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| Section | Objectives |
|---|---|
| Topic 1: Arizona Insurance Laws and Ethics | - Producer Duties and Ethical Practices
|
| Topic 2: Life Insurance Products and Policies | - Life Insurance Policy Provisions
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| Topic 3: Life Insurance Taxation and Retirement Planning | - Tax Treatment of Life Insurance
|
| Topic 4: General Insurance Concepts | - Insurance Regulation
|
| Topic 5: Life Insurance Applications and Underwriting | - Underwriting and Policy Issuance
|
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NEW QUESTION # 86
Backdating on a life insurance policy is the practice of
Answer: B
Explanation:
Backdating means assigning a life insurance policy an effective date that precedes the date on which the policy is actually issued or delivered. It is most commonly associated with saving age, where an earlier policy date permits the insured to be treated as a younger insurance age and thereby qualify for a more favorable premium.
Backdating does not mean allowing a premium to be paid after expiration of a grace period. That situation concerns policy lapse and potentially reinstatement. Reinstatement is itself a separate process through which a lapsed policy may be restored after the policyowner satisfies specified conditions. Preexisting-condition exclusions are also unrelated to backdating.
Where lawful and permitted by the insurer, the applicant generally must pay the premiums attributable to the backdated period. Consequently, backdating should be evaluated economically: the premium savings associated with the younger insurance age must justify paying premiums for a period before the policy ' s actual issuance.
The essential examination definition does not depend on why backdating is used. The defining feature is simply that the contract is assigned an effective date earlier than the present issuance date.
Study Guide Reference: Life Insurance Basics - policy effective dates; backdating; saving age; premium calculation.
NEW QUESTION # 87
Which is NOT a source of underwriting information?
Answer: A
Explanation:
Life insurance underwriting relies on information that enables the insurer to evaluate the applicant ' s mortality risk, financial suitability, health history, lifestyle, occupation, and other material factors. The insurance application is a principal underwriting source because it contains representations concerning personal information, medical history, occupation, avocations, and other relevant facts.
Consumer or credit reports may also be used when legally permissible, particularly for financial underwriting, identity verification, or information concerning an applicant ' s financial profile. Their acquisition and use are subject to the Fair Credit Reporting Act and related requirements.
The Medical Information Bureau (MIB) is another recognized source. Information available through MIB may alert an insurer to medical or other underwriting information previously reported by participating insurers and can prompt further investigation. It does not replace independent underwriting or constitute a complete medical record.
A routine marriage and divorce record, however, is not one of the standard underwriting-information sources identified for evaluating individual life insurance risk in this context. Although marital or family circumstances can sometimes affect financial or beneficiary planning, the record itself is not a standard underwriting source comparable with the application, consumer report, or MIB information.
Study Guide Reference: Life Insurance Basics - underwriting sources; application; consumer reports; MIB; medical and financial underwriting.
NEW QUESTION # 88
According to the Fair Credit Reporting Act, an insurer needs to do all of the following, EXCEPT
Answer: C
Explanation:
The Fair Credit Reporting Act (FCRA) regulates the collection and use of consumer-report information in insurance underwriting. When an insurer obtains an investigative consumer report, the applicant must receive appropriate notice concerning the investigation and has rights concerning disclosure of the nature and scope of that investigation. When information from a consumer report contributes to an adverse underwriting decision, such as denial of coverage, an increased premium, or less favorable policy terms, the insurer must provide the applicant with an adverse-action notice.
The insurer is not, however, required to personally discuss each inconsistency appearing in the applicant ' s credit history. The consumer instead has statutory rights to obtain information from the consumer reporting agency and dispute information believed to be inaccurate or incomplete. FTC guidance confirms that adverse- action requirements include notification and information concerning the reporting agency and the consumer ' s dispute rights; they do not impose a general requirement that the insurer conduct a discussion with the applicant about individual credit discrepancies.
Therefore, D is the exception.
Study Guide Reference: Federal Laws and Regulations - Fair Credit Reporting Act; investigative consumer reports; adverse-action notices; applicant disclosure rights.
NEW QUESTION # 89
The settlement option that pays a specified amount to an annuitant, but pays no residual value to a beneficiary is known as
Answer: B
Explanation:
The life income, or straight-life, settlement option provides periodic payments to the annuitant for as long as the annuitant remains alive. Payments terminate at the annuitant ' s death, and there is generally no residual value payable to a beneficiary, even if the annuitant dies shortly after payments begin.
Because the insurer assumes no obligation to continue payments after death, the straight-life option generally provides the highest periodic income among otherwise comparable life-income alternatives. The annuitant accepts the risk of receiving relatively few payments in exchange for protection against outliving the income stream.
An installment refund option differs because it guarantees that if the annuitant dies before receiving payments equal to the amount applied to the annuity, the remaining balance will continue to a beneficiary in installments. A fixed-period option guarantees payments for a specified number of years and can therefore continue to a beneficiary if the annuitant dies during that period. Under an interest-only settlement, principal is retained while interest is distributed, leaving principal potentially available for later disposition.
Therefore, the option characterized by lifetime payments without a residual beneficiary value is life income.
Study Guide Reference: Annuities - annuity settlement options; straight life; refund options; period certain; guarantees to beneficiaries.
NEW QUESTION # 90
A contract will be deemed invalid if
Answer: D
Explanation:
A valid contract requires several basic elements, including competent parties, legal purpose, consideration, and an agreement consisting of offer and acceptance. If one of the contracting parties lacks the legal capacity required to contract, the agreement may be void or voidable depending on the particular incapacity and applicable law.
Competency generally means that the parties are legally capable of understanding and entering the agreement.
Issues such as minority, severe mental incapacity, or other legally recognized disabilities can affect contractual capacity. Insurance companies themselves must also possess legal authority to enter insurance contracts.
Consideration does not have to consist exclusively of money. In an insurance transaction, the applicant ' s consideration includes the premium and representations made in the application, while the insurer ' s consideration is its promise to provide benefits according to the policy.
Nor must every valid contract universally be in writing, although insurance contracts are normally documented in writing because of statutory, regulatory, and evidentiary requirements. Attorney approval is not an essential element of ordinary contract validity.
Therefore, the missing essential contractual element in the answer choices is competency of the parties, making D correct.
Study Guide Reference: General Insurance Concepts - elements of a valid contract; competent parties; consideration; offer and acceptance; legal purpose.
NEW QUESTION # 91
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