ALU 202 CHAPTER 2 EXAM QUESTIONS WITH VERIFIED ANSWERS
LATEST UPDATE 2026
Cost-Benefit Studies - Answers Provide objective evidence needed to evaluate the
cost-effectiveness of underwriting requirements and the underwriting process.
Following the Herd Instinct - Answers Following age/amount thresholds used by peer
companies for ordering requirements.
Uniquely Protective - Answers An underwriting requirement that is credited as
"solely responsible" for uncovering adverse information
"Sentinel Effect" - Answers Deters proposed insured's with known or suspected
impairments or abnormal lab findings from applying for insurance. Or causes them to
apply for amounts below requirement threshold limits.
Steps in Conducting a Cost- Benefit Study - Answers 1- Select random sample of
cases
2 -Cases subject to full underwriting
3 - Decide what to record
4 - Estimate cost-benefit or cost effectiveness of each requirement
5 - Recording should be done by a small group of underwriters to assume uniformity
6 - Expenses, in addition to the fee for the requirement itself, should be included
7 - The study can also be designed to provide other information (ex. time to obtain
requirements, time to process various types of applications, actual expense of UW
requirements compared to assumed)
Estimating Cost-Benefit or Cost-Effectiveness of Requirements (different methods) -
Answers A - Determine proportion of requirements leading to adverse action
B - Determine average percentage of extra mortality uncovered per requirement
C - Estimate dollar value of protection per dollar spent on requirement if solely
responsible for adverse action.
D - Estimate net savings of requirement by subtracting their cost from their value.
E - Estimate value of requirements used in underwriting supplemental benefits/riders.
(Only B-D(maybe e) is useful in determining break-even amounts of insurance)
Factor to consider when Comparing Underwriting requirements among peer
companies, - Answers Target Market, morality expectations, distribution system,
products marketed, manual uses, mortality & expense expectations, experience
monitoring abilities, underwriting proficiency, underwriting philosophy.
LATEST UPDATE 2026
Cost-Benefit Studies - Answers Provide objective evidence needed to evaluate the
cost-effectiveness of underwriting requirements and the underwriting process.
Following the Herd Instinct - Answers Following age/amount thresholds used by peer
companies for ordering requirements.
Uniquely Protective - Answers An underwriting requirement that is credited as
"solely responsible" for uncovering adverse information
"Sentinel Effect" - Answers Deters proposed insured's with known or suspected
impairments or abnormal lab findings from applying for insurance. Or causes them to
apply for amounts below requirement threshold limits.
Steps in Conducting a Cost- Benefit Study - Answers 1- Select random sample of
cases
2 -Cases subject to full underwriting
3 - Decide what to record
4 - Estimate cost-benefit or cost effectiveness of each requirement
5 - Recording should be done by a small group of underwriters to assume uniformity
6 - Expenses, in addition to the fee for the requirement itself, should be included
7 - The study can also be designed to provide other information (ex. time to obtain
requirements, time to process various types of applications, actual expense of UW
requirements compared to assumed)
Estimating Cost-Benefit or Cost-Effectiveness of Requirements (different methods) -
Answers A - Determine proportion of requirements leading to adverse action
B - Determine average percentage of extra mortality uncovered per requirement
C - Estimate dollar value of protection per dollar spent on requirement if solely
responsible for adverse action.
D - Estimate net savings of requirement by subtracting their cost from their value.
E - Estimate value of requirements used in underwriting supplemental benefits/riders.
(Only B-D(maybe e) is useful in determining break-even amounts of insurance)
Factor to consider when Comparing Underwriting requirements among peer
companies, - Answers Target Market, morality expectations, distribution system,
products marketed, manual uses, mortality & expense expectations, experience
monitoring abilities, underwriting proficiency, underwriting philosophy.
