Completing the application, underwriting, and delivering the policy
4- essential elements:
1. Agreement- offer and acceptance; 2. Consideration: 3. Competent parties; and 4. Legal purpose.
insurable interest and consent
A life insurance policy has a legal purpose if both of which of the following elements exist?
Medical Information Bureau (MIB)
A membership corporation owned by member insurance companies
Pay the policy proceeds only if it would have issued the policy.
A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will
beneficiary's consent
An insurance contract must contain all of the following to be considered legally binding EXCEPT
aleatory
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?
Material Misrepresentation
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?
consideration
An insurer neglects to pay legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?
Inspection Report
An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n)
rated
Another name for a substandard risk classification is
aleatory
Exchange of unequal amounts
Erase the incorrect answer and record the correct answer
If a change needs to be made to the application for insurance, the agent may do all the following EXCEPT
When an insurer's underwriter approves coverage
In forming an insurance contract, when does acceptance usually occur?
An applicant submits an application to the insurer
In insurance, an offer is usually made when
Preferred Risk
Individuals who meet certain requirements and qualify for lower premiums than the standard risk
replacement
Is a practice of terminating an existing policy or letting it lapse, and obtaining a new one.
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.
premium reciept
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 ?
parties to a contract
Must be capable of entering into a contract in the eyes of the law
Other insurance coverages
Part 2 of the application for life insurance provides questions regarding all of the following except?
standard risk
Person who, according to a company's underwriting standards, is entitled to insurance protection without extra rating or special restrictions.
Agent's Report
Provides the agent's personal observations concerning the proposed insured
The Federal Fair Credit Reporting Act
Regulates consumer reports
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.
Premium rated-up
Resulting in a higher premium
Investigative Consumer Report
Similar to consumer reports in that they also provide information on the consumer's character, reputation, and habits.
Insurable Interest
Stranger-originated life insurance (STOLI) policies are in direct opposition to the principle of...
higher
The _____ the risk, the _______ the premium.
life insurance producer
The company's field underwriter
As of the application date
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?
Misrepresentations
Untrue statements on the application
Signed waiver of premium
Upon policy delivery, the producer may be required to obtain any of the following EXCEPT
insurance
What do individuals use to transfer their risk of loss to a larger group?
consideration
When an insured makes a truthful statements on the application for insurance and pays the required premium, it is known as which of the following?
When the application is signed and a check is given to the agent.
When is the earliest a policy may go into effect?
If it is intentional and material
When would a misrepresentation on the insurance application be considered fraud?
Their premiums are lower
Which is generally true regarding insureds who have been classified as preferred risks?
application
Which is the primary source of information used for insurance underwriting?
Exchange of unequal values
Which of the following best describes the aleatory nature of an insurance contract?
aleatory
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?
debtor in creditor
Which of the following is NOT an example of insurable interest?
standard
Which of the following is a risk classification used by underwriters for life insurance?
application
Which of the following is the best source of information used by the company in the risk selection process?
a debtor has insurable interest in the life of a lender
Which of the following statements is NOT true concerning insurable interest as it applies to life insurance?
Premium amounts and surrender values
Which of the following will be included in a policy summary?
policy summary
Which of these is considered to be a documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific years?
medical information
Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives?
Insurers
Who cannot refuse coverage solely on the basis of adverse information on an MIB report?
Policyowner
Who must have insurable interest in the insured?
To help the insured understand all aspects of the contract
Why should the producer personally deliver the policy when the first premium has already been paid?
Consumer Reports
Written and /or oral statements regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.
NO
_____ premium, ____ coverage
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
Fair Credit Reporting Act
a law that protects consumers against the circulation of inaccurate or obsolete personal or financial information.
Applicant or proposed insured
a person applying for insurance
Disclose commissions earned from the sale of the policy
a producer agent must do all of the following when delivering a new policy to the insured EXCEPT
USA Patriot Act
address social, economic, and global initiatives to fight and prevent terrorist activities
Change any incorrect statement on the application by personally initialing next to the corrected statement
all of the following are duties and responsibilities of producers at the time of application EXCEPT
conditional
an insurable 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?
application
an insurer wants to begin underwriting procedures for an applicant. What source will it consult for the majority of its underwriting information
Investor-owned life insurance (IOLI)
another name for a STOLI, 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
Substandard (High Exposure) Risk
applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits.
considerations
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
Life insurance
coverage on human lives
USA Patriot Act
enacted in OCT. 26,2001
Fair Credit Reporting Act
established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used
Whether an insurable interest exists between the individuals
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
The policy will be interpreted as if the insurer waived its right to have an answer on the application
if an insurer issued a policy based on the application that had unanswered questions, which of the following will be true?
unilateral
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?
It will likely be higher because the applicant is a substandard risk
in the underwriting process, it was determined that the applicant for life insurance is in poor health and has some dangerous habits. Which of the following is true concerning the policy premium?
risk
insurance is the transfer of risk
adheasion
insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristics does this describe?
Adverse selection
insuring of risks that are more prone to losses than the average risk
Fraud
intentional misrepresentation or deceit with the intent to induce a person to part with something of value
warranty
is an absolutely true statement upon which the validity of the insurance policy depends
Insurance
is the transfer of risk. Insureds' losses are transferred over to the insurer.
Insurable Interest
must exist at the time of the application
producer
must explain policy provisions, exclusions, and riders at the time of delivery, as well as the rating procedures, especially if the policy is rated differently than applied for. They must also collect any due premium and have the insured sign the statement of continued good health.
unilateral contract
only one of the parties to the contract is legally bound to do anything
Insured-
person covered by the insurance policy; may or may not be the policyowner
Beneficiary
person who receives the benefits of an insurance policy
Lapse
policy termination due to nonpayment of premium
Death benefit
policy the amount paid upon the death of the insured in a life insurance policy
Contract of Adhesion
prepared by one of the parties (insurer) and accepted or rejected by the other party (insured)
Adverse Agent/Producer
prone - a legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of insurer
underwriting
risk selection and classification process
consideration
something of value exchanged for something else of value
representations
statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true
Acceptance
takes place when an insurer's underwriter approves the application and issues a policy
Insurer (principal)
the company who issues an insurance policyer
insurance application
the key source underwriters use for information about the applicant
Premium
the money paid to the insurance company for the insurance policy
Policyowner
the person entitled to exercise the rights and privileges in the policy
Insurer's Consideration
the promise to pay for losses
application
the starting point and basic source of information used by a company in the risk selection process
Insurable Interest
to purchase insurance, the policyowner must face the possibility of losing money or something of value in the event of loss
Stranger-Originated Life Insurance (STOLI)
violate the principle if insurable interest
It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance
which of the following best describes the MIB?
warranty
which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?
