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Questions and Answers

What does a substandard risk rating indicate?

  • The individual is an average risk
  • All individuals pay equal premiums
  • The individual will incur the lowest premium
  • The individual represents an under-average insurance risk (correct)

    • If an insurance company wishes to order a consumer report, which information may it not contain?

  • Prior insurance
  • Ancestry (correct)
  • Credit history
  • Habits

    • Which of the following is NOT a requirement for life insurance illustrations?

  • They must be part of the contract (correct)
  • They must identify nonguaranteed values
  • They may only be used as approved
  • They must differentiate between guaranteed and projected amounts

    • Who has the responsibility of ensuring that a insurance application is completed correctly?

    <p>The producer</p> Signup and view all the answers

    Under the Fair Credit Reporting Act, what must individuals rejected for insurance due to a consumer report be informed of?

    <p>They must be informed of the source of the report</p> Signup and view all the answers

    Which term refers to a person who seeks insurance from an insurer?

    <p>Applicant</p> Signup and view all the answers

    What is a STOLI policy?

    <p>Stranger-originated life insurance</p> Signup and view all the answers

    What happens if a policy is issued with unanswered questions?

    <p>The policy will be interpreted as if the insurer waived its right to have an answer</p> Signup and view all the answers

    Which of the following tasks is NOT required of a producer agent when delivering a new policy?

    <p>Disclose commissions earned from the sale of the policy</p> Signup and view all the answers

    Which application would be considered a nonmedical insurance application?

    <p>An application completed by the applicant and the agent only</p> Signup and view all the answers

    If a loss occurs, who do insurance policies pay the proceeds to?

    <p>Beneficiary</p> Signup and view all the answers

    Which of the following is NOT a question on Part 2 of the application for life insurance?

    <p>Other insurance coverages</p> Signup and view all the answers

    What is the timeframe for filing relevant Suspicious Activity Reports?

    <p>Within 30 days of initial discovery</p> Signup and view all the answers

    If a change needs to be made to an application for insurance, which method is prohibited?

    <p>Erasing the incorrect answer and recording the correct answer</p> Signup and view all the answers

    Which of the following is NOT a requirement for a legal contract in insurance?

    <p>Conditions</p> Signup and view all the answers

    Which task is NOT part of a producer's role as a field underwriter?

    <p>Issue the policy that is requested</p> Signup and view all the answers

    When an agent collects the initial premium from the applicant, what should they issue?

    <p>Premium receipt</p> Signup and view all the answers

    What is the primary source of information used for insurance underwriting?

    <p>Application</p> Signup and view all the answers

    Which document delivered to the policyowner includes details on premium amounts, cash values, and death benefits?

    <p>A policy summary</p> Signup and view all the answers

    In which scenario would a contract between an insurer and prospective insured be legal?

    <p>The applicant has a prior felony conviction</p> Signup and view all the answers

    Which of the following will be included in a policy summary? (Select all that apply)

    <p>Comparisons with similar policies</p> Signup and view all the answers

    Which of the following includes information regarding a person's credit, character, reputation, and habits?

    <p>Consumer report</p> Signup and view all the answers

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

    <p>When an insurer's underwriter approves coverage</p> Signup and view all the answers

    An insurance contract must contain all of the following to be considered legally binding EXCEPT:

    <p>Beneficiary's consent</p> Signup and view all the answers

    Which of the following is the basic source of information used by the company in the risk selection process?

    <p>Application</p> Signup and view all the answers

    Who makes up the Medical Information Bureau?

    <p>Insurers</p> Signup and view all the answers

    The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective?

    <p>As of the application date</p> Signup and view all the answers

    Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

    <p>Aleatory</p> Signup and view all the answers

    Which of the following is NOT the consideration in a policy?

    <p>The application given to a prospective insured</p> Signup and view all the answers

    When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?

    <p>Consideration</p> Signup and view all the answers

    When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is:

    <p>Conditional</p> Signup and view all the answers

    An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin?

    <p>When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health</p> Signup and view all the answers

    An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date?

    <p>The date of medical exam</p> Signup and view all the answers

    If an agent fails to obtain an applicant's signature on the application, the agent must:

    <p>Return the application to the applicant for a signature</p> Signup and view all the answers

    Which of the following individuals must have insurable interest in the insured?

    <p>Policyowner</p> Signup and view all the answers

    The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?

    <p>Conditional</p> Signup and view all the answers

    Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process?

    <p>Buyer's Guide</p> Signup and view all the answers

    Why should the producer personally deliver the policy when the first premium has already been paid?

