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

Question 1

______ is a transfer of risk of loss from an individual or a business entity to an insurance company, which, in turn, spreads the cost of unexpected losses to many individuals.

Answer 1

Insurance

Question 2

Insurance is the ______ of risk. Insureds’ losses are ______ over to the insurer.

Answer 2

1. Transfer

2. Transferred

Question 3

A(n) ______ is an agreement between two or more parties enforceable by law.

Answer 3

Contract

Question 4

In order for insurance contracts to be legally binding, they must have 4 essential elements:

1. ______ - offer and acceptance
2. ______
3. ______
4. ______

Answer 4

1. Agreement
2. Consideration
3. Competent Parties
4. Legal Purpose

Question 5

There must be a definite ______ by one party, and the other party must ______ this offer in its exact terms.

Answer 5

1. Offer

2. Accept

Question 6

In insurance, the applicant usually makes the ______ when submitting the application. ______ takes place when an insurer’s underwriter approves the application and issues a policy.

Answer 6

1. Offer

2. Acceptance

Question 7

The binding force in any contract is the ______, which is something of value that each party gives to the other.

Answer 7

Consideration

Question 8

The ______ on the part of the insured is the payment of premium and the representations made in the application. The ______ on the part of the insurer is the promise to pay in the event of loss.

Answer 8

Consideration

Question 9

The ______ must be capable of entering into a contract in the eyes of the law, generally meaning that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.

Answer 9

Parties to a Contract

Question 10

The purpose of the contract must be ______ and not against public policy. A contract without a(n) ______ is considered void, and cannot be enforced by any party.

Answer 10

1. Legal

2. Legal Purpose

Question 11

A(n) ______ is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured). Insurance contracts are offered on a take-it-or-leave-it-basis by an insurer; any ambiguities in the contract will be settled in favor of the insured.

Answer 11

Contract of Adhesion

Question 12

Insurance contracts are ______, which means there is an exchange of unequal amounts of values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss.

Answer 12

Aleatory

Question 13

In a(n) ______, only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises but the insurer is legally bound to pay losses covered by a policy in force.

Answer 13

Unilateral Contract

Question 14

A(n) ______ requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations. For example, the insured must pay the premium and provide proof of loss for the insurer to cover a claim.

Answer 14

Conditional Contract

Question 15

A(n) ______ is an absolutely true statement upon which the validity of the insurance policy depends. Breach of ______ can be considered grounds for voiding the policy o a return of premium.

Answer 15

1. Warranty

2. Warranties

Question 16

______ are statements believed to be true to the best of one’s knowledge, but they are not guaranteed to be true. Insured’s statements on the application are ______.

Answer 16

Representations

Question 17

Untrue statements on the application are considered ______ and could void the contract. A(n) ______ is a statement that, if discovered, would alter the underwriting decision of the insurance company; if intentional, they are considered ______.

Answer 17

1. Misrepresentations
2. Material Misrepresentations
3. Intentional

Question 18

______ - ______ of the application includes the general questions about the applicant, such as name, age, address, birth date, gender, income, martial status, and occupation.

Answer 18

Part 1 - General Information

Question 19

The agent is the company’s front line, and is referred to as a(n) ______ because the agent is usually the one who has solicited the potential insured.

Answer 19

Field Underwriter

Question 20

The ______ has many important responsibilities during the underwriting process and beyond, including:

1. Proper solicitation of applicants.
2. Helping prevent adverse selection.
3. Completing the application.
4. Obtaining the required signatures.
5. Collecting the initial premium and issuing the receipt, if applicable.
6. Delivering the policy.

Answer 20

Field Underwriter

Question 21

The ______ provides the agent’s personal observations concerning the proposed insured and can be considered the most important source of information available to the company underwriters.

Answer 21

Agent’s Report

Question 22

The ______ provides the agent’s personal observations concerning the proposed insured and can be considered the most important source of information available to the company underwriters.

Answer 22

Agent’s Report

Question 23

Both the agent and the proposed insured (usually the applicant) must ______ the application.

Answer 23

Sign

Question 24

An agent should never erase or white out any information a(n) ______ for insurance.

