Life & Health: Insurance License Exam Study Set
Collecting the premium...
"Offer to buy" insurance exists when the first premium is submitted with the life insurance application. Coverage is delayed until the premium is paid
A person who commits fraud is subject to imprisonment for up to how many years?
25 years
Binding recepits are effective for...
30-60 days from the date of application
What is apparent authority?
Appearance or the assumption of the authority grants the agent more powers to assist the client Authority others think they have
Standard risks mean...
Average health Normal life expectancy Standard rates
Substandard risk means...
Below average life-expectancy Risk of loss above average Poor health, dang. occup., risky habits Higher rates, rated up Adding a flat additional charge, charging applicants the standard premium for a higher attained age, or reducing the benefits provided by the policy.
Elements of insurable risk
CANHAM Calculable Affordable Non-catastrophic Homogeneous Accidental Measurable
Elements of a legal contract
CLOAC Consideration Legal purpose Offer Acceptance Competent parties
Statement of Good Health...
During the delivery appointment the agent/producer must collect the first premium. Statement of Good Health must also be signed at this time.
Preferred risk means...
Excellent health Risk loss below average Healthy lifestyle, clean med. hx, low-risk occup. Preferred or discounted rates
A person is a position of financial trust is a...
Fiduciary
What is penalty for violating the Fair Credit Reporting Act may be subject to...
Fines Imprisonment
An insurance company incorporated in Wisconsin and conducting business in Wisconsin is known as a domestic company. What kind of company are they considered if they do business in Minnesota.
Foreign
Methods of Marketing are...
Independent agent Exclusive or captive agent General/Managing General Agent Direct Writing
Adhesion
Insurance contracts are contracts of adhesion provisions are written by only one party to the contract and other party is required to adhere Any doubt, courts on insured side
Utmost good faith...
Insurance is a contract of utmost good faith each party entitled to a reasonable expectation that the other party will not conceal information
What is commingling?
Mixing business and personal money together
Suzanne regularly leaves her side door unlocked when she leave for work. One afternoon a thief entered her apartment and stole all of her jewelry What is the type of hazard?
Morale
A Notice of Application must be issued to all applicants for life or health insurance coverage
Must be given no later than 3 days after a report was requested.
Does indemnity apply to life insurance?
No, just health insurance. It is not possible to restore the insured in life insurance because payment occurs upon death
Declined risks mean...
Not insurable at any price, application is declined
What are the three parts to a life insurance application?
Part 1: General information Part 2: Health information Part 3: Producer's report
Receipts...
Producer must provide the applicant with a receipt Effective date of coverage depends on type of receipt issued.
What are the types of risk?
Pure risk; Speculative risk
Insurers must not unfairly discriminate between individuals who are in the same risk class. Using any of the following is considered unfair discrimination...
Race Religion National origin Place of residence
What factors are prohibited from use in order to classify a risk?
Race Religion Place of residence
Wearing a seatbelt in a car is an example of which method of managing risk?
Reduce
Insurance companies often purchase insurance to cover their own exposure to loss. This is called...
Reinsurance
What are the types of insurers?
Stock insurers Mutual insurers Fraternal Benefit Societies Reciprocal insurers Risk Retention Groups Lloyd's Association Self-insurers
Suitability considerations
The agent has a responsibility to make purchase recommendations that are appropriate or suitable in light of a clients particular needs, objectives and circumstances.
Conditional Receipt
The date of the application is the effective date of a conditional receipt as long as the applicant is found to be insurable under the company's standard underwriting rules. With conditional receipts, the proposed insured dies before the policy is issued the applicant continues through the normal underwriting process.
If any health information will be shared, applicants must be given full notice of:
The insurer's information sharing practices Their right to maintain privacy An opportunity to refuse to have their information released
Legal purpose
To be valid, a contact must be for a legal purpose and not contrary to public policy.
The process of evaluating a risk to determine if the risk is one that the insurance company wishes to insure is also knows as the...
Underwriting process
Effective date of Coverage...
When the first premium is collected at the time of application for the policy. The date of application or medical exam. If the applicant accepts the substandard policy and pays the additional premium, but it is paid at policy delivery.
Property and casualty insurance policies are personal contracts whereas life and health are not.
With life insurance, the insurer contracts not with the insured but with the policyowner. Owner has right to transfer ownership
Estoppel is...
a legal doctrine that prevents a party from denying an action if it had been accepted previously
Misrepresentation is...
a representation that is actually false. Misrepresentations do no always void contracts Must be material misrepresentations to void
Representation is...
a statement that is believed to be true to the best of ones knowledge at the times its given
What is adverse selection?
adverse selection is the tendency for higher-risk people to get and keep insurance more than those who represent an average level of risk.
What is express authority?
authority made explicit in writing
When the reinsurer considers each risk before allowing the transfer to be made from the ceding company, what is this called?
facultative reinsurance
If a fire causes damage to a building, the fire is a...
peril
Backdating can be done as far back as...
6 months
Material Misrepresentation
A statement that, if discovered, would alter the underwriting decision of the insurance company.
What are the methods of handling risk?
Sharing Transfer Avoidance Retention Reduction
What is a fiduciary?
a person in a position of financial trust, must act on best interest of the client.
A consumer may make a written request for a complete disclosure of the nature and scope of the investigation underlying the report. Disclosure must be made in writing within how many days after the date on which the consumers request was received.
five days
Who is not required to sign a life insurance application?
the beneficiary
Concealment is...
the intentional failure to disclose known facts
Aleatory...
the value received from the contract by each party may be unequal Insured may pay premiums for years without a claim, or a new insured has an accident after paying one claim
The purpose of the MIB is...
to reduce instances of misinformation and fraud
A type of insurance owned by the federal government that is not typically available from other private insurers' is called...
Residual Market Insurance
Since he lives in a good neighborhood and across the street from the fire station, Jeff decides to cancel his fire insurance policy. This is an example of which risk management method?
Retention
What are the Four Classification of Risks?
Standard Preferred Substandard Declined
An above average risk of loss and unfavorable to an insurance company is...
Substandard
What is insurance?
a contract that transfers risk from the insured to the insurance company (insurer)
Punishment for fraud and false statements is...
a fine imprisonment up to 10 years (15 years if jeopardizes the insurer) both
Medical Information Bureau (MIB) is...
a non-profit insurance trade association that maintains underwriting information on applicants.
Unilateral...
a one sided contract - only 1 side makes a legally enforceable agreement. (The insurance co has to adhere to the contract) but the insured person doesn't have to pay premiums forever
Fraud is...
an intentional act designed to deceive and induce another party to part with something of value Fraud can involve misrepresentation, concealment, or both Not all acts of misrepresentation or concealment are acts of fraud
What is a hazard>
anything that increases the chance that a loss will occur. Hazards do not cause the loss, but they make a loss more likely to occur.
What is a peril?
cause of a loss, peril is death, health insurance, accident or illness
Morale hazards are...
caused by a careless attitude, leaving doors unlocked
The failure to disclose known facts is...
concealment
Indemnity...
contract intended to restore the insured to his or her pre-loss financial state, no better no worse,
Waiver is...
defined as the intentional and voluntary giving up of a known right
Moral hazards are...
hazards that arise from someones character
Risk Retention Groups
insurer formed for the sole purpose of providing liability insurance to its policy holders. owned by the insureds or members must be members of the same type of business
Warranty...
is a statement that is guaranteed to be true Most states laws say that statements or responses to questions on an application are representations and NOT warranties
What is included in the Producer/Agent Statement?
known information such as: financial status habits character not seen by the client
Self-Insurers...
means of retaining risk instead of transferring to insurance company (Walmart)
Types of information maintained in the MIB files include...
medical history hazardous jobs or hobbies poor driving records
Tiffany leaves here car unlocked when she goes shopping. She figures her car and the contents are insured so there is no reason to worry. Which type of hazard is that an example of?
morale hazard
Changes in the insurance application...
must be initialed by the applicant
Acceptance of an offer...
must be unconditional and unqualified
Lloyd's Associations...
not insurance companies hub for exchange of info among member underwriters who actually transact the business of insurance.
What is implied authority?
not written but assumed, such as agent getting business card with ABC Insurance on it.
Fraternal benefit socities
organized under lodge system certificates, certificate holders may be assessed additional charges if claims are more than premiums collected open contracts legal reserve companies
Mutual insurers...
owned by policy holders board of directs elected by policy holders officers appointed by board profits may be distributed as non-taxible divid. policies considered participating or par-policies
Stock insurers
owned by stockholders board of directors chosen by stockholders profits may be distributed as taxable dividends policies are called non-participating, non-par
What is speculative risk:
possibility of both a loss and a gain, not insurable
What is pure risk?
possibility of only a loss, insurable
A part of the application that requires the agent to provide information regarding the proposed insured, such as habits, character, and relationship with the insured is known as...
producers report
Investigative Consumer Reports are...
reports containing information obtained by interviewing people who know something about the consumer such as associates, friends, and neighbors. Consumers must be notified and give their consent to having such reports done. Aka Inspection reports
Jill is filling out an insurance application with information that she believed to be true, This information that she is providing is considered a...
respresentation
What is exposure?
risk assumed by the insurer
Reinsurance is...
similar to insurance for insurers. Transfers risk from one insurer to another. The company assuming the risk is called the reinsurer.
Consideration...
something of value exchanged for something else of value
Disclosure Notification
state laws require that applicants be given advanced written notice stating who is authorized to disclose personal information. Gives consent to gather and disseminate information.
Life insurance binders are called...
temporary insurance agreements
Part III in a life insurance application is...
the Producers/Agents Report aka Producers Statement
Application form must be signed by...
the applicant producer/agent company officer must sign corporate owned pol parent/legal guardian signs underage app.
What is risk?
uncertainty about whether a loss will occur
Reciprocal insurers...
unincorporated groups of people that provide insurance for one another through individual indemnity agreements called subscribers attorney-in-fact, overseen by advisory commitee of subscribers
A guarantee that something is true is a...
warranty