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165 Cards in this Set
- Front
- Back
Define Insurance |
Insurance company agrees to Indemnify (make whole) loss of insured party (at a cost). |
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Transfer of risk |
transfers risk of loss from an individual or group to insurance company |
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Risk |
uncertainty or chance of a loss occuring |
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Two types of risk |
pure and speculative |
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pure risk |
can only result in a loss or no change |
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Speculative risk |
involves the opportunity for either loss or gain |
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Exposure |
unit of measure used to determine rates charged for insurance coverage (i.e. age, medical history, occupation, sex) |
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Homogeneous |
A large number of units having the same or similar exposure to loss |
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Hazard |
conditions or situations that increase the probability of a loss occurring |
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Physical Hazard |
increase chance of loss (ie physical condition, medical history, condition at birth |
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Moral hazard |
evaluated by character or rep of person. Fraud, lies |
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Morale hazards |
state of mind of person carelessness |
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perils |
causes of loss |
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loss |
reduction, decrease or disappearance of value of person or property caused by a peril |
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avoidance |
eliminating exposure to a loss |
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risk retention |
planned assumption of risk by the insured through the use of deductibles, co payments or self insurance |
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purpose of risk retention |
1. reduce expenses and improve cash flow 2.increase control of claim reserving and claims settlement 3.fund for losses that cannot be insured |
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Sharing |
method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group |
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reciprocal insurance exchange |
formal risk sharing arrangement |
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reduction |
attempt to reduce or lessen risk (ie smoke detectors, physicals, etc) |
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what is the most common method of transferring risk? |
Through insurance |
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what is the safest method of transferring risk? |
Through insurance |
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insurable risks involve the following losses: |
due to chance definite and measurable statistically predictable not catastrophic randomly selected and large loss exposure |
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What is the only type of insurable risk? |
Pure risk |
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Due to chance |
a loss that is outside of the insureds control |
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definite and measurable |
a loss that is specific as to the cause, time, place and amount |
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statistically predictable |
insurer must be able to estimate the average frequency and severity of future loses and set appropriate premium rates |
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not catastrophic |
insurers must be reasonable certain their losses will not exceed specific limits |
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Randomly selected and large loss exposure |
there must be a sufficiently large pool of the insured that represents a random selection of risks |
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policy that does not pay dividends |
nonparticipating policy |
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Policy that pays dividends |
Participating policies |
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type of company that has participating stocks |
mutual companies |
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are participating policies taxable? |
no |
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are dividends of participating policies guaranteed |
no |
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what is a fraternal benefit society? |
an organization formed to provide insurance benefits for members of an affiliated lodge, religious organization or fraternal organzation |
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who can a fraternal organization sell insurance to? |
its members |
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what is an admitted insurer |
an insurer who is authorized (for financial reasons) to sell insurance in a given state |
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What is a non admitted insurer |
An insurer who is not authorized (for financial reasons) to sell insurance in a given state |
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What is a domestic insurer? |
an insurer who is incorporated in this state |
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What is a foreign insurer? |
an insurer who is incorporated in another state or territory |
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What is an alien insurer? |
An insurer who is incorporated in another country |
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What is a producer or agent? |
Ab individual who is licensed to sell, solicit or negotiate insurance contracts on behalf of the insurer |
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What is the law of agency? |
It dinners the relationship between the principal (insurer) and the producer: the acts of the agent within the scope of authority are deem to be acts of the insurer |
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What 3 types of agent authority are there? |
1.express 2. Implied 3. Apparent |
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What is express authority? |
Authority WRITTEN in the contract |
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What is implied authority? |
Authority that is ASSUMED to have in order to transact the bussiness |
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What is apparent authority? |
The appearance or the assumption of authority based on the actions words or deeds of the principle or because of the circumstances the principle created |
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What is a fiduciary? |
