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OR Life & Health practice questions

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Question 1Oregon Insurance Law, Rules, and Regulations

Which entity has primary responsibility for enforcing Oregon's insurance laws?

  1. The Division of Financial Regulation Correct answer.
  2. The consumer protection unit of the Attorney General
  3. The Oregon Secretary of State's office
  4. The Oregon Public Utility Commission

Explanation

Oregon's Insurance Code is administered by the Director of the Department of Consumer and Business Services through the Division of Financial Regulation. That division licenses insurers and producers, reviews rates and forms, and takes enforcement action for violations. The other agencies listed regulate utilities, elections, and general consumer transactions rather than insurance.

Question 2Oregon Insurance Law, Rules, and Regulations

To qualify for an Oregon resident producer license, an applicant must be at least what age?

  1. 21 years old
  2. 16 years old
  3. 18 years old Correct answer.
  4. 25 years old

Explanation

Oregon requires a resident producer applicant to be at least 18 years old, pass the qualifying examination for the line applied for, pay the required fees, and be otherwise competent and trustworthy. Age alone does not qualify a person; the exam and background requirements apply as well.

Question 3Oregon Insurance Law, Rules, and Regulations

In Oregon, insurable interest in a life insurance policy must exist:

  1. at the time of the insured's death
  2. continuously from application to policy maturity
  3. at the time the policy is applied for Correct answer.
  4. only when the death benefit exceeds $100,000

Explanation

Insurable interest is required when the contract is formed, not when the insured dies. A policy validly issued on an insurable-interest relationship remains enforceable even if that relationship later ends, such as through divorce. Requiring interest at death would invalidate many legitimately issued policies.

Question 4Oregon Insurance Law, Rules, and Regulations

An individual life insurance policy delivered in Oregon must give the owner the right to return it for a full premium refund within how many days after delivery?

  1. 3 days
  2. 10 days Correct answer.
  3. 20 days
  4. 5 days

Explanation

Oregon law requires a free-look period of at least 10 days after delivery of an individual life policy, during which the owner may return the policy for a full refund of premium. The right must be described in the policy so the owner knows the deadline. A policy may voluntarily provide a longer period.

Question 5Oregon Insurance Law, Rules, and Regulations

An Oregon producer who offers a prospective buyer a share of her commission to persuade the buyer to purchase a policy is engaged in:

  1. Coercion
  2. Rebating Correct answer.
  3. Misrepresentation
  4. Twisting

Explanation

Rebating is offering any inducement not stated in the policy, such as a portion of the commission, to persuade a person to buy insurance. It is an unfair trade practice under Oregon law because it gives some buyers an advantage not reflected in the filed policy terms.

Question 6Oregon Insurance Law, Rules, and Regulations

A producer licensed in good standing in Washington wants to sell life insurance in Oregon. The producer generally must:

  1. maintain a separate Oregon business office
  2. complete Oregon's prelicensing course and state exam
  3. obtain a nonresident license without taking an Oregon exam Correct answer.
  4. surrender the Washington license before applying

Explanation

Oregon grants nonresident producer licenses on a reciprocal basis to individuals who hold a valid home-state license in good standing for the same line. Because the home state already tested the producer, Oregon does not require another qualifying exam. A physical Oregon office is not a licensing condition.

Question 7Oregon Insurance Law, Rules, and Regulations

Which activity requires an Oregon life insurance producer license?

  1. Soliciting a life insurance sale in exchange for a commission Correct answer.
  2. Doing clerical filing in an insurer's home office
  3. Writing a newspaper column explaining how life insurance works
  4. Selling advertising space to a life insurer

Explanation

A license is required to solicit, negotiate, or sell insurance, or to receive commission for those activities. General educational information, advertising sales, and clerical work performed for an insurer do not involve transacting insurance with the public.

