Completing the Application, Underwriting, and Delivering the Policy
Warranty
is an absolutely true statement upon which the validity of the insurance policy depends.
Fraud
Intentional misrepresentation or deceit with the intent to induce a person to part with something of value
Insurance policy
A contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events
Domestic Insurer
An insurance company that conducts business in the state of incorporation.
Which is the appropriate action by the insurer if a prospective insured submitted an incomplete application?
Return the application to the applicant for completion
True or false: the lower the risk the higher the premium.
False
Foreign Insurer
Insurer outside of operating state
Which of the following best describes MIB?
It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance.
What is the major difference between a stock company and a mutual company?
Ownership - Mutual companies are owned by policyholders, while stock companies are owned by stockholders
Insured
Person covered by the insurance policy; may or may not be the policy owner
The insurer discovered that one of the applicants for life insurance missed a couple of questions on the application. What should the insurer do with the application?
Return to the applicant for completion
Insurance is the transfer of
Risk
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
Selection, classification, and rating of risks
Representations
Statements made by the applicant on the insurance application that are believed to be true, but are not guaranteed to be true.
In forming an insurance contract, when does acceptance usually occur?
When an insurer's underwriter approves coverage
Life Insurance
coverage on human lives
Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristics does this describe?
Adhesion
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
If the premium was not received at the time of application, when does coverage begin?
Date of delivery of statement of good health
If the premium was received at the time of the application, when does coverage start?
Date of the application
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
Adverse Selection
Insuring of risks that are more prone to losses than the average risk
What is the purpose of a conditional receipt?
It is intended to provide coverage on a date earlier than the date of the issuance of the policy.
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?
Mutual
A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will
Pay the policy proceeds only if it would have issued the policy
What describes the specific information about a policy?
Policy Summary
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?
Policy summary
Who might receive dividends from a mutual transfer? A. Agents B. Policyholders C. Subscribers D. Stockholders
Policyholders
Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information?
The Fair Credit Reporting Act
How is it determined whether an insurer is allowed to write business in a state?
The insurer's domicile or location of incorporation will determine a company is domestic, foreign, or alien
The responsibility of making certain than an application for insurance is filled out completely, correctly, and to the best of his or her knowledge is the responsibility of whom?
The producer
What is the purpose of the buyers guide?
To allow the consumer to compare the costs of different policies
True or false: agents are the agents of the insurer.
True
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
Premium Receipt
determines when coverage will be effective
Nonparticipating policies
does not pay dividends to policyowners; however, taxable dividends are paid to stockholders
Domicille of Insurer
insurers can be defined by their location of incorporation and whether or not they are authorized to write business in a state
Policy Summary
provides specific information about the policy purchased, such as the premium and benefits, cash value, dividend, surrender value, and death benefit figures for specific policy years
Conditional Contract
requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations
Insurer (principal)
the company who issues an insurance policy
Contract of Adhesion
the insured must accept the entire contract with all of its terms and conditions. Take it or leave it basis
Policyowner
the person entitled to exercise the rights and privileges in the policy
Insurabe Interest
the possibility of losing money or something of value in the event of a loss Must exist between the policyowner and the insured at the time of the application
Conditional Receipt
used only when an applicant submits a prepaid application. Says that coverage will be effective either on the date of the application of the date of the medical exam, whichever occurs last, as long as the applicant is found to be insured as a standard risk, and the policy is issued exactly as applied for
Without legal purpose a contract is considered
void and cannot be enforced by either party
What are the four required elements of an insurance contract?
Agreement, Consideration, Competent Parties, and Legal Purpose
Which is the primary source of information used for insurance underwriting?
Application
Premium
The money paid to the insurance company for the insurance policy
Agent's responsibility as an underwriter:
1. Helping prevent adverse selection 2. Poper solicitation of applicants 3. Completing the application 4. Obtaining the required signatures 5. Collecting the initial premium and issuing the receipt 6. Delivering the policy
Insurance transaction includes any of the following (by mail or any other means):
1. Solicitation 2. Negotiations 3. Sale (effectuation of a contract of insurance) 4. Advising an individual concerning coverage or claims
Agent/Producer
A legal representative of an insurance company
Applicant or proposed insured
A person applying for insurance
Beneficiary
A person who receives the benefits of an insurance policy
The term "illustration" in a life insurance policy refers to
A presentation of nonguaranteed elements of a policy
Alien Insurer
An insurance company that is incorporated outside the United States.
Dividends
Are not guaranteed
Stranger-originated Life Insurance (STOLI)
Life insurance arrangement in which a person with no relationship to the insured purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies.
Illustration
Means a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of year.
When is the earliest a policy may go into effect?