Someone in a position of trust |
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What is fiduciary responsibility? |
The ethical handling of the funds of others |
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Is it legal to commingle premiums collected from an applicant with personal funds? |
No |
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What is a contract? |
An agreement between 2 or more parties enforceable by the law |
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What are the 4 elements of a contract? |
1.Agreement- offer and acceptance 2. Consideration 3. Competent parties 4. Legal purpose |
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What is offer and acceptance? |
Applicant submits offer when he submits the application Acceptance takes place when an insurer's underwriter approves the application and issues a policy |
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What is consideration |
Is something of value that each party gives to each other. (I.e. Payment, insurance coverage, etc) |
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What are competent parties? |
Parties capable to enter into contract (legal age, mentally competent, not under influence of drugs or alcohol) |
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What is legal purpose? |
The purpose of the contract must be legal and not against public policy |
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If the is any ambiguity in the contract, to whom should the contract be in favor? |
The insured |
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If an agent implies through advertising, sales literature or statements that certain provisions exist, what should the insured reasonable expect? |
Coverage |
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What is indemnity? |
A provision in an insurance policy that states that in the event of loss, an insured ir beneficiary is permitted to collect only to the extent of the financial loss and is not able to gain financially |
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What is utmost good faith? |
It implies that there will be no fraud misrepresentation or concealment between parties |
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What is representation? |
Statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true. |
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What are misrepresentations? |
Untrue statements on the application |
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What is fraud? |
Intentional misrepresentations or concealments |
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What is a warranty? |
An absolutely true statement upon which the validity of the insurance policy depends. |
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What is concealment? |
intentional withholding of information of a material fact that is crucial in making a decision |
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Which statement regarding insurable risks is NOT correct? A: An insurable risk must involve a loss that is definite as to cause, time, place and amount. B: Insureds cannot be randomly selected. C: Insurance cannot be mandatory. D: The insurable risk needs to be statistically predictable. |
B: Insureds cannot be randomly selected. |
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An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of |
concealment |
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The risk management technique that is used to prevent a specific loss by not exposing yourself to that activity is called... |
avoidance |
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A tornado that destroys property would be an example of which of what? |
A peril |
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An agent accepts the premium payment 35 days after it is due, telling the insured that there will not be a problem keeping the policy in force. This is an example of what kind of authority? |
Apparent |
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What is synonymous term for authorized insurer |
admitted insurer |
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What must be obtained in order to transact insurance within a given state? |
Certificate of authority |
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What type of insurers are owned by stockholders who have the usual rights of ownership including the right of voting? |
Stock |
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In insurance an offer is usually made when... |
the application is submitted |
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A participating insurance policy may do what? |
Pay dividends to the policy owner |
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What does life insurance do? |
1. protects against financial loss associated with an insured's death. 2. pays death benefit to beneficiaries upon death of the insured |
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by whom may life insurance be purchased? |
individuals or businesses |
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To whom does the policy owner pay the premium? |
The insurance company |
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To whom does the insurance company pay the benefit? |
The beneficiary |
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What is insurable interest? |
The policy owner losing something of value (normally money) in the event of a loss |
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Insurable interest must exist between the policy owner and the beneficiary... |
at the time of the application |
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Once a life insurance policy has been issued, does the insurance company have to pay the benefit if there is no longer insurable interest? |
Yes |
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What are 4 examples of insurable interest? |
1. policy owners own life 2. the life of a family member 3. The life of a key business partner 4. the life of someone who has a financial obligation to the policy owner (i.e. debtor to a creditor) |
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Does the purchase of life insurance create an immediate estate? |
yes |
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What are the 5 uses of life insurance? |
1. survivor protection 2. estate creation 3. cash accumulation 4. estate conversion 5. liquidity |
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What are the 2 ways to determine the amount of personal life insurance? |
1. human life value approach 2. needs approach |
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What does the human life value approach estimate? |
what would be the loss to the family in the event of a premature death of the insured (i.e wages, inflation, number of years to retirement, time value of money) |