Answer 24

Application

Question 25

Whenever the agent collects premiums, the agent must issue a(n) ______.

Answer 25

Premium Receipt

Question 26

The most common type of receipt is a(n) ______, which is used only when the applicant submits a prepaid application. It says that coverage will be effective either on the date of the ______ or the date of the ______, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and the policy is issued exactly as applied for.

Answer 26

1. Conditional Receipt 2. Application 3. Medical Exam

Question 27

If a policy is issued with questions left ______, the contract will be interpreted as if the insurer waived its right to have an answer to the question.

Answer 27

Unanswered

Question 28

______ means the applicant may be covered as early as the date of the application.

Answer 28

Conditional Receipt

Question 29

______ is a practice of terminating an existing policy or letting it lapse, and obtaining a new one.

Answer 29

Replacement

Question 30

______ is the risk selection and classification process. It involves a careful analysis of many different factors to determine the acceptability of applicants for insurance, ultimately determining whether or not a particular applicant is insurable, and if so, what premium to charge.

Answer 30

Underwriting

Question 31

To purchase insurance, the policyowner must face the possibility of losing money or something of value in the event of loss; this is called ______.

Answer 31

Insurable Interest

Question 32

In life insurance, insurable interest must exist between the policyowner and the insured at the time of ______; however, once a life insurance policy has been issued, the insurer must pay the policy benefit, whether or not an insurable interest exists.

Answer 32

Application

Question 33

The policyowner must have ______ in the life of the insured.

Answer 33

Insurable Interest

Question 34

A(n) ______ is the key source underwriters use for information about the applicant.

Answer 34

Insurance Application

Question 35

The ______ established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used. The law also ______ against the circulation of inaccurate or obsolete personal or financial information.

Answer 35

1. Fair Credit Reporting Act | 2. Protects Consumers

Question 36

______ include written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.

Answer 36

Consumer Reports

Question 37

______ provide information on the consumer's character, reputation, and habits obtained through investigations and interviews with associates, friends, and neighbors of the consumer.

Answer 37

Investigative Consumer Reports

Question 38

Investigate Consumer Reports cannot be made unless the consumer is advised in writing about the report within ______ of the date the report was requested. The consumers must be advised that they have a right to request additional information concerning the report, which must be shared within ______ of the request.

Answer 38

1. 3 Days | 2. 5 Days

Question 39

Per the Fair Credit Reporting Act, a person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses may also be ______ and/or imprisoned for up to ______.

Answer 39

1. Fined | 2. 2 Years

Question 40

An individual who ______ violates the Fair Credit Reporting Act is liable in the amount equal to the loss to the consumer, as well as any reasonable attorney fees incurred in the process.

Answer 40

Unknowingly

Question 41

An individual who ______ violates the Fair Credit Reporting Act enough to constitute a general pattern or business practice will be subject to a penalty of up to ______.

Answer 41

1. Willfully | 2. $2,500

Question 42

The consumer has the ______ to know what was in the consumer or investigative report and the identity of anyone who has received a copy of the report during the past year.

Answer 42

Right

Question 43

Consumer reports cannot contain ______ if the report is requested in connection with a life insurance policy or credit transaction of less than $150,000. These include: 1. Bankruptcies more than 10 years old 2. Civil suits 3. Records of arrest or convictions of crimes 4. Other negative information that is more than 7 years old

Answer 43

Prohibited Information

Question 44

In addition to an attending physician's report, the underwriter will usually request a(n) ______ report.

Answer 44

Medical Information Bureau (MIB)

Question 45

The ______ is a membership corporation owned by member insurance companies. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

Answer 45

Medical Information Bureau (MIB)

Question 46

Insurers cannot refuse coverage solely on the basis of adverse information on a(n) ______ report.

Answer 46

Medical Information Bureau (MIB)

Question 47

For policies with higher amounts of coverage or if the application raised additional questions concerning the prospective insured's health, the underwriter may require a(n) ______ of the insured.

Answer 47

Medical Examination

Question 48

The insurer may only request a(n) ______ which is completed by a paramedic or a registered nurses.

Answer 48

Paramedical Report

Question 49

The underwriter may require a(n) ______ from a medical practitioner who treated the applicant for a prior medical problem.