    <p>To help the insured understand all aspects of the contract</p> Signup and view all the answers

    What describes the specific information about a policy?

    <p>Policy summary</p> Signup and view all the answers

    What is the purpose of a conditional receipt?

    <p>It is intended to provide coverage on a date earlier than the date of the issuance of the policy.</p> Signup and view all the answers

    Representations are written or oral statements made by the applicant that are:

    <p>Considered true to the best of the applicant's knowledge</p> Signup and view all the answers

    An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

    <p>Consideration</p> Signup and view all the answers

    In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT:

    <p>Applicant's past income</p> Signup and view all the answers

    Another name for a substandard risk classification is:

    <p>Rated</p> Signup and view all the answers

    In terms of parties to a contract, which of the following does NOT describe a competent party?

    <p>The person must have at least completed secondary education</p> Signup and view all the answers

    If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it?

    <p>Unilateral</p> Signup and view all the answers

    When is the earliest a policy may go into effect?

    <p>When the application is signed and a check is given to the agent</p> Signup and view all the answers

    The Federal Fair Credit Reporting Act:

    <p>Regulates consumer reports</p> Signup and view all the answers

    What is a material misrepresentation?

    <p>A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company</p> Signup and view all the answers

    An applicant who receives a preferred risk classification qualifies for:

    <p>Lower premiums than a person who receives a standard risk</p> Signup and view all the answers

    If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to:

    <p>Charge a higher premium</p> Signup and view all the answers

    A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will:

    <p>Pay the policy proceeds only if it would have issued the policy</p> Signup and view all the answers

    Which of the following best details the underwriting process for life insurance?

    <p>Selection, classification, and rating of risks</p> Signup and view all the answers

    Insurance is a contract by which one seeks to protect another from:

    <p>Loss</p> Signup and view all the answers

    An insurer has made all of the decisions regarding the provisions included in the insured's policy. The insured finds an objectionable provision and wants to negotiate it with the insurer but is not allowed to do so. Her only options are to reject the policy or accept it as is. Which contract feature does this describe?

    <p>Adhesion</p> Signup and view all the answers

    Which of the following would provide an underwriter with information concerning an applicant's health history?

    <p>The Medical Information Bureau</p> Signup and view all the answers

    What does the Medical Information Bureau (MIB) protect insurance companies from?

    <p>Insurance companies from adverse selection by high risk persons.</p> Signup and view all the answers

    When is an offer in insurance usually made?

    <p>The completed application is submitted.</p> Signup and view all the answers

    What is something of value exchanged between the insurer and the insured considered?

    <p>Consideration.</p> Signup and view all the answers

    What is the term for the fee a policyowner must pay to the insurance company to maintain coverage?

    <p>Premium</p> Signup and view all the answers

    Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information?

    <p>The Fair Credit Reporting Act</p> Signup and view all the answers

    Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information in their report, what must the reporting agency do?

    <p>Respond to the consumer's complaint.</p> Signup and view all the answers

    Which statement is correct about standard risk classification in insurance?

    <p>Standard risk is representative of the majority of people.</p> Signup and view all the answers

    If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?

    <p>5 days</p> Signup and view all the answers

    What contract characteristic requires that both the insured and the insurer meet certain conditions?

    <p>Conditional</p> Signup and view all the answers

    In insurance policies, which party is not legally bound to any particular action?

    <p>Unilateral</p> Signup and view all the answers

    Which statement regarding HIV testing for insurance purposes is NOT true?

    <p>Insurers are barred from requesting HIV testing.</p> Signup and view all the answers

    What may a producer be required to obtain upon policy delivery?

    <p>Signed waiver of premium.</p> Signup and view all the answers

    What is the purpose of the buyer's guide?

    <p>To allow the consumer to compare the costs of different policies.</p> Signup and view all the answers

    What will explain the reason a death benefit claim is denied for a material misrepresentation?

    <p>Material misrepresentation.</p> Signup and view all the answers

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

    <p>If it is intentional and material.</p> Signup and view all the answers

    What is the purpose of a disclosure statement in life insurance policies?

    <p>To explain features and benefits of a proposed policy to the consumer.</p> Signup and view all the answers

    What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act?

    <p>$2,500.</p> Signup and view all the answers

    Which of the following information about the applicant is NOT included on Part 1 of the insurance application?

    <p>Medical background.</p> Signup and view all the answers

    In the underwriting process, what will the policy premium likely be if the applicant is in poor health?