Question 8Oregon Insurance Law, Rules, and Regulations

Under an Oregon health insurance policy that covers dependents, a newborn child of the insured is covered:

  1. from the moment of birth Correct answer.
  2. only after the insurer receives an application and premium
  3. only if a dependent rider is bought within 31 days
  4. after a 30-day waiting period

Explanation

Coverage for a newborn begins automatically at birth under the parent's policy, including any congenital conditions. The insurer may require notice and payment of any additional premium within a set period, but the coverage itself is not delayed or conditioned on a new application.

Question 9Oregon Insurance Law, Rules, and Regulations

Oregon resident producers must complete how much continuing education during each two-year license period?

  1. 12 hours, including at least 2 hours of ethics
  2. 30 hours, including at least 6 hours of ethics
  3. 40 hours, with no ethics component
  4. 24 hours, including at least 3 hours of ethics Correct answer.

Explanation

Oregon requires producers to complete 24 credit hours of approved continuing education every two years, with a minimum of 3 of those hours in ethics. Producers who sell annuities or long-term care insurance must also satisfy separate product-specific training. Records must be retained and available for audit.

Question 10Oregon Insurance Law, Rules, and Regulations

An Oregon long-term care insurance policy must give the purchaser a free-look period of at least:

  1. 10 days
  2. 60 days
  3. 45 days
  4. 30 days Correct answer.

Explanation

Long-term care insurance carries a longer free-look period than ordinary life insurance because the product is complex and often sold to older buyers. Oregon requires at least 30 days after delivery to return the policy for a full refund. The free-look right must be printed conspicuously on the policy.

Question 11Oregon Insurance Law, Rules, and Regulations

Before a life insurance policy is used to replace existing coverage in Oregon, the producer must:

  1. obtain the Division's written approval of the replacement
  2. give the applicant a replacement notice and forward a copy with the application Correct answer.
  3. refund the first month's premium to the applicant
  4. wait 30 days before submitting the application

Explanation

Oregon's replacement rules require the producer to present and explain a written notice regarding replacement, have the applicant sign it, and submit a copy to the replacing insurer along with the application. The insurer then notifies the existing insurer so it can contact its policyholder. No prior regulatory approval or waiting period applies.

Question 12Oregon Insurance Law, Rules, and Regulations

Misleading a policyholder into lapsing an existing policy through an incomplete or unfair comparison of policies is known as:

  1. Coercion
  2. Defalcation
  3. Rebating
  4. Twisting Correct answer.

Explanation

Twisting is a misrepresentation or incomplete comparison used to induce a policyholder to lapse, surrender, or replace coverage. It is an unfair trade practice because the replacement decision is based on false or distorted information. Replacement is lawful only when it is fully and fairly disclosed.

Question 13Oregon Insurance Law, Rules, and Regulations

An Oregon producer who collects premium from a policyholder holds that money:

  1. in a fiduciary capacity for the insurer Correct answer.
  2. as trustee for the policyholder's beneficiaries
  3. free of any accounting obligation
  4. as a personal loan from the policyholder

Explanation

Premiums collected by a producer belong to the insurer and are held in a fiduciary capacity until remitted. Commingling those funds with the producer's own money or using them for personal expenses is prohibited and can result in license suspension or revocation.

Question 14Oregon Insurance Law, Rules, and Regulations

An Oregon insurer may pay a sales commission to:

  1. an unlicensed office manager who arranged the sale
  2. any employee of the policyholder
  3. an unlicensed friend who found the buyer for the producer
  4. a producer properly licensed for the line of insurance sold Correct answer.

Explanation

Compensation for selling, soliciting, or negotiating insurance may be paid only to a person licensed for that line of insurance. Paying a commission to an unlicensed person is an unfair trade practice and can subject both the payer and the recipient to penalties.

Question 15Oregon Insurance Law, Rules, and Regulations

An Oregon producer must report a final administrative action taken by another state's insurance regulator to the Division within how many days of the final disposition?

