Chapter 4: Underwriting

Which of the following is the primary source of information used in underwriting an insurance policy?

Application The application is one of the primary sources of information used in underwriting an insurance policy.

This employee of the insurer assigns risk categories to applicants:

Underwriter Underwriters assign risk classifications to applicants

All of the following are involved in the collection of an applicant's medical history, EXCEPT:

The Consumer Report A consumer report only contains information about an applicant's personal credit history, not medical history.

Gerald has a chronic medical condition. What will his risk classification be? How will his premium be affected?

Gerald's risk classification will be substandard. His premium will be higher.

Part II of the life insurance application includes:

Medical Information Most applications have the same basic parts _ Part I, General Information; Part II, Medical Information; and the Agent's statement or report. Part II contains medical information, provided by an examining physician and/or laboratories if the applicant is required to have a physical examination, and self-reported (as in use of alcohol, tobacco, etc.)

Rates for insurance policies are based on:

Sex and Age Marital status cannot be used as a basis for insurance premiums

Which of the following best describes a life insurance policy in which the proposed insured is not required to undergo a medical examination?

Simplified Issue Simplified issue life insurance policies do not require the proposed insured to undergo a medical examination.

Which of the following best describes the process used to select and classify risks?

Underwriting Underwriting is the process by which insurers select, classify and rate risks. Insurers carefully analyze each risk applicant to minimize adverse selection.

Which of the following best describes the MIB?

Nonprofit trade organization that supplies insurability information to member companies The MIB is a nonprofit association that collects information about individuals' medical conditions and insurability. Companies that subscribe to the MIB have access to this information.

Insurance agent Margaret receives life insurance applications from Tim and Tom, who are identical twins, and are each applying for the exact same type of policy with the same face amount. The insurance company issues the policies as applied for, but charges Tom a 15% higher premium. Which of the following best explains the higher premium charged to Tom?

Tom's risk classification Tim and Tom are genetically identical, so if they both apply for the same type of policy with the same face amount, they are likely to pay identical premiums; however, there are other factors that go into determining the insured's premium. These include the insured's medical history and smoking status. Perhaps Tom is overweight and smokes _ these are factors that would likely cause his premium to be higher, despite all other identical factors with Tim.