Answer 49

Attending Physician's Statement (APS)

Question 50

Medical exams are typically not required with regard to ______, thus stressing the importance of the agent in recording medical information on the application.

Answer 50

Health Insurance

Question 51

The medical exam requirement is more common with ______ underwriting.

Answer 51

Life Insurance

Question 52

It is common among insurers to require a(n) ______ when an applicant is applying for a large amount of coverage, or for any increased and additional benefits.

Answer 52

HIV Test

Question 53

To ensure proper obtaining and handling of HIV test results, and to protect the insured's privacy, the insurer must ______ the use of testing to the applicant and obtain ______. The insurer must also establish written ______ and ______ for the internal dissemination of test results to ensure confidentiality.

Answer 53

1. Disclose 2. Written Consent 3. Policies and Procedures

Question 54

Every applicant for a life insurance policy must be given a written ______ that provides basic information about the cost and coverage of the insurance being solicited. This document must be provided no later than the time the application for insurance is signed.

Answer 54

Disclosure Statement

Question 55

When insurers plan to seek and use information from investigators, they must first provide the applicant/insured with a written ______, which states the insurer's practice regarding collection and use of personal information. This document must be approved by the head of the Department of Insurance.

Answer 55

Disclosure Authorization Notice

Question 56

The ______ is a federal law that protects health information, specifically the privacy of certain individually identifiable health information, referred to as ______.

Answer 56

1. Health Insurance Portability and Accountability Act (HIPAA) 2. Protected Health Information

Question 57

Under the ______, patients have the right to view their own medical records, as well as the right to know who has accessed those records over the previous ______. This rule also allows disclosures without individual authorization to public health authorities.

Answer 57

1. Privacy Rule | 2. 6 Years

Question 58

In classifying a(n) ______, the Home Office underwriting department will look at the applicant's past medical history, present physical condition, occupation, habits, and morals.

Answer 58

Risk

Question 59

If the applicant is acceptable, the underwriter must then determine the risk or ______ to be used in deciding whether or not the applicant should pay a higher or lower premium.

Answer 59

Rating Classification

Question 60

A prospective insured may be rated as one of the three classifications: 1. ______ 2. ______ 3. ______

Answer 60

1. Standard 2. Substandard 3. Preferred

Question 61

______ are those individuals who meet certain requirements and qualify for lower premiums than the standard risk. These applicants have a superior physical condition, lifestyle, and habits.

Answer 61

Preferred Risks

Question 62

______ are persons who, according to a company's underwriting standards, are entitled to insurance protection without extra rating or special restrictions.

Answer 62

Standard Risks

Question 63

______ are representative of the majority of people at their age and with similar lifestyles. They are the average risk.

Answer 63

Standard Risks

Question 64

______ applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits.

Answer 64

Substandard (High Exposure) Risk

Question 65

Substandard policies are also referred to as "______" because they could be issued with the premium ______, resulting in a higher premium.

Answer 65

1. Rated | 2. Rated-Up

Question 66

Applicants who are rejected are considered ______.

Answer 66

Declined Risks

Question 67

A(n) ______ may be declined for one of the following reasons: 1. There is no insurable interest. 2. The applicant is medically unacceptable. 3. The potential for loss is so great it does not meet the definition of insurance. 4. Insurance is prohibited by public policy or is illegal.

Answer 67

Risk

Question 68

______ is a life insurance arrangement in which a person with no relationship to the insured (a "stranger") purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies.

Answer 68

Stranger-Originated Life Insurance (STOLI)

Question 69

STOLIs violate the principle of ______, which is in place to ensure that a person purchasing a life insurance policy is actually interested in the longevity rather than the death of the insured.

Answer 69

Insurable Interest

Question 70

______ is another name for a STOLI, where a third-party investor who has no insurable interest in the insured initiates a transaction designed to transfer the policy ownership rights to someone with no insurable interest in the insured and who hopes to make a profit upon the death of the insured or annuitant.

Answer 70

Investor-Owned Life Insurance (IOLI)

Question 71

______ of the policy allows the agent an opportunity to make sure that the insured understands all aspects of the contract.

