LLQP Underwriting and Risk Analysis 4 — Questions and Answers
Question 1: A 45-year-old applicant discloses a history of controlled Type 2 diabetes managed by diet alone. How would an underwriter most likely classify this risk?
- Decline the application outright
- Issue at standard rates with no modification
- Issue with a rated premium or exclusion rider (Correct answer)
- Postpone the decision for 12 months
Correct answer: Issue with a rated premium or exclusion rider
Well-controlled diabetes managed by diet is typically classified as a substandard risk, resulting in a rated premium or an exclusion rider rather than an outright decline.
Question 2: Which underwriting concept refers to the tendency of individuals who know they are at high risk to disproportionately seek insurance coverage?
- Moral hazard
- Adverse selection (Correct answer)
- Morale hazard
- Risk pooling
Correct answer: Adverse selection
Adverse selection occurs when higher-risk individuals are more likely to purchase insurance, skewing the insurer's risk pool unfavorably.
Question 3: When an underwriter requests an Attending Physician's Statement (APS), what is the PRIMARY purpose?
- To obtain the applicant's prescription drug history from a pharmacy
- To verify the agent's assessment of the applicant's health
- To get detailed medical information directly from the applicant's doctor (Correct answer)
- To satisfy a regulatory filing requirement for all policies
Correct answer: To get detailed medical information directly from the applicant's doctor
An APS is requested to obtain detailed, firsthand medical information from the applicant's treating physician to clarify or expand on disclosed health conditions.
Question 4: An applicant who works as a commercial deep-sea diver applies for a $1 million life insurance policy. This occupational risk is best addressed by the underwriter through which action?
- Declining all coverage as a matter of company policy
- Approving the policy at preferred rates due to the applicant's physical fitness
- Applying an aviation exclusion rider to the policy
- Charging an extra flat extra premium to reflect the hazardous occupation (Correct answer)
Correct answer: Charging an extra flat extra premium to reflect the hazardous occupation
A flat extra premium per $1,000 of coverage is the standard underwriting tool for quantifiable, occupation-specific hazards like commercial diving.
Question 5: In the context of life insurance underwriting, what does the term 'numerical rating system' refer to?
- A scale used to rate the quality of an insurer's underwriting department
- A method of assigning debits and credits to mortality risk factors to determine a final risk rating (Correct answer)
- The number of questions on a medical application
- A regulatory scoring system mandated by state insurance departments
Correct answer: A method of assigning debits and credits to mortality risk factors to determine a final risk rating
The numerical rating system assigns positive or negative point values (debits/credits) to various risk factors such as build, health history, and occupation to arrive at an overall risk class.
Question 6: A life insurance applicant reveals they participated in solo skydiving over the past two years. Which of the following underwriting responses is MOST typical?
- Automatic policy cancellation after issuance
- No rating adjustment because skydiving is a common recreational activity
- Addition of an aviation exclusion rider to the policy
- Assessment of a flat extra premium or an aviation/avocation exclusion rider (Correct answer)
Correct answer: Assessment of a flat extra premium or an aviation/avocation exclusion rider
Recreational skydiving is an avocation hazard typically addressed through a flat extra premium or an exclusion rider limiting the death benefit for aviation/skydiving-related deaths.
Question 7: Which of the following best describes the concept of 'insurability' in life insurance underwriting?
- The applicant's ability to pay the required premium
- The legal capacity of a minor to enter into an insurance contract
- Whether the risk presented by an applicant falls within the insurer's acceptable guidelines (Correct answer)
- The requirement that a policy must be purchased before a health condition is diagnosed
Correct answer: Whether the risk presented by an applicant falls within the insurer's acceptable guidelines
Insurability refers to whether an applicant's combined risk factors—health, occupation, lifestyle—fall within the boundaries the insurer is willing to accept at a given rate class.
LLQP Underwriting and Risk Analysis 4
A 45-year-old applicant discloses a history of controlled Type 2 diabetes managed by diet alone.
How would an underwriter most likely classify this risk?