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Underwriting and Delivery

Field underwriting, consumer reports, the MIB, receipts, policy delivery, replacement, and unfair trade practices like twisting and rebating.

Study questions and answers

Try each question first, then tap to check your answer.

1. The agent's role in gathering information and screening applicants is called:

  1. Claims adjusting
  2. Field underwriting
  3. Reinsurance
  4. Rate making
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B. Field underwriting
The agent is the field underwriter. Accurate applications and screening help prevent adverse selection.

2. Under the Fair Credit Reporting Act, if an insurer takes adverse action based on a consumer report, the applicant must be:

  1. Charged a fee to see the report
  2. Told the name and address of the reporting agency
  3. Required to wait one year before reapplying
  4. Sent their complete medical records
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B. Told the name and address of the reporting agency
The applicant has the right to know which agency supplied the report and to dispute inaccurate information.

3. Which statement about the Medical Information Bureau (MIB) is correct?

  1. It may be the sole reason an insurer declines an applicant
  2. It is a public record available to anyone
  3. It shares information among member insurers to help detect misrepresentation, but it cannot be the sole basis for a decline
  4. It is run by the state insurance department
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C. It shares information among member insurers to help detect misrepresentation, but it cannot be the sole basis for a decline
The MIB is a nonprofit trade organization. Its codes alert underwriters to investigate further but cannot justify a decline on their own.

4. With a conditional receipt, coverage is effective on the date of the application or the medical exam, whichever is later, provided that:

  1. The premium is financed
  2. The agent approves the application
  3. The policy is delivered in person
  4. The applicant is insurable as applied for
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D. The applicant is insurable as applied for
If the insurer would have issued the policy as applied for, coverage is backdated to the later of the application date or the exam date.

5. If the premium was not collected with the application, at policy delivery the agent should collect the premium and:

  1. A statement of good health
  2. A new application
  3. An MIB authorization
  4. The beneficiary's consent
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A. A statement of good health
The statement of good health confirms the insured's health has not changed since the application.

6. An applicant with certain health conditions is approved but charged a higher premium. This applicant is classified as:

  1. Preferred
  2. Standard
  3. Substandard (rated)
  4. Declined
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C. Substandard (rated)
Substandard risks are insured at a higher premium, or with exclusions, because they present above-average risk.

7. Stranger-originated life insurance (STOLI) is prohibited mainly because it:

  1. Is too expensive for consumers
  2. Violates the insurable interest requirement
  3. Requires a securities license
  4. Only uses term insurance
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B. Violates the insurable interest requirement
In STOLI arrangements, investors with no insurable interest in the insured's life arrange the policy for profit.

8. An agent persuades a client to replace a policy with another insurer's policy by misrepresenting the terms of the existing policy. This is:

  1. Rebating
  2. Commingling
  3. Defamation
  4. Twisting
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D. Twisting
Twisting is an unfair trade practice: inducing a replacement through misrepresentation or incomplete comparison.

9. An agent offers to give a client part of the first-year commission if the client buys a policy. This is:

  1. Twisting
  2. Rebating
  3. Churning
  4. Sliding
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B. Rebating
Rebating is offering anything of value not specified in the policy as an inducement to buy. It is prohibited in most states.

10. If an insurer requires an HIV test as part of underwriting, it must:

  1. Test every applicant regardless of age or amount
  2. Obtain the applicant's written consent and keep the results confidential
  3. Ask about the applicant's sexual orientation
  4. Report results to the applicant's employer
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B. Obtain the applicant's written consent and keep the results confidential
HIV testing requires informed consent, and insurers cannot use sexual orientation in underwriting.

11. Under the Fair Credit Reporting Act, an applicant must be notified in writing that an investigative consumer report may be made within:

  1. 3 days of the report being requested
  2. 30 days of the report being requested
  3. 1 year of the application
  4. The free-look period
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A. 3 days of the report being requested
Investigative consumer reports cover character, reputation, and lifestyle, often through interviews.

12. A report from a doctor who has treated the applicant is called a(n):

  1. MIB report
  2. Inspection report
  3. Attending physician statement
  4. Agent's report
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C. Attending physician statement
Underwriters order an APS when the application reveals a medical history that needs more detail.

13. If the applicant notices an incorrect answer on the application before signing, the agent should:

  1. Leave it and explain it in a separate letter
  2. Use correction fluid and rewrite the answer
  3. Correct the answer and have the applicant initial the change
  4. Fill out a new application without telling the applicant
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C. Correct the answer and have the applicant initial the change
Changes must be initialed by the applicant. Correction fluid is not allowed.

14. Constructive delivery of a policy occurs when:

  1. The first premium is paid
  2. The free-look period ends
  3. The policyowner signs a delivery receipt
  4. The insurer gives up control of the policy, such as mailing it to the agent with no conditions
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D. The insurer gives up control of the policy, such as mailing it to the agent with no conditions
Under constructive delivery, the policy is legally delivered even before the owner physically receives it.

15. Under the Gramm-Leach-Bliley Act, insurers and other financial institutions must:

  1. Obtain consent before issuing any policy
  2. Provide consumers with a notice of their privacy policies
  3. Share data with the federal government
  4. Disclose agent commissions
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B. Provide consumers with a notice of their privacy policies
GLBA also gives consumers the right to opt out of some sharing of nonpublic personal information with nonaffiliated third parties.

16. Federal anti-money laundering rules for insurers apply to which products?

  1. Permanent life insurance and annuities
  2. Group health insurance
  3. Property and casualty insurance
  4. Term life insurance only
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A. Permanent life insurance and annuities
Covered products have cash value or investment features that could be used to move money.

17. A business that receives more than $10,000 in cash in one transaction or related transactions must:

  1. Report it to the IRS on Form 8300
  2. Report it only if the customer is a foreign national
  3. Hold the cash for 90 days
  4. Refuse the payment
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A. Report it to the IRS on Form 8300
Structuring payments to avoid the $10,000 threshold is also illegal.

18. In a viatical settlement, a terminally or chronically ill insured:

  1. Receives free coverage from the state
  2. Sells the policy to a third party for a cash payment that is less than the death benefit
  3. Converts the policy to an annuity
  4. Transfers the policy to a charity
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B. Sells the policy to a third party for a cash payment that is less than the death benefit
The buyer becomes the owner and beneficiary and collects the death benefit.

19. When replacement is involved, the agent generally must:

  1. Wait 90 days before submitting the new application
  2. Get approval from the state insurance department
  3. Cancel the existing policy before submitting the application
  4. Give the applicant a replacement notice, and the replacing insurer must notify the existing insurer
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D. Give the applicant a replacement notice, and the replacing insurer must notify the existing insurer
Replacement rules protect consumers from losing valuable coverage. Exact forms and deadlines are set by state law.

20. An applicant who presents too much risk to insure at any premium is:

  1. Substandard
  2. Standard
  3. Declined
  4. Preferred
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C. Declined
Substandard applicants can still be insured at higher rates. Declined applicants cannot be insured.
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