  1. 30 days Correct answer.
  2. 60 days
  3. 10 days
  4. 180 days

Explanation

Producers must notify the Division within 30 days after a final administrative action, criminal conviction, or similar adjudication. Prompt reporting lets the Division evaluate whether the producer remains competent and trustworthy. Failure to report is itself grounds for disciplinary action.

Question 16Oregon Insurance Law, Rules, and Regulations

Which of the following is an unfair claim settlement practice under Oregon law?

  1. Investigating a claim within 30 days of notice
  2. Failing to acknowledge a claim with reasonable promptness Correct answer.
  3. Requesting a written proof of loss from a claimant
  4. Denying a claim because a policy exclusion applies

Explanation

Insurers must acknowledge and act on claims promptly and in good faith. Unreasonably delaying communication with a claimant is an unfair claim settlement practice, as is failing to conduct a reasonable investigation or offering substantially less than the claim is worth.

Question 17Oregon Insurance Law, Rules, and Regulations

Under an Oregon group life policy, an employee whose group coverage ends may generally convert to an individual policy without evidence of insurability within:

  1. six months after the group coverage ends
  2. 31 days after the group coverage ends Correct answer.
  3. one year after the group coverage ends
  4. 10 days after the group coverage ends

Explanation

Group life policies must include a conversion privilege allowing a terminating insured to buy an individual policy without proving insurability. The typical conversion window is 31 days after group coverage ends, and coverage continues during that period.

Question 18Oregon Insurance Law, Rules, and Regulations

Under Oregon law and the federal Affordable Care Act, an adult child may generally remain covered on a parent's health plan as a dependent until age:

  1. 19
  2. 24
  3. 26 Correct answer.
  4. 30

Explanation

Dependent coverage must be extended to an adult child until the child turns 26, and the child need not be a student, live with the parent, or be claimed as a tax dependent. Some states and policies extend coverage longer for certain dependents, but 26 is the required floor.

Question 19Oregon Insurance Law, Rules, and Regulations

Oregon Life and Health Insurance Guaranty Association protection for the death benefit of a life insurance policy is limited to:

  1. $500,000 per insured life
  2. $250,000 per insured life
  3. $100,000 per insured life
  4. $300,000 per insured life Correct answer.

Explanation

The guaranty association pays death benefits up to $300,000 per insured life when a member insurer becomes insolvent. Separate limits apply to cash surrender value, annuity present value, and health benefits. The association protects policyholders but is not a general state guarantee of all insurer obligations.

Question 20Oregon Insurance Law, Rules, and Regulations

An insurer organized in another state that wants to transact insurance in Oregon must first:

  1. appoint a producer in every county
  2. obtain a certificate of authority from the Division Correct answer.
  3. reincorporate as an Oregon domestic insurer
  4. file its annual statement and begin writing business

Explanation

A foreign or alien insurer must be authorized by the Division before transacting insurance in Oregon. Authorization requires a certificate of authority, which follows a review of the insurer's financial condition, management, and compliance with Oregon requirements. Transacting without authority is unlawful.

Question 21Oregon Insurance Law, Rules, and Regulations

An Oregon producer who wants to sell long-term care insurance must complete:

  1. a 40-hour course and an annual refresher
  2. 8 hours initially, then 4 hours biennially Correct answer.
  3. 3 hours of ethics training each year
  4. only the standard 24 hours of continuing education

Explanation

Oregon requires producers selling long-term care insurance to complete an initial 8-hour training course on the product and population, followed by 4 hours of refresher training every two years. This training is in addition to the producer's general continuing education.

Question 22Oregon Insurance Law, Rules, and Regulations

For purposes of Oregon small employer health insurance rules, a small employer is one that employed an average of:

  1. at least 2 but not more than 25 eligible employees
  2. at least 1 but not more than 50 eligible employees Correct answer.
  3. at least 1 but not more than 10 eligible employees
  4. at least 5 but not more than 100 eligible employees

Explanation

Oregon defines a small employer for health insurance purposes as one with an average of at least 1 and no more than 50 eligible employees on business days during the prior calendar year. Small employers receive guaranteed availability and renewability protections. Larger employers fall outside these small-group rules.