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What does the needs approach estimate? |
the needs of the family after the premature death of the insured (i.e. income, debt, investments, other expenses) |
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What are 6 needs that a family may have when determining their lump-sum needs |
1. cost of death 2. paying off debt 3. emergency reserve funds 4. education funds 5. retirement funds 6. bequest (last wishes) funds |
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What are 3 longer term (income) needs when planning life insurance |
1. Replacing insured's income or lost services 2. social security income "blackout" period 3. liquidation vs. retention of capital |
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What is the social security "blackout" period |
When surviving spouse and/or children do not receive social security survivor benefits (between when the youngest child turns 16 until the surviving spouse qualifies for retirement benefits) |
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What is the most common use of insurance used by employers? |
Life insurance as a benefit |
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What is key person insurance? |
when a company insures someone who has specialized knowledge, skills or business contacts |
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Who the following in a key person insurance policy? 1. applicant 2. policy owner 3. premium payer 4. beneficiary |
the business |
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Who is the in insured in a key person insurance policy? |
the key employee |
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In the event of death of a key employee, what would the business use the benefit for? |
1. additional costs of running the business 2. replacing the key employee |
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For a key person policy, can the business take a tax deduction for the expense of the premium? |
NO |
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If the key employee dies in a key person policy, are the benefits usually paid tax free? |
YES |
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What is a Buy-Sell agreement (or business continuation agreement)? |
a legal contract that determines what will be done with a business in the event that the owner dies or becomes disabled |
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Name 4 buy-sell agreements |
1. cross purchase 2. entity purchase 3. stock purchase 4. stock redemption |
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an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy, is an example of what? |
Executive bonus |
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what is an Executive bonus |
an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy |
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Who owns the executive bonus policy |
the employee |
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Is the executive bonus seen as tax income to the employee? |
Yes |
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Is the executive bonus a tax deduction to the employer? |
Yes |
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What are the 4 phases of issuing a life insurance policy? |
1. Solicitation and sales presentation 2. Underwriting and field company 3. Premium determination 4. Policy issue and delivery |
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What is the solicitation and sales portion phase of issuing a life insurance policy? |
The attempt to persuade a person to buy an insurance policy |
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Any sales presentations used by insurers must... |
be accurate and not misrepresent the facts |
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Who is responsible for all insurance advertisements? |
The insurer who presented the advertisments |
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What is a buyers guide? |
provides basic info about life insurance policies |
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What provides basic info about life insurance policies? |
a buyers guide |
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Do insurers have to provide a buyers guide before accepting the first premium from the customer? |
YES |
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What is the free look period? |
a 10 day period where the customer can get a complete refund |
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If the policy contains an unconditional refund provision of at least 10 days, when can the buyer's guide be delivered? |
with the delivery of the policy |
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What is a policy summary? |
a written statement describing the features and elements of the policy being issued |
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What 8 items does a policy summary contain? |
1. name and address of agent 2. full name and home office address of the insurer 3. generic name of policy 4. each rider 5. Premium 6. cash value dividend 7. surrender value 8. death benefit |
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Do you have to provide the policy summary when delivering the policy? |
YES |
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What must an insurer provide an investigator when seeking info from the investigator? |
a written disclosure authorization notice |
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What is a guarantee association? |
an association that pays covered claims up to a certain limit set by the state |
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What guarantee association do Utah insurers have to be a part of? |
Utah Life and Health Insurance Guarantee Association (ULHIGA) |
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Is it a fair trade practice to make any statement that an insurer's policies are guaranteed by the existence of the insurance guarantee association? |
NO |
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My an insurance producer recommend the purchase, sale or exchange of an insurance policy or annuity contract without the reasonable belief that the transaction is in the best interest if the insured |
NO |
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What 7 factors must a producer consider when recommending an annuity? |
1. age 2. annual income 3. investment objectives 4. intended use of annuity 5.financial experience 6. tax status 7. risk tolerance |
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What is underwriting? |
the risk selection and classification process |
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What are the 4 primary criterion that an underwriter must off of? |
1. applicant's health 2. occupation 3. lifestyle 4. hobbies/habits |
