Question 1

An underwriter needs to verify whether an applicant disclosed prior adverse medical findings to other insurers. Which source is specifically designed to flag information reported by member companies on previous applications?

Accepted Answer

The MIB is a nonprofit clearinghouse of coded medical and non-medical information reported by member insurers, used to detect omissions or fraud across applications. An APS comes from the applicant's own physician and does not aggregate data from other insurers.

Question 2

When an insurer orders an inspection or consumer report on an applicant that could affect underwriting, the Fair Credit Reporting Act requires the insurer to do what?

Accepted Answer

The FCRA requires that the applicant be notified that a consumer or investigative report may be requested. The applicant may then request the nature and scope of the investigation; the report itself is not automatically furnished.

Question 3

An applicant is a healthy 35-year-old but is an active recreational scuba diver who dives in deep caves. This avocation would most likely cause the underwriter to classify the applicant as:

Accepted Answer

A hazardous avocation increases mortality risk and typically results in a substandard/rated classification, often through an extra premium or flat rating, rather than a decline. Good health alone does not offset the added avocation risk.

Question 4

Which combination represents the three primary factors used to compute a life insurance premium?

Accepted Answer

The gross premium is built from mortality (cost of claims), interest (assumed earnings that reduce premium), and expense/loading (cost of operations). Higher assumed interest lowers the premium, while higher mortality and expenses raise it.

Question 5

The net premium for a life insurance policy is calculated using which two factors, before any adjustment for company operating costs?

Accepted Answer

The net premium reflects only mortality and interest. When the expense factor (loading) is added to the net premium, the result is the gross premium the policyowner actually pays.

Question 6

An agent collects the first premium with the application and issues a receipt stating coverage is effective on the application date, provided the applicant proves insurable. Which type of receipt is this?

Accepted Answer

A conditional receipt makes coverage effective as of the application (or medical exam) date only if the applicant is found insurable as a standard risk. Coverage is conditioned on meeting the insurer's underwriting requirements, not merely on paying the premium.

Question 7

An applicant paid the initial premium and received a conditional receipt, then died before the policy was issued. The underwriting later showed the applicant was insurable at standard rates on the application date. What is the insurer's obligation?

Accepted Answer

Under a conditional receipt, if the applicant would have been approved as applied for, coverage is deemed to have begun on the qualifying date. The insurer must pay the full death benefit even though the policy was never physically delivered.

Question 8

Statements an applicant makes on a life insurance application are generally considered:

Accepted Answer

Application answers are treated as representations, meaning statements believed true to the best of the applicant's knowledge. A misrepresentation must be material to a fact the insurer relied upon to allow rescission, unlike a warranty that must be literally true.

Question 9

An applicant asks the agent to backdate a whole life policy. What is the primary legitimate purpose and limit of backdating?

Accepted Answer

Backdating allows a policy to be dated earlier so the insured qualifies at a younger age, reducing the premium; most states limit backdating to six months. It does not extend the contestable period beyond what the policy date establishes.

Question 10

A policy was issued as applied for, but the applicant did NOT pay the premium with the application. When the agent delivers the policy and collects the first premium, what must the agent typically also obtain?

Accepted Answer

When premium is collected at delivery rather than at application, the agent must obtain a statement of good health confirming the applicant's health has not changed since the application. This protects the insurer against a decline in insurability during the gap.

Question 11

At the time a life insurance policy is issued, insurable interest must exist between the policyowner and the insured. Which situation would most clearly LACK insurable interest and suggest a STOLI arrangement?

Accepted Answer

Stranger-originated life insurance (STOLI) involves investors with no insurable interest procuring coverage on someone's life solely to profit from the death benefit. Spouses, employers, and creditors all have recognized insurable interests at policy inception.

Question 12

Two applicants are the same age and in identical health, but one works as a commercial pilot and the other as an accountant. Why would the pilot generally pay a higher premium?

Accepted Answer

Occupation is a recognized underwriting factor; hazardous or higher-risk jobs increase expected mortality and therefore the premium. Health and age being equal, the greater occupational hazard drives the difference.

Life Insurance Underwriting & Premiums Practice Questions

Answer a few Life Insurance Underwriting & Premiums questions now

More Life & Health Insurance Exam Topics