    <p>It will likely be higher because the applicant is a substandard risk.</p> Signup and view all the answers

    Which of the following is NOT the consideration in a policy?

    <p>The application given to a prospective insured.</p> Signup and view all the answers

    Which of the following is NOT an essential element of an insurance contract?

    <p>Counteroffer.</p> Signup and view all the answers

    What best describes the aleatory nature of an insurance contract?

    <p>Exchange of unequal values.</p> Signup and view all the answers

    What does the term 'illustration' in a life insurance policy refer to?

    <p>A presentation of nonguaranteed elements of a policy.</p> Signup and view all the answers

    What type of contracts are prepared by one party and submitted to the other on a take-it-or-leave-it basis?

    <p>Contracts of adhesion.</p> Signup and view all the answers

    Which report provides the underwriter with information about an insurance applicant's credit?

    <p>Consumer report.</p> Signup and view all the answers

    What type of report includes the insured's financial status, hobbies, and habits?

    <p>Inspection report.</p> Signup and view all the answers

    What is the main source for an insurer to begin underwriting procedures?

    <p>Application.</p> Signup and view all the answers

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

    <p>Insurance.</p> Signup and view all the answers

    What is a unique characteristic of investigative consumer reports?

    <p>The customer's associates, friends, and neighbors provide the report's data.</p> Signup and view all the answers

    Which duties are NOT the responsibilities of producers at the time of application?

    <p>Change any incorrect statement on the application by personally initialing next to the corrected statement.</p> Signup and view all the answers

    What gives a life insurance policy a legal purpose?

    <p>Insurable interest and consent.</p> Signup and view all the answers

    When must insurable interest exist in a life insurance policy?

    <p>At the time of application.</p> Signup and view all the answers

    According to the Fair Credit Reporting Act, which of the following is NOT considered negative information about a consumer?

    <p>Disputes regarding consumer report information.</p> Signup and view all the answers

    Which type of risk will result in the highest premium?

    <p>Substandard risk.</p> Signup and view all the answers

    Study Notes

    Policy Summary

    • Includes premium amounts, cash values, and surrender values.
    • Contains the producer's name, address, and the insurance company's home office address.
    • Provides death benefit figures for specific policy years.

    Consumer Report

    • Contains information on credit, character, reputation, and habits of the consumer.
    • Compiled by agencies from employment records and public sources.

    Acceptance in Insurance Contracts

    • Acceptance occurs when the insurer's underwriter approves coverage, not on application submission or delivery of policy.
    • Required elements: offer and acceptance, consideration, competent parties, and legal purpose.
    • Beneficiary’s consent is not a legal requirement.

    Application Importance

    • The application serves as the primary source of information used in the risk selection process.

    Medical Information Bureau (MIB)

    • Composed of insurers for comparing collected information on potential insured individuals.

    Effective Date of Policy Coverage

    • Coverage typically begins on the application date if the full premium is submitted with the application.

    Aleatory Contract

    • An insurance contract is aleatory, involving a small premium for potentially large risk coverage.

    Consideration in Insurance

    • Consideration includes the premium payment and the insured's statements made in the application.
    • The application document itself is not considered as consideration.

    Conditional Contracts

    • Contracts where both parties must meet certain conditions to ensure enforceability.

    Inception of Coverage

    • If the initial premium is not paid with the application, coverage begins only upon policy delivery and acceptance.

    Conditional Receipt

    • Provides potential coverage before policy issuance based on conditions being met.

    Representations in Insurance

    • Truthful statements made by applicants are considered true to their best knowledge and affect underwriting decisions.

    Material Misrepresentation

    • A statement that would significantly alter the underwriting decision if discovered.

    Risk Classifications

    • Preferred risk classification results in lower premiums for individuals in superior physical and lifestyle conditions.

    Substandard Risks

    • Substandard risk individuals can expect higher premiums to reflect increased risk.

    Underwriting Process

    • Comprises selection, classification, and rating of risks based on comprehensive evaluation.

    Insurance Contracts of Adhesion

    • Prepared solely by the insurer, leaving the insured with the option to either accept or reject the policy as it stands.

    Medical Information Bureau's Role

    • Provides significant health history information beneficial for underwriters in evaluating risk.

    Offer and Consideration

    • An offer is made upon the submission of a completed application, while consideration is the value exchanged in the contract.

    Premiums

    • Premiums are the fees policyholders pay to maintain insurance coverage and ensure protection from financial loss.

