Life Application, Underwriting, and Policy Delivery — practice questions

8% of the exam ≈12 real questions 13 free questions here

Applications, conditional receipts, insurable interest, replacement, and policy delivery — about 12 scored questions. Expect at least one item on when coverage actually begins, and one on STOLI.

Where people lose points

• A conditional receipt only backdates coverage if the applicant turns out to be insurable as applied for.
• Insurable interest must exist when the policy is issued — it does not have to survive after that.
• Warranties must be literally true; representations only have to be substantially true.
• Florida replaced its old agent-duty replacement rules in January 2024 — the duty now runs through Rule 69O-151.007 and 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 life application, underwriting, and policy delivery.

1. 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

2. 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

3. 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

4. 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

5. 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

6. An underwriter reviewing an application sees a reference to a hospitalization three years ago and needs the treating doctor's actual records. Which underwriting source will the insurer order?

   • AAn inspection report from an outside agency
   • BAn attending physician statement (APS)Correct
   • CAn MIB coded database search
   • DA paramedical examination at home

   Why: An attending physician statement is obtained, with the applicant's written authorization, from the doctor who actually treated the condition, and it is the standard follow-up whenever the application or an MIB code raises a specific medical history. A paramedical exam, choice D, documents current height, weight, blood pressure, and specimens — it cannot supply three-year-old treatment records. Outline III.C.

   Reference Outline III.C — Sources of underwriting information: APS

7. An applicant applies for a standard policy but the insurer issues it with a substandard rating and a higher premium. What must happen for a contract to exist?

   • AThe applicant must accept the counteroffer by signing an amendment and paying the new premiumCorrect
   • BNothing further at all; the policy is effective the moment the insurer issues it
   • CThe agent must sign the amendment on the applicant’s behalf and then remit the premium difference
   • DThe insurer must reunderwrite the case at standard rates within the next 30 days

   Why: A policy issued other than as applied for is a counteroffer, which the applicant is free to reject; acceptance requires the applicant's signature on the amendment to the application plus payment of the adjusted premium. Choice C is prohibited — an agent may never sign an application or amendment for the applicant, and doing so is grounds for license discipline in Florida. Outline III.D.

   Reference Outline III.D — Counteroffer: policy issued other than as applied for

8. A whole life policyowner decides to stop paying premiums and let the policy lapse. The insurer cannot sue him for breach of contract. Which characteristic of insurance contracts explains this?

   • AIt is a conditional contract, so performance depends on conditions being met
   • BIt is a contract of adhesion, drafted by one party and accepted as written
   • CIt is an aleatory contract, so the values exchanged may be unequal
   • DIt is a unilateral contract — only the insurer makes an enforceable promiseCorrect

   Why: Only one party — the insurer — gives a legally enforceable promise; the owner is never obligated to keep paying and simply loses coverage or takes a nonforfeiture option if he stops. Choice A, conditional, is a different unique aspect: it means the insurer's duty to pay arises only when the policy's conditions, such as proof of death, are satisfied. Outline III.D.

   Reference Outline III.D — Unique aspects: unilateral and conditional

9. While completing a life insurance application, an applicant realizes he entered an incorrect date of birth. What is the proper way to correct the error?

   • AThe agent should erase the error and neatly write in the correct date
   • BThe applicant should draw a line through the error, write in the correct date, and initial the changeCorrect
   • CThe agent should cover the error with correction fluid and initial the change on the applicant's behalf
   • DThe application should be submitted unchanged so the insurer's underwriter can correct it

   Why: Any change to an application must be made and initialed by the applicant (or a fresh application completed); this documents that the applicant, not someone else, authorized the correction. Neither the agent nor the insurer may alter an application without the applicant's consent, and erasures or correction fluid destroy the audit trail and invite disputes over what was originally stated. Outline III.A (changes in the application).

   Reference Outline III.A — Completing the application: changes

10. A Florida agent is taking a life insurance application and knows the proposed policy will replace the applicant's existing whole life policy. Under Florida's replacement regulation, the agent must:

    • APresent the signed Notice to Applicant Regarding Replacement when the application is takenCorrect
    • BObtain written approval from the existing insurer before the new application may be submitted
    • CCancel the existing policy before the new application may be submitted to the insurer
    • DSimply note the replacement in the agent’s report; no other disclosure is required

    Why: Florida's replacement rule requires, with every completed life application, signed statements from both the applicant and the agent as to whether replacement is or may be involved. When replacement is involved, the completed Notice to Applicant Regarding Replacement (Form OIR-B2-312), signed by both parties, must accompany the application — so it is completed no later than at the time the application is taken — and a copy is given to the applicant; the replacing insurer must also receive all sales proposals used and send a copy of the notice to the existing insurer. The existing insurer is notified so it can try to conserve the business, but its approval is never required, which is why option B is wrong. Outline III.A (replacement); Rule 69O-151.007, F.A.C.

    Reference Outline III.A — Replacement; Rule 69O-151.007, F.A.C. (Form OIR-B2-312)

Topics inside this domain

• Annuities on the Florida 2-15
• Life policy provisions and clauses
• HIV testing and consent in Florida underwriting
• Buyer's Guide and Florida free look periods

Drill other domains

• Types of Life Policies and Features (10%)
• Life Policy Riders, Provisions, Options, and Exclusions (10%)
• Retirement and Other Life Insurance Concepts (5%)
• Types of Health Policies (11%)
• Health Policy Provisions, Clauses, and Riders (10%)
• Social Insurance (4%)

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