LLQP Underwriting and Risk Analysis 2

Question 1

What is the primary purpose of insurance underwriting?

Accepted Answer

To classify and price risk fairly to maintain the financial stability of the insurance pool

Answer

To deny as many applications as possible

Answer

To generate maximum premium revenue

Answer

To determine the agent's commission level

Question 2

What are the standard risk classifications used in life insurance underwriting?

Accepted Answer

Preferred, standard, substandard (rated), and declined

Answer

Good, average, and poor

Answer

Low, medium, and high

Answer

A, B, C, and D ratings

Question 3

What is 'financial underwriting' in the context of life insurance?

Accepted Answer

Verifying that the coverage amount is justified by the applicant's financial circumstances and insurable needs

Answer

Evaluating the applicant's ability to pay premiums

Answer

Determining the insurer's financial capacity to issue the policy

Answer

Assessing the applicant's credit score

Question 4

How does tobacco use affect life insurance underwriting in Canada?

Accepted Answer

Tobacco users typically pay significantly higher premiums than non-tobacco users due to increased mortality risk

Answer

It has no effect on underwriting decisions

Answer

Only cigarette smoking affects premiums; other tobacco use does not

Answer

Tobacco use only affects premiums after age 50

Question 5

What is an 'attending physician statement' (APS) and when is it typically requested during underwriting?

Accepted Answer

A report from the applicant's doctor providing their medical history, typically requested for larger coverage amounts or disclosed health conditions

Answer

A statement from the agent's personal physician

Answer

A physician's approval of the insurance application

Answer

A statement certifying the physician's credentials

Question 6

What is 'adverse selection' and how does underwriting help prevent it?

Accepted Answer

The tendency of higher-risk individuals to seek insurance more aggressively than lower-risk individuals

Answer

The insurer's decision to deny coverage

Answer

The selection of unsuitable investment options in segregated funds

Answer

The choice of an inappropriate beneficiary designation