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| Section | Weight | Objectives |
|---|---|---|
| Life Insurance Basics | - Annuities
| |
| General Insurance | - Insurance contracts
| |
| Insurance Regulation | 5% | - Licensing
|
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NEW QUESTION # 47
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 # 48
The doctrine of reasonable expectations states that the
Answer: D
Explanation:
The doctrine of reasonable expectations concerns the protection that an ordinary insured may reasonably understand or expect an insurance contract to provide. In appropriate circumstances, insurance-policy language and presentation are evaluated from the perspective of a reasonable insured rather than solely through technical or obscure interpretations that would defeat objectively reasonable expectations regarding coverage.
Therefore, choice C best expresses the doctrine: the policy is interpreted with regard to coverage that a prudent or reasonable person would expect under the circumstances and policy presentation.
Choice A more closely relates to the conditional nature of an insurance contract, where performance depends on compliance with stated contractual conditions. Choice B defines an aleatory contract, in which values exchanged depend on an uncertain event. Choice D is inaccurate because an insurer promises to pay covered claims according to policy terms, not every claim submitted regardless of coverage.
The doctrine does not permit an insured simply to invent coverage that clearly does not exist. Rather, it becomes significant where policy language, exclusions, or insurer conduct create circumstances in which strict technical interpretation would conflict with objectively reasonable expectations generated by the contract.
Study Guide Reference: General Insurance Concepts - doctrine of reasonable expectations; interpretation of insurance contracts; adhesion and ambiguous provisions.
NEW QUESTION # 49
Reinsurance allows an insurer to
Answer: C
Explanation:
Reinsurance is an arrangement through which one insurance company transfers part of the risk it has assumed to another insurance company. The original insurer is commonly called the ceding insurer, while the company accepting the transferred exposure is the reinsurer.
Reinsurance enables an insurer to control the amount of risk retained on individual policies or across a portfolio. It can increase underwriting capacity, stabilize financial results, protect against catastrophic or unusually large losses, and assist with capital and solvency management. Depending on the arrangement, reinsurance may be structured on a facultative or treaty basis and may use proportional or nonproportional methods.
Importantly, reinsurance does not ordinarily change the policyholder ' s contractual relationship with the original insurer. The policyholder continues to look to the issuing insurer for payment of covered claims.
Thus, the risk is not transferred back to the policyholder.
Risk avoidance is also incorrect. Reinsurance does not eliminate the existence of the underlying risk; instead, it reallocates some of its financial consequences between insurers.
Therefore, the defining function of reinsurance is to transfer risk from one insurer to another insurer, making D correct.
Study Guide Reference: General Insurance Concepts - reinsurance; risk transfer; ceding insurer; reinsurer; insurer risk management.
NEW QUESTION # 50
Which of the following dividend options will increase the death benefit?
Answer: A
Explanation:
Under the paid-up additions dividend option, dividends from a participating life insurance policy are used to purchase additional increments of fully paid permanent life insurance. Each addition requires no further premium and has its own cash value and death benefit. Consequently, paid-up additions increase both the policy ' s total death benefit and its accumulated cash value.
Paid-up additions can themselves participate in future dividends when the insurer ' s contract provides for participation, allowing the additional insurance and policy value potentially to compound over time.
The other choices do not describe the applicable dividend option. Extended term is principally a nonforfeiture option under which cash value is used to purchase term insurance, rather than a dividend option designed to increase the permanent death benefit. Guaranteed insurability is a rider that permits the insured to purchase additional coverage at specified dates or events without new evidence of insurability. Accelerated endowment is not the standard dividend choice that directly purchases additional permanent death-benefit protection.
The standard dividend options include cash, reduction of premium, accumulation at interest, and paid-up additions. Of these, paid-up additions directly purchase additional insurance and therefore increase the amount payable at death.
Study Guide Reference: Life Insurance Policy Provisions, Options, and Riders - participating-policy dividends; paid-up additions; dividend options; increased death benefits.
NEW QUESTION # 51
Which rider includes coverage for the insured ' s spouse and children?
Answer: C
Explanation:
A family rider extends life insurance protection beyond the primary insured to specified members of the insured ' s family, commonly the spouse and dependent children. The rider permits multiple family members to receive supplementary coverage under the primary life insurance contract rather than requiring a separate individual policy for each person.
Family coverage is commonly structured with term insurance on the spouse and children. The primary insured remains the principal person covered by the base policy, while the rider provides additional death benefits if a covered family member dies while the rider is in force. Coverage amounts, eligible ages, conversion provisions, and termination conditions are governed by the rider.
A payor benefit rider is commonly used with juvenile insurance and waives premiums if the person responsible for paying the premiums dies or becomes disabled under specified conditions. A guaranteed insurability rider permits the insured to purchase additional insurance at designated times without providing new evidence of insurability. A jumping juvenile feature automatically increases a child ' s coverage at a specified age.
Because the question specifically requires one rider covering both the insured ' s spouse and children, the family rider is the correct selection.
Study Guide Reference: Life Insurance Policy Provisions, Options, and Riders - family rider; spouse and children ' s coverage; payor benefit; guaranteed insurability.
NEW QUESTION # 52
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