Question 1
Life insurance companies try to select and classify exposure units carefully for all of the following reasons, EXCEPT:
1) To maintain equity among insureds
2) To make insureds contribute to the common fund according to the insureds' potential claims on the fund
3) To have actual mortality approximate expected mortality
4) To make it possible for all applicants to obtain insurance on the same terms
5) To achieve fair and just treatment for all insureds
Question 2
Which of the following statements concerning the treatment of life insurance applicants is (are) correct?
I. Women are charged lower rates for life insurance but higher rates for annuities than men.
II. The smaller the amount at risk, the more liberal can be the life insurance company's underwriting standards.
III. Since we all legally have unlimited insurable interest on our own lives, we all are eligible for $1 million policy with a life company of our choice if we can afford to pay the premium.
1) I only
2) I and II only
3) II and III only
4) I, II, and III
Question 3
If all persons who walked by a busy street corner in Los Angeles were to purchase a $10,000 ordinary life insurance policy, and each paid the premium established for his or her age group, the life insurance company would accept them all without evidence of insurability. Why would this be so? (It is assumed that the opportunity to purchase the $10,000 policy is not known by the general public.)
1) There would be no need to be concerned about adverse selection.
2) Los Angeles is a young city, and there would be a high percentage of young lives.
3) If a person can walk, he or she is usually able to meet insurability requirements.
4) This arrangement would eliminate the catastrophe hazard because of wide dispersion of risk.
Question 4
All of the following statements concerning factors that affect the acceptance and classification of applicants for life insurance are correct, EXCEPT:
1) The age of the applicant is the most important single factor affecting a person's mortality.
2) A substandard rating due to occupation is usually removed when an insured changes to an unrated occupation.
3) The number of occupations deemed to have an adverse effect on mortality is increasing in the U.S.
4) Family history generally is given considerably less emphasis today than formerly.
Question 5
Which of the following statements concerning the treatment accorded the aviation activities of life insurance applicants is (are) correct?
I. Most companies treat as standard risks applicants between the ages of 30 and 60 who have had adequate hours of flying experience and who currently fly only a limited number of hours per year.
II. Most companies impose no occupational rating or restrictions on crew members of regularly scheduled commercial aircraft.
III. Today, in writing their accidental death benefit riders, all life companies include coverage for aviation deaths for crew members of all types of aircraft.
1) I only
2) I and II only
3) II and III only
4) I, II, and III
Question 6
Which of the following help(s) to explain the validity of the concept that the standard insurable group in life insurance should be as broad as possible?
I. Overly-exacting selection standards would undermine the morale of the agency fee.
II. Overly-exacting selection standards would cause a loss of goodwill among the general public.
III. Too small a number of applicants would increase administrative costs per exposure unit.
1) I only
2) II only
3) III only
4) I and III only
5) I, II, and III
Question 7
Which of the following statements concerning the maintenance of balance within each risk or rate classification of a life company is (are) correct?
I. Each below-average risk that is accepted by a life insurer must be compensated for by obtaining an acceptable risk that is above average.
II. The development of preferred mortality classes has tended to broaden the traditional standard class.
III. Even if each risk classification of a life company is overbalanced with poor risks, today, a life company has a high probability of maintaining its competitive position because of expected future advances in medical technology.
1) I only
2) I and II only
3) II and III only
4) I, II, and III
Question 8
Which of the following is the primary justification for an insurer to write life insurance on a nonmedical basis?
1) Because savings in expenses are greater than the increased cost of the resulting extra mortality
2) Because the MIB reports reliably how other companies have rated the applicant
3) Because of the greater ease in completing sales when the ordeal of the medical examination is eliminated
4) Because detailed nonmedical questionnaires can be just as thorough as a medical examination
5) Because of the reduced burden placed on the time and talent of the medical professional
Question 9
Ideally, the underwriting evaluation and classification system used by a company should meet all the following criteria, EXCEPT:
1) Measure accurately the effect of each factor affecting the insurability of an applicant
2) Assess the combined impact of interrelated factors, including those in conflict
3) Produce equitable results
4) Be relatively simple and inexpensive to operate
5) Provide the insurer with a sound basis for reporting its final underwriting decision to the MIB
Question 10
All of the following statements concerning the underwriting of life insurance for elderly applicants are correct, EXCEPT:
1) The number of lives insured is too small to permit predictable mortality results.
2) A high degree of adverse selection occurs.
3) Life companies are writing fewer and fewer policies each year for the elderly.
4) The medical exam for the elderly is relatively ineffective.
Question 11
All of the following statements concerning the services provided to insurers by the Medical Information Bureau (MIB) are correct, EXCEPT:
1) The MIB is a clearinghouse for data primarily of a medical nature on applicants for life insurance.
2) The information is reported and maintained in code symbols.
3) Member companies are required to report for all applicants any impairment designated on the Bureau's official list.
4) The member companies do not report to the MIB their underwriting decision concerning an applicant.
5) The information provided by the MIB is so complete that many companies make their underwriting decision for nonmedical applicants solely on the basis of information provided by the MIB.
Question 12
In writing nonmedical policies, life insurers typically make use of all the following underwriting safeguards, EXCEPT:
1) Confining the types of policies issued to those of short duration, such as term insurance
2) Establishing age limits for nonmedical life insurance
3) Permitting only standard risks to be issued nonmedical life insurance
4) Establishing limits on the amount of coverage available to an applicant on a nonmedical basis
Question 13
All of the following statements concerning various sources of information for insurers about applicants for life insurance are correct, EXCEPT:
1) The application obtains information of both a medical and a nonmedical nature.
2) The preciseness of the medical examination today makes it almost a foolproof safeguard against adverse selection, particularly at the advanced ages.
3) Most companies require the selling agent to report on the applicant's insurability.
4) The consent of the applicant is obtained before an insurer requests information from the applicant's physician.
5) Most insurers use the services of reporting agencies to obtain investigative reports on applicants for significant amounts of life insurance.