1. B
The primary objective of underwriting is to evaluate each proposed risk accurately, classify the risk properly, and either approve the risk for coverage at an appropriate premium or deny the coverage. This ensures the insurer maintains financial stability while treating applicants equitably.

2. C
The Medical Information Bureau (MIB) is a nonprofit organization that helps underwriters evaluate risk by maintaining coded medical information submitted by member insurance companies. It helps detect fraud and omissions in applications but does not make underwriting decisions or set premiums.

3. C
Knowingly providing false information on an insurance application to obtain lower premiums constitutes fraud. Twisting involves replacing existing coverage with new coverage inappropriately, rebating involves returning part of the premium as an inducement, and churning involves excessive policy replacement.

4. D
The National Association of Insurance Underwriters database does not exist as a standard underwriting information source. Standard sources include the APS, MIB reports, inspection reports, agent’s reports, motor vehicle records, and credit reports.

5. B
Antiselection (adverse selection) occurs when individuals who are more likely to suffer a loss are also more likely to purchase insurance, potentially skewing the insurer’s risk pool. This tendency of higher-risk individuals to seek more coverage is a fundamental concern in underwriting.

6. C
Backdating a policy means setting the policy’s effective date earlier than the actual application date. This is typically done to give the applicant a younger “insurance age,” which results in a lower premium. The applicant pays premium for the backdated period.

7. B
The principle of utmost good faith requires both parties to an insurance contract to act honestly and disclose all material facts. The applicant must reveal all relevant information that could affect the insurer’s decision, while the insurer must clearly explain policy terms and conditions.

8. C
Preferred risk classification receives the most favorable premium rates because these applicants present lower-than-average risk. They typically have excellent health, no hazardous occupations or hobbies, and favorable family medical histories.

9. B
A “rated” policy means the premium is charged at a higher rate than standard due to increased risk factors. This allows the insurer to accept applicants who don’t qualify for standard rates but aren’t severe enough risks to decline entirely.

10. B
Insurable interest requires that the policyholder must stand to suffer a genuine financial or emotional loss if the insured event occurs. This prevents insurance from being used as a gambling mechanism and reduces moral hazard.

11. B
Moral hazard refers to dishonest tendencies or character defects that may increase the likelihood of a loss. This includes intentional acts like arson or staged accidents. Physical hazard refers to physical conditions that increase loss likelihood.

12. C
Morale hazard refers to carelessness or indifference to preventing losses because insurance coverage exists. Unlike moral hazard (intentional acts), morale hazard involves negligent behavior where the insured takes less care because they know insurance will cover any loss.

13. C
Field underwriting is performed by insurance agents and producers at the point of sale. They gather initial information, observe the applicant, complete applications, and make preliminary assessments before submitting to home office underwriters.

14. B
Treaty reinsurance is an ongoing arrangement where the reinsurer automatically accepts all risks falling within predetermined categories. Facultative reinsurance involves case-by-case negotiation for individual risks, allowing the reinsurer to accept or decline each submission.

15. B
The law of large numbers states that as the number of similar, independent exposure units increases, actual results will more closely approximate expected results. This allows insurers to predict aggregate losses with greater accuracy for large pools of similar risks.

16. D
Political affiliation has no bearing on mortality or morbidity risk and would not be considered in medical underwriting. Family history, blood pressure, and occupation are all relevant factors that affect life expectancy or health status.

17. B
The contestability period (typically two years) allows the insurer to investigate and potentially void a policy if material misrepresentation is discovered. After this period, the insurer generally cannot contest the policy except for non-payment of premium or fraud in some jurisdictions.

18. A
The current ratio (current assets divided by current liabilities) measures a company’s ability to pay short-term obligations and is a key metric in commercial underwriting for assessing financial stability and liquidity.

19. B
An exclusion rider is an amendment that eliminates coverage for a specific condition, body part, or activity. It allows insurers to issue coverage while excluding particular risks that would otherwise make the applicant uninsurable.

20. B
Paramedical examinations provide objective health information through measurements (blood pressure, height, weight, pulse), fluid samples (blood, urine), and medical history verification. This helps underwriters assess risk more accurately than self-reported information alone.

21. B
Subrogation is the insurer’s right to pursue recovery from third parties who caused the loss after the insurer has paid the claim. This prevents the insured from collecting twice and allows insurers to recover some of their claim payments.

22. C
Life insurance relies heavily on mortality tables, which provide statistical data on death rates by age, gender, and other factors. These tables are fundamental to pricing life insurance products and assessing individual applicant risk.

23. B
The principle of indemnity states that insurance should restore the insured to the same financial position they were in before the loss—no better, no worse. This prevents insurance from being a source of profit and reduces moral hazard.

24. B
Minimum participation requirements and eligibility rules are the most effective methods for reducing adverse selection in group insurance. By requiring a minimum percentage of eligible persons to enroll and basing eligibility on factors like employment, insurers ensure a mix of healthy and less healthy lives.

25. B
A declination occurs when an underwriter determines that the applicant presents an unacceptable level of risk and refuses to issue coverage. This may be due to health conditions, occupation, lifestyle factors, or other characteristics outside underwriting guidelines.

26. B
Experience rating adjusts premiums based on the insured’s actual historical loss experience rather than relying solely on class rates. It rewards policyholders with good loss records through lower premiums and penalizes those with poor experience.

27. B
The free-look period (typically 10-30 days depending on jurisdiction and product) allows policyholders to examine their new policy and return it for a full refund if they are not satisfied, ensuring they have adequate time to review coverage.

28. B
A pre-existing condition is a health problem or medical condition that existed before the policy’s effective date. Underwriting guidelines specify how such conditions are treated, including whether they’re excluded, covered after a waiting period, or covered immediately.

29. B
The application is the primary document for collecting information necessary to evaluate and classify risk. It contains questions about personal information, medical history, lifestyle, occupation, and other factors relevant to underwriting decisions.

30. B
Facultative reinsurance allows the ceding company to offer individual risks to reinsurers on a case-by-case basis. The reinsurer can accept or decline each risk individually, providing flexibility for unusual or large exposures.

31. B
The principle of proximate cause determines whether a covered peril was the direct and uninterrupted cause of the loss. It helps establish whether a claim is payable by tracing the chain of events from the initial cause to the final loss.

32. B
Authority limit refers to the maximum amount of coverage or risk that an underwriter can approve independently without requiring review or approval from a more senior underwriter or committee. This varies based on experience and company policy.

33. B
Coinsurance provisions require policyholders to insure property to a specified percentage of its actual value (commonly 80%). If the insured fails to maintain adequate coverage, they become a “co-insurer” and share in any partial loss.