Exam Fx Chapter: Completing the Application, Underwriting, and Delivering the Policy (DE)
Which of the following is the basic source of information used by the company in the risk selection process?
Application; The application is the basic source of information an insurer uses in the risk selection process.
If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to
Charge a higher premium; The premium rate will be adjusted to reflect the insurer's increased risk.
An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n)
Inspection Report; An inspection report may be ordered about an applicant from an independent investigating firm or credit agency. It is a general report of the applicant's finances, character, work, hobbies, and habits.
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; When collecting the initial premium, the agent should issue the applicant a premium receipt.
Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information?
The Fair Credit Reporting Act; The purpose of the Fair Credit Reporting Act is to protect consumers against the circulation of inaccurate or obsolete information and to ensure that consumer reporting agencies are fair and equitable in their treatment of consumers.
If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?
5 Days; Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information.
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?
Conditional; A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.
Insurance is the transfer of
risk; Insurance is the transfer of financial responsibility associated with a potential of a loss (risk) to an insurance company.
The term "illustration" in a life insurance policy refers to
A presentation of non-guaranteed elements of a policy; The term "illustration" means a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years.
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?
Buyer's Guide; The Buyer's Guide is a consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process. It is a generic guide that does not address the specific policy of the insurer, instead explaining life insurance in a way that the average consumer can understand.
When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is
Conditional; The contract is formed on the basis that certain conditions are met.
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; Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.
Representations are written or oral statements made by the applicant that are
Considered tre to the best of the applicant's knowledge; Representations are statements made by an applicant that they believe to be true.
Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report
Must be informed the source of the report; Under the Fair Credit Reporting Act, if an insurance policy is declined or modified because of information contained in a consumer report, the consumer must be advised and provided with the name and address of the reporting agency.
A participating insurance policy may do which of the following?
Pay dividends to the policyowner; A participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs.
What describes the specific information about a policy?
Policy Summary; A policy summary describes the features and elements of the specific policy for which a person is applying.
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; Any unanswered questions need to be answered before the policy is issued. If the insurer receives incomplete applications, they need to be returned to the applicants for completion.
The responsibility of making certain that 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; It is the responsibility of the producer (agent) to make sure an application for insurance is filled out correctly.
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; A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.
Which of the following is NOT an essential element of an insurance contract?
Counteroffer; In order for insurance contracts to be legally binding, they must have four essential elements: agreement (offer and acceptance), consideration, competent parties, and legal purpose. Counteroffer is not required.
Which of the following is NOT an example of insurable interest?
Debtor in creditor; The three recognized areas in which insurable interest exists are as follows: a policyowner insuring his or her own life, the life of a family member (relative or spouse), or the life of a business partner, key employee, or someone who has a financial obligation to them. A debtor does not have an insurable interest in the creditor.
Which of the following reports will provide the underwriter with the information about an insurance applicant's credit?
Consumer report; Consumer reports include written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.
Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as
Contracts of Adhesion; Insurance policies are written by the insurer and submitted to the insured on a take- it-or-leave-it basis. The insured does not have any input into the contract, but simply adheres to the contract.
Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles?
Standard risk is representative of the majority of people; Standard risks are representative of the majority of people in their age and with similar lifestyles. They are the average risk.
If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant
With the policy; If a life insurance policy contains a free-look period of at least 10 days, the buyer's guide can be delivered with the policy. If it doesn't, the buyer's guide must be delivered prior to accepting the initial premium.
In insurance, an offer is usually made when
An applicant submits an application to the insurer; In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.
A producer agent must do all of the following when delivering a new policy to the insured EXCEPT
Disclose commissions earned from the sale of the policy; A 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. The producer must also collect any due premium and have the insured sign the statement of continued good health.
Which of the following best describes the MIB?
It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance; 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.
If an agent fails to obtain an applicant's signature on the application, the agent must
Return the application to the applicant for a signature; All applications must have the appropriate authorized signatures.
What is the purpose of the buyer's guide?
To allow the consumer to compare the costs of different policies; The buyer's guide provides generic information about life insurance policies and allows the consumer to compare the costs of different policies. The policy summary provides specific information about the issued policy, as well as the insurer's information.
An applicant who receives a preferred risk classification qualifies for
Lower premiums than a person who receives a standard risk; The preferred risk category is reserved for those persons with a superior physical condition, lifestyle, and habits.
Which of the following will be included in a policy summary?
Premium amounts and surrender values; A policy summary must be delivered along with the policy and will provide the producer's name and address, the insurance company's home office address, the generic name of the policy issued, and premium, cash value, surrender value and death benefit figures for specific policy years.
If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT
Erase the incorrect answer and record the correct answer; An agent should not use white-out, erase or obliterate any answers given to a question on an application. It could prevent an insurer from contesting the application, should it be necessary.
A life insurance policy has a legal purpose if both of which of the following elements exist?
Insurable interest and consent; To ensure legal purpose of a life insurance policy, it must have both insurable interest and consent.
Why should the producer personally deliver the policy when the first premium has already been paid?
To help the insured understand all aspects of the contract; 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 is generally true regarding insureds who have been classified as preferred risks?
Their premiums are lower; The preferred risk classification indicates that an insured is in excellent physical condition and employs healthy lifestyles and habits. These individuals qualify for lower premiums than those in the other categories.
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?
The date of medical exam; If the company acknowledges receipt of the premium with a conditional receipt, the policy is in effect on the date of the application or the date of the medical exam (whichever is later), provided that the applicant is found insurable at the rate applied for.
In terms of parties to a contract, which of the following does NOT describe a competent party?
The person must have at least completed secondary education; The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.
If an insurer issued a policy based on the application that had unanswered questions, which of the following will be TRUE? A. The insurer may deny coverage later, because of the information missing on the application. B. he policy will be interpreted as if the insurer waived its right to have an answer on the application. C. The policy will be interpreted as if the insured did not have an answer to the question. D. The policy will be void.
The policy will be interpreted as if the insurer waived its right to have an answer on the application; Any unanswered questions need to be answered before the policy is issued. If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived its right to have an answer for the question, and will not be able to deny coverage later because of unanswered questions.
Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe?
Adhesion; A contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as it is written.
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?
Consideration; The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.
An insurance contract must contain all of the following to be considered legally binding EXCEPT
Beneficiary's consent; The four essential elements of all legal contracts are offer and acceptance, consideration, competent parties, and legal purpose.
Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?
Warranty; A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties but representations. Representations are statements that are true to the best of the applicant's knowledge.
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; The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.
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 in a policy?
The application given to a prospective insured; Consideration is something of value that is transferred between the two parties to form a legal contract.