Chapter 1

Question 1

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

Answer 1

Standard, substandard and preferred

Question 2

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

Answer 2

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

Question 3

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

Answer 3

Insuring your own life, the life of a family member, or the life of a business partners or someone who has a financial obligation to the policyowner

Question 4

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

Answer 4

Send the application back to the applicant for signature

Question 5

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

Answer 5

Investigative Consumer Report

Question 6

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

Answer 6

When it is intentional and material

Question 7

When it is intentional and material

Answer 7

At the time of policy delivery

Question 8

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

Answer 8

The agent’s

Question 9

How is the information obtained for an investigative consumer report?

Answer 9

Through interviews with the applicant’s associates, friends and neighbors

Question 10

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

Answer 10

Underwriting

Question 11

Insurance is a contract that protects the insured from what?

Answer 11

Loss

Question 12

When must insurable interest exist in a life insurance policy?

Answer 12

At the time of application

Question 13

What is insurance underwriting?

Answer 13

The process of risk selection and classification

Question 14

What document describes the specific information about a policy?

Answer 14

Policy summary

Question 15

What is policy replacement?

Answer 15

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

Question 16

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

Answer 16

Underwriting

Question 17

When does an insurance policy go into effect?

Answer 17

When the policy is delivered and the premium is paid

Question 18

What are the four elements of an insurance contract?

Answer 18

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

Question 19

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

Answer 19

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

Question 20

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 20

Contract of adhesion

Question 21

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

Answer 21

Complete a new application or ask the applicant to initial the correction on the original application

Question 22

Who is a field underwriter?

Answer 22

Agent/Producer

Question 23

When would a misrepresentation be considered material?

Answer 23

When would a misrepresentation be considered material?

Question 24

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

Answer 24

Insurable interest and consent

Question 25

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

Answer 25

When the insurance application is submitted

Question 26

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

Answer 26

Provide the applicant a Disclosure Authorization Notice

Question 27

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

Answer 27

The agent

Question 28

Insurance contracts are unilateral. What does that mean?

Answer 28

Only one party makes a legally enforceable promise.

Question 29

How may insurance policies be delivered to insureds?

Answer 29

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

Question 30

What entities make up the Medical Information Bureau?

Answer 30

Insurers

Question 31

What is adverse selection?

Answer 31

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

Question 32

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 32

The existence of insurable interest between the applicant and the insured

Question 33

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

Answer 33

The Fair Credit Reporting Act

Question 34

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

Answer 34

When the insurer approves a prepaid application

Question 35

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 35

Unilateral

Question 36

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

Answer 36

Risk selection

Question 37

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

Answer 37

Investigative consumer report

Question 38

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

Answer 38

Insurance

Question 39

Who must have insurable interest in the insured?

Answer 39

The policyowner

Question 40

What is a warranty in an insurance contract?

Answer 40

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

Question 41

What is the best way to handle incomplete insurance applications?

Answer 41

Return the application to the applicant for completion

Question 42

What risk classification would typically qualify for lower premiums?

Answer 42

Preferred risk

Question 43

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

Answer 43

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