Life & Health Chapter 15 Exam

c. Misrepresentation A misrepresentation can render the contract void, if material to the acceptance of the risk.

A false statement in the application that can render the contract void, if material to the acceptance of the risk, is known as a: a. Fraud b. Representation c. Misrepresentation d. Concealment

c. The date of application or upon the completion of a medical exam (if later) In the case of a Conditional Receipt, the coverage is effective the date of the application or upon the completion of a medical exam, unless it is declined within a stipulated period.

A life insurance applicant pays the initial premium at the time of application and receives a Conditional Receipt. On the condition that the applicant is ultimately approved for the coverage, his/her coverage will start as of: a. The approval date b. Three days after the date of application c. The date of application or upon the completion of a medical exam (if later) d. The effective date

d. Conversion Plan Conversion Plan is not a method of calculating substandard rates. In addition to Flat Rate, Lien Plan, and Tabular Rate, Rated-Up Age is another method of calculating substandard rates.

A rated policy is issued on an individual that is not acceptable at standard rates due to health, habits, or occupation, and is calculated by any of the following methods, except: a. Flat Rate b. Lien Plan c. Tabular Rate d. Conversion Plan

d. Reciprocal A Reciprocal Insurance Company (Assessment Insurer) is the type of insurer described in the question.

A type of organization referred to as an exchange because it is unincorporated and each insured insures other insureds in the association, is known as a: a. Fraternal b. Brokers c. Lloyds d. Reciprocal

b. Representations Representations are not one of the four essential elements of a legal contract. Offer and Acceptance is the essential element missing in the responses.

All are elements of a legal contract, except: a. Legal Purpose b. Representations c. Competent Parties d. Consideration

b. Admitted An insurer authorized to do business in this state is referred to as admitted, and could be either domestic, foreign, or alien domiciled.

An insurer authorized to do business within this state is considered what type of insurer? a. Foreign b. Admitted c. Domestic d. Certified

d. A representation The applicant was not aware of the disease. If the applicant had been aware of the disease and withheld the information, that would constitute concealment.

If a life insurance applicant's answers on the application indicates that he/she is in good health, when in fact the application has a disease that he/she is not aware of, the statement on the application is considered to be: a. Concealment b. A warranty c. Fraudulent d. A representation

b. Lower Interest earned on premiums assists in premium rate reduction.

Interest earned on premiums paid to an insurer help to ____ the premiums charged. a. Increase b. Lower c. Standardize d. Stabilize

c. The age and gender of the insured, and the benefits to be provided. The process of calculating this rate requires the age and gender of the insured, and the benefits to be provided.

Net premiums take into account interest and mortality factors only. The process of calculating this rate requires: a. The classification to the extent of any impairment tables used. b. The morbidity rates to be used. c. The age and gender of the insured, and the benefits to be provided. d. Additional charges added to enable an insurer to meet all costs under the contract.

a. Representations Statements made on the applicant that are believed to be true to the best of his/her knowledge, but are not warranted to be exact in every detail, are known as representations.

Statements made on the application by the applicant that are believed to be true to the best of his/her knowledge are: a. Representations b. Conditions c. Statements d. Assumptions

a. All the answers listed A Life/Health producer or agent is authorized to do each of the items listed.

The life/health producer or agent is authorized to: a. All of the answers listed b. Receive contracts from the company c. Solicit d. Forward applications to the company

d. Risk Management The question states the definition of Risk Management.

The process of analyzing exposures that create risk, and designing programs to handle them, is known as: a. Concepts and Principles b. Loss Exposure c. Insurable Event d. Risk Management

c. Reinsurance Reinsurance is a device used by insurers to transfer or share the risk.

The transfer of part of a risk from one insurer to another insurer or insurers is best described as: a. Participating insurance b. Coordination of benefits c. Reinsurance d. Over insurance

a. Reinsurance b. Hedging c. Excess Insurance d. Reciprocal Insurance The process being described in the question is that of Reinsurance.

When an insurer protects itself from a catastrophic loss, it might do so by transferring the amount of risk assumed under the original contract. This is known as: a. Reinsurance b. Hedging c. Excess Insurance d. Reciprocal Insurance

c. A policy is deemed to have been received five months after the issue date if premiums are paid. A policy is deemed to have been received six months after the issue date if premium is paid.

