Life and Health Insurance Study Guide-
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An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay
$10,000 for a covered loss. What characteristic of an insurance contract does this describe? -
✔✔Aleatory: an aleatory contract means unequal amounts are exchanged between payments and
benefits
What is the Federal Credit Reporting Act? - ✔✔Establishes procedures that consumer-reporting agencies
must follow in order to ensure that records are confidential, accurate, relevant, and properly used.
Also protects consumers against the circulation of inaccurate or obsolete personal or financial
information
What are consumer reports? - ✔✔Written and/or oral information regarding a consumer's credit,
character, reputation, or habits collected by a reporting agency from employment records, credit reports
and other public sources
What is an investigative consumer report? - ✔✔Also provide information on the consumer's character,
reputation, and habits, but obtained through an investigation and interviews.
A reporting agency conducts an investigation and interviews associated, friends and neighbors of the
consumer. These reports can't be made unless the consumer is advised within 3 days of the report
request
What happens if someone knowingly and willfully obtains information on a consumer from a consumer
reporting agency under false pretenses? - ✔✔They are not complying with the Fair Credit Reporting Act
and may be fined and/or imprisoned for up to 2 years
What happens if someone unknowingly violates the Fair Credit Reporting Act? - ✔✔They become liable
in the amount equal to the loss to the consumer as well as any reasonable attorney fees incurred in the
process
,What happens when someone willfully violates the Act enough to constitute a general pattern or
business practice? - ✔✔They are subject to a penalty of up to $2,500
What rights does a consumer have if an insurance policy is declined or modified because of information
contained in either consumer report? - ✔✔Must be advised and provided with the name and address of
the reporting agency
Has the right to know what was in the report
Has the right to know the identity of anyone who received a copy of the report during the past year.
Has the right to challenge any information in the report and the agency is required to reinvestigate and
amend the report.
If the report is found to be wrong, it must be corrected and sent out to all parties that have received a
report in 2 years.
What is MIB? - ✔✔The Medical Information Bureau (MIB)
A membership corportation owned by member insurance companies. It's a nonprofit trade organization
which receives medical information from insurance companies and maintains confidential information
on individuals.
It is only used as a way to compare the information you have with other insurance companies and see
where you need to look into more. A policy cannot be denied solely because of these reports
What is HIPAA? - ✔✔The Health Insurance Portability and Accountability Act
A federal law that protects health information. Provide protection for the privacy of certain individually
identifiable health information
What are preferred risks? - ✔✔A risk classification used when determining how much risk a consumer is
and how much their premium should be
Preferred risks are individuals who meet certain requirements and qualify for lower premiums than the
standard risk. They have superior physical condition, lifestyle, and habits
What are standard risks? - ✔✔A risk classification used when determining how much risk a consumer is
and how much their premium should be
,Standard risks are entitled to insurance protection without extr rating or special restrictions. They are
representative of the majority of people their age and with similar lifestyles, average risk.
What are substandard risks? - ✔✔A risk classification used when determining how much risk a consumer
is and how much their premium should be
Substandard (high exposure) are not acceptable at standard rates because o physical condition, personal
or family history of disease, occupation, or dangerous habits
Also referred to as "rated" because they could be issued the premium "rated up", or higher.
What are declined risks? - ✔✔People who are rejected from life insurance
A risk may be declined because there is no insurable interest, the applicant is medically unacceptable,
the potential for loss is so great it does not meet the definition for insurance, and the insurance is
prohibited by public policy or is illegal
What is STOLI? - ✔✔Stranger-originated life insurance
A life insurance arrangement in which a person with no relationship to the insured purchases a life policy
on the insured's life with the intent of selling the policy to an investor and profiting financially when the
insured dies.
STOLIs violate the principle of insurable interest
When does coverage begin? - ✔✔If payment is collected at the time of application, it begins on the date
of the application.
If a payment has not been received, it must be received when the policy is delivered and then the start
date is the date of delivery
What is the USA PATRIOT Act? - ✔✔The Uniting and Strengthening America by Providing Appropriate
Toolss Required to Intercept and Obstruct Terrorism Act.
Enacted on Oct. 26, 2001
Purpose is to address social, economic, and global initiatives to fight and prevent terrorist activities
What are the 3 key factors for life insurance? - ✔✔Mortality, interest and expense
, A person who does not lock the doors to their house shows an indifferent attitude. This person presents
what type of hazard? - ✔✔Morale
What are the four aspects of an insurance contract? - ✔✔Agreement, considerations, competent parties,
and legal purpose
An applicant conceals relevant health information on the application. The applicant presents what type
of hazard? - ✔✔Moral
What are the three types of agent authority? - ✔✔Expressed, implied, and apparent
What are the five characteristics of an ideally insurable risk? - ✔✔Loss must be due to chance, definite
and measurable, statistically predictable, not catastrophic, and coverage cannot be mandatory
Insurers are classified according to their domicile. What are the three types of insurers? - ✔✔Domestic,
foreign and alien
What type of risk is gambling? - ✔✔Speculative and cannot be insured.
Who is the beneficiary on a key-person life insurance policy and what is the purpose? - ✔✔The
employer. To minimize the risk of financial loss caused by the death of a key employee
What type of life insurance offers an applicant a cash value element? - ✔✔Permanent insurance
In calculating the amount of life insurance needed, what is the needs approach based on? - ✔✔The
predicted needs of a family after the premature death of the insured
What is included in Part 2 of a life insurance application? - ✔✔Medical information about the
prospective insured
ExamFX | 100% Correct Answers |
Verified | Latest 2024 Version
An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay
$10,000 for a covered loss. What characteristic of an insurance contract does this describe? -
✔✔Aleatory: an aleatory contract means unequal amounts are exchanged between payments and
benefits
What is the Federal Credit Reporting Act? - ✔✔Establishes procedures that consumer-reporting agencies
must follow in order to ensure that records are confidential, accurate, relevant, and properly used.
