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

Underwriting classifies and prices risk to ensure premiums are fair and adequate, protecting the financial stability of the insurance pool for all policyholders.

Question 2

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

Accepted Answer

Preferred, standard, substandard (rated), and declined

Answer

The standard risk classifications are preferred (better than average risk), standard (average risk), substandard/rated (higher than average risk), and declined.

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

Financial underwriting ensures that the death benefit amount is reasonable and justified by the applicant's income, net worth, and financial obligations.

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

Tobacco use significantly increases premiums because it is one of the strongest predictors of increased mortality, with smoker rates typically being double or more the non-smoker rates.

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

An APS is a report from the applicant's personal physician providing detailed medical history, ordered when the underwriter needs more information about disclosed conditions or for large coverage amounts.

LLQP - Life License Qualification Program Practice Test

LLQP - Life License Qualification Program Practice Test

LLQP Underwriting and Risk Analysis 2