    Federal Fair Credit Reporting Act

    • Regulates consumer reports to protect against inaccurate or outdated personal information dissemination.### Fair Credit Reporting Act (FCRA)
    • Aims to protect consumers from inaccurate or outdated information in their reports.
    • Consumer reporting agencies must handle consumer information fairly and equitably.
    • Consumers have the right to challenge information accuracy; the agency must respond.

    Consumer Rights under FCRA

    • Upon challenging report accuracy, agencies must respond to consumer complaints.
    • Consumers can request reasons for report denials and adverse underwriting decisions.
    • If an investigative consumer report is requested, the agency must comply within 5 days.

    Insurance Policy Characteristics

    • A conditional contract requires insurers and policyowners to meet specific conditions for enforceability.
    • A unilateral contract means the insurer has legal obligations, while the insured does not.
    • Misrepresentations in insurance applications can lead to denied claims if deemed material.

    Risk Classifications

    • Standard risk classification represents the majority of individuals with similar lifestyles and ages.
    • Substandard risks have higher premiums due to poorer health or risky habits.

    Disclosure and Guidelines

    • Buyer's guides help consumers compare life insurance policy costs.
    • Disclosure statements inform consumers about policy features and benefits.

    Insurable Interest

    • Insurable interest must exist at the time of application for life insurance.
    • Legal purpose requires both insurable interest and consent.

    Application and Underwriting Process

    • The application is the primary source of underwriting information.
    • Inspection reports provide additional character and financial information about applicants.
    • Insurers must abide by FCRA guidelines when ordering consumer and investigative reports.

    Consumer Report Characteristics

    • Consumer reports include credit information and can affect underwriting.
    • Investigative consumer reports involve interviews with acquaintances to gather information.

    Application Responsibilities

    • Producers must ensure applications are complete and accurate.
    • Any corrections to applications must be initialed by the applicant, not the producer.

    Fraud and Misrepresentation

    • A misrepresentation is considered fraudulent if it is both intentional and material.
    • A material misrepresentation can void a policy or lead to denial of claims.

    Potential Penalties

    • Habitual willful noncompliance with FCRA can lead to penalties up to $2,500.
    • Consumers must be informed of the source of the report if denied insurance based on report findings.

    Additional Concepts

    • Aleatory contracts involve exchanges of unequal values, typical in insurance.
    • Contracts of adhesion are take-it-or-leave-it agreements presented by insurers.

    Specialized Insurance Policies

    • STOLI (Stranger-Originated Life Insurance) policies are purchased by investors without relationships to the elderly insured for profit through life settlements.### Insurance Policy Interpretation
    • Unanswered questions in a policy application are viewed as a waiver of the insurer's right to deny coverage later.

    Producer Responsibilities

    • Must explain policy provisions, riders, and exclusions upon delivery.
    • Required to collect any premium due from the insured.
    • Must clarify rating procedures if the policy rating differs from the application.
    • Not required to disclose commissions earned from the policy sale.

    Nonmedical Insurance Application

    • Defined as an application where medical history is completed by the applicant and the agent, not medical professionals.

    Insurance Proceeds Distribution

    • Proceeds after a loss are payable to the beneficiary, who is the designated individual receiving the benefits.

    Life Insurance Application Part 2

    • Addresses health history topics like alcohol use, tobacco consumption, recent surgeries, and family health history.
    • Does not include inquiries about other insurance coverages.

    Suspicious Activity Reports (SAR)

    • Must be filed within 30 days of the initial discovery of a suspicious transaction.

    Application Amendments by Agent

    • Agents can draw a line through incorrect answers, record the correct ones, and require the applicant's initials.
    • Cannot erase incorrect answers; alterations must be transparent to avoid contest from insurer.
    • Can note the reason for changes but cannot simply destroy the application.
    • Essential elements include legal purpose, offer, acceptance, and consideration.
    • Conditions are part of the policy but not a core element of contract legality.

    Field Underwriter Responsibilities

    • Producers must obtain signatures on applications, help prevent adverse selection, and solicit business fitting underwriting guidelines.
    • Producers do not issue policies; they deliver them.

    Initial Premium Collection

    • Agreed practice for agents is to collect initial premiums along with applications and issue a premium receipt.

    Underwriting Information Sources

    • The application serves as the primary source of information for insurance underwriting, emphasizing the need for its accuracy.

    Policy Summary Document

    • Must include details like premium amounts, cash values, surrender values, and death benefits, and is delivered with the policy.
    • Contracts are valid if both parties are of legal age and mentally competent; prior felony convictions do not disqualify applicants.
    • Intoxicated individuals and minors (typically under 18) may lack legal competence to enter into insurance contracts.

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