Application, Underwriting and Policy Delivery — practice questions

14% of the exam ≈12 real questions 18 free questions here

Applications, receipts, insurable interest, consumer reports, contract law, replacement and policy delivery: 12 of the 85 scored questions. Expect one question on when coverage really begins and one on what an agent may not do with an application.

Where people lose points

• A conditional receipt backdates coverage only if the applicant proves insurable as applied for.
• Insurable interest has to exist when the policy is issued, not at the death.
• Warranties must be literally true; representations only substantially true.
• A Florida replacement runs through Rule 69O-151.007 and the signed Form OIR-B2-312.

Questions and answers, explained

All 10 questions above, with the correct answer and why it is correct. Everything here is on application, underwriting and policy delivery.

1. During underwriting, an insurer receives coded information about an applicant from the Medical Information Bureau (MIB). Which statement about the MIB is TRUE?

   • AIts reports come directly from treating physicians, who are required to send patient records
   • BIt is a nonprofit member organization that exchanges coded underwriting informationCorrect
   • CAn insurer may decline an application based solely on information in an MIB report
   • DIts report eliminates the need for an attending physician’s statement entirely

   Why: The MIB's information comes from prior applications submitted to member insurers, and its purpose is to alert underwriters to discrepancies that deserve further investigation. An insurer may not decline or rate an applicant solely on MIB data — the information must be verified through other sources, such as an attending physician's statement.

   Reference Outline IX (Field Underwriting Procedures): sources of insurability information — MIB

2. A Florida agent is taking an application for a life insurance policy that she knows will replace the applicant's existing life policy. Under Florida's replacement rule, no later than the time she takes the application, the agent must

   • Aobtain the Department of Financial Services’ written approval of the replacement transaction
   • Bsurrender the existing policy to the original insurer on the applicant’s behalf
   • Cpersonally notify the existing insurer that its policy is being replaced now
   • Dpresent a signed Notice to Applicant Regarding Replacement and leave it with the applicantCorrect

   Why: Rule 69B-151.006, F.A.C. (Duties of Replacing Agent), requires the replacing agent to present the Notice to Applicant Regarding Replacement of Life Insurance (Form OIR-B2-312) no later than at the time of taking the application; both parties sign it and it is left with the applicant, with a completed copy submitted to the replacing insurer along with the application. Under Rule 69B-151.005, F.A.C., the agent also submits signed statements as to whether replacement is involved. Notifying the existing insurer is a duty of the replacing insurer, not the agent, and no advance DFS approval is required.

   Reference Outline IX (Field Underwriting Procedures): replacement; Rules 69B-151.005–.006, F.A.C.

3. An individual life or health application is generally divided into parts. Which statement about the agent's report is CORRECT?

   • AIt is Part II of the application and must be signed by the applicant and the agent
   • BIt must be read aloud to the applicant before the application is signed and submitted
   • CIt replaces the need to gather the applicant's medical history on Part II
   • DIt is a confidential communication to the insurer and is not part of the entire contractCorrect

   Why: Part I of the application gathers general personal data and Part II gathers medical history, while the agent's report is a separate confidential section in which the agent conveys observations and personal knowledge to the underwriter; it is not shown to the applicant and is not attached to the policy. Because it is not part of the entire contract, statements in it cannot be used to contest the policy the way the applicant's own application answers can.

   Reference Outline IX (Field Underwriting Procedures): parts of the application and the agent's report

4. How does a binding (unconditional) premium receipt differ from a conditional receipt?

   • AA binding receipt covers the applicant from the date of the receipt even if he is later found uninsurableCorrect
   • BA binding receipt provides no coverage at all until the policy is actually delivered and paid for
   • CA binding receipt requires a medical examination, while a conditional receipt does not
   • DA binding receipt may be issued only by the insurer's home office, never by a soliciting agent

   Why: A binding receipt creates temporary insurance effective on the date of the receipt and lasting a stated period, often 30 or 60 days, regardless of the applicant's insurability, whereas a conditional receipt provides coverage only if the applicant is later determined insurable as applied for. Choice B describes what happens when no premium is collected with the application at all — in that case coverage begins only at delivery with payment and a statement of continued good health.

   Reference Outline IX (Field Underwriting Procedures): initial premium and receipt consequences

5. An applicant deliberately says nothing about a serious condition his doctor diagnosed last month, even though the application asks about recent diagnoses. This is BEST described as

   • AconcealmentCorrect
   • Ba warranty
   • Cwaiver
   • Destoppel

   Why: Concealment is the intentional withholding of a material fact the applicant has a duty to disclose, and it can void the contract. A misrepresentation, by contrast, is an untrue statement actually made; a warranty is a statement guaranteed to be true and made part of the contract, while waiver and estoppel concern the voluntary surrender or the loss of a known right.

   Reference Outline IX (Field Underwriting Procedures): concealment, representations, and warranties

6. An applicant pays the initial premium and receives a temporary insurance agreement (binding receipt) dated March 3. He dies of a heart attack on March 9, before underwriting is complete. The insurer later determines he would have been declined. Assuming the receipt's stated conditions were met, what must the insurer do?

   • APay the face amount — a binding receipt covers from its date regardless of insurabilityCorrect
   • BDeny the claim and refund the premium, because he would not in fact have been insurable
   • CPay only if the medical examination had been completed before his death
   • DPay a prorated amount equal to the coverage that the premium collected would have purchased

   Why: A binding (temporary insurance) receipt puts coverage in force on the receipt date for a stated period, commonly 60 days, whether or not the applicant later proves insurable; the insurer's remedy is to decline the permanent policy when the period ends. Choice B states the rule for a conditional receipt, where coverage depends on insurability — that is exactly the condition a binding receipt removes. Outline III.B — premium receipts and effective date.

   Reference Outline III.B — Premium receipts: binding/temporary insurance agreement

7. An applicant completes a life insurance application but does not submit the initial premium with it. Under contract law, which party makes the OFFER in this transaction?

   • AThe applicant, at the moment he signs and dates the application
   • BThe agent, at the moment he solicits the sale from the applicant
   • CThe insurer, when it issues the policy; the applicant accepts by payingCorrect
   • DThe insurer, at the moment it receives the application in the home office

   Why: With no premium attached, the application is only an invitation to the insurer to make an offer; the issued policy is the offer, and the applicant accepts by paying the initial premium (and signing the statement of good health) at delivery. Choice A is correct only in the other fact pattern — when the premium accompanies the application, the applicant is the offeror and the insurer accepts by issuing the policy as applied for. Outline III.D — contract law.

   Reference Outline III.D — Contract law: offer and acceptance

8. An insurer issues a life policy even though one health question on the application was left entirely blank. Nine months later the insured dies of a condition that the unanswered question would have revealed. What is the likely result?

   • AThe insurer may rescind, because the applicant had a duty to answer every single question
   • BThe insurer may contest only if the agent also failed to sign the application
   • CThe claim is reduced in proportion to the premium that should have been charged
   • DThe insurer is deemed to have waived the unanswered question, so the claim is payableCorrect

   Why: Accepting an application with an obvious blank and issuing the policy anyway waives the missing information; the insurer cannot later rely on an omission it chose to overlook. The correct procedure is to return the incomplete application to the applicant for completion before issue. Choice A ignores that the insurer's own acceptance created the waiver. Outline III.A — incomplete applications.

   Reference Outline III.A — Incomplete applications and waiver

9. In deciding whether a misstatement on a life insurance application is "material," the controlling test is whether:

   • AThe applicant intended to deceive the insurer at the time the answer was given on the application
   • BThe misstatement was discovered before the policy was delivered and the first premium paid
   • CThe misstatement concerned a medical rather than a financial matter on the application
   • DThe true fact would have caused the insurer to decline the risk or issue on different termsCorrect

   Why: Materiality is measured by the effect the truth would have had on the underwriting decision — issuance, amount, rate, or terms — under s. 627.409, F.S. Intent, choice A, matters for the separate fraud ground; an entirely innocent but material misstatement is still enough to defeat recovery during the contestable period. Outline III.C.

   Reference s. 627.409, F.S. — materiality of representations

10. An insurer declines an application partly because of information contained in a consumer report. Under the Fair Credit Reporting Act, the insurer must:

    • AMail the applicant a free copy of the consumer report that the underwriter relied on in declining
    • BWait 30 days before issuing the declination so the applicant has time to correct the report
    • CReinvestigate the disputed information itself and issue the applicant a written finding within 30 days of the request
    • DTell the applicant a consumer report contributed and give the agency’s name, address, and phone numberCorrect

    Why: When an adverse underwriting decision is based in whole or in part on a consumer report, FCRA requires an adverse action notice identifying the consumer reporting agency so the applicant can obtain the file and dispute errors. The insurer does not supply the report itself, choice A — the reporting agency does — and the reinvestigation duty in choice C also belongs to the agency, not the insurer. Outline III.C.

    Reference Outline III.C — FCRA adverse action notice

Drill other domains

• Types of Policies and Features (Life and Annuities) (17.5%)
• Policy Riders, Provisions, Options and Exclusions (17.5%)
• Retirement and Other Insurance Concepts (9%)
• Florida Statutes and Rules Common to All Lines (24%)
• Florida Statutes — Life and Annuity (incl. Variable Products) (18%)

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