When the application is signed and a check is given to the agent
When must insurable interest exist in life insurance?
At the time of application
Applications is the starting point and basic source of information used by the company in the risk selection process. They all have:
General information and medical information
A participating insurance policy may do which of the following? A. Pay dividends to the stockholder B. Require 80% participation C. Pay dividends to the policyowner D. Provide group coverage
Pay dividends to the policyowner
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
Signed waiver of premium
If an insurer issued a policy based on the application that had unanswered questions, which of the following will be TRUE?
The policy will be interpreted as if the insurer waived its right to have an answer on the application
Which is generally true regarding insureds who have been classified as preferred risks?
Their premiums are lower
In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe?
Unilateral
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
Erase the incorrect answer and record the correct answer
Nonmedical Application
If the amount of insurance is relatively small, the agent and the proposed insured will complete all of the medical information
What do individuals use to transfer their risk of loss to a larger group?
Insurance is the mechanism whereby an insured is protected against loss by a specified future contingency or peril in return for the present payment of premium. Because many other individuals with the same or similar risk of loss are paying premiums, funds are available to indemnify those who actually suffer that loss
Insurance is a contract by which one seeks to protect another from? A. Loss B. Exposure C. Uncertainty D. Hazards
Loss
Mutual Companies
Owned by the policy owners and issue participating policies. Policy owners are entitled to dividends, which, in the case of mutual companies, are a return of excess premiums and are, therefore nontaxable. Dividends are generated when the premiums and the earnings combined exceed the actual costs of providing coverage, creating a surplus
Legal Purpose of life insurance policy
must have insurable interest and consent
An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?
Material misrepresentation
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 agent fails to obtain an applicants signature on the insurance application, the agent must?
Return the application to the applicant for a signature
Death Benefit
The amount paid upon death of the insured in a life insurance policy
All of the following are requirements for life insurance illustrations EXCEPT A. They must differentiate between guaranteed and projected amounts B. They must be part of the contract C. They may only be used as approved D. They must identify nonguaranteed values
They must be part of the contract
Why should the producer deliver the policy when the first premium has already been paid?
To help the insured understand all aspects of the contract
Lapse
policy termination due to nonpayment of premium
What 2 parts make up a life insurance application?
General information and medical information
The Medical Information Bureau (MIB) was created to protect
Insurance companies from adverse selection by high risk persons
A producer agent must do all of the following when delivering a new policy to the insured EXCEPT A. Collect any premium due B. Explain the rating procedures if the policy is rated differently than applied for C. Disclose commissions earned from the sale of the policy D. Explain the policy provisions, riders, and exclusions
Disclose commissions earned from the sale of the policy
What is consideration?
Something of value that each party gives to the other. The ______ on the part of the insured is the payment of premium and the representations made in the application.
In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT A. Applicant's present occupation B. Applicant's past income C. Applicant's past medical history D. Applicant's present physical condition
Applicants past income
Which of the following insurers are owned by stockholders? A. Mutual B. Reciprocal C. Fraternal D. Stock
Stock
On a participating insurance policy issued by a mutual insurance company dividends paid to policyholders are
Not taxable since the IRS treats them as a return of a portion of the premium paid
True or false: Collecting the initial premium at the time of the application increases the chance that the applicant will accept the policy once it is issued
True
An applicant who receives a preferred risk classification qualifies for
Lower premiums than a person who receives a standard risk
Investor Originated Life Insurance (IOLI)
where a third party investor who has no insurable interest in the insured initiates a transaction designed to transfer the policy ownership rights to someone with no insurable interest in the insured and who hopes to make a profit upon the death of the insured or annuitant
Unilateral Contract
only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises. Insurer is legally bound to pay losses covered by a policy in force.
What does it mean to be considered a competent party?
Parties to a contract must be capable of entering into a contract in the eyes of the law. 1. be of legal age, 2. Mentally competent, 3. Not under the influence of drugs or alcohol
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
Standard risk is representative of the majority of people
If a policy includes a free-look period of at least 10 days, the Buyer's Guide must be delivered to the applicant no later than
With the policy - if it doesn't, the buyers guide must be delivered prior to accepting the initial premium
If an insurer requires a medical examination of an applicant in connection with the application for life insurance, who is responsible for paying the cost of examination?
The insurer
True or false: the classification of producer usually includes agents and brokers
True
Insurance is a contract by which one seeks to protect another from
Loss
Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained?
3 days
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?
Buyers Guide
The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?
Conditional
When both parties to a contract must perform certain duties and follow rules of conduct to make the contract forceable, the contract is
Conditional
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
Aleatory Contract
means there is an exchange of unequal amounts or values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss