Life & Health Insurance Exam Life & Health Insurance Underwriting and Risk Classification 4 — Questions and Answers
Question 1: An underwriter reviewing a health insurance application notes the applicant is a 45-year-old male smoker. Which rating factor is the underwriter legally permitted to use in ACA-compliant individual market plans?
- Gender only
- Tobacco use only (Correct answer)
- Both gender and tobacco use
- Neither gender nor tobacco use
Correct answer: Tobacco use only
ACA-compliant individual and small group plans may rate on tobacco use but are prohibited from rating on gender; tobacco is the one health-related factor still permitted.
Question 2: What does the term 'insurability' mean in the context of life and health underwriting?
- The applicant's ability to afford premium payments
- The degree to which an applicant meets the insurer's standards for coverage at any rate (Correct answer)
- The legal requirement that the applicant have a valid Social Security number
- The maximum face amount an insurer will offer any individual
Correct answer: The degree to which an applicant meets the insurer's standards for coverage at any rate
Insurability refers to whether an applicant's risk profile qualifies them for coverage, at standard, rated, or any terms the insurer will offer.
Question 3: Which of the following best explains why insurers require an attending physician's statement (APS) during underwriting?
- To verify the applicant's employment history
- To obtain detailed medical records directly from treating physicians for complex health histories (Correct answer)
- To confirm the applicant's identity and address
- To satisfy a federal mandate for all policies above $50,000
Correct answer: To obtain detailed medical records directly from treating physicians for complex health histories
An APS allows underwriters to review detailed clinical notes, diagnoses, and treatment history directly from the applicant's physician for cases with significant medical history.
Question 4: A 55-year-old applicant for a $500,000 life policy is required to take a paramedical exam. Which test result would MOST likely trigger a decline or significant rating?
- A blood pressure reading of 118/76
- A cholesterol total of 195 mg/dL
- A fasting blood glucose of 310 mg/dL (Correct answer)
- A resting heart rate of 65 bpm
Correct answer: A fasting blood glucose of 310 mg/dL
A fasting blood glucose of 310 mg/dL strongly indicates uncontrolled diabetes mellitus, a significant mortality risk that would likely result in a rating or decline.
Question 5: Under the Fair Credit Reporting Act (FCRA), what right does an applicant have if they are declined for insurance based on a consumer report?
- The right to immediate reimbursement of any application fees paid
- The right to be notified of the adverse action and to obtain a free copy of the report (Correct answer)
- The right to demand the insurer change its underwriting decision
- The right to sue the insurer for discrimination without further steps
Correct answer: The right to be notified of the adverse action and to obtain a free copy of the report
FCRA requires insurers to provide adverse action notices disclosing the consumer reporting agency used and the applicant's right to a free copy of their report.
Question 6: What is the concept of 'risk pooling' and why is it fundamental to health insurance underwriting?
- It allows insurers to share premium revenue with state government pools
- It spreads the financial risk of large claims across a large group so no single loss is catastrophic (Correct answer)
- It requires all insureds to pay identical premiums regardless of health status
- It mandates that insurers pool their reserve funds into a common account
Correct answer: It spreads the financial risk of large claims across a large group so no single loss is catastrophic
Risk pooling spreads the cost of high-claim individuals across a broad group, making coverage financially viable and premiums predictable for all members.
Question 7: A life insurer uses 'mortality tables' during underwriting. What do these tables primarily reflect?
- The probability of death at each age based on statistical data from large populations (Correct answer)
- The maximum benefit amounts payable at each age group
- State-mandated minimum cash values for each policy year
- The insurer's historical claims payments by policy type
Correct answer: The probability of death at each age based on statistical data from large populations
Mortality tables show the statistical probability of death for individuals at each age, forming the actuarial foundation for pricing life insurance premiums.
Life & Health Insurance Exam Life & Health Insurance Underwriting and Risk Classification 4
An underwriter reviewing a health insurance application notes the applicant is a 45-year-old male smoker.
Which rating factor is the underwriter legally permitted to use in ACA-compliant individual market plans?