Insurance #1
What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act?
$2,500 An individual who willfully violates this Act enough to constitute a general pattern or business practice will be subject to a penalty of up to $2,500.
Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe? A. Personal B. Adhesion C. Unilateral D. Conditional
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.
Who is field underwriter?
Agent/producer
What are the four elements of an insurance contract?
Agreement (offer and acceptance), consideration, competent parties, and legal purpose.
An insured pay a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss.
Aleatory
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 A. Warranty B. Premium receipt C. Statement of good health D. Backdated receipt
B. Premium receipt When collecting the initial premium, the agent should issue the applicant a premium receipt.
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. The policy will be interpreted as id 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 on the application. D. The policy will be void.
B. The policy will be interpreted as id 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.
Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT A. Alcohol and tobacco consumption B. Recent surgeries C. Other insurance coverages D. Family health history
C. Other insurance coverages Part 2 of the application contains questions regarding the applicants' health history. Part 1 of the application includes questions regarding current coverage being applied for as well as any other insurance coverage with the same or other insurers.
All of the are duties and responsibilities of producers at the time of application EXCEPT
Change any incorrect statement on the application by personally initialing next to the correct statement.
When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? A. Legal purpose B. Contract of adhesion C. Acceptance D. Consideration
D. Consideration Consideration on the part of the insured is the payment of premiums and the health representations made in the application.
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? A. On the designated effective date B. On the application date C. When the agent submits the application to the company and the company issues a conditional receipt. D. When the agent delivers he policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health.
D. When the agent delivers he policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health. If the initial premium is not paid with the application, the agent will be required to collect the premium at the time of policy delivery. In this case, the applicant will most likely need to fill out a Statement of Good Health.
What do individuals use to transfer their risk of loss to a larger group?
Insurance.
What document describes the specific information about a policy?
Policy summary.
What is the purpose of the agent's report during the application process?
The agent's report discusses the agent's personal observations about the proposed insured that may help in the underwriting process.
If an applicant does not receive his or her insurance policy, who would be held responsible?
The agent.
What is insurance underwriting?
The process of risk selection and classification.
In insurance, when is the offer usually made on a contract?
When the insurance application is submitted
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.
Health contracts are prepared by insurers and must be accepted by the insured on an 'as is' basis. This describes what aspect of a health insurance contract?
contract of adhesion.
What type of report provides information about the applicant's hobbies, habits and financial status?
inspection report.
What is policy replacement?
A new policy is issued while an existing policy is terminated or reissued with a reduction in cash value.
When must insurable interest exist in a life insurance policy?
At the time of application.
What entities make up the Medical Information Bureau?
Insurers.
Insurance is a contract that protects the insured from what?
Loss.
Which part of an insurance application would contain information regarding the cause of the death of the applicant's decreased relatives?
Medical Information.
What is a definition of a unilateral contract?
One-sided: only one party makes an enforceable promise An insurance contract is unilateral in that only one of the parties to the contract is legally bound to do anything.
How can health insurance policies be delivered to the insured?
Personally delivered by the agent or mailed.
Which of the following best describes the aleatory nature of an insurance contract? a. policies are submitted to the insurer on a take-it-or-leave-it basis b. exchange of unequal values c. only one of the parties being legally bound by the contract d. ambiguities are interpreted in favor of the insured
b. exchange of unequal values An ALEATORY CONTRACT is a contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.
If a policy includes a free-look period of at least 10 days, the Buyer's Guide must be delivered to the applicant a. prior to filling out an application for insurance b. with the policy c. upon issuance of the policy d. within 30 days after the first premium payment was collected
b. 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.
Which of the following will be included in a policy summary? a. comparisons with similar policies b. primary and secondary beneficiary designations c. premium amounts and surrender values d. copies of illustrations and application
c. 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.
All of the are duties and responsibilities of producers at the time of application
1. Explain the nature and type of any receipt the producer is giving to the applicant.
Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained? A. 3 days B. 5 days C. 10 days D. 14 days
3 days Investigative consumer reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested.
If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?
5 days.
