Exam Questions

Question 1

Billy’s parents purchase life insurance for their son. To ensure that the insurance stays in force by waiving the premium payment if a designated parent dies or becomes disabled, they could buy which of the following?

• payee benefit rider
• waiver of premium rider
• disability income benefit rider
• payor benefit rider

Answer 1

payor benefit rider

Question 2

Karen and Greg are leaving their employer and exiting their group health policy. When they are dropped from its coverage, how does their departure affect the insurer and employer?

• Individual insureds are named in a group policy, so new policies must be issued when Karen and Greg leave the group.
• Individual insureds are not named in a group policy and can join or leave the group without losing coverage, although they will have to pay premiums for this coverage.
• Although individual insureds are not named in a group policy, they cannot join or leave the group without causing a new policy to be issued.
• Individual insureds are not named in a group policy and can join or leave the group without causing a new policy to be issued.

Answer 2

Individual insureds are not named in a group policy and can join or leave the group without causing a new policy to be issued.

Question 3

Mark knowingly acts beyond his actual authority with respect to a third party, and his actions cause a loss to the insurer he represents. Which of the following statements is correct?

• Mark acted in good faith.
• Mark may be called upon to make full disclosure to the third party.
• The insurer cannot be held liable for Mark’s actions.
• The company may be held liable for Mark’s actions.

Answer 3

The company may be held liable for Mark’s actions.

Question 4

Which one of the following most correctly describes the process that occurs when a group annuity member retires?

• An individual annuity contract is issued, which states the monthly payout amount to be made.
• The group annuity begins paying the monthly payment amount stated in the contract.
• The retiree converts his or her accumulated share of the group contract into an individual annuity.
• The employer buys a variable annuity, which pays the benefits promised retirees in the group contract.

Answer 4

An individual annuity contract is issued, which states the monthly payout amount to be made.

Question 5

All of the following statements about the purpose of Medicare supplement policies are correct, EXCEPT:

• Medicare supplement policies were designed mainly to supplement reimbursements under Medicare.
• They help pay for the hospital, medical, or surgical costs of persons eligible for Medicare.
• They were designed to make funds available to pay medical services providers.
• Medicare supplement policies are also known as Medigap policies.

Answer 5

They were designed to make funds available to pay medical services providers.

Question 6

Which of the following is NOT a funding vehicle for a traditional IRA?

• certificates of deposit
• life insurance
• securities
• annuities

Answer 6

life insurance

Question 7

Gina owns a $200,000 five-year renewable term insurance policy and wants to renew the policy at the end of the term. In this case, all the following statements are correct, EXCEPT:

• Gina must prove insurability before the insurer can renew the policy.
• The insurer will base the premium for the renewal coverage on Gina’s age at the time of renewal.
• Gina will be able to renew the policy any time up to age 65 or 70 (as defined in the policy).
• The premium for the renewal coverage will be higher than for the initial coverage.

Answer 7

Gina must prove insurability before the insurer can renew the policy.

Question 8

Eric fails to pay the annual premium on his major medical insurance policy. The grace period provision allows him to pay the premium within how many days after the due date?

• 7
• 14
• 21
• 30

Answer 8

30

Question 9

A Social Security recipient’s modified adjusted gross income exceeds the threshold level for his or her filing status. What will happen to his or her benefits?

• All of his or her Social Security benefits will be subject to tax.
• Up to 85 percent of his or her Social Security benefits will be subject to tax.
• Up to 50 percent of his or her Social Security benefits will be subject to tax.
• Up to 25 percent of his or her Social Security benefits will be subject to tax.

Answer 9

Up to 85 percent of his or her Social Security benefits will be subject to tax.

Question 10

Which of the following is the cafeteria plan benefit through which employee withholdings fund out-of-pocket costs for health and medical care that insurance does not reimburse, including annual deductibles and co-payments?