Which statement is incorrect regarding policy delivery? a. The burden of proof shall be on the insurer to establish that the policy was delivered if they do not have the recipient's signature. b. It is a producer or agent's responsibility to deliver the policy and verify the insured has remained in good health. c. A policy is deemed to have been received five months after the issue date if premiums are paid. d. The Free Look Period may begin by sending the policy registered or certified mail.

b. Initial premium The producer or agent should attempt to collect the initial premium and submit it along with the application to the insurer. A receipt is what the agent gives the client.

With any new application, a producer or agent should attempt to collect the ____ ____. a. Initial premium and signed receipt b. Initial premium c. First and last premium d. Signed receipt

a. The gross premium Insurer expenses (loading) are added to the net premium rate to enable an insurer to meet all costs under the contract, such as operating costs, commissions, medical examination costs, etc.

In premium concepts, an insurer accounts for the interest and mortality factors then adds additional money to the premium to meet all costs of a contract arriving at: a. the gross premium b. The net premium c. The dividends d. The substandard rates

b. Minimizing a risk. Risk Reduction is minimizing but not preventing risk.

Risk reduction is: a. Transferring the risk to another. b. Minimizing a risk. c. Not being involved in the activity that gives rise to that risk. d. Retaining the responsibility of the loss.

c. An individual, and issues the policy on the group as a whole. In group insurance, the group as a whole is considered an individual, and issuance is based upon that whole. Having one uninsurable individual in a group will not cause a declination, but may increase the premium charged.

When underwriting group life, the underwriter considers the group as: a. Two groups, one for male and one for female employees. b. A group of individuals if the group size is less than 100. c. An individual, and issues the policy on the group as a whole. d. Attempting to transfer part of the risk.

a. Rated-Up risk The three general classifications of risk are Preferred, Standard, and Substandard.

Which is not a classification an underwriter would use? a. Rated-Up risk b. Preferred risk c. Standard risk d. Substandard risk

d. Reserves Premiums are based on expected mortality, interest, and expenses.

Which of the following is not a factor in premium determination? a. Interest b. Expenses c. Mortality d. Reserves

d. Loss Physical, moral, and morale are all types of hazard. A loss is a reduction in, decrease or disappearance of value.

Which of the following is not a hazard? a. Moral b. Physical c. Morale d. Loss

d. Warranty The statement defines a Warranty.

A statement that the application guarantees to be true is referred to as a: a. Fact b. Conviction c. Representation d. Warranty

c. Insurer If a policy is issued with a question unanswered, the contract will be interpreted as if the question had not been asked, and is therefore waived by the insurer.

After a policy has been issued, the insurer discovers an unanswered question on the application. Who is assumed to have waived the question? a. Insured b. Employer c. Insurer d. Employee

a. Assessment (Reciprocal) An Attorney-in-Fact manages a Reciprocal or Assessment insurer, and does not need a license.

An Attorney-In-Fact manages this type of insurer: a. Assessment (Reciprocal) b. Federal Crop Insurance c. Mutual d. Fraternal

d. A company issues a policy. The offer is from the applicant and the accepting is by the insurer through issuance of the policy.

Concerning insurance policies, acceptance is when: a. An insured keeps the policy after the ten-day Free Look Period. b. A company cashes a premium check. c. An insured pays the first premium. d. A company issues a policy.

d. Payment of renewals Consideration includes payment of the first premium; not renewal premiums.

Consideration, an element of an insurance contract, includes all of the following, except: a. Application b. Statements on the application c. Promises d. Payment of renewals

c. Formation Contract law pertains to the formation and enforcement of contracts.

Contract law pertains to the ____ and enforcement of contracts. a. Information b. Application c. Formation d. Correction

a. Has no legal authority over insurance regulation. The NAIC does not have legal authority over insurance regulation, but promotes uniformity in the interpretation of insurance registration and regulation.

The National Association of Insurance Commissioners (NAIC): a. Has no legal authority over insurance regulation. b. Sets legislation and policy. c. Requires each legislature to accept recommendations. d. Requires only 30 Commissioners to be members at a time.

c. Claims The Claims division provides service to the policyholders in the event of loss.

The ____ division of an insurance company is responsible for providing service to the policyholders at the time of a loss. a. Underwriting b. Actuarial c. Claims d. Domestic

b. Insurability The question states the definition of insurability.

The ability of an individual to meet an insurance company's underwriting requirement is: a. Indemnity b. Insurability c. Insurable interest d. Grace period

d. Express authority Express Authority is the authority stated or written in the producer or agent's contract. Some have on occasion referred to this as specified authority, but it should properly called express authority.

The authority of a producer or agent that is written in his/her contract is called: a. Specified authority b. Written authority c. Apparent authority d. Express authority

b. Unilateral Contract In insurance, only the insurer is legally bound once the premium is paid by the insured.

The contract in which only one party is legally bound to contractual obligations after a premium is paid is known as a: a. Conditional Contract b. Unilateral Contract c. Torts d. Aleatory Contract

d. Unlimited The insurable interest on one's own life is generally regarded as unlimited.

The insurable interest on one's own life is generally regarded as: a. Dependent upon other assets the insured owns b. Six month's salary c. One year's salary for each child/dependent d. Unlimited

c. Fraud The statement defines fraud.

The intentional misrepresentation, deceit, or withholding of a material fact known to a person with the intention of causing injury to another party is: a. Concealment b. Utmost good health c. Fraud d. Warranty

d. Mutual Insurance Company The question is in part describing the characteristics of a Mutual Insurer.

The type of insurer is operated on a nonprofit basis and is owned by its policyowners: a. Fraternal Association b. The Law of Large Numbers c. Stock Insurance Company d. Mutual Insurance Company

d. Rated-up Age As the name implies, Rated-up Age is where the insured is rated at an age older than their actual age.

The type of substandard rating whereby the insured is rated older than his/her actual age is known as: a. Graded b. Flat c. Tabular d. Rated-up Age

c. Concealment To withhold is to conceal.

The withholding of important known facts, that if disclosed would change the decision of an insurer's underwriting or premium determination, is known as which of the following? a. Misrepresentation b. Fraud c. Concealment d. Waiver

d. Foreign An insurer operating in this state, but incorporated in another state, would be referred to as foreign.

Those insurers that are incorporated in another state, but doing business in this state, are considered: a. Non-domestic insurers b. Alien c. Out-of-state insurers d. Foreign

a. Speculative This type of wagering would be speculative as there is a chance of loss or gain.

Wagering on a horse race or at the casino tables is known as what type of risk? a. Speculative b. Pure c. Calculated d. Simple

d. Speculative and Pure the two types of risk are Speculative and Pure.

What are the two types of risk? a. Insurable and calculable b. Physical and moral c. Economic and accidental d. Speculative and pure

a. Over insurance Over insurance occurs when more insurance is in force than the insured has the potential to lose.

You carry more accident and health insurance than you have the potential to lose. What is this called? a. Over insurance b. Excess insurance c. Extra coverage d. Well covered

c. Conditional Receipt Remember, the Conditional Receipt is given by the producer or agent, if premium is paid, whereby coverage will be in effect the date of application or completion of the medical exam, unless it is declined within a stipulated period.

All of the following are sources that insurers look at for information regarding a prospective insured, except: a. Inspection Report b. APS (Attending Physician Statement) c. Conditional Receipt d. MIB (Medical Information Bureau

a. Effect the beneficiary change. Since Sylvia has been the owner of the policy throughout the entire scenario, she can choose whomever she desires as beneficiary. Remember, in Life and Health Insurance, insurable interest must exist at time of application, but does not have to be proven by the beneficiary at time of claim.

Sylvia was the insured and policyowner of a policy that named her husband the beneficiary. Upon her husband's death, she decided to change the beneficiary designation to her best friend since she has no close relatives. The insurance company will: a. Effect the beneficiary change. b. Decline the change due to lack of insurable interest. c. Require Sylvia to prove insurability. d. Require Sylvia to prove that her best friend is financially dependent on her.

a. Marketing and Sales The question is describing the function of the Marketing and Sales division.

The division of an insurance company that advertises and sells policies to the public would be the ____ division. a. Marketing and Sales b. Executive Staff c. Claims d. Actuarial

b. Indemnification The statement defines the Principle of Indemnification.

The fact that the insured is restored to the same financial condition as prior to a loss and should not profit or lose from an insurance transaction is considered: a. Reimbursement b. Indemnification c. Law of large numbers d. Contract law

a. Subtraction Mortality Cost minus Interest (investment return) = Net Premium (pure rate).

What is the mathematical relationship between the mortality rate and earned interest in determining a net premium (pure rate)?

d. Preferred risk The statement defines a preferred risk.

When an individual qualifies for a lower premium or rate than standard risks, the insured is considered a: a. Higher risk b. Substandard risk c. Bad risk d. Preferred risk

b. At the time of the application. State laws generally requires that an insurer provide prospective purchasers a copy of the Buyer's Guide and Policy Summary (illustration) at the time of the application.

When must an applicant for a Life Insurance Policy be provided with a Buyer's Guide? a. Within five days after delivery of the policy. b. At the time of the application. c. At the time of delivery of the policy. d. Within ten days after delivery of the policy.

d. Explain the policy fully. It is the producer or agent's responsibility to deliver the policy, verify the insured has remained in good health, and explain the policy to be sure the insured understands the benefits, including endorsements and riders.

When producer or agent Pete delivers a policy, he must assure himself there has been no adverse change in the health condition of the applicant, and he should also: a. Collect at lease 3 referrals. b. Demand an annual premium. c. Sign the delivery receipt. d. Explain the policy fully.

d. Send a transmittal notice verifying the date he/she received the premium. Ideally, the initial premium is submitted with the application, and if not, then they send a transmittal notice verifying the date he/she received the premium.

When the initial premium is not paid with the application, some insurers require that the producer or agent: a. Issue a conditional report. b. hold the policy for delivery until the premium check clears the bank. c. hold the policy for delivery until the insured pays the premium with cash. d. Send a transmittal notice verifying the date he/she received the premium.

c. Applicants may or may not be informed that testing for HIV helps determine insurability. Insurers are to require the maintenance and strict confidentiality of personal information obtained through testing and to require informed consent before testing for HIV.

Which is issue to AIDS is false? a. Insurers may refuse to issue a policy to individuals based on positive HIV test results. b. The HIV Consent Form specifies which types of individuals may receive the test results. c. Applicants may or may not be informed that testing for HIV helps determine insurability. d. Insurers are to avoid making or permitting unfair distinctions between individuals of the same class in the underwriting for the risk of AIDS.

a. Intentional loss Intentional losses are excluded. The loss must be accidental.

Which is not an essential element of an insurable risk? a. Intentional loss b. Economic hardship c. Similar or same type of units d. Ascertainable loss

c. Mentally competent persons are restricted. Mentally competent parties are not restricted, but mentally incompetent parties are restricted.

Which is not true about competent parties under the elements of a legal contract? a. Parties must have legal capacity to enter into a contract. b. Minors are restricted. c. Mentally competent persons are restricted. d. People under the influence of drugs or alcohol are restricted.

c. Nonassessable policies are issued.

Which of the following is false regarding a Stock Insurance Company? a. They are managed by Officers and Directors. b. Stockholders elect the Board of Directors and receive taxable dividends. c. Nonassessable policies are issued. d. Ownership rests with stockholders.

b. The loss must cause an economic hardship on the insurer. The loss must cause an economic or financial hardship on the insured, not the insurer.

Which of the following is false regarding an insurable risk? a. There must be a large number of homogeneous units. b. The loss must cause an economic hardship on the insurer. c. The change of loss must be calculable. d. The insured event must be accidental.

b. Broker Agency System The Branch Office System, General Agency System, American Agency System, Direct Writers, and Direct Mail/Response are the marketing and distribution systems used by insurers.

Which of the following is not a marketing and distribution system used by insurers? a. Branch Office System b. Broker Agency System c. American Agency System d. Direct Writers

b. Life/health insurance agents issue contracts. Life/Health insurance agents do not issue contracts. They are authorized to solicit, receive, and forward applications for contracts written by their companies.

Which part of the following is false regarding agents? a. The implied authority is the authority the public assumes the agent has. b. Life/Health insurance agents issue contracts. c. Agents are representatives of the insurer. d. Life/Health agents are authorized to solicit, receive, and forward applications for contracts written by their companies.

b. Only the applicant must sign the application unless a guardian is signing for a minor. Both the producer or agent and the applicant must sign the application unless the guardian is signing for a minor.

Which statement is false? a. It is the producer or agent's responsibility to probe beyond the stated questions. b. Only the applicant must sign the application unless a guardian is signing for a minor. c. If a policy is issued with questions unanswered, the contract will be interpreted as if the questions had not been asked and are therefore waived by the insurer. d. The completed life application becomes part of the entire life contract.