Chapter 1. Completing the Application, Underwriting, and Delivering the Policy

Question 1

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

Answer 1

Insurance

Question 2

Who must have insurable interest in the insured?

Answer 2

The policyowner

Question 3

How may insurance policies be delivered to insureds?

Answer 3

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

Question 4

When does an insurance policy go into effect?

Answer 4

When the policy is delivered and the premium is paid

Question 5

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

Answer 5

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 6

What is policy replacement?

Answer 6

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

Question 7

What is adverse selection?

Answer 7

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

Question 8

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 8

Contract of adhesion

Question 9

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

Answer 9

Premium

Question 10

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

Answer 10

Underwriting

Question 11

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

Answer 11

When the insurer approves a prepaid application

Question 12

Insurance is a contract that protects the insured from what?

Answer 12

Loss

Question 13

Who is a field underwriter?

Answer 13

Agent/Producer

Question 14

What document describes the specific information about a policy?

Answer 14

Policy summary

Question 15

When would a misrepresentation be considered material?

Answer 15

When it may alter the underwriting decision

Question 16

What is the best way to handle incomplete insurance applications?

Answer 16

Return the application to the applicant for completion

Question 17

What entities make up the Medical Information Bureau?

Answer 17

Insurers

Question 18

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

Answer 18

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

Question 19

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

Answer 19

Send the application back to the applicant for signature

Question 20

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 20

The existence of insurable interest between the applicant and the insured

Question 21

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

Answer 21

At the time of policy delivery

Question 22

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

Answer 22

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

Question 23

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

Answer 23

When the insurance application is submitted

Question 24

Insurance contracts are unilateral. What does that mean?

Answer 24

Only one party makes a legally enforceable promise.

Question 25

What is insurance underwriting?

Answer 25

The process of risk selection and classification

Question 26

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

Answer 26

When it is intentional and material

Question 27

What are the four elements of an insurance contract?

Answer 27

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

Question 28

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

Answer 28

The agent’s

Question 29

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

Answer 29

Risk selection

Question 30

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

Answer 30

Underwriting

Question 31

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

Answer 31

Standard, substandard and preferred

Question 32

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

Answer 32

Insurable interest and consent

Question 33

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

Answer 33

The agent

Question 34

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

Answer 34

Provide the applicant a Disclosure Authorization Notice

Question 35

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

Answer 35

The Fair Credit Reporting Act

Question 36

When must insurable interest exist in a life insurance policy?

Answer 36

At the time of application

Question 37

What risk classification would typically qualify for lower premiums?

Answer 37

Preferred risk

Question 38

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

Answer 38

Investigative Consumer Report

Question 39

What is a warranty in an insurance contract?

Answer 39

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

Question 40

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

Answer 40

Investigative consumer report

Question 41

How is the information obtained for an investigative consumer report?

Answer 41

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

Question 42

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

Answer 42

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

Question 43

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 43

Unilateral