Also protects consumers against the circulation of inaccurate or obsolete personal or financial
information
What are consumer reports? - ✔✔Written and/or oral information regarding a consumer's credit,
character, reputation, or habits collected by a reporting agency from employment records, credit reports
and other public sources
What is an investigative consumer report? - ✔✔Also provide information on the consumer's character,
reputation, and habits, but obtained through an investigation and interviews.
A reporting agency conducts an investigation and interviews associated, friends and neighbors of the
consumer. These reports can't be made unless the consumer is advised within 3 days of the report
request
What happens if someone knowingly and willfully obtains information on a consumer from a consumer
reporting agency under false pretenses? - ✔✔They are not complying with the Fair Credit Reporting Act
and may be fined and/or imprisoned for up to 2 years
What happens if someone unknowingly violates the Fair Credit Reporting Act? - ✔✔They become liable
in the amount equal to the loss to the consumer as well as any reasonable attorney fees incurred in the
process
,What happens when someone willfully violates the Act enough to constitute a general pattern or
business practice? - ✔✔They are subject to a penalty of up to $2,500
What rights does a consumer have if an insurance policy is declined or modified because of information
contained in either consumer report? - ✔✔Must be advised and provided with the name and address of
the reporting agency
Has the right to know what was in the report
Has the right to know the identity of anyone who received a copy of the report during the past year.
Has the right to challenge any information in the report and the agency is required to reinvestigate and
amend the report.
If the report is found to be wrong, it must be corrected and sent out to all parties that have received a
report in 2 years.
What is MIB? - ✔✔The Medical Information Bureau (MIB)
A membership corportation owned by member insurance companies. It's a nonprofit trade organization
which receives medical information from insurance companies and maintains confidential information
on individuals.
It is only used as a way to compare the information you have with other insurance companies and see
where you need to look into more. A policy cannot be denied solely because of these reports
What is HIPAA? - ✔✔The Health Insurance Portability and Accountability Act
A federal law that protects health information. Provide protection for the privacy of certain individually
identifiable health information
What are preferred risks? - ✔✔A risk classification used when determining how much risk a consumer is
and how much their premium should be
Preferred risks are individuals who meet certain requirements and qualify for lower premiums than the
standard risk. They have superior physical condition, lifestyle, and habits
What are standard risks? - ✔✔A risk classification used when determining how much risk a consumer is
and how much their premium should be
,Standard risks are entitled to insurance protection without extr rating or special restrictions. They are
representative of the majority of people their age and with similar lifestyles, average risk.
What are substandard risks? - ✔✔A risk classification used when determining how much risk a consumer
is and how much their premium should be
Substandard (high exposure) are not acceptable at standard rates because o physical condition, personal
or family history of disease, occupation, or dangerous habits
Also referred to as "rated" because they could be issued the premium "rated up", or higher.
What are declined risks? - ✔✔People who are rejected from life insurance
A risk may be declined because there is no insurable interest, the applicant is medically unacceptable,
the potential for loss is so great it does not meet the definition for insurance, and the insurance is
prohibited by public policy or is illegal
What is STOLI? - ✔✔Stranger-originated life insurance
A life insurance arrangement in which a person with no relationship to the insured purchases a life policy
on the insured's life with the intent of selling the policy to an investor and profiting financially when the
insured dies.
STOLIs violate the principle of insurable interest
When does coverage begin? - ✔✔If payment is collected at the time of application, it begins on the date
of the application.
If a payment has not been received, it must be received when the policy is delivered and then the start
date is the date of delivery
What is the USA PATRIOT Act? - ✔✔The Uniting and Strengthening America by Providing Appropriate
Toolss Required to Intercept and Obstruct Terrorism Act.
Enacted on Oct. 26, 2001
Purpose is to address social, economic, and global initiatives to fight and prevent terrorist activities
What are the 3 key factors for life insurance? - ✔✔Mortality, interest and expense
, A person who does not lock the doors to their house shows an indifferent attitude. This person presents
what type of hazard? - ✔✔Morale
What are the four aspects of an insurance contract? - ✔✔Agreement, considerations, competent parties,
and legal purpose
An applicant conceals relevant health information on the application. The applicant presents what type
of hazard? - ✔✔Moral
What are the three types of agent authority? - ✔✔Expressed, implied, and apparent
What are the five characteristics of an ideally insurable risk? - ✔✔Loss must be due to chance, definite
and measurable, statistically predictable, not catastrophic, and coverage cannot be mandatory
Insurers are classified according to their domicile. What are the three types of insurers? - ✔✔Domestic,
foreign and alien
What type of risk is gambling? - ✔✔Speculative and cannot be insured.
Who is the beneficiary on a key-person life insurance policy and what is the purpose? - ✔✔The
employer. To minimize the risk of financial loss caused by the death of a key employee
What type of life insurance offers an applicant a cash value element? - ✔✔Permanent insurance
In calculating the amount of life insurance needed, what is the needs approach based on? - ✔✔The
predicted needs of a family after the premature death of the insured
What is included in Part 2 of a life insurance application? - ✔✔Medical information about the
prospective insured
