D1. Accident and Health Insurance Basics

  1. A producer's underwriting responsibility would include which of the following:

    • A) Making sure all material facts are included in the application
    • A producer is responsible for making sure that all material facts are included in the application. The producer is sometimes referred to as a "front-line" underwriter, since they generally have personal contact with the applicant. Life and Health producers may issue conditional receipts, but not binders of coverage. Binders are only used in Property/Casualty insurance. The insurer issues the policy, not the producer. The underwriter orders the MIB report, not the producer.
  2. A limited health insurance policy that will pay a lump-sum to the insured if they are diagnosed with life-threatening cancer, stroke, heart attack or Alzheimer's disease is known as:

    • A) Critical Illness insurance
    • Although they are similar, Critical Illness coverage will pay the insured a lump-sum upon the diagnosis of a critical illness, while Dread Disease coverage will pay only a specified amount per day if the insured is hospitalized due to a so-called "dread disease", such as cancer. Both policies pay in addition to any other coverage the insured may have.
  3. Policy delivery refers to the delivery of the:

    • A) Completed insurance policy to the applicant
    • When the complete policy is delivered, the Free Look starts.
  4. Which of the following could an underwriter not use when determining the insurability of an individual:

    • B) Results from genetic testing
    • An underwriter will use information from multiple sources when determining the insurability of an individual, however, they cannot decline a risk based on sex, blindness or deafness, genetic characteristics, marital status or sexual preference.
  5. The Insuring Clause of a disability policy usually states all of the following, EXCEPT:

    • C) The method of premium payment
    • The method of premium payment is in another section of the policy called the Mode of Premium, which may be annual, semiannual, quarterly or monthly. The more frequent the mode, the higher the cost of insurance.
  6. All of the following are true regarding health insurance policies, EXCEPT:

    • A) An agent may change an application with the verbal consent of the applicant
    • Agents or producers may not alter a client's application for health insurance without their written consent, meaning that the client would have to either re-sign the application or initial the change.
  7. Any death benefit under a health insurance contract is limited to deaths caused by:

    • D) Accidental injury only
    • AD&D covers death due to accident only, not sickness, that's life insurance. Medical Expense coverage will pay your expenses up until you die, but will pay nothing for your death.
  8. A specified policy would cover which of the following:

    • B) Cancer
    • Specified or dread disease policies protect only against the disease specified in the contract, such as cancer or heart disease.
  9. Under the Fair Credit Reporting Act, persons rejected for insurance, employment or credit due to information contained in a consumer report:

    • B) Must be informed of the source of the report
    • The Federal Fair Credit Reporting Act protects applicants when a consumer (credit) report is ordered in connection with insurance, employment or banking. Although parties who order such reports need not give applicants a copy of the report, they do have to reveal the source of the report, so a person against whom adverse action has been taken can contact the reporting agency and obtain a copy and verify its accuracy.
  10. No type of health insurance covers:

    • D) Death due to sickness
    • Health insurance never covers death due to sickness, although an AD&D policy does cover death due to accident. Coverage for death due to sickness is provided by Life insurance.
  11. All of the following statements about pre-existing conditions are true, EXCEPT:

    • B) Policies usually define accidents that occur within 15 days after the effective date as pre-existing conditions
    • There is no such thing as a pre-existing accident. Pre-existing Conditions are conditions that existed prior to the date of application and are often excluded by the Probationary Period unless mentioned on the application.
  12. An underwriter could most likely use all of the following sources of underwriting information when evaluating the insurability of an applicant, EXCEPT:

    • D) National Association of Health Underwriters (NAHU)
    • The National Association of Health Underwriters is a trade organization, not a source of underwriting information.
  13. Most health insurance policies exclude all of the following, EXCEPT:

    • D) Accidental injury
    • Occupational injury is covered by Workers' Compensation insurance, not health insurance. Further, both intentional injury and injury due to war are excluded. However, injuries due to an accident, such as medical bills due to a broken leg, are covered.
  14. A person's eligibility for Workers' Compensation coverage is determined by the:

    • C) State
    • Workers' Compensation is a type of casualty insurance that covers occupational injury or sickness. Coverage is mandatory if an employer has one or more employees. Coverage is statutory, meaning that coverage would be the same no matter where it is purchased. Although the Commissioner or Director of Insurance may have to approve the rates, eligibility for coverage is determined by another state agency, which is known as the State Industrial Commission in most states.
  15. In order to comply with Fair Credit Reporting Act, at which times must a producer notify an applicant that a credit report may be requested:

