard risk is representative of the majority of people.

Which of the following insurers are owned by stockholders who have the usual rights of ownership, including the right of voting? A)Reciprocal B)Fraternal C)Stock D)Mutual

C)Stock

Which of the following would be the best option that would help the surviving spouse of the insured to put her child through daycare after the insured's death? A)State Education Waiver B)Viatical settlement C)Estate conservation D)Life insurance proceeds

D)Life insurance proceeds

An insurance company receives an application with some information missing and issues the policy anyway. What is this called? A)Estoppel B)Subrogation C)Aleatory D)Waiver

D)Waiver

When is the earliest a policy may go into effect? A)When the first premium is paid and the policy has been delivered B)When the insurer approves the application C)After the underwriter reviews the policy D)When the application is signed and a check is given to the agent

D)When the application is signed and a check is given to the agent

Units with the same or similar exposure to loss are referred to as A)Homogeneous. B)Catastrophic loss exposure. C)Insurable risks. D)Law of large numbers.

A)Homogeneous

An agent sells insurance over the phone. One of his applicants is heavily drunk when she applies for and then almost instantly receives her policy. Which of the following is true? A)The policy is not legal if it can be proven that the applicant was drunk during the application process. B)The contract is legal, since the agent, acting on behalf of the insurer, granted her the policy. C)The policy is legal; it would only be illegal if the agent had been drunk. D)The policy is legal; only mental retardation and psychiatric illness qualify as limiting factors.

A)The policy is not legal if it can be proven that the applicant was drunk during the application process.

Which services are associated with Standard & Poor's and AM Best? A)Storing medical information collected by insurance companies B)Rating the financial strength of insurance companies C)Investigating violations of The Fair Credit Reporting Act D)Providing employment histories for investigative consumer reports

B)Rating the financial strength of insurance companies

An applicant signs an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant is killed in an automobile accident the next day, A)The company could reject the application on the basis that the insured's death was not caused by an ongoing medical problem. B)The beneficiary would receive $25,000 if it was determined that the insured qualified for the policy applied for. C)The premium would be returned to the insured's estate because the policy was not issued. D)The company could reject the death claim because the underwriting process was never completed.

B)The beneficiary would receive $25,000 if it was determined that the insured qualified for the policy applied for. Reason: The conditional receipt provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable either on the date the application was signed or the date of the medical examination, if one is required.

Which of the following is NOT required for a producer to tell a prospect? A)An explanation of products that the insurer is selling B)What requirements the producer needed to meet to obtain the insurance license. C)From what outside sources the insurer would seek information regarding the insured D)How the insurer would use any outside information regarding the applicant

B)What requirements the producer needed to meet to obtain the insurance license Reason: Agents are required to inform prospects of the products they are selling, as well as their information collecting practices.

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered to be A)Qualified. B)Approved. C)Authorized. D)Certified.

C)Authorized.

All of the following information about the applicant is identified in the General Information section of a life insurance application EXCEPT A)Gender. B)Occupation. C)Education. D)Age.

C)Education

If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT A)Note on the application the reason for the change. B)Destroy the application and complete a new one. C)Erase the incorrect answer and record the correct answer. D)Draw a line through the first answer, record the correct answer, and have the applicant initial the change.

C)Erase the incorrect answer and record the correct answer.

All of the following are business uses of life insurance EXCEPT A)Funding against financial loss caused by the death of a key employee. B)Funding business continuation agreements. C)Funding against general company financial loss. D)Compensating executives.

C)Funding against general company financial loss. Reason: Both life and health insurance can be used for a variety of purposes in a business setting, including the funding of business continuation agreements, compensating executives, and protecting the firm against financial loss resulting from the death or disability of key employees.

An individual wants to purchase a life insurance policy. His agent asks if the transaction will involve replacing any existing life insurance policies. If the customer replies, "Yes," which of the following best describes the agent's next step? A)The agent must get his supervisor involved in the transaction. B)The agent has no further duties. C)The agent must provide a replacement notice to the applicant. D)The agent must collect the existing policies and turn them over to the replacing insurer.

C)The agent must provide a replacement notice to the applicant. Reason: In a replacement transaction, an agent must present to the applicant a Notice Regarding Replacement that is signed by both the applicant and the agent.

Which of the following is NOT the consideration in a policy? A)The premium amount paid at the time of application B)The promise to pay covered losses C)The application given to a prospective insured D)Something of value exchanged between parties

C)The application given to a prospective insured