License Coach Chapter 2 - Underwriting

conditional contract

Insurance contracts are conditional because all parties to the contract must meet certain conditions when a loss occurs in order for the contract to be legally enforceable. "if-then" contracts

Elements of a Legal Contract

agreement, consideration, competent parties, legal purpose

Consideration

an exchange of value between parties of the contract

Approval Receipt

does not begin until the insurer approves the application.

Binding Receipt

or the temporary insurance agreement provides coverage from the date of the application, regardless of whether the applicant is insurable. coverage usually lasts 60 days

Insurability Receipt

provides interim coverage as long as the applicant is insurable.

Insurable Interest

An individual's valid concern for the continuation of the life or well-being of the person insured, which must be present at the time of application. **must exist at time of application The purchaser is also the person insured under the policy Marriage or blood relationship (e.g., spouses have insurable interest in each other; parents and children have insurable interest in each other) Business partners Creditor-debtor relationship

Conditional Receipt

The agent issues a conditional receipt to the applicant after the application and premium have been collected.

Policy Face

The named insured, Policy number, Policy issue date, Policy limits, Premium amount, Premium due dates, A right of examination statement (right to return the policy), and Signatures of the insurer's secretary and president are also part of the policy face.

Which of the following correctly identifies the two types of conditional receipts? Select one: a. Insurability and approval b. Insurability and binding c. Binding and approval d. Binding and nonnegotiable

a. Insurability and approval

Which of the following correctly describes the penalty applied to a company for calling a person whose phone number is on the Do Not Call List? Select one: a. Fine in the amount of $16,000 b. Fine in the amount of $40,000 c. Fine in the amount of $100,000 d. Fine in the amount of $1,000,000

a. fine in the amount of $16,000

_____________ is/are used to classify risks and assign premium rates that accurately reflect the amount of risk undertaken by the insurer. Select one: a. Loss ratios b. Underwriting c. Applications d. Insurance laws

b. underwriting

All of the following are part of the consideration element of an insurance contract, EXCEPT: Select one: a. The insurer's promise to pay a covered loss b. The applicant's statements on the application c. The initial premium paid by the applicant d. The applicant's promises

d. the applicant's promises Insurance contracts are unilateral. Only the insurer is legally upheld to performing the promises made in the policy.

Conditions

The conditions of the policy are the rights and responsibilities of all parties of the contract.

If a company issues a conditional receipt to an applicant who has paid an initial premium for a policy that does not require a medical examination: Select one: a. The company thereby divests itself of all risk. b. The applicant is immediately covered. c. The applicant must yet meet certain conditions before their application can be submitted to the company. d. The company thereby waives its right to refuse to issue a policy.

a. the applicant is immediately covered A conditional receipt is given when the applicant pays the first premium at the time they sign the policy application. A conditional receipt covers the applicant immediately from the date of application, providing that their application passes the underwriting requirements for the policy. Thus, the applicant is covered at the present time. If a medical examination is required, coverage begins after the applicant passes the medical examination.

Which of the following best describes the main purpose of the Medical Information Bureau (MIB)? Select one: a. The MIB is a group of underwriters contracted by insurers to evaluate risks. b. The MIB collects and shares medical information with member insurance companies. c. The MIB rates policies. d. The MIB publishes the CSO Tables every two decades.

b. The MIB collects and shares medical information with member insurance companies.

When completing the application, a producer should do all the following, EXCEPT: Select one: a. Make sure the applicant has completely filled out the application. b. Determine whether or not the applicant understands questions asked on the application c. Obtain the spouse's signature on the application, if the applicant is married d. Write and sign an honest opinion of the applicant and their integrity in the section for the Agent's Statement.

c. Obtain the spouse's signature on the application, if the applicant is married

Which of the following best describes a life insurance policy in which the proposed insured is not required to undergo a medical examination? Select one: a. Easy policy b. Simply-issued policy c. Simplified issue d. Standard coverage policy

c. Simplified Issue Simplified issue life insurance policies do not require the proposed insured to undergo a medical examination.

Which of the following terms describes a person who is the applicant and policyowner of an insurance policy, but not the insured? Select one: a. Beneficiary b. Underwriting c. Third party ownership d. Insurer

c. Third party ownership

The agent must provide the buyer's guide to the applicant: Select one: a. Upon application b. When the conditional receipt is given to the applicant c. When the policy is delivered d. Upon application or at the time of policy delivery if a 10-day free look is provided

c. When the policy is delivered

Anna applied for a $1 million life insurance policy and paid the first premium. Later she was declared uninsurable. Her agent gave her a receipt that guarantees coverage until the insurer formally rejects the application. Which type of receipt did Anna receive? Select one: a. Conditional b. Insurability c. Binding d. Approval

c. binding With a binding receipt, coverage is assured, even if the person is later proved to be uninsurable, until the insurer formally rejects the application.

consumer report

contains information about an applicant's personal credit history, not medical history.

Aleatory Contract

there is an unequal exchange of value. Insurance contracts are aleatory contracts because payment of benefits is contingent upon the occurrence of an uncertain loss.

Which of the following is a true statement? Select one: a. If an applicant needs to makes changes in their application, the agent should create a new form. b. After the applicant's signature, no changes can be made to that particular application. c. Any changes in the application must be signed by both the applicant and the agent. d. Any changes in the application must be initialed by the applicant.

d. Any changes in the application must be initialed by the applicant

Dale fills out a health insurance policy application, and hands it to his agent along with the initial premium. Of the following statements, which is correct? Select one: a. Dale's policy is in force when he pays the initial premium. b. Dale's policy is in force when he hands his application to the agent. c. Dale's policy is in force when the insurance company issues the policy. d. Dale's policy is in force when the agent deliver's Dale's policy.

d. Dale's policy is in force when the agent deliver's Dale's policy.

Wesley fills out an application for a life insurance policy and submits it to the agent on January 5th. He does not include the first premium payment. Wesley undergoes the required medical examination on January 7th. The insurance company approves Wesley's application on January 15th. Wesley's agent delivers the policy to Wesley on January 17th. At this time, Wesley writes out a check for the initial premium. On what date is Wesley's policy effective? Select one: a. January 5th b. January 7th c. January 15th d. January 17th

d. Jan 17th

Which of the following factors is not used in the underwriting process? Select one: a. Medical history b. Build c. Age d. Highest level of education completed

d. highest level of education

contract of adhesion

one author, the insurance company "take it or leave it"

Unilateral

one sided. Only the insurance company makes legally enforceable promises to pay benefits in the event of a covered loss.

Insuring Clause

the insurer's promise to pay covered losses as long as the insured pays premiums and abides by the terms and conditions of the policy.

Subrogation

the right of the insurer to assume the rights of the insured and sue the responsible third party for damages inflicted upon the insured.