Question 23Oregon Insurance Law, Rules, and Regulations

When recommending an annuity to a consumer in Oregon, a producer must:

  1. complete the transaction only after a 10-day waiting period
  2. obtain approval from the consumer's attorney before any exchange
  3. act in the consumer's best interest based on suitability information Correct answer.
  4. recommend the contract that pays the highest commission

Explanation

Oregon applies a best-interest standard to annuity recommendations, requiring the producer to gather information about the consumer's financial situation, needs, and objectives and to make a recommendation consistent with them. Higher compensation may not drive the recommendation. A written record of the basis for the recommendation must be kept.

Question 24Oregon Insurance Law, Rules, and Regulations

Paid Leave Oregon benefits are funded primarily by:

  1. payroll contributions from employees and employers Correct answer.
  2. the state general fund
  3. a surtax on insurers' premium tax
  4. federal Medicaid matching funds

Explanation

Paid Leave Oregon is the state's paid family and medical leave program, funded through payroll contributions split between employees and employers. It pays benefits for qualifying family leave, medical leave, and safe leave. It is separate from private disability income insurance.

Question 25Oregon Insurance Law, Rules, and Regulations

When an Oregon producer dies or becomes disabled, a temporary license may be issued to continue the business for a limited period of up to:

  1. indefinitely, until the estate closes
  2. 180 days Correct answer.
  3. 30 days
  4. 2 years

Explanation

Oregon allows a temporary producer license, generally for up to 180 days, to permit a deceased or disabled producer's business to continue under supervision while affairs are settled. The temporary licensee may not receive commissions for new sales beyond what the rules permit.

Question 26Oregon Insurance Law, Rules, and Regulations

An Oregon producer offers to pay a prospect's first monthly premium out of her own pocket if he buys a life policy from her today. This offer is:

  1. Permissible if the producer discloses the payment to the insurer in writing
  2. Permissible only for policies with a face amount under $25,000
  3. Permissible because the producer is spending her own money
  4. An unlawful rebate and an illegal inducement Correct answer.

Explanation

Oregon law bars producers from offering any inducement that is not specified in the policy contract, including paying premiums, absorbing fees, or sharing commissions with unlicensed persons. Rebating is an unfair trade practice that can lead to license suspension or revocation and civil penalties, regardless of whether the producer uses personal funds or discloses the arrangement.

Question 27Oregon Insurance Law, Rules, and Regulations

Before an Oregon producer may submit applications on behalf of a particular insurer, that insurer must:

  1. Appoint the producer and file it with the Division Correct answer.
  2. Publish the producer's name in a state register
  3. Issue the producer a certificate of authority
  4. Obtain written approval from the NAIC

Explanation

A producer license by itself authorizes only the lines of insurance named on it; the producer must also be appointed by each insurer it represents, and the appointing insurer files that appointment with the Division. Submitting business for an insurer that has not appointed the producer exposes both the producer and the insurer to penalties.

Question 28Oregon Insurance Law, Rules, and Regulations

A producer who is licensed and in good standing in another state applies for an Oregon producer license. Oregon will generally:

  1. Restrict the producer to selling only group products
  2. Deny the application unless the producer moves to Oregon
  3. Issue a nonresident license based on the home-state license Correct answer.
  4. Require the producer to repeat Oregon's prelicensing course

Explanation

Oregon issues nonresident producer licenses on a reciprocal basis to individuals who hold a resident license in good standing in another state that extends the same courtesy to Oregon licensees. The home-state license substitutes for Oregon's licensing examination and residency requirements.