• unreimbursed medical expenses
• health insurance premium deductions
• pre-tax health insurance benefits
• pre-tax health insurance premium deductions

Answer 10

unreimbursed medical expenses

Question 11

Melissa turns 70 on August 1 this year. Her first required distribution from her 403(b) plan must be taken no later than what date?

• December 31 of this year
• April 1 of next year
• December 31 two years from now
• April 1 two years from now

Answer 11

April 1 two years from now

Question 12

Your client has a $100,000 deferred annuity and wants to receive monthly payments for as long as he lives with a lump sum payment payable to the beneficiary should he die before the $100,000 is fully paid out. What settlement option would you recommend to achieve that objective?

• life income with period certain
• fixed period payout option
• straight life income
• life income with refund guarantee

Answer 12

life income with refund guarantee

Question 13

Ted is the insured under a ten-year family income policy that will pay a $500 monthly income. What will happen if he dies 15 years after taking out the policy?

• Ted’s family will get a $500 monthly income for ten years.
• Ted’s family will get a $500 monthly income for five years.
• Ted’s family will get a $500 monthly income for ten years plus the face amount of the underlying policy.
• Ted’s family will not receive monthly income payments but will only be paid the face amount of the underlying policy as the death benefit.

Answer 13

Ted’s family will not receive monthly income payments but will only be paid the face amount of the underlying policy as the death benefit.

Question 14

Which one of the following statements about limited payment whole life insurance and ordinary whole life insurance is most correct?

• Policyowners pay lower premiums during the early years of a limited payment insurance policy than for ordinary life insurance.
• Both types of policies give protection for the insured’s whole life.
• Ordinary life insurance has level premiums while limited payment whole life does not.
• Limited payment policyowners do not build much cash values in their policies when compared to ordinary life policyowners.

Answer 14

Both types of policies give protection for the insured’s whole life.

Question 15

An employee was covered by Jackson Company’s group life insurance policy. The employee retired but is still covered by a $75,000 policy. The employee will be taxed on what amount of coverage?

• $100,000
• $50,000
• $25,000
• $0

Answer 15

$25,000

The value of group term life insurance coverage that an employee receives above $50,000 ($25,000) is taxable to the employee and will be included on his W-2.

Question 16

Group health insurance is a plan of insurance that an eligible group sponsor, such as an employer, provides for its members. Which of the following statements about eligible group sponsors and group insureds is correct?

• The plan sponsor owns the plan and pays its premiums. The individual group members are the insureds.
• The plan sponsor owns the plan. The individual group members are the insureds and pay the premiums.
• The employer sponsors the plan, the insurer owns it, and the individual insureds pay premiums for their coverage to the employer through payroll deductions.
• The plan sponsor is the insurance carrier who owns several group plans and pays the premiums. The group is composed of the employees of those insurance carriers.

Answer 16

The plan sponsor owns the plan and pays its premiums. The individual group members are the insureds.

Question 17

In most states, insurance companies can include a provision in their contracts that allows which of the following?

• a provision limiting the period for filing a lawsuit against the insurance company to less than one year after a triggering event.
• a provision making the settlement of the cash value at maturity less than the sum of the face amount plus dividend additions less any loan amount.
• a provision that makes the acts or representations of the agent binding on the insurer.
• a provision that allows a policy to be forfeited if the total owed on a policy loan is less than the loan value of the policy.

Answer 17

a provision that makes the acts or representations of the agent binding on the insurer.

Question 18

Bruce, an HMO member, cannot get covered health-care services outside the HMO’s provider network. What must Bruce do if he wants to use services outside the network but not pay for them?

• He must buy a point-of-service (POS) option.
• He must contact the HMO to get clearance to receive out-of-network care.
• He must go to an emergency room.
• He must get written authorization from his primary care physician.

Answer 18

He must buy a point-of-service (POS) option.

Question 19

Lydia, age 65, annuitizes a deferred annuity and selects a 100 percent joint and survivor annuity with John as the joint annuitant. If Lydia dies before John after annuity payments have begun, which one of the following most correctly describes how the annuity payments will be taxed when they are paid to John?

• John will have to include 100 percent of all future annuity payments in his taxable income.
• John will be able to exclude more of each payment from income.
• John’s exclusion ratio will be recalculated and the tax-free portion of future payments will be changed.
• John will continue to exclude from income the same portion of each payment as originally excluded by Lydia.

Answer 19

John will continue to exclude from income the same portion of each payment as originally excluded by Lydia.

Question 20

Under the re-entry method, an insured can renew a level term insurance policy at the end of the specified term at a lower rate than the guaranteed rate by doing what?

• proving that he or she is under age 50
• proving insurability
• submitting to a medical examination
• agreeing to convert to a permanent life insurance policy

Answer 20

proving insurability

Question 21

Because a policyowner must do certain things for the insurance company to fulfill its requirements, an insurance contract is considered which of the following?

• unilateral
• personal
• aleatory
• conditional

Answer 21

conditional

Question 22

Under an income replacement disability insurance policy, what is the monthly benefit payable equal to?

• the actual amount of income lost
• a specified percentage of the insured’s income before the disability occurred
• a flat monthly amount, but not more than 50 percent of the insured’s monthly earnings before the disability
• the principal sum stated in the policy

Answer 22

the actual amount of income lost

Question 23

Which of the following provides a benefit to executives or key employees, ensuring they will have a source of ongoing income if they become disabled and cannot work?

• business disability income insurance
• business overhead expense insurance
• disability buy-sell insurance
• Individual disability income insurance policy

Answer 23

Individual disability income insurance policy

Question 24

ABC Insurers just received an application from a customer who plans to buy a new policy to replace one issued by Heritage Insurers. Within how many days must ABC Insurers notify Heritage Insurers of the proposed replacement?

• two
• three
• five
• seven

Answer 24

three

Question 25

Bryson owns a standard health insurance policy that also covers his wife and children. His wife is currently undergoing extensive infertility treatments, while Bryson just had some cosmetic procedures performed. Which statement about the policy’s coverage is correct?

• The policy will cover his wife’s procedures but not Bryson’s.
• The policy will cover Bryson’s procedures but not his wife’s.
• The policy will cover both procedures but will apply a deductible and cost-sharing amount.
• The policy will not cover either of the procedures.

Answer 25

The policy will not cover either of the procedures.

Question 26

Policyowners may receive dividends in several ways, called dividend options. Which of the following is NOT a common dividend options?

• receiving dividends in cash
• leaving dividends with the insurer to accumulate at interest
• using dividends to buy additional paid-up life insurance
• using dividends to buy additional permanent life insurance

Answer 26

using dividends to buy additional permanent life insurance

Question 27

Which of the following describes an optional provision under the insured’s health insurance policy?

• Fred’s health insurance policy stipulates that legal action cannot be initiated against the insurer for failing to pay a claim any later than 3 years after the insured provided proof of loss to the insurer.
• Frank’s policy will stay in force for a stated period if he is late in making a payment.
• Jerry’s policy stipulates that his health insurance premiums will be reduced if he changes to a less hazardous occupation.
• Jack’s policy is considered the entire contract between him and the insurer.

Answer 27

Jerry’s policy stipulates that his health insurance premiums will be reduced if he changes to a less hazardous occupation.

Question 28

Diane invested $6,000 two years ago in a Section 529 college savings plan for her daughter, Cathleen, age 5. The account earned $400 the first year and $450 the second year. Which of the following statements is correct?

• Income tax on the earnings must be paid this year at Diane’s tax rate.
• Income tax on the earnings must be paid this year at Cathleen’s tax rate.
• Income tax on the earnings must be paid this year at the combined rate of Diane and Cathleen.
• No income tax must be paid on the earnings this year.

Answer 28

No income tax must be paid on the earnings this year.

Question 29

Insurance premiums are determined by which of the following?

• rating of the insurance company
• rates for similar policies offered by numerous insurers
• law of averages
• level of risk

Answer 29

level of risk

Question 30

Terry has been licensed in Georgia as a life and health insurance agent for six years. To maintain his license, how many hours of continuing education must he complete every two years?