Answer 71

Personal Delivery

Question 72

A(n) ______ provides basic, generic information about life insurance policies that contains, and is limited to, language approved by the Department of Insurance.

Answer 72

Buyer's Guide

Question 73

Insurers must provide a(n) ______ to all prospective policy applicants prior to accepting their initial premium.

Answer 73

Buyer's Guide

Question 74

A(n) ______ is a written statement describing the features and elements of the policy being issued and must be provided when the policy is delivered.

Answer 74

Policy Summary

Question 75

A(n) ______ provides generic information on various types of policies. A(n) ______ provides specific information on the policy being issued.

Answer 75

1. Buyer's Guide | 2. Policy Summary

Question 76

If the initial premium is not paid with the ______, the agent will be required to collect the premium at the time of policy ______. The policy does not go into effect until the premium has been collected.

Answer 76

1. Application | 2. Delivery

Question 77

The agent may be required to get a(n) ______ from the insured, which must be signed, and verified that the insured has not suffered injury or illness since the application date.

Answer 77

Statement of Good Health

Question 78

If the premium was received at time of application, the start of coverage begins on the date of ______. If the premium was received at the time of delivery, the start of coverage begins on the date of ______.

Answer 78

1. Application | 2. Delivery

Question 79

A(n) ______ application is usually returned; however, should the underwriter approve it as is, coverage begins. In this instance, the company gives up some of its ability to contest a claim.

Answer 79

Incomplete

Question 80

Statements of an applicant on an insurance application are considered ______ and not ______.

Answer 80

1. Representations | 2. Warranties

Question 81

An absolute guarantee of truth is called a(n) ______.

Answer 81

Warranty

Question 82

Although a(n) ______ may be issued, coverage does not begin until the applicant meets all of the conditions and the application is approved.

Answer 82

Conditional Receipt

Question 83

Although the ______ must sign the application, he or she is not a party to the contract.

Answer 83

Producer

Question 84

______ must exist at the time of the application, but not necessarily at the time of a claim.

Answer 84

Insurable Interest

Question 85

______ may be based on economics or family relationships.

Answer 85

Insurable Interest

Question 86

HIPAA's ______ protects all individually identifiable health information, calling this information ______.

Answer 86

1. Privacy Rule | 2. Protected Health Information

Question 87

______ includes health data, name, address, SSN, and birth date.

Answer 87

Protected Health Information

Question 88

An insurer must have written pre-authorization to pull the applicant's ______.

Answer 88

Credit Report

Question 89

______ and ______ are outlawed in many states. These occur when the investor potentially profits upon the death of the insured.

Answer 89

1. Stranger-Originated Life Insurance (STOLI) | 2. Investor-Originated Life Insurance (IOLI)

Question 90

______ (______) may be accomplished by using a rate charge for a higher age, a different sex, a flat fee, or a percentage adjustment to the manual rate.

Answer 90

1. Surcharges | 2. Rate-Ups

Question 91

A surcharge is an example of a(n) ______. There is no coverage until the applicant accepts the policy at the higher rate and pays the increased premium.

Answer 91

Counteroffer

Question 92

The underwriter determines the final ______, not the producer.

Answer 92

Rating Classification

Question 93

A(n) ______ is one with an average life span.

Answer 93

Standard Risk

Question 94

A(n) ______ is one issued to a substandard risk.

Answer 94

Rated Policy

Question 95

Marital status IS / IS NOT an allowable underwriting factor in life insurance.

Answer 95

IS NOT

Question 96

Avocation (hobby) IS / IS NOT an allowable underwriting factor in life insurance.

Answer 96

IS

Question 97

Coverage can never begin unless the ______ has been paid. Moreover, even when paid, coverage will not start until the applicant has satisfied all of the conditions of the ______, if any.

Answer 97

1. Premium | 2. Conditional Receipt

Question 98

The earliest that coverage could start would be the day of ______, assuming the applicant paid the first premium, had no conditions to fulfill, and was found insurable.

Answer 98

Application

Question 99

It is the responsibility of the ______ to explain the policy provisions, riders, and exclusions to the policyowner and/or insured.

Answer 99

Producer