Insurance CH 1 : Application, Underwriting, Application delivery
What describes the specific information about a policy? A Illustrations B Buyer's guide C Producer's report D Policy summary
D Policy summary A policy summary describes the features and elements of the specific policy for which a person is applying.
Which is the primary source of information used for insurance underwriting? A Application B Applicant interviews C Medical records D Private investigations
A Application The application contains most of the information used for underwriting purposes. This is why its completeness and accuracy are so crucial.
If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? A 10 days B 3 days C 5 days D 7 days
C 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.
Which of the following information about the applicant is NOT included on Part 1 of the application for insurance? A Occupation B Marital status C Medical background D Gender
C Medical background Part 1 of the application includes the general questions about the applicant, including name, age, address, birth date, gender, income, marital status, and occupation. The applicant's medical background is addressed in Part 2 - Medical Information.
All of the following are requirements for life insurance illustrations EXCEPT A They may only be used as approved. B They must identify nonguaranteed values. C They must differentiate between guaranteed and projected amounts. D They must be part of the contract.
D They must be part of the contract. An illustration may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list nonguaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values.
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 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
An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that? A Inspection Report B Medical Information Bureau's report C Agent's Report D Underwriter's Report
A Inspection Report Inspection reports cover moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies. Companies that use inspection reports are subject to the rules outlined in the Fair Credit Reporting Act.
An insurance contract must contain all of the following to be considered legally binding EXCEPT A Consideration. B Competent parties. C Beneficiary's consent. D Offer and acceptance.
C Beneficiary's consent. The four essential elements of all legal contracts are offer and acceptance, consideration, competent parties, and legal purpose.
A life insurance policy has a legal purpose if both of which of the following elements exist? A Underwriting and reciprocity B Offer and counteroffer C Policyowners and named beneficiaries D Insurable interest and consent
D Insurable interest and consent To ensure legal purpose of a life insurance policy, it must have both insurable interest and consent.
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
C The application given to a prospective insured Consideration is something of value that is transferred between the two parties to form a legal contract.
Insurance is a contract by which one seeks to protect another from A Hazards. B Loss. C Exposure. D Uncertainty.
B Loss. Insurance will protect a person, business or entity from loss.
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 A Legal purpose. B Offer and acceptance. C Conditions. D Consideration.
C Conditions. Conditions are part of the policy structure. Consideration is an essential part of a contract.
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? A A privacy notice B A buyer's guide C A policy summary D A notice regarding replacement A policy summary usually includes all the listed information, and must be delivered along with a new policy.
C A policy summary A policy summary usually includes all the listed information, and must be delivered along with a new policy.
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 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.
B 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.
Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as A Contracts of adhesion. B Unilateral contracts. C Aleatory contracts. D Binding contracts.
A 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 is NOT an essential element of an insurance contract? A Counteroffer B Consideration C Agreement D Legal purpose
A 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.
What do individuals use to transfer their risk of loss to a larger group? A Indemnity B Insurance C Insurable interest D Exposure
B Insurance 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.
All of the following are duties and responsibilities of producers at the time of application EXCEPT A Check to make sure that there are no unanswered questions on the application. B Change any incorrect statement on the application by personally initialing next to the corrected statement. C Explain the nature and type of any receipt the producer is giving to the applicant. D Probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information.
B 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.
Which of the following reports will provide the underwriter with the information about an insurance applicant's credit? A Any federal report B Consumer report C Inspection report D Agent's report
B 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.
Which of the following is the basic source of information used by the company in the risk selection process? A Consumer report B Application C Agent's report D Warranty
B Application The application is the basic source of information an insurer uses in the risk selection process.
What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act? A $100 per violation B Revocation of license C $2,500 D $1,000
C $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.
Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information? A The Guaranty Association B Consumer Privacy Act C The Fair Credit Reporting Act D Unfair Trade Practices Law
C 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.
An insurer has made all of the decisions regarding the provisions included in the insured's policy. The insured finds an objectionable provision and wants to negotiate it with the insurer but is not allowed to do so. Her only options are to reject the policy or accept it as is. Which contract feature does this describe? A Unilateral B Conditional C Personal D Adhesion
D 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.
If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to A Require a yearly medical examination. B Lower its insurability standards. C Refuse to issue the policy. D Charge a higher premium.
D Charge a higher premium. The premium rate will be adjusted to reflect the insurer's increased risk.
Representations are written or oral statements made by the applicant that are A Guaranteed to be true. B Found to be false after further investigation. C Immaterial to the actual acceptability of the insurance contract. D Considered true to the best of the applicant's knowledge.
D Considered true to the best of the applicant's knowledge. Representations are statements made by an applicant that they believe to be true.
Which of the following is NOT the consideration in a policy? A The application given to a prospective insured B Something of value exchanged between parties C The premium amount paid at the time of application D The promise to pay covered losses
A The application given to a prospective insured Consideration is something of value that is transferred between the two parties to form a legal contract.