In insurance, an offer is usually made when A. An applicant submits an application to the insurer B. The insurer approves the application and receives the initial premium C. The agent hands the policy to the policyholder D. An agent explains the policy to a potential applicant
A. An applicant submits an application to the insurer
Who makes up the Medical Information Bureau A. insurers B. hospitals C. former insured D. physicians and paramedics
A. Insurers The Medical Information Bureau (MIB) is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have discovered.
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? A. Return to the applicant for completion B. Answer the missed questions for the applicant C. Acknowledge the missed questions with a signature and continue the policy issue process D. Proceed with issuing a policy
A. 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.
Which of the following types of risk will result in the highest premium? A. Substandard risk B. Standard risk C. Preferred risk D. All risks pay equal premiums
A. Substandard risk The 'substandard" rating indicates that an individual represents an under-average insurance risk because of physical condition, personal or family history of disease, occupation, habits or hobbies. This rating incurs the highest premium if policy is issued.
What is a warranty in an insurance contract?
An absolute true statement upon which the validity of the insurance contract is based.
Which is the primary source of information used for insurance underwriting? A. Medical records B. Private investigation C. Application D. applicant interviews
Application The application contains most of the information used for underwriting purposes. This is why its completeness and accuracy are so crusial.
When must the policy summary for a life insurance policy be delivered to the policy owner?
At the time of the policy delivery.
Upon policy delivery, the producer may be required to obtain any of the following EXCEPT A. Delivery receipt B. A signed waiver of premium C. Statement of good health D. Payment of premium
B. A signed waiver of premium The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a Statement of Good Health from the applicant at the time of policy delivery. Waiver of premium is a rider that can be added to a life insurance policy, and not something to be obtained from the applicant.
Which of the following best describes the MIB? a. It is rating organization for health insurance. B. It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance. C. It is a government agency that collects medical information on the insured from the insurance companies. D. It is a member organization that protects insured against insolvent insurers.
B. 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.
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? A. The date of application B. The date of medical exam C. The date of policy delivery D. The date of issue
B. 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 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? A. The person must be mentally competent to understand the contract B. The person must have at least completed secondary school C. The person must not be under the influence of drugs or alcohol D. The person must be of legal age
B. The person must have at least completed secondary school
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? A. Conditional B. Unilateral C. Unidirectional D. Aleatory
B. Unilateral
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? A. Policy summary B. Illustrations C. Buyer's Guide D. Insurance Index
C. Buyer's Guide Buyer's Guide is a generic 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.
Representations are written or oral statements made by the applicant that are A. found to be false after further investigation B. Immaterial to the actual acceptability of the insurance contract C. Considered true to the best of the applicant's knowledge D. Guaranteed to be true
C. Considered true to the best of the applicant's knowledge
A producer agent must do all of the following when delivering a new policy to the insured EXCEPT A. Collect ny premium due. B. Explain the rating procedures if the policy is rated differently than applied for. C. Disclose commission earned from the sale of the policy. D. Explain the policy provisions, riders, and exclusions.
C. Disclose commission earned from the sale of the policy.
According to the Fair Credit Report Act, all of the following would be considered negative information about a consumer EXCEPT A. Late payments B. Failure to pay off a loan C. Disputes regarding consumer report information D. Tax delinquencies
C. Disputes regarding consumer report information Consumer disputes are not considered negative information, and, in fact, must be included in consumer reports.
What describes the specific information about a policy? A. Buyer's guide B. Producer's report C. Policy summary D. Illustrations
C. Policy summary A policy summary describes the features and elements of the specific policy for which a person is applying.
If the agent fails to obtain an applicant's signature on the application, the agent must A. Sign the application, stating it was by the agent B. Send the application to the insurer with a note explaining the absence of the signature C. Return the application for a signature D. Sign the application for the applicant.
C. Return the application for a signature All applications must have the appropriate authorized signature.
When a change needs to be made on the application for insurance, which is the best method for correcting the information?
Complete a new application or ask the applicant to initial the correction on the original application.
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.
Which of the following includes information regarding a person's credit, character, reputation, and habits? A. Consumer history B. Insurability report C. Agent's report D. Consumer report
Consumer report Consumer reports include written and/or oral information regarding a consumer's credit, character, reputation and habits collected by a reporting agency from employment records, credit reports, and other public sources.
