Chapter 1

Question 1

How is the information obtained for an investigation consumer report?

Answer 1

Through interviews with the applicants associate’s, friends and neighbors.

Question 2

What term describes the fee a person pays an insurance company to receive coverage?

Answer 2

Premium

Question 3

What is insurance underwriting?

Answer 3

The process of risk selection and classification

Question 4

What is the main responsibility of a company’s underwriting unit?

Answer 4

Risk selection

Question 5

If an applicant does not receive a copy of the new insurance policy, who would be held responsible?

Answer 5

The agent

Question 6

What are the three main instances when insurable interest exists in life insurance?

Answer 6

Insuring your own life, the life of a family member, or the life of a business partners or someone with financial obligations to the policy owner.

Question 7

What is a warranty in an insurance contract?

Answer 7

An absolutely true statement upon which the validity of the insurance contract is based.

Question 8

What are the three types of risk rating classifications in life insurance?

Answer 8

Standard,
Substandard,
And Preferred.

Question 9

If an insurer needs to obtain information about the applicant from investigators, what is the insurer required to do?

Answer 9

Provide the applicant a Disclosure Authorization Notice.

Question 10

When a change needs to be made on the application for insurance, which is the best method for correcting the information?

Answer 10

Create New application or ask the applicant to initial the correction on the original application.

Question 11

What type of report provides information about the applicant’s hobbies, habits and financial status?

Answer 11

Investigative consumer report

Question 12

Who must have insurable interest in the insured?

Answer 12

The policyowner

Question 13

What is adverse selection?

Answer 13

People who are more likely to submit insurance claims are seeking insurance more often than preferred risks.

Question 14

What is the name of the process that insurance companies use to determine whether or not an applicant is insurable?

Answer 14

Underwriting

Question 15

In 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?

Answer 15

Unilateral

Question 16

What type of report may be used to assess risks associated with an applicant’s lifestyle and character?

Answer 16

Investigative Consumer Report

Question 17

Who is a field underwriter?

Answer 17

Agent/Producer

Question 18

During which stage in the insurance process do insurers evaluate information that identifies adverse selection risks?

Answer 18

Underwriting

Question 19

How may insurance policies be delivered to insureds?

Answer 19

They may be either personally delivered by an agent or mailed.

Question 20

In forming an insurance contract, when does an acceptance usually occur?

Answer 20

When the insurer approves a prepaid application

Question 21

When would a misrepresentation on an insurance application be considered fraud?

Answer 21

When it is intentional and material

Question 22

If an agent fails to obtain the applicant’s signature on the insurance application, what must the insurer do?

Answer 22

Send the application back to the applicant for signature

Question 23

When would a misrepresentation be considered material?

Answer 23

When it may alter the underwriting decision

Question 24

What entities make up the Medical Information Bureau?

Answer 24

Insurers

Question 25

What is policy replacement?

Answer 25

A new policy is issued while an existing policy is terminated or reissued with a reduction in cash value

Question 26

Whose responsibility is it to determine that all the questions on an insurance application are answered?

Answer 26

The agent’s

Question 27

What document describes the specific information about a policy?

Answer 27

Policy summary

Question 28

What do individuals use to transfer their risk of loss to a larger group?

Answer 28

Insurance

Question 29

When must the policy summary for a life insurance policy be delivered to the policyowner?

Answer 29

At the time of policy delivery

Question 30

What law protects consumers from the circulation of inaccurate or obsolete information?

Answer 30

The Fair Credit Reporting Act

Question 31

What is the best way to handle incomplete insurance applications?

Answer 31

Return the application to the applicant for completion

Question 32

Insurance contracts are unilateral. What does that mean?

Answer 32

Only one party makes a legally enforceable promise.

Question 33

When must insurable interest exist in a life insurance policy?

Answer 33

At the time of application

Question 34

Insurance is a contract that protects the insured from what?

Answer 34

Loss

Question 35

In insurance, when is the offer usually made on a contract?

Answer 35

When the insurance application is submitted

Question 36

At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?

Answer 36

Either on the date of the application or the date of the medical exam (whichever occurs last)

Question 37

What risk classification would typically qualify for lower premiums?

Answer 37

Preferred risk

Question 38

What two elements are necessary for a life insurance contract to have a legal purpose?

Answer 38

Insurable interest and consent

Question 39

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter’s main concern?

Answer 39

The existence of insurable interest between the applicant and the insured

Question 40

What are the four elements of an insurance contract?

Answer 40

Agreement (offer and acceptance), consideration, competent parties, and legal purpose

Question 41

What is the purpose of the agent’s report during the application process?

Answer 41

The agent’s report discusses the agent’s personal observations about the proposed insured that may help in the underwriting process.

Question 42

When does an insurance policy go into effect?

Answer 42

When the policy is delivered and the premium is paid

Question 43

Insurance contracts are prepared by insurers and must be accepted by the insured on an as-is basis. This describes what characteristic of an insurance contract?

Answer 43

Contract of adhesion