Chapter 5

Question 1

Preferred risk policies with reduced premiums are issued by insurance companies because the insured has what?

Answer 1

Better than average mortality or morbidity experience.

Question 2

Upon policy delivery, which of the following must a producer have an applicant sign if no initial premium was collected with the life insurance application?

Answer 2

A good health statement

Question 3

What would be a valid reason why a policy premium would be higher than the standard premium?

Answer 3

The insured does not meet established underwriting requirements.

Question 4

What is the purpose of the Medical Information Bureau (MIB)?

Answer 4

To help underwriters evaluate risk.

Question 5

Statements made by an insurance applicant on an application are considered to be what?

Answer 5

Representations

Question 6

Describe the three basic parts of an application.

Answer 6

1) General: general questions including name, age, address, birthday, sex, income, marital status, and occupation.
2) Medical: health and health history of proposed insured and their family.
3) Agent’s report: Additional information bout the applicant’s financial condition, character, background and purpose of sale, and how long the agent has known the applicant.

Question 7

A person who is a nonsmoker, of average weight, and in excellent health would most likely be in which risk classification?

Answer 7

Preferred.

Question 8

What is considered to be a document that describes the critical segments of a life insurance policy?

Answer 8

Policy summary

Question 9

When does a life insurance policy typically become effective?

Answer 9

When initial premium is collected and policy is issued.

Question 10

When does insurable interest need to exist?

Answer 10

Only at the time of policy inception.

Question 11

In what relationships does insurable interest exist?

Answer 11

• applicant’s own life
• in a spouse
• parents in their children
• children in parent/grandparent
• business in lives of officers, directors, key employees
• business partners in eachother
• creditor to debtor (to extent of the debt)

Question 12

What is the USA Patriot Act?

Answer 12

An act requiring insurance companies to establish formal anti-money laundering programs.

Question 13

What does a life insurance policy summary normally include?

Answer 13

The policy’s cash value.

Question 14

What would happen if a life insurance applicant is given a conditional receipt from an insurance agent and then dies the next day?

Answer 14

Claim will be paid if application is approved.

Question 15

An applicant intentionally lying to an insurance company on an application in order to obtain a cheaper premium is an example of what?

Answer 15

Fraud

Question 16

What does a change in an insurance application require?

Answer 16

An initial made by the applicant.

Question 17

Fair Credit Reporting Act of 1970

Answer 17

Enacted by congress in 1970 which establishes procedures for collection and disclosure of obtained information and to ensure fairness with regards to confidentiality, accuracy, and disclosure.

Question 18

What is required to complete an application?

Answer 18

Signature of applicant, agent, authorizing investigative consumer reports or medical information.

Question 19

When is a policy valid?

Answer 19

With payment of initial premium.

Question 20

What is a “conditional receipt”?

Answer 20

Most common; When applicant pays initial premium, coverage is effective on the condition that applicant proves to be insurable either on date of signature or date of medical exam.

Question 21

What is a “binding receipt”?

Answer 21

Coverage is guaranteed until insurer formally rejects application, even if proposed insured is ultimately found to be uninsurable.

Question 22

What is the purpose of backdating?

Answer 22

To use premiums based on an earlier age, making them lower.