Who makes up the Medical Information Bureau? A Former insured B Physicians and paramedics C Insurers D Hospitals
C Insurers The Medical Information Bureau 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.
An applicant who receives a preferred risk classification qualifies for A Dividends payable for lack of claims. B Higher premiums than a person who receives a sub-standard risk. C Higher premiums than a person who receives a standard risk. D Lower premiums than a person who receives a standard risk.
D 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 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.
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 medical exam B The date of policy delivery C The date of issue D The date of application
A The date of the 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.
If a loss occurs, insurance policies pay the proceeds to A Agent B Beneficiary C Applicant D Insurer
B Beneficiary The beneficiary is the person who receives the benefits from the insurance policy.
If an 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 signature. C Return the application to the applicant for a signature. D Sign the application for the applicant.
C Return the application to the applicant for a signature. All applications must have the appropriate authorized signatures.
In terms of parties to a contract, which of the following does NOT describe a competent party? A The person must not be under the influence of drugs or alcohol. B The person must be of legal age. C The person must be mentally competent to understand the contract. D The person must have at least completed secondary education.
D 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.
Why should the producer personally deliver the policy when the first premium has already been paid? A To ensure the producer gets paid commission B To find out how the family has been doing since the initial presentation C To make sure the policy is not stolen or lost D To help the insured understand all aspects of the contract.
D 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.
What is the timeframe for filing relevant Suspicious Activity Reports? A Within 90 days of the suspicious transaction B Within 30 days of initial discovery C Within 30 days of the suspicious transaction D Within 90 days of initial discovery
B Within 30 days of initial discovery Relevant SAR reports must be filed with FinCEN within 30 days of initial discovery of a suspicious transaction.
Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report A Must be advised that a copy of the report is available to anyone who requests it. B May sue the reporting agency in order to get inaccurate data corrected. C Must be informed of the source of the report. D Are entitled to obtain a copy of the report from the party who ordered it.
C Must be informed of 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.
The term "illustration" in a life insurance policy refers to A Pictures accompanying a policy. B Charts and graphs. C A presentation of nonguaranteed elements of a policy. D A depiction of policy benefits and guarantees.
C A presentation of nonguaranteed 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.
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? A The producer B The beneficiary of the applicant C The insurance company D The applicant
A The producer It is the responsibility of the producer (agent) to make sure an application for insurance is filled out correctly.
Which of the following includes information regarding a person's credit, character, reputation, and habits? A Insurability report B Agent's report C Consumer report D Consumer history
C 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.
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 Illustrations B Buyer's Guide C Insurance Index D Policy Summary
B 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.
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 Statement of good health. B Backdated receipt. C Warranty. D Premium receipt.
D Premium receipt. When collecting the initial premium, the agent should issue the applicant a premium receipt
In forming an insurance contract, when does acceptance usually occur? A When an insured submits an application B When an insurer's underwriter approves coverage C When an insurer delivers the policy D When an insurer receives an application
B When an insurer's underwriter approves coverage 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.
What is the purpose of a conditional receipt? A It is intended to provide coverage on a date earlier than the date of the issuance of the policy. B It guarantees the applicant that a policy will be issued in the amount applied for in the application. C It serves as proof that the agent has determined the applicant to be fully insurable for coverage by the insurance company. D It is given by the agent only to applicants who fully prepay all scheduled premiums in advance of policy issue.
A 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 the applicant is determined to be insurable at the rate applied for.
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.
What is the purpose of a disclosure statement in life insurance policies? A To protect agents and insurers against lawsuits B To explain features and benefits of a proposed policy to the consumer C To obtain important underwriting information from the applicant D To help consumers compare policy prices
B To explain features and benefits of a proposed policy to the consumer Disclosure statements will help the applicants to make more informed and educated decisions about their choice of insurance.
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? A As of the first of the month after the policy issue B As of the policy issue date C As of the application date D As of the policy delivery date
C As of the application date If the full premium was submitted with the application and the policy was issued as requested, the policy coverage effective date would generally coincide with the date of application.
The Medical Information Bureau (MIB) was created to protect A Insurance departments from lawsuits by policyowners. B Insureds from unreasonable underwriting requirements by the insurance companies. C Medical examiners that perform insurance physical examinations. D Insurance companies from adverse selection by high risk persons.
D Insurance companies from adverse selection by high risk persons. The MIB makes information available to underwriters to assist them in the underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.
In insurance, an offer is usually made when A The insurer approves the application and receives the initial premium. B The agent hands the policy to the policyholder. C An agent explains a policy to a potential applicant. D The completed application is submitted.
