50 Questions
Which classification typically enjoys better premium rates?
Preferred risk applicants
What happens to the policy if the initial premium is not collected with the application?
The policy will not become valid until the initial premium is collected
Which of the following actions should a producer take when the initial premium is not submitted with the application?
Forward the application to the insurer without the initial premium
What might cause an applicant to be classified as substandard risk?
Hazardous job
Which statement regarding substandard applicants is correct?
They are occasionally declined by underwriters
If an initial premium is not paid with the application, what must happen for the policy to become valid?
The initial premium must be collected
Which receipt should not be given if the initial premium is not submitted with the application?
Binding receipt
Which classification is most likely to be outright rejected by underwriters?
Substandard risk
Which of the following is not a reason for classifying an applicant as substandard?
Excellent health
Which of the following is the correct action for a producer when an initial premium is not paid?
Forward the application to the insurer without the initial premium
If an incomplete health insurance application is sent to the insurer, what will happen to it?
Application will be returned to the writing producer
What is the standard procedure if an insurer finds an incomplete health insurance application?
It is returned to the writing producer
How does an insurer typically handle an application that has incomplete information?
By returning it to the writing producer for corrections
What will an insurer do when they detect that an application is missing crucial details?
Return it to the writing producer
Which of the following reflects the insurer's process for an incomplete health insurance application?
It is returned to the writing producer
What information is NOT identified by the Medical Information Bureau (MIB)?
Credit scores
Which of the following is identified by the Medical Information Bureau (MIB)?
Marijuana use from a previous screening
What does the Medical Information Bureau (MIB) check regarding insurance coverage?
Life insurance coverage with other carriers
Which type of medical history information does the Medical Information Bureau (MIB) provide?
Testing positive for drug use from previous screenings
Which entity primarily uses information from the Medical Information Bureau (MIB)?
Life insurance companies
What action should an insured take if the insurer fails to supply the necessary forms after notice of loss?
File written proof of loss in any form
If an insurer does not furnish forms after notice of loss, the insured must:
File written proof of loss in any form
Upon receiving no forms from the insurer after a loss notice, the insured is required to:
File written proof of loss in any form
In the event that an insurer does not furnish forms after receiving a notice of loss, which is the correct process for the insured?
File a written proof of loss in any format
After giving notice of loss, what is the insured expected to do if the forms are not provided by the insurer?
File written proof of loss in any form
P is self-employed and owns an Individual Disability Income policy. He becomes totally disabled and starts receiving benefits. How much of the disability income is subject to federal income tax if P paid the premiums entirely on his own?
$0
How does the IRS treat disability income benefits received from an individual policy completely paid for by the policyholder?
Non-taxable income
What is the key factor that determines the taxability of disability income benefits received by P?
Who paid the policy premiums
If P had only paid part of the premiums for his Individual Disability Income policy, how would the tax treatment of his benefits change?
Only the portion of benefits corresponding to employer-paid premiums would be taxable
What amount of disability benefits received by P would be subject to federal income tax if the policy was partially employer-funded?
The portion of benefits stemming from employer-paid premiums
In a health insurance application, which party is responsible for signing the document besides the policyowner?
Adult insured
Which of the following is a requirement for a producer when submitting a health insurance application?
Signing the application
If the beneficiary does not sign the health insurance application, what is the impact on the application's validity?
There is no impact as the beneficiary is not required to sign
What distinguishes a beneficiary's role in the health insurance application process from that of the policyowner and adult insured?
The beneficiary's signature is optional
Which statement correctly identifies the signature requirements for a health insurance application?
Both the policyowner and the adult insured must sign
What action is an insurance company most likely to take if an applicant with diabetes applies for a Disability Income policy?
Issue the policy with an altered Time of Payment of Claims provision
What is NOT a common action taken by insurance companies when underwriting a Disability Income policy for an applicant with diabetes?
Issue the policy with an altered Time of Payment of Claims provision
Which of the following actions is an insurance company least likely to perform when an applicant with diabetes seeks a Disability Income policy?
Issue the policy with an altered Time of Payment of Claims provision
Which action is least probable for an insurance company underwriting a Disability Income policy for a diabetic applicant?
Issue the policy with an altered Time of Payment of Claims provision
Which of these would an insurance company most likely avoid when processing a Disability Income policy application from a person with diabetes?
Issue the policy with an altered Time of Payment of Claims provision
When does the Time Limit of Certain Defenses provision make nonfraudulent misstatements incontestable?
Two years from the policy issue date
Which condition must be met for nonfraudulent misstatements to become incontestable under an Individual Health Insurance Policy?
Two years from the date of issue
What is the primary timeframe for the incontestability of nonfraudulent misstatements in a health policy?
From the policy issuance date
How long after the policy issue date do nonfraudulent misstatements become incontestable in an individual health insurance policy?
Two years
Under the Time Limit of Certain Defenses provision, when do misstatements become incontestable?
Two years from the policy issue date
Who is responsible for paying the premiums in T's Disability Income policy?
T's employer
What is the tax status of the benefit payments to T under the Disability Income policy?
The benefits are taxable to T
If T had paid all the premiums on the Disability Income policy, how would the benefits be taxed?
Benefits would be tax-free to T
Why are the benefits from the Disability Income policy taxable to T?
Because the premiums were paid for by T's employer
What is the tax benefit to the employer for paying the premiums on the Disability Income policy?
The premiums are a deductible business expense
Study Notes
Incomplete Health Insurance Applications
- An incomplete health insurance application will be returned to the writing producer.
- If the initial premium is not submitted with the application, the producer should forward the application to the insurer without the premium.
Classification of Applicants
- Substandard applicants are below the insurer's average risk guidelines and can be rated substandard for various reasons or even be rejected outright.
- Substandard applicants are not always declined by underwriters.
Medical Information Bureau (MIB)
- The MIB report will identify marijuana use determined by a previous screening.
Filing Proof of Loss
- If the insurer does not furnish forms after the insured gives notice of loss, the insured must file written proof of loss.
Taxation of Disability Income Benefits
- Disability income benefits from an individual policy paid entirely by the policyowner are not subject to federal income tax.
- When a disability income insurance plan is paid for entirely by the employer, the benefits are taxable to the recipient.
Insurance Company Actions
- An insurance company may decline an applicant with diabetes, issue a policy with a rating, or issue a policy with a diabetes exclusion, but will not issue a policy with an altered Time of Payment of Claims provision.
Signing a Health Insurance Application
- The beneficiary is not required to sign a health insurance application.
Time Limit of Certain Defenses Provision
- Nonfraudulent misstatements in an Individual Health Insurance Policy become incontestable two years from the date the policy was issued.
What happens to an incomplete health insurance application submitted to an insurer? Learn about the next steps in the application process.
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