Chapter 2 Exam
Each agent who accepts an application for life insurance or annuity that involves replacement of any existing life or annuity policy must submit to the insurer: A - A Notice Regarding Replacement B - A comparative summary of the two companies and polices involved in the transaction C - All sales literature used during the solicitation D - A Buyer's Guide
A - A Notice Regarding Replacement Each agent who accepts an application for life insurance or annuity that involves replacement of any existing life or annuity policy must submit to the insurer a Notice Regarding Replacement.
A personalized computer-generated illustration detailing premiums, cash values, interest rates, and surrender values is called __________. A - A policy summary B - A hypothetical C - Sales literature D - An advertisement
A - 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 current and prior HIV positive test result (two positive blood tests) may be the basis for a life insurer to: A - Decline the application for life insurance B - Offer the coverage at no better than a standard rate C - Require the applicant/insured to pay for the HIV test D - Issue the policy with an exclusion
A - Decline the application for life insurance A current and prior HIV positive test result (two positive blood tests) may be the basis of a decline for life insurance.
An insurance plan owned by an employer, creditor or association, providing coverage for the employees, debtors, or members, refers to which of the following? A - Group Life Insurance B - Ordinary Life Insurance C - Individual Life Insurance D - Industrial Life Insurance
A - Group Life Insurance A Group Life Insurance Policy is owned by the group sponsor (e.g. employer, association). Covered individuals receive Certificates of Insurance.
Why should a producer collect a premium at the time the application is completed? A - Without it, coverage cannot go into effect, as there would be a lack of consideration B - It allows the insurer to afford to pay for any required medical records or tests C - It helps the home office with its cash flow D - It allows the producer to get paid faster
A - 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.
A group plan is designed to insure all of the following, except: A - Employees B - Creditors C - Members D - Debtors
B - Creditors A group plan can cover employees, debtors, and members. Creditors may be the owner of the plan, but not the insured.
An insurer is required to deliver a life insurance policy to the owner in order to start the: A - Coverage B - Free look period C - Probationary period D - Grace period
B - Free look period An insurer is required to deliver a life insurance policy to the owner in order to start the free look period.
If an insurer issues a policy with a higher rating or exclusions, for coverage to come into effect, what must the producer do? A - Tell the applicant they are basically uninsurable and to re-apply in one year B - Hand deliver the policy to the applicant, explain any substandard rating or changes in coverage, and collect any additional premium C - Mail the policy to the applicant with an explanation and hope the applicant responds favorably D - Recommend that the applicant apply for a different type of coverage through a different carrier
B - Hand deliver the policy to the applicant, explain any substandard rating or changes in coverage, and collect any additional premium The insurer may issue a policy with a higher rating or exclusions to the policy in which case the producer must hand deliver the policy to the applicant, collect any additional premium, and explain any substandard rating or changes in coverage and premium.
A(n) ________ report is a general report of the applicant's finances, character, morals, work, hobbies, and other habits. A - Agent's B - Inspection C - Attending physician's D - Motor vehicle
B - Inspection An Inspection Report is a general report of the applicant's finances, character, morals, work, hobbies, and other habits.
Mortality cost ______ interest (investment earnings) = equals the pure rate. A - Divided by B - Minus C - Multiplied by D - Plus
B - Minus Mortality cost minus interest (investment return) = net premium (pure rate).
Which of the following types of policies is eligible for policy dividends? A - Fixed B - Participating C - Nonparticipating D - Variable
B - Participating Insurance is either permanent or temporary. Examples of permanent insurance are Whole Life and Endowments, etc. Term is temporary insurance. Participating policies are issued by mutual companies and are eligible for policy dividends if and when declared by the company's board of directors.
When using an illustration for life insurance, an insurer or agent can do which one of the following? A - Use an illustration that at any policy duration depicts policy performance more favorable to the policyowner than that produced by the illustrated scale of the insurer whose policy is being illustrated B - Represent the policy as a life insurance policy C - Provide an applicant with an incomplete illustration D - Use the term 'vanishing' or 'vanishing premium,' or a similar term that implies the policy becomes paid up, to describe a plan for using non-guaranteed elements to pay a portion of future premiums
B - Represent the policy as a life insurance policy When using an illustration for life insurance, an insurer or agent will not represent the policy as anything other than a life insurance policy.
In California, every person has an insurable interest in the life and health of all of the following, except: A - Any person on whom he/she depends wholly or in part for education or support B - Himself/herself C - Any person who agrees to be insured D - Any person under a legal obligation to him for the payment of money or respecting property or services, of which death or illness might delay or prevent the performance
C - Any person who agrees to be insured In California, every person has an insurable interest in the life and health of himself/herself, any person on whom he/she depends wholly or in part for education or support, any person under a legal obligation to him for the payment of money or respecting property or services, of which death or illness might delay or prevent the performance, and any person upon whose life any estate or interest vested in him or her depends.
What type of receipt provides that coverage is effective as of the date of application or date of completed medical exam (if required), whichever is later, as long as the insurer would have issued the policy as standard or better? A - Temporary B - Trial C - Conditional D - Guaranteed issue
C - Conditional A conditional receipt provides that coverage is effective as of the date of application or date of completed medical exam (if required), whichever is later, as long as the insurer would have issued the policy as standard or better.