• 15
• 24
• 20
• 10

Answer 30

24

An agent licensed for less than 20 years must complete a total of 24 hours before every license renewal. An agent licensed for at least 20 years must complete a total of 20 hours before every license renewal.

Question 31

On what date does an insurer’s certificate of authority in Georgia expire every year?

• May 30
• June 30
• July 1
• December 1

Answer 31

June 30

Question 32

Which of the following can be funded with a single premium payment, a series of fixed premium payments, or flexible premium payments?

• immediate annuities
• deferred annuities
• retirement annuities
• single-premium immediate annuities

Answer 32

deferred annuities

Question 33

Like a plan for group life insurance, group health insurance coverage is issued to the plan sponsor. What do the group sponsor and insurer have to indicate their agreement to this arrangement?

• a master policy
• an insurance contract
• certificates of insurance
• outlines of coverage

Answer 33

an insurance contract

Question 34

Mr. Brown has a dental policy along with his group medical plan. The dental plan pays a monthly fixed amount to the dental care provider. What type of plan is this?

• scheduled plan
• prepaid plan
• limited plan
• comprehensive plan

Answer 34

prepaid plan

Under a prepaid dental plan, the plan sponsor, usually an employer, provides or arranges for dental care services for its members through prepayment of a fixed amount per plan member.

Question 35

All of the following statements about the Medicare program are correct, EXCEPT:

• For those eligible for Social Security retirement benefits, Part A coverage is free.
• Medicare Part A coverage is free to those under age 65 who are receiving Social Security disability benefits or anyone who has been diagnosed with permanent kidney failure.
• Parts B, C, and D, if elected, require the payment of monthly premiums, which may be deducted automatically from a person’s Social Security retirement benefits.
• A 65-year-old not receiving Social Security retirement benefits is required to obtain coverage under Medicare Part A.

Answer 35

A 65-year-old not receiving Social Security retirement benefits is required to obtain coverage under Medicare Part A.

Medicare Part A coverage is free to those under age 65 who are receiving Social Security disability benefits or anyone who has been diagnosed with permanent kidney failure

Question 36

Actuaries use mortality and morbidity factors in determining premiums. How would they factor in the calculating of a life insurance premium?

• Both factors are of equal importance.
• Mortality is the primary factor.
• Factors are determined on an individual basis.
• Morbidity is a primary factor; mortality is second.

Answer 36

Mortality is the primary factor.

Mortality is the rate of death in the target population. It is a significant factor in calculating life insurance premiums. For health insurance, morbidity rates, or incidences of illness, are a primary premium factor.

Question 37

Bill believes he has a cause of action against his health insurer for its refusal to pay benefits on a claim. He filed written proof of loss on April 1. Not having received a response by May 1, he decides to take legal action. What will his attorney probably do?

• advise him to file suit
• advise him to wait
• advise him to file proof of loss again
• advise him to cancel the policy

Answer 37

advise him to wait

The legal actions provision of a health insurance policy prohibits the insured from suing the insurer on a claim before 60 days have passed since filing written proof of loss. However, an insured cannot bring suit after six years have passed since filing proof of loss

Question 38

Which statement about life insurance advertisements is CORRECT?

• They must include testimonials from present and former customers.
• They must first be approved by the National Association of Insurance Commissioners.
• They must identify the source of any statistics used in the advertisement.
• They must state the amount of dividends that will be guaranteed each year.

Answer 38

They must identify the source of any statistics used in the advertisement.

Question 39

A 10 percent premature distribution penalty tax may be imposed on distributions from a qualified plan before what age?

• 59.5
• 62
• 65
• 70.5

Answer 39

59.5

Question 40

Which statement accurately describes key person disability income insurance?

• Key person disability income insurance provides a benefit to executives or to key employees.
• Key person disability income insurance ensures that key employees will have a source of ongoing income if they become disabled and cannot work.
• The business cannot take a tax deduction for the premiums it pays.
• Benefits are not taxed to the recipient.