    • C) At the time of application
    • The Federal Fair Credit Reporting Act requires "pre-notification" which requires that an applicant sign an acknowledgement that the insurer may investigate them. This acknowledgement is on the application.
  16. The Fair Credit Reporting Act requires that:

    • A) The applicant for insurance be advised, in advance, that a consumer report may be requested
    • The Federal Fair Credit Reporting Act requires both pre-notification and post-notification regarding consumer reports.
  17. An applicant purchased a disability policy on his wife that included an Accidental Death and Dismemberment benefit. He named himself as the beneficiary and specified that the death benefits were to be payable to his son if he, the applicant, were to predecease his wife. In this situation, the applicant's son would be considered the:

    • A) Contingent beneficiary
    • AD&D is similar to life insurance in that the client may name both a primary and contingent beneficiary, which can be changed at any time unless the designations are "irrevocable."
  18. Health insurance policies cover all of the following risks, EXCEPT:

    • B) War related injuries
    • Health insurance policies will not cover war related sickness or injury.
  19. Health coverage becomes effective when the:

    • C) First premium has been paid and the application has been approved
    • Choose the most correct answer. Coverage becomes effective when the company underwriter approves the application if the premium has been paid.
  20. Which statement about a Conditional Receipt is true:

    • D) It is an interim insuring agreement
    • The Conditional Receipt does not guarantee that a policy will be issued. It is given to the client at the time of application, so it does not become part of the policy. It is considered a temporary insuring agreement (policy).
  21. Emily Jones fills out an application for a disability policy and pays her producer the initial premium. The producer gives Ms. Jones a Conditional Receipt. Her coverage will become effective when:

    • C) The insurance company accepts the risk
    • Pick the best answer. When would be the earliest for coverage to start? Assuming the premium has been paid (it was), coverage starts when the company underwriter approves the application.
  22. Health insurance rates may be based upon all of the following, EXCEPT:

    • A) Religion
    • Health insurers are permitted to discriminate based upon gender, age and medical history, since those factors are relevant to the risk presented. However, it is unlawful to discriminate based upon religion, race, national origin, etc.
  23. An applicant for an individual health policy failed to complete the responses to the medical history questions because they had forgotten some important past treatment dates. They did, however, sign the application. Before being able to complete the responses and pay the initial premium, they were confined to a hospital for a condition that would ordinarily be covered by the policy. In this situation, they were not insured because they had not met the conditions specified in:

    • D) Consideration Clause
    • The consideration on an insurance policy is the premium paid by the insured and the statements they make on their application. There is never any coverage unless the premium has been paid.
  24. All of the following are true when a producer recommends that their client switch from one individual medical expense policy to another in order to obtain a lower premium, EXCEPT:

    • D) It is an unlawful practice known as "replacement"
    • Although replacement is not unlawful, it can lead to errors and omissions if the producer fails to explain that a new probationary period may apply and that the incontestability clause starts over. Remember, portability of coverage without a new probationary period as required by HIPAA applies to group medical expense policies, not individual policies.
  25. All of the following statements about sources of underwriting information are true, EXCEPT:

    • C) The contents of an inspection report cannot be disclosed to the applicant
    • Contents of Inspection Reports may be disclosed to applicants, but the producer or company is under no obligation to give a copy of the report to the client. Under the Fair Credit Reporting Act, the producer or company is obligated to inform the client of the name and address of the reporting agency that furnished the report.
  26. On an Accidental Death and Dismemberment (AD&D) policy, the death benefit payable is known as the:

    • B) Principal sum
    • An AD&D policy has 2 parts: 1) the principal sum, which is the amount payable for accidental death; and 2) the capital sum, which is the amount payable for accidental dismemberment.
  27. The Pre-existing Condition Exclusion in disability insurance is designed to protect the insurance company against:

    • D) Adverse selection
    • Individual health policies contain a Probationary Period to protect the insurer against those who want to buy insurance because they are sick, which would be "adverse selection" against the insurance company and cause them to lose money. The Pre-existing Condition Exclusion and the Probationary Period are the same thing.
  28. An applicant for a disability insurance policy has a heart condition of which they are unaware and therefore they answer "no" to the question pertaining to heart problems. Their answer is considered to be a:

    • C) Representation
    • The client told the truth to the best of their knowledge, which is defined as a "representation." Warranties are sworn statements of truth, but are not required on insurance applications.
Card Set
D1. Accident and Health Insurance Basics
Accident and Health Insurance Basics DISABILITY PORTION