Life & Health Insurance Underwriting and Risk Classification Flashcards
7 cards from real Life & Health Insurance Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Life & Health Insurance Underwriting and Risk Classification flashcards as text
A health insurance applicant with a pre-existing knee injury applies for an individual policy. Under ACA rules for individual and small group markets, how must the insurer handle this?
Answer: Cover the condition without exclusion or premium surcharge
The ACA prohibits pre-existing condition exclusions in individual and small group health insurance markets, requiring coverage without exclusions or surcharges.
What does a 'table rating' system indicate in life insurance underwriting?
Answer: A classification system for substandard risks where each table level represents an additional premium charge
Table ratings classify substandard risks by severity, with each table (often A–J or 1–10) representing an incremental percentage increase above the standard premium.
Which aviation activity is MOST likely to result in a life insurance exclusion rider rather than an outright decline?
Answer: Flying as a licensed commercial airline pilot on scheduled carriers
Commercial airline pilots flying scheduled carriers are generally insurable; insurers may issue standard policies or attach aviation exclusion riders for private or hazardous aviation.
Under the concept of 'adverse selection,' what behavior does life insurance underwriting primarily aim to prevent?
Answer: High-risk individuals disproportionately purchasing insurance at standard rates
Adverse selection occurs when higher-risk individuals are more motivated to buy insurance, which underwriting controls by classifying risks accurately.
A life insurance applicant is a recreational scuba diver who dives to depths exceeding 100 feet. How is this activity most likely handled during underwriting?
Answer: Rated or excluded via a scuba diving exclusion rider based on depth and frequency
Scuba diving beyond moderate depths typically results in a flat extra premium or an exclusion rider, depending on the insurer's guidelines and the diver's experience.
What is the primary underwriting concern when an applicant for a large life policy recently changed beneficiaries to a non-family member?
Answer: It may indicate a stranger-originated life insurance (STOLI) arrangement
Naming a non-family third party as beneficiary, especially on large policies, can indicate a STOLI scheme where investors finance premiums to profit from the insured's death.
Which statement best describes the role of reinsurance in the underwriting process?
Answer: Reinsurers assume a portion of large or unusual risks to help primary insurers manage exposure
Reinsurance allows primary insurers to transfer a portion of their risk to reinsurers, enabling them to accept larger policies and unusual risks without excessive exposure.