Question 29Oregon Insurance Law, Rules, and Regulations

An unlicensed office employee of an Oregon producer answers phones, schedules appointments, and mails policy documents. The employee never discusses policy terms or premiums with clients. This employee:

  1. Must hold a limited lines license for administrative support
  2. May do this clerical work without a producer license Correct answer.
  3. Must hold a producer license because the work supports insurance sales
  4. May work only if supervised by a licensed insurer employee

Explanation

Producer licensing statutes reach soliciting, negotiating, and selling insurance, along with advising on coverage. Clerical and administrative tasks that do not involve discussing policy terms, premiums, or inducing a sale fall outside the licensing requirement.

Question 30Oregon Insurance Law, Rules, and Regulations

With intent to defraud, a policyholder in Oregon inflates a claim for a covered loss and submits altered receipts. Under Oregon law, this conduct:

  1. Is insurance fraud and may be prosecuted as a crime Correct answer.
  2. Is lawful if the insured repays the excess after payment
  3. Is merely a breach of contract handled through arbitration
  4. Is a matter for the producer's errors and omissions policy

Explanation

Knowingly presenting a false or inflated claim, or supporting it with altered documents, is insurance fraud. Oregon treats it as a criminal offense and also permits the insurer to deny the claim and pursue restitution, and the conduct can support disciplinary action against any licensee involved.

Question 31Oregon Insurance Law, Rules, and Regulations

An Oregon producer moves her business location and legally changes her name after marriage. She must:

  1. Send the updates to each insurer, which forwards them at renewal
  2. Wait until the license renews to report the changes
  3. Notify the Division of the changes within 30 days Correct answer.
  4. Report only the name change, because addresses are public record

Explanation

Licensees must keep the Division's records current so that official notices, orders, and renewal information reach them. A legal name change or change of business address must be reported to the Division within 30 days rather than deferred to renewal.

Question 32Oregon Insurance Law, Rules, and Regulations

An Oregon applicant wants to buy a life insurance policy on the life of a business partner. The policy may be issued only if:

  1. The applicant pays the entire premium in one single payment
  2. The partner's spouse co-signs the application
  3. The partner is at least ten years younger than the applicant
  4. Insurable interest exists and the partner consents Correct answer.

Explanation

A life insurance contract requires insurable interest at the time the policy is issued, and the insured must consent to the coverage. Without those elements the contract is treated as a wagering contract and is void.

Question 33Oregon Insurance Law, Rules, and Regulations

An Oregon health benefit plan covers a service when it is provided in person. Under Oregon's telehealth rules, the plan must generally:

  1. Exclude telehealth for behavioral health services
  2. Apply a separate, higher deductible to telehealth claims
  3. Reimburse telehealth on the same basis as in-person care Correct answer.
  4. Pay for telehealth only when the provider is a hospital

Explanation

Oregon requires health benefit plans to reimburse covered services delivered by telehealth at the same rate and under the same cost-sharing terms that apply when the service is delivered in person. Plans may not single out telehealth for reduced payment or added cost sharing.

Question 34Oregon Insurance Law, Rules, and Regulations

An Oregon group health plan provides generous medical and surgical benefits but caps behavioral health visits and charges higher copays for them. This plan:

  1. Is lawful because behavioral health is a separate benefit class
  2. Is lawful if the employer has fewer than 50 employees
  3. Is lawful if the insurer files the limit with the Division
  4. Violates parity rules and must apply comparable terms Correct answer.

Explanation

Federal and Oregon parity requirements prohibit applying financial requirements or treatment limitations to mental health and substance use disorder benefits that are more restrictive than the predominant requirements applied to substantially all medical and surgical benefits in the same classification. Filing the limitation with a regulator does not cure the disparity.

Question 35Oregon Insurance Law, Rules, and Regulations

An Oregon producer wants to begin selling variable annuities to her clients. To do so, the producer must hold:

  1. Only a securities registration as an investment adviser representative
  2. Only a valid Oregon life insurance producer license
  3. A separate variable products license issued by the Division
  4. A life producer license and a securities registration with FINRA Correct answer.