All of the followings are duties and responsibilities of producers at the time of application EXCEPT A. Explain the nature and type of any receipt the producer is giving to the applicant. B. Probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information. C. Check to make sure that there are no unanswered questions on the application. D. Change any incorrect statement on the application by personally initialing next to the corrected statement.
D. Change any incorrect statement on the application by personally initialing next to the corrected statement. Any changes to information on an application must be initialed by the applicant.
When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will A. Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved B. Return the premium to Y's estate, since it has no obligation to pay the death claim C. Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued. D. Issue the policy anyway and pay the face value to the beneficiary
D. Issue the policy anyway and pay the face value to the beneficiary The conditional receipt says that coverage will be effective either on the day 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.
At what point does coverage begins when an agent issues a conditional receipt for life insurance policy?
Either on the date of application or the date of the medical exam (whichever occurs last).
Stranger-Originated Life Insurance (STOLI) policies are in direct OPPOSITION to the principle of A. Law of large numbers B. Good faith C. Indemnity D. Insurable interest
Insurable interest The purchaser of a stranger-originated life insurance policy doesn't know the insured, or have any interest in the insured's longevity, STOLI policies violate the principle of insurable interest.
What two elements are necessary for a life insurance contract to have a legal purpose?
Insurable interest and consent.
What are the three main instances when insurable interest exists in life insurance?
Insuring your own life, the life of a family member, or the life of a business partners or someone who has a financial obligation to the policyowner.
What report is used to assess risk associated with a health insurance applicant's lifestyle and character?
Investigative consumer report.
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. Coverage commences on the date of the application or the date of a medical examination, whichever is later, on the condition that applicant is determined to be insurable at the rate applied for.
Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives? A. Inspection Report B. Agent's Report C. General information D. Medical information
Part 2 - Medical information of the application includes information on the prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and caused of death of deceased relatives.
What is adverse selection?
People who are more likely to submit insurance claims are seeking insurance more often than preferred risks.
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 must have insurable interest in the insured?
Policyowner.
What risk classification would typically qualify for lower premiums?
Preferred risk.
What term describes the fee a person pays an insurance company to receive coverage?
Premium.
If an insurer needs to obtain information about the applicant from investigator, what is the insurer required to do?
Provide the applicant a Disclosure Authorization Notice.
Another name for a substandard risk classification is
Rated
The Federal Fair Credit Report Act A. Regulates telemarketing B. Prevents money laundering C. Regulates consumer reports D. Protects customer privacy
Regulates consumer reports The Federal Fair Credit Report Act regulates consumer reports, also known as consumer investigative reports, or credit reports.
Under the Fair Credit Reporting, if the consumer challenges the accuracy of the information contained his or her report, the report agency must
Respond to the consumer's complaint.
What is the best way to handle incomplete insurance applications?
Return the application to the applicant for completion.
What is the main responsibility of a company's underwriting unit?
Risk selection.
Underwriting process for life insurance.
Selection, classification, and rating of risks.
If an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do?
Send the application back to the applicant for signature.
What are the three types of risk rating classifications in life insurance?
Standard, substandard and preferred.
What law protects consumers from the circulation of inaccurate or obsolete information?
The Fair Credit Reporting Act
Whose responsibility is it to determine that all the questions on an insurance application are answered?
The agent's.
If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern?
The existence of insurable interest between the applicant and the insured.
What is the purpose of the buyer's guide?
To allow the consumer to compare the costs of different policies.
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.
During which stage in the insurance process do insurers evaluate information that identifies adverse selection risk?
Underwriting.
What is the name of the process that insurance companies use to determine whether or not an applicant is insurable?
Underwriting.
In health insurance contracts, the insured is not legally bound to any particular action; however, the insurer is obligated to pay for losses covered by the policy. What contract element does this describe?
Unilateral
Which statement that is guaranteed to be true, and if untrue, may breach an insurance contract? A. Representation B. Warranty C. Concealment D. Indemnity
Warranty
When would misrepresentation of an insurance application be considered fraud?
When it is intentional and material.
When would a misrepresentation be considered material?
When it may alter the underwriting decision.
In forming an insurance contract, when does an acceptance usually occur?
When the insurer approves a prepaid application
When does an insurance policy go into effect?
When the policy is delivered and the premium is paid.
Health insurance contracts are unilateral. What does that mean?
only one party makes a legally enforceable promise.