Under what circumstances should the producer obtain a statement of good health? A - At the time of application, in cases where the producer wants to be sure the applicant is not withholding any information B - At the first client meeting, to determine if an application should be completed C - If no premium was paid at time of application and the policy is now being delivered D - When the client wants to obtain a quote
C - 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.
Which of the following is a policy not issued with a rating? A - Flat Rate B - Lien Plan C - Preferred Rate D - Tabular Rate
C - Preferred Rate Individuals who meet certain requirements and qualify for lower premiums, such as ideal health, height, and weight, are issued at preferred rates. Substandard Risks (Higher Risk Exposure) Individuals who are not acceptable at standard or preferred rates because of health, habits, or occupation, and are issued 'rated policies.'
Before the process of underwriting begins, who will make the final determination as to whether insurable interest exists? A - The applicant B - The insured C - The underwriter D - The agent
C - The underwriter Before the process of underwriting begins, the underwriter will make the final determination as to whether insurable interest exists.
Which of the following is a false statement regarding insurable interest? A - With the exception of a parent purchasing insurance on a minor child, no one may purchase insurance on the life of another person without that person's consent B - The insurable interest on one's own life is generally regarded as unlimited C - Insurable interest can be defined as the possibility of economic loss due to sickness or death D - In life insurance, insurable interest must be proven at the time loss or claim
D - In life insurance, insurable interest must be proven at the time loss or claim In life insurance, insurable interest must exist or be proven at the time of the application, not at time of loss.
Which of the following is not a major source of underwriting information? A - Medical exams B - Attending Physician's Statement C - The application D - Past life insurance owned
D - 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.
Policy __________ are the net premiums paid plus interest earned and reflect potential insurance contract obligations. A - Dividends B - Liabilities C - Assumptions D - Reserves
D - Reserves A reserve is maintained by an insurer in order to meet future potential obligations and is also required by State insurance laws.
In a STOLI transaction, what are the insureds basically doing? A - Overinsuring themselves B - Borrowing the necessary funds from a third party in order to acquire the amount of insurance they need C - Committing a misdemeanor punishable by monetary fine and forfeiture of the policy issued D - Selling their mortality to another for up-front cash
D - Selling their mortality to another for up-front cash The insureds are basically selling their mortality to another for up-front cash.
If the producer discovers that the applicant is not in good health at time of policy delivery, what should the next step be? A - Obtain copies of any and all medical records and order a medical exam B - Hold onto the policy until the client recovers from their condition, then deliver the policy C - Field underwrite in order to determine the additional premium that needs to be collected D - The policy should be returned to the insurer, or the deliver the policy only after the insurer grants permission
D - The policy should be returned to the insurer, or the deliver the policy only after the insurer grants permission If the applicant is not in good health, the policy should be returned to the insurer, or the producer may deliver the policy only after the insurer grants permission.
Which of the following is not a purpose of the life insurance and annuities replacement rules? A - To protect the interests of life insurance and annuity purchasers from the loss of benefits B - To reduce the opportunity for misrepresentation C - To regulate the activities of agents and insurers and establish penalties for failure to comply with the rules D - To assure that the producer receives enough information to make an informed recommendation
D - To assure that the producer receives enough information to make an informed recommendation The requirements for the replacement of life insurance and annuities contracts have been established to assure that the purchaser receives enough information to make an informed decision.
All of the following are characteristics of Term Insurance, except: A - Can be written separately or with other types of insurance as a rider B - High premium outlay in the early years C - Will expire at an attained age or after a specified period of time D - No cash or loan value
B - High premium outlay in the early years Term Insurance is characterized by a low initial premium outlay when the insured is young and increases as the insured's age advances.
Premiums paid in advance are considered what type of premiums until coverage has been provided? A - Earned B - Deposit C - Residual D - Unearned
D - Unearned Premiums paid in advance are considered unearned premiums until coverage has been provided, and the insurer has 'earned' the right to retain the premium.
It is a violation to recommend that an insured of what age or older purchase an 'unnecessary replacement annuity'? A - 65 B - 62 C - 55 D - 60
A - 65 It is a violation to recommend that an insured 65 years of age or older purchase an 'unnecessary replacement annuity' which is defined as the sale of an annuity to replace an existing annuity that results in a surrender charge for the annuity that is being replaced and does not confer a substantial financial benefit over the life of the contract to the purchaser so that a person would reasonably believe the purchase is unnecessary.
What is an insurer permitted to do if and when it discovers during the underwriting process that a proposed insured has AIDS? A - Insurers may refuse to issue a policy to individuals based on positive HIV test results B - Insurers can share the test results with the insured's immediate family members and any health professionals listed on the application C - The insurer can share information discovered during the underwriting process with the Center for Disease Control as well as state and local health authorities D - Insurers can discriminate between individuals of the same class in underwriting for the risk of AIDS
A - 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.
Which of the following is not a factor in premium determination? A -Reserves B - Expenses C - Interest D - Mortality
A -Reserves Premiums are based on expected mortality, interest, and expenses.
In a replacement transaction, the insurer that is having its policy replaced is known as the _______ insurer. A - Conserving B - Insolvent C - Existing D - Replacing
C - Existing The existing insurer is the insurer who has a policy subject to replacement.
Medical exams are requested in all of the following situations, except: A - Past health history B - Insured's advanced age C - High amounts of coverage D - Low amount of premium
D - Low amount of premium Medical examinations are usually requested by the insurer after determining if the amount of coverage, age of applicant, or his/her health history warrants the examination. Premium has nothing to do with it.