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What are an agent's 6 field underwriting duties? |
1. Proper solicitation of applicants 2. helping to prevent adverse selection 3. completing the application 4. obtaining proper signatures 5. collecting initial premium and issuing receipt 6. delivering policy |
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What are the 2 parts of an application (life insurance)? |
1. general information 2. medical information |
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What 8 bits of information is included on the general information part of an application? |
1. age 2. name 3. address 4. birthday 5. Gender 6. income 7. marital status 8. occupation |
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What 5 bits of information is included on the medical information part of an application? |
1. medical background 2. present health 3. medical visits during the last few years 4. medical status of living relatives 5. cause of death of deceased relatives |
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If the amount of life insurance is relatively small, can the agent and investigator complete the medical portion? |
YES |
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What is a non-medical application? |
An application that does not require a physician's help |
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Whose responsibility is it to make certain that the application is complete, correct and to the best of the applicant's knowledge? |
The agent's |
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What is the agent's report? |
The agent's personal observations concerning the proposed insured |
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Does the agent's report become part of the entire contract? |
NO |
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Who must sign the application? |
The agent and the proposed insured |
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If the proposed insured is not the policy holder, does he have to sign the application? |
YES |
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How can an application be corrected? |
1. correcting info and having customer initial 2. starting a new application |
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Should an agent erase or use white out on an application? |
NEVER |
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When an agent collects a premium what must he give the customer? |
a premium receipt |
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What kind of premium receipt is the most common? |
a conditional receipt |
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Replacing insurers are permitted to use electronically completed notice of replacement. However, when this method is used a printed copy of the notice must be sent to the applicant within how many days? |
5 days |
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Whose duty is it to initial next to a corrected statement on an application? |
the applicant's |
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Whose duty is it to ensure that there are no unanswered questions on an application? |
the agent's |
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Whose duty is it to explain the nature and type of any receipt the producer is giving to the applicant? |
the agent's |
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Whose duty is it to probe beyond the stated question if the producer feels the applicant is misrepresenting or concealing info? |
the agent's |
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Medical Information Bureau (MIB) was created to protect... |
Insurance companies from adverse selection by high risk persons |
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Is the beneficiary's age used in determining annuity suitability? |
NO |
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What is another name for substandard risk classification? |
Rated |
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An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of report is that? |
Inspection report |
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Replacing insurers that use producers must provide applicants with the right to return their policy within a few days of its delivery. How many days? |
30 days |
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Which organization provides the underwriter with info concerning an applicant's health history? |
The Medical Information Bureau (MIB) |
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If the insurer acknowledges receipt if the premium with a conditional receipt, the policy is in effect on the date if the application or the date of the medical exam, which ever is... |
last |
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Who makes up the Medical Information Bureau? |
Insurers |
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Upon policy delivery, the producer may be required to obtain the signed waiver of premium (T/F) |
FALSE |
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What form of life insurance may be used in securing a buy-sell agreement where if one partner died the other could buy out the company? |
Any type of life insurance |
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A producer is helping someone determine the financial needs of their children in the event that they should die prematurely. This is a personal use of life insurance known as... |
Survivor protection |
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Life insurance as an Executive Bonus is owned by the... |
employee |
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What is a description of gross annual premium? |
Net premium plus expenses (loading) |
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In the Executive Bonus plan, who is the owner of the policy and who pays the premium? |
The executive and the executive (the company reimburses the executive) |
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Who must have insurable interest in the insured? |
The policyowner |
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Who is the owner and beneficiary on a Key Person life policy? |
The employer |
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What is used to compare the cost of one life insurance policy against another in order to guide prospective purchasers to policies that are competitively priced |
Cost comparison methods |
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Are the premiums tax deductible as a business expense in key-person life insurance policies? |
NO |
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Is funding against GENERAL company financial losses a business use of life insurance? |
NO |
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What is a term that would be permissible in advertising a life insurance policy? |
Variable plan |