D The completed application is submitted. 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 prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will A Pay the policy proceeds only if it would have issued the policy. B Pay the policy proceeds up to an established limit. C Not pay the policy proceeds under any circumstances. D Automatically pay the policy proceeds.
A 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.
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.
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.
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 Unilateral B Unidirectional C Aleatory D Conditional
A Unilateral In a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy.
As a field underwriter, a producer is responsible for all of the following tasks EXCEPT A Obtain appropriate signatures on the application for insurance. B Issue the policy that is requested. C Help prevent adverse selection. D Solicit business that will fall within the insurer's underwriting guidelines.
B Issue the policy that is requested. The producer does not issue the policy but delivers the policy. The producer has a duty to solicit business that will fall within the underwriting guidelines and represent profitable business to the insurer (help prevent adverse selection).
Which of the following best details the underwriting process for life insurance? A Reporting and rejection of risks B Selection, classification, and rating of risks C Solicitation, negotiation and sale of policies D Issuance of policies
B Selection, classification, and rating of risks The underwriting process is accomplished by reviewing and evaluating information about an applicant and applying what is known of the individual against the insurer's standards and guidelines for insurability and premium rates.
In which of the following examples would a contract between an insurer and prospective insured be legal? A The applicant is under the influence of medication at the time of application. B The applicant has a prior felony conviction. C The applicant is intoxicated at the time of application. D The applicant is a 12-year-old student.
B The applicant has a prior felony conviction. When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent. It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, and a 12-year-old student is considered to be underage in most states.
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? A Aleatory B Unilateral C Conditional D Contingent
C 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.
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? A Personal B Unilateral C Conditional D Adhesion
C 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.
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 I of the application includes questions regarding current coverage being applied for as well as any other insurance coverage with the same or other insurers.
Which of the following individuals must have insurable interest in the insured? A Actuary B Producer C Policyowner D Beneficiary
C Policyowner Policyowner must have an insurable interest in the insured, i.e. in his/her own life if the policyowner and the insured is the same person, or in the life of a family member or a business partner.
Another name for a substandard risk classification is A Declined. B Elevated. C Rated. D Controlled.
C Rated. Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium.
The Federal Fair Credit Reporting Act A Regulates telemarketing. B Prevents money laundering. C Regulates consumer reports. D Protects customer privacy.
C Regulates consumer reports. The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports.
Which of the following would be considered a nonmedical insurance application? A An application that does not ask any questions about the applicant's medical history B An application submitted with the Agent's Report C Any application for life insurance D An application on which the medical information is completed by the applicant and the agent only
D An application on which the medical information is completed by the applicant and the agent only An application on which all of the questions, including medical history questions, do not need to be completed by medical professionals, and may be completed by the applicant and the agent.
Which of the following statements regarding HIV testing for insurance purposes is NOT true? A Positive test results will be forwarded to the state's Department of Health if a physician is not selected by the applicant. B The testing practices must meet the criteria of the U.S. Department of Health and Human Services. C HIV testing is regulated at the state level. D Insurers are barred from requesting HIV testing.
D Insurers are barred from requesting HIV testing. It is common for insurers to require HIV testing when an applicant seeks a policy with a large face amount. The insurer must abide by a variety of rules created by its respective state.
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? A Waiver B Utmost Good Faith C Estoppel D Material misrepresentation
D Material misrepresentation A material misrepresentation will affect whether or not a policy is issued. If the insured had been truthful, it is very likely that the policy would not be issue
According to the Fair Credit Reporting 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 As defined by the Act, negative information includes information regarding a customer's delinquencies, late payments, insolvency or any other form of default. Customer disputes are not considered negative information, and, in fact, must be included in consumer reports.
Which of the following is a term for a person who seeks insurance from an insurer? A Insured B Beneficiary C Applicant D Agent
C Applicant The applicant is the person who is seeking insurance from an insurer.
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? A Subrogation B Warranty C Aleatory D Adhesion
C Aleatory An insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk
When would a misrepresentation on the insurance application be considered fraud? A Any misrepresentation is considered fraud. B If it is intentional and material C Never: statements by the applicant are only representations. D When the application is incomplete
B If it is intentional and material A misrepresentation would be considered fraud if it is intentional and material. Fraud would be grounds for voiding the contract.
In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT A Applicant's past income. B Applicant's past medical history. C Applicant's present physical condition. D Applicant's present occupation.
A Applicant's past income. In classifying a risk, the Home Office underwriting department will look at the applicant's past medical history, present physical condition, occupation, habits and morals.
Which of the following will be included in a policy summary? A Premium amounts and surrender values B Copies of illustrations and application C Comparisons with similar policies D Primary and secondary beneficiary designations
A 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.
Which of the following would provide an underwriter with information concerning an applicant's health history? A The Medical Information Bureau B A medical examination C The agent's report D The inspection report
A The Medical Information Bureau An agent's report and inspection report provides personal information. Medical exams provide information on current health. Only the MIB will provide information about an applicant's medical history.