Answer 40

Benefits are not taxed to the recipient.

Question 41

Fallon is self-employed and has an medical savings account (MSA). All of the following statements are correct about Fallon and her account EXCEPT:

• If she changes employers, her MSA will move with her.
• If another taxpayer is entitled to claim an exemption for her, she cannot claim a deduction for a contribution to the account.
• The contributions remain in her account until they are used.
• It is not necessary to be covered under a high-deductible health plan to participate in an MSA.

Answer 41

It is not necessary to be covered under a high-deductible health plan to participate in an MSA.

To be eligible for an MSA, participants must be covered under a high-deductible health plan.

Question 42

Jason, age 27, is single, works for a small computer company, and earns $125,000 a year. Because the company does not have any retirement plan for its employees, Jason set up and contributed to a traditional IRA this year. Which of the following statements is correct?

• Jason cannot take a deduction for his IRA contribution because his adjusted gross income is too high.
• Jason can deduct part of his IRA contribution this year.
• Jason cannot take a deduction for his IRA contribution because he is not covered by a qualified employer plan.
• Jason can deduct the full amount that he contributes to his traditional IRA.

Answer 42

Jason can deduct the full amount that he contributes to his traditional IRA.

If Jason were covered by a qualified employer plan, he would not be able to take a deduction for his IRA contribution because his adjusted gross income is too high

Question 43

Sarah, age 40, has just bought a 20-pay whole life policy. Which of the following statements is correct when she turns 60?

• She will stop paying premiums.
• She will receive the policy’s death benefit.
• She will receive the policy’s cash value.
• She will have a fully matured policy.

Answer 43

She will stop paying premiums.

Under a 20-pay whole life policy, Sarah must pay premiums for 20 years. After that time, her policy is paid up and she pays no more premiums.

Question 44

Sammie, 58, is applying for Social Security disability benefits. She has worked for most of her life. If approved, her benefit amount will be based on which of the following?

• her occupation before the disability
• personal and professional references
• her average indexed monthly earnings
• the cause of her disability

Answer 44

her average indexed monthly earnings

The benefit amount will be determined by average indexed monthly earnings (AIME).

Question 45

Gloria chooses to take her life insurance policy dividends in cash. The insurance company sends a check for the amount of the declared dividend on the anniversary date of the policy. What is the tax consequence to Gloria for receiving cash dividends?

• Her dividends are tax deferred.
• Her dividends are fully taxable.
• Her dividends are not income taxable.
• Her dividends are only income tax-free if Gloria is over age 62 ½.

Answer 45

Her dividends are not income taxable.

Policy dividends received in cash are not taxable as income.

Question 46

Miranda was treated for skin cancer six months before she applied for and was issued a health insurance policy. Two and a half years later, the cancer returned, and Miranda is again receiving treatment. Which statement about the insurer’s duty to pay Miranda’s claims is correct?

• The insurer can deny her claims because they involve a pre-existing condition.
• The insurer must pay her claims because benefits can never be excluded for cancer treatment.
• The insurer must pay her claims because the pre-existing condition exclusion period has ended.
• The insurer can deny her claims because the pre-existing condition exclusion period has not ended.

Answer 46

The insurer must pay her claims because the pre-existing condition exclusion period has ended.

Individual health insurance plans with grandfathered status (those in effect on or before March 23, 2010) are exempt from the requirements of the Affordable Care Act. They can exclude coverage for pre-existing conditions. Most pre-existing condition periods are limited to 12 to 24 months. After this period, benefits associated with a pre-existing condition are covered. Miranda’s insurer must cover any treatments for skin cancer.

Question 47

Ann is beneficiary of an annuity owned by Jim. If Jim annuitizes the contract at retirement and dies shortly afterward, what benefits will Ann receive from the annuity?

• Ann will receive the annuity proceeds.
• Ann’s right to any funds will be based on the income payout option Jim selected.
• Ann will receive lifetime income.
• Ann’s will receive income for 20 years.

