Vocabulary

Question 1

Adverse selection

Answer 1

Insuring of risks that are more prone to losses than the average risk

Question 2

What is insurance?

Answer 2

It is the transfer of risk of loss from the individual or business to the insurer

Question 3

What are the four elements of a legal contract?

Answer 3

1. Agreement (offer and acceptance)
2. Consideration
3. Competent parties
4. Legal purpose

Question 4

What are the two parts of the insured’s consideration

Answer 4

1. Payment of premium
2. Statements on the application

Question 5

What is the insurer’s consideration?

Answer 5

The promise to pay for losses

Question 6

Warranty

Answer 6

An absolutely true statement upon which the validity of the insurance policy depends

Question 7

Representations

Answer 7

Statements believed to be true. Insured’s statements on the application are representations.

Question 8

Life insurance field underwriter

Answer 8

The agent or producer can be considered the most important source of information available to the company underwriters

Question 9

Conditional receipt

Answer 9

Initial premium payment is made at the time the application is submitted and may mean the insured is covered as early as the date of the application

Question 10

Insurable interest

Answer 10

The money or something of value of a policyowner that they risk losing.

** Insurable interest MUST exist at the time of the application

Question 11

MIB

Answer 11

Medical Information Bureau - Non-profit trade organization the purpose of which it is to collect, maintain, and make available to insurance companies important underwriting information on applicants for life and health insurance

Question 12

What are the three risk categories for life insurance?

Answer 12

1. Substandard
2. Standard
3. Preferred

Question 13

STOLI

Answer 13

Stranger-Originated Life Insurance - because these violate the principle of insurable interest, they are illegal

Question 14

IOLI

Answer 14

Investor-Originated Life Insurance - another name for STOLI, also illegal

Question 15

When is an insurance policy legally delivered?

Answer 15

As soon as the policy is sent via mail to the insured.

** However, it is advisable to obtain a signed delivery receipt

Question 16

What two disclosures are required by the Gramm-Leach-Bliley Act?

Answer 16

1. When the customer relationship is established (i.e. a policy is purchased
2. Before disclosing protected information

Question 17

FinCEN

Answer 17

Financial Crime Enforcement Network

Question 18

Principle of Indemnity

Answer 18

A fundamental principle of insurance that states that an insurance policy should compensate a policyholder for a loss without making a profit