If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it? A Unilateral B Adhesion C Conditional D A legal (but unethical) contract.
A Unilateral In a unilateral contract, only one of the parties to the contract is legally bound to do anything
What is a material misrepresentation? A Any misstatement by the producer B Concealment C A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company D Any misstatement made by an applicant for insurance Incorrect! A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.
C A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.
When must insurable interest exist in a life insurance policy? A At the time of policy delivery B When there is a change of the beneficiary C At the time of loss D At the time of application
D At the time of application In life insurance, insurable interest must exist at the time of application.
An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of A Third-party ownership. B A STOLI policy. C A prearranged funeral plan. D A viatical settlement.
B A STOLI policy. Stranger-originated life insurance (STOLI) policies are usually purchased by people who have no relationship with the insured with the intention of selling them for life settlements.
An insurer wants to begin underwriting procedures for an applicant. What source will it consult for the majority of its underwriting information? A Medical records B Application C Interviews D State records
B Application The application contains most of the information used for underwriting purposes. This is why its completeness and accuracy are so crucial.
A producer agent must do all of the following when delivering a new policy to the insured EXCEPT A Explain the policy provisions, riders, and exclusions. B Collect any premium due. C Explain the rating procedures if the policy is rated differently than applied for. D Disclose commissions earned from the sale of the policy.
D 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.
When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is A Personal. B Unilateral. C Conditional. D Aleatory.
C Conditional The contract is formed on the basis that certain conditions are met.
What is the term for the fee a policyowner must pay to the insurance company to maintain coverage? A Benefit B Premium C Installment D Commission
B Premium The premium is what a policyholder pays the insurance company for insurance coverage.
If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT A Draw a line through the first answer, record the correct answer, and have the applicant initial the change. B Note on the application the reason for the change. C Destroy the application and complete a new one. D Erase the incorrect answer and record the correct answer
D 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.
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? A It will likely be the average premium issued to standard risks. B The applicant's habits and health do not affect the premiums. C It will likely be lower because the applicant is a preferred risk. D It will likely be higher because the applicant is a substandard risk.
D It will likely be higher because the applicant is a substandard risk. Applicants are considered substandard risks because of physical condition, personal or family history of disease, occupation, or dangerous habits. Substandard risks are usually issued a higher premium than standard risks.
Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information contained in his or her report, the reporting agency must A Respond to the consumer's complaint. B Defend the report if the agency feels it is accurate. C Change the report. D Send an actual certified copy of the entire report to the consumer.
A Respond to the consumer's complaint. The consumer has the right to request the information on the report, the reasons for turn down and any adverse underwriting decisions. The reporting agency is required to respond to the consumer's complaint, and, if necessary, to reinvestigate the report.
Something of value exchanged between the insurer and the insured is considered an A Acceptance. B Legal capacity. C Consideration. D Offer.
C Consideration. Consideration is something of value that each party to an insurance contract gives to the other.
If an insurance company wishes to order a consumer report on an applicant to assist in the underwriting process, and if a notice of insurance information practices has been provided, the report may contain all of the following information EXCEPT the applicant's A Habits. B Prior insurance. C Ancestry. D Credit history.
C Ancestry The Fair Credit Reporting Act regulates what information may be collected and how the information may be used. 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. Ancestry is not a relevant factor assessed in these reports.
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? A Representation B Adhesion C Consideration D Good faith
C 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.
What is the purpose of the buyer's guide? A To list all policy riders B To provide information about the issued policy C To allow the consumer to compare the costs of different policies D To provide the name and address of the agent/producer issuing the policy
C 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 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 When the agent submits the application to the company and the company issues a conditional receipt B When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health C On the designated effective date D On the application date
B When the agent delivers the 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.
Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? A Standard risk pays a higher premium than a substandard risk. B Standard risk requires extra rating. C Standard risk is also known as high exposure risk. D Standard risk is representative of the majority of people.
D 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.
When is the earliest a policy may go into effect? A When the first premium is paid and the policy has been delivered B When the insurer approves the application C After the underwriter reviews the policy D When the application is signed and a check is given to the agent
D When the application is signed and a check is given to the agent The policy can be effective as early as the date of the application, if the premium is submitted with the application and the policy is issued as applied for.
In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports? A They provide additional information from an outside source about a particular risk. B They provide information about a customer's character and reputation. C The customer has no knowledge of this action. D The customer's associates, friends, and neighbors provide the report's data.
D The customer's associates, friends, and neighbors provide the report's data. Both consumer reports and investigative consumer reports provide additional information from an outside source about a customer's character and reputation, and both types of reports are used under the Fair Credit Reporting Act. The main difference is that the information for investigative consumer reports is obtained through an investigation and interviews with associates, friends and neighbors of the consumer.