Explanation

Variable annuities are dual-regulated: they are insurance contracts and also securities. The producer therefore needs an Oregon life insurance license and must be registered with a broker-dealer through FINRA before soliciting these products.

Question 36Oregon Insurance Law, Rules, and Regulations

Two Oregon applicants of the same age, sex, and health status apply for identical individual life policies, and the insurer charges one a higher premium because of the applicant's national origin. This rating is:

  1. Permissible if the insurer can show a loss-ratio difference
  2. Permissible for individual, but not group, life insurance
  3. Unlawful discrimination and an unfair trade practice Correct answer.
  4. A rating decision left entirely to the insurer's underwriting judgment

Explanation

Oregon prohibits unfair discrimination in rates or terms between individuals of the same class and same hazard, and distinctions must rest on actuarial factors rather than characteristics such as national origin, race, or religion. Charging a dissimilar premium on that basis is an unfair trade practice subject to regulatory action.

Question 37General Insurance Concepts and Contract Fundamentals

What is the primary function of insurance?

  1. Eliminating every possible source of loss for the policyholder
  2. Creating speculative risk that can be traded in markets
  3. Guaranteeing that policyholders will earn a profit
  4. Transferring financial risk from an individual to a group Correct answer.

Explanation

Insurance pools the exposures of many people so that the financial cost of one person's loss is shared across the group. The individual's risk is transferred to the pool rather than removed, and the arrangement deals with pure risk rather than speculative risk.

Question 38General Insurance Concepts and Contract Fundamentals

An insurance contract in which the dollar amounts exchanged by the parties may be unequal and depend on when a covered event occurs is best described as:

  1. a conditional contract
  2. an aleatory contract Correct answer.
  3. a contract of adhesion
  4. a unilateral contract

Explanation

Aleatory means the parties' performance is contingent on an uncertain event, so one party may receive far more or far less than it paid in premiums. The other labels describe who makes the promise, what triggers duties, and who drafted the document.

Question 39General Insurance Concepts and Contract Fundamentals

In a life insurance policy, which party makes an enforceable promise?

  1. Both the insurer and the policyowner
  2. The insurer Correct answer.
  3. The policyowner
  4. The beneficiary

Explanation

A life insurance policy is unilateral because only the insurer promises to pay a stated benefit when a covered death occurs. The owner's premium payments are conditions that keep the contract in force, not a promise the insurer can enforce.

Question 40General Insurance Concepts and Contract Fundamentals

For a life insurance policy taken out on another person, when must insurable interest exist?

  1. At the time the claim is submitted
  2. At the time the policy is applied for Correct answer.
  3. At every policy anniversary
  4. At the time of the insured's death

Explanation

In life insurance, insurable interest must exist when the contract is formed. After issue, coverage stays valid even if the relationship later changes, such as through divorce.

Question 41General Insurance Concepts and Contract Fundamentals

Which statement best describes the principle of utmost good faith in insurance?

  1. The insurer must refund the premium whenever the applicant requests it
  2. The insurer must pay every claim submitted by the policyowner
  3. The policyowner may omit facts the insurer does not ask about
  4. Both parties must disclose material facts affecting the risk Correct answer.

Explanation

Utmost good faith requires honest and complete disclosure of facts that would influence the other party's decision to accept the risk. Concealment or misrepresentation of a material fact can give the insurer grounds to rescind the contract.

Question 42General Insurance Concepts and Contract Fundamentals

What does the applicant give as consideration for a life insurance contract?

  1. A promise to submit to future medical exams
  2. The premium paid and the information in the application Correct answer.
  3. A pledge to renew the policy each year
  4. A promise to name the insurer as beneficiary

Explanation

Consideration is the value each party exchanges for the other's promise. The applicant provides the premium plus the representations in the application, and the insurer provides its promise to pay covered claims.

Question 43General Insurance Concepts and Contract Fundamentals

A policy is a contract of adhesion, which means that genuinely ambiguous policy language is generally interpreted:

  1. by a federal agency rather than by a court
  2. according to the insurer's internal underwriting manual
  3. in favor of the insurer that drafted it
  4. in favor of the policyowner who had no part in drafting it Correct answer.

Explanation

Because the insurer drafts the policy and the applicant must take it or leave it as written, courts resolve genuine ambiguities against the drafter and in favor of the insured. Internal underwriting materials do not control the meaning of policy language.

Question 44General Insurance Concepts and Contract Fundamentals

Under the principle of indemnity, a property claim payment is intended to:

  1. punish the party that caused the loss
  2. provide a profit so the insured can upgrade the damaged property
  3. restore the insured to the financial position held before the loss Correct answer.
  4. pay a fixed amount stated in the policy regardless of the loss

Explanation

Indemnity means the insured should be made whole, no better and no worse, so payment is limited to the amount of the actual loss. This is why property policies generally do not pay more than the value of the damaged property.

Question 45General Insurance Concepts and Contract Fundamentals

An insurer knowingly gives up its right to cancel a policy for late payment and continues to accept premiums. This action is best described as:

  1. a warranty
  2. subrogation
  3. a waiver Correct answer.
  4. a representation

Explanation

A waiver is the voluntary relinquishment of a known right. Once the insurer waives a right, it generally cannot later enforce that right against the insured for the same matter.

Question 46General Insurance Concepts and Contract Fundamentals

After paying a policyowner's claim, an insurer seeks reimbursement from the negligent driver who caused the damage. This right is called:

  1. indemnification
  2. reinsurance
  3. subrogation Correct answer.
  4. coinsurance

Explanation

Subrogation lets the insurer stand in the insured's legal position and pursue the party responsible for the loss. It also prevents the insured from collecting twice for the same damage.

Question 47General Insurance Concepts and Contract Fundamentals

For years an insurer accepted premium payments several weeks after the grace period without objection. The policyowner now dies, and the insurer denies the claim on the ground that the last premium was late. A court is most likely to hold that the insurer is:

  1. obligated to pay a reduced benefit equal to the unpaid premium
  2. entitled to rescind the policy because the premium was not paid on time
  3. barred from denying coverage because of its past course of dealing Correct answer.
  4. required to refund only the premiums it received

Explanation

Estoppel prevents a party from asserting a right when its own conduct led the other party to rely on a different practice. Having consistently accepted late premiums, the insurer cannot treat the same lateness as a ground to deny coverage.

Question 48General Insurance Concepts and Contract Fundamentals

An applicant tells the agent about a serious medical condition, but the information never appears in the written application. The issued policy contains an entire contract clause. In a dispute, the written policy will generally:

  1. be reformed to include the agent's oral statement
  2. be void because the agent knew of the condition
  3. control, because prior oral statements merge into the writing Correct answer.
  4. be interpreted according to the agent's notes rather than its text

Explanation

The parol evidence rule, reinforced by an entire contract clause, makes the final written policy supersede earlier negotiations and oral statements. The agent's knowledge does not change the terms unless it is reflected in the application or the policy.

Question 49Life Insurance Basics

Which statement best describes what a life insurance policy accomplishes for an individual?

  1. It transfers the risk of dying too soon to an insurer. Correct answer.
  2. It removes any chance that the insured dies before retirement.
  3. It shifts investment risk from the company to the owner.
  4. It guarantees the insured's estate will increase in value.

Explanation

Insurance works by transferring the financial consequence of an uncertain loss to an insurer, which pools many similar exposures. Death is certain but its timing is not, and the policy substitutes a known premium for an unknown financial loss.

Question 50Life Insurance Basics

A chance of loss that offers no possibility of gain is classified as:

  1. business risk
  2. speculative risk
  3. market risk
  4. pure risk Correct answer.

Explanation

Pure risk involves only the possibility of loss or no loss, such as dying too soon or living too long, and it is the type of risk insurers are willing to accept. Speculative risk includes the chance of gain and is generally not insurable.