Answer 47

Ann’s right to any funds will be based on the income payout option Jim selected.

Question 48

Mary has a life insurance policy with a rider. She suffers a total disability for two years. During most of this time, Mary does not have to pay her premium even though her policy remains in force. Which of the following policy riders does Marie have to make this possible?

• waiver of premium rider
• social insurance rider
• cost-of-living adjustment rider
• return of premium rider

Answer 48

waiver of premium rider

Under the waiver of premium rider, the policy’s premiums are waived if the insured becomes totally disabled for a period stated in the rider.

Question 49

Ted buys a term-to-65 life insurance contract while Jane buys a whole life paid-up-at-age-65 contract. All other factors being equal, which of the following statements is most correct?

• Ted and Jane will both stop paying premiums at age 65.
• At age 65, life insurance coverage continues for both Jane and Ted.
• At age 65, Ted will stop paying premiums but Jane’s premiums will continue.
• At age 65, life insurance coverage ends for both Jane and Ted.

Answer 49

Ted and Jane will both stop paying premiums at age 65.

Question 50

Fred is terminally ill. He sells his $100,000 life insurance policy to a viatical settlement provider for $60,000. Six months later, Fred dies. Which of the following statements is correct?

• Fred’s estate will receive $60,000 as a death benefit under the policy, and the viatical settlement provider will receive $40,000.
• The viatical settlement provider will receive the entire $100,000.
• Fred’s estate will receive $100,000 as a death benefit.
• The death benefit will be split equally between the viatical settlement provider and Fred’s estate.

Answer 50

The viatical settlement provider will receive the entire $100,000.

Question 51

Group health insurance is contributory or non-contributory. What are more employers doing because of the increasing costs of health insurance?

• requesting voluntary employee contributions to the plan through direct payroll deposits to the insurer
• requiring their employees to contribute to the plan, typically through payroll deductions
• requiring their employees to pay their fair share of their health premiums directly to the company
• requiring that employees take a reduction in salary equal to their share of the health insurance coverage

Answer 51

requiring their employees to contribute to the plan, typically through payroll deductions

Question 52

How does a family income policy differ from a family maintenance policy?

• A family income policy combines whole life insurance with level term insurance, while a family maintenance policy combines whole life and decreasing term.
• A family income policy combines whole life insurance with an increasing term insurance, while a family maintenance policy combines whole life and decreasing term.
• A family income policy combines whole life insurance with decreasing term, while a family maintenance policy combines whole life and level term insurance.
• A family income policy combines whole life insurance with increasing term insurance, while a family maintenance policy combines whole life and level term insurance.

Answer 52

A family income policy combines whole life insurance with decreasing term, while a family maintenance policy combines whole life and level term insurance.

A family income policy does not combine whole life insurance with level term life insurance. A family maintenance policy does not combine whole life insurance with decreasing term insurance.

Question 53

To qualify for the accelerated benefit rider, Beth must prove she either has a terminal illness or had an accident, either of which will result in her death within what time frame?

• six months
• one to two years
• two to three years
• five years

Answer 53

one to two years

Question 54

Under Section 1035, all of the following tax-free exchanges are allowed, EXCEPT

• a life insurance policy for another life insurance policy.
• an endowment policy for another endowment policy.
• a life insurance policy for an annuity.
• an annuity for a life insurance policy.

Answer 54

an annuity for a life insurance policy.

An annuity cannot be exchanged tax free for a life insurance policy.

Question 55

Which of the following would not be used by an underwriter in making a decision to accept or decline a risk?

• mortality tables
• physician’s statement
• inspection or consumer report
• agent’s report

Answer 55

mortality tables

The underwriter at the insurance company home office relies on medical and/or background information about the proposed insured. Actuaries use data from mortality tables.

Question 56

Tim is applying for life insurance, and Agent Angeles issues him a receipt conditioned on Tim’s passing a physical exam to meet underwriting standards. Tim passes the physical exam but dies before the policy is issued. Which of the following is a correct statement?

• The policy will pay the death benefit.
• The policy will not pay the death benefit.
• Only a fraction of the death benefit will be paid.
• The insurer will likely not pay the death benefit, and Tim’s estate must sue the insurer for the estate to receive the policy proceeds.

Answer 56

The policy will pay the death benefit.

If the insured dies after the date of the application (or medical exam) and the insurer would have issued the policy, then the coverage takes effect as of the date of the application. A death benefit would then be paid.

Question 57

Thomas moved his insurance office to a different town in Georgia on May 1. Within how many days must he notify the Commissioner of the change of address?

• 10
• 20
• 30
• 60

Answer 57

30

Question 58

Dan surrenders his whole life policy and decides to apply its $20,000 cash value to buy $35,000 of whole life coverage for the length of his life. Dan has chosen which of the following?

• cash surrender option
• extended term option
• reduced paid-up option
• cash surrender and withdrawal provision

Answer 58

reduced paid-up option

Question 59

Group health plans require that eligible employees choose to participate in the plan by formally enrolling in it. When they enroll, which of the following do they NOT do?

• authorize any premium deductions from their pay if the plan is contributory
• name any dependents or family members who are to be covered by the plan
• indicate any health coverage that they are rolling over from another employer
• identify other health insurance coverage they may have

Answer 59

indicate any health coverage that they are rolling over from another employer

Unlike 401(k) plans, health coverage cannot be rolled over from one employer to the next.

Question 60

Jaclyn just found out that she is HIV positive. Which action can an insurer take if Jaclyn applies for a life insurance policy?

• The insurer cannot test for HIV.
• The insurer can require an HIV test only if Jaclyn consents.
• The insurer must tell her that it cannot disclose HIV test results to her or to anyone else.
• The insurer can ask her questions to determine her sexual orientation.

Answer 60

The insurer can require an HIV test only if Jaclyn consents.

Question 61

What is the purpose of a guaranteed insurability rider in a disability income policy?

• It allows the insured to increase a policy’s benefits in the future without having to prove insurability.
• It allows the insured add an additional insured, such as a spouse, to the policy in the future.
• It allows the insured waive the premium upon disability.
• It allows the insured add additional benefits to the policy if insurability is proven.

Answer 61

It allows the insured to increase a policy’s benefits in the future without having to prove insurability.

A guaranteed insurability rider allows the insured to increase the policy’s level of benefits or scope of coverage in the future without having to prove insurability. Such riders enable the insured to buy extra amounts of coverage on specified dates, normally policy anniversaries.

Question 62

Gene is seriously injured in a car accident while on vacation. His employer-sponsored group disability plan pays benefits for over two years but reduces the amount paid by the benefits he receives under an individual disability policy. Which type of policy is Gene most likely covered by?

• group short-term disability plan
• group occupational plan
• group long-term disability plan
• group partial disability plan

Answer 62

group long-term disability plan

Long-term group disability plans (which pay benefits for two years or more) are usually both occupational and nonoccupational. Such policies provide benefits regardless of whether the disability was related to the job. However, the benefit is usually reduced by income from other sources, such as individual disability policies and government benefits.

Question 63

Section 457 plans are qualified retirement plans that are reserved for employees of which type of organization?

• state and local government units
• charitable organizations
• religious organizations
• educational organizations

Answer 63

state and local government units

Charitable organizations can establish 403(b) plans, known as tax-sheltered annuity plans, for their employees but are not eligible to establish Section 457 plans.

Question 64

Self-regulation by life and health insurance companies is mainly accomplished through all of the following entities or organizations EXCEPT:

• National Association of Life Underwriters
• American Society of Chartered Life Underwriters
• International Association of Health Underwriters
• Financial Industry Regulatory Authority

Answer 64

Financial Industry Regulatory Authority

The Financial Industry Regulatory Authority (FINRA), formerly known as the National Association of Securities Dealers (NASD), regulates agents who sell variable life products. It does not apply to most