Field Underwriting Procedures — practice questions

9% of the exam ≈8 real questions 9 free questions here

The agent's part in the application, HIPAA and FCRA notices, premium receipts, policy delivery and contract law: 8 of the 85 scored questions.

Where people lose points

• A contract needs consideration, offer and acceptance, competent parties and a legal purpose.
• Insurance contracts are conditional, unilateral, aleatory and contracts of adhesion; know which word means what.
• An investigative consumer report needs advance written notice to the applicant.
• The agent is the field underwriter, but only the home office can accept the risk.

Questions and answers, explained

All 9 questions above, with the correct answer and why it is correct. Everything here is on field underwriting procedures.

1. While completing an application for health insurance, the applicant gives the agent an answer that later must be corrected. What is the BEST way to correct the application?

   • AErase the incorrect answer or cover it with correction fluid and write in the new answer
   • BHave the agent correct the answer later and initial the change on the applicant's behalf
   • CDraw a line through the incorrect answer, insert the correct one, and have the applicant initial the changeCorrect
   • DSubmit the application unchanged and explain the error to the underwriter by phone

   Why: The application is the insurer's primary source of underwriting information and typically becomes part of the contract, so any change must be clearly visible and acknowledged by the applicant with his or her initials — or a fresh application should be completed. An agent must never alter an application on his or her own or conceal a correction.

   Reference Outline IX (Field Underwriting Procedures): completing the application

2. Elena applied for an individual disability income policy, paid the initial premium, and received a conditional receipt. No medical exam was required. Ten days later — before the insurer issued the policy — she was seriously injured in an accident. Underwriters then determine she was insurable as a standard risk on the date of the application. The insurer should

   • Apay the claim, because under the conditional receipt coverage began on the application dateCorrect
   • Bdeny the claim, because the policy had not yet been issued or delivered to her when she was hurt
   • Cdeny the claim but refund the premium she paid with the application
   • Dpay the claim only if the agent had express authority to bind the coverage

   Why: A conditional receipt makes coverage effective as of the date of the application (or the medical exam, if one is required) provided the applicant is later found insurable as applied for at standard rates. Because Elena met that condition, the loss is covered even though the policy had not yet been issued; had she been found uninsurable, the receipt would have provided no coverage at all.

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

3. Which of the following is one of the essential elements required to form a valid insurance contract?

   • AConditions
   • BConsiderationCorrect
   • CNotarization of the application
   • DPhysical delivery of a printed policy

   Why: The four elements of a valid contract are agreement (offer and acceptance), consideration, competent parties, and legal purpose. In insurance, the applicant's consideration is the premium plus the statements in the application, and the insurer's consideration is its promise to pay covered claims; notarization and physical delivery are not required to form the contract.

   Reference Outline IX (Field Underwriting Procedures): contract law — essential elements

4. 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

5. When an insurer requires a paramedical examination as part of underwriting, who selects and pays the examiner?

   • AThe insurer selects and pays the examiner, who acts as the insurer's representativeCorrect
   • BThe applicant selects and pays the examiner, who reports to the applicant
   • CThe agent selects the examiner and the applicant pays the examination fee
   • DThe state selects the examiner from a list of approved medical providers

   Why: Medical and paramedical examinations are ordered, arranged, and paid for by the insurer, and the examiner acts on the insurer's behalf, which is why the results go directly to the underwriter rather than to the applicant. Exams are generally triggered by the face amount applied for, the applicant's age, or answers on the application that call for objective medical evidence.

   Reference Outline IX (Field Underwriting Procedures): medical examinations and lab tests

6. While completing a health application, the applicant mentions she was treated for depression last year. The agent says, 'That's not important — leave it off,' and submits the application without it. During the contestable period the insurer discovers the omission. Which statement BEST describes the likely outcome?

   • AThe insurer may rescind with no exposure, because the applicant signed the application
   • BThe agent's knowledge is imputed to the insurer, which may bar rescission, and the agent faces disciplineCorrect
   • CThe applicant alone is guilty of misrepresentation and the agent bears no responsibility
   • DThe insurer must pay the claim and may not discipline the agent in any way

   Why: Because the agent is the insurer's representative, the agent's knowledge of a material fact is generally imputed to the insurer, which can bar the insurer from rescinding on the ground that the fact was concealed. Choice A ignores agency law: the applicant's signature does not cure the agent's own misconduct, and instructing an applicant to omit material information is willful deception and a dishonest practice for which s. 626.611, F.S., requires the Department to suspend or revoke the license, in addition to the agent's errors-and-omissions exposure.

   Reference Outline IX (Field Underwriting Procedures): agent responsibilities; s. 626.611, F.S.

7. Under s. 627.404, F.S., an applicant would have an insurable interest in each of the following lives EXCEPT:

   • AThe applicant's own life
   • BThe life of the applicant's business partner
   • CThe life of a close relative in whom the applicant has a substantial interest engendered by love and affection
   • DThe life of a stranger the applicant expects will die soon, insured purely for profitCorrect

   Why: Section 627.404, F.S., recognizes insurable interest in one's own life; in the life of a person to whom the applicant is closely related by blood or by law and in whom the applicant has a substantial interest engendered by love and affection; and where the applicant has an expectation of substantial pecuniary advantage from the continued life of the insured, which covers a business partner or key employee. A speculative wager on a stranger's death is exactly what the insurable interest requirement exists to prevent, and such an arrangement is the hallmark of a stranger-originated life insurance (STOLI) scheme.

   Reference Outline IX (Field Underwriting Procedures): insurable interest; s. 627.404, F.S.

8. An applicant applied for a standard health policy, but the insurer issued it with a rated premium and an exclusion rider. When the agent delivers the policy, the agent must

   • Acollect the premium and say nothing, because the applicant already applied for coverage
   • Bexplain that the policy is a counteroffer, obtain the applicant's signed acceptance, and collect any added premiumCorrect
   • Creturn the policy to the insurer and demand that it be reissued at standard rates as applied for
   • Ddeliver the policy but leave the exclusion rider unsigned so that it will not apply

   Why: A policy issued on terms other than those applied for is a counteroffer rather than an acceptance, so no contract is formed until the applicant accepts the changed terms — normally by signing an amendment or acceptance form and paying any additional premium. Choice A is the classic field-underwriting failure: delivering a modified policy without explaining and documenting the change sets up a disputed claim later and exposes the agent to disciplinary action and E&O liability.

   Reference Outline IX (Field Underwriting Procedures): policy delivery — counteroffer and acceptance

9. 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 Health Policies (19%)
• Policy Provisions, Clauses and Riders (18%)
• Social Insurance (7%)
• Other Insurance Concepts (6%)
• Florida Statutes and Rules Common to All Lines (23%)
• Florida Statutes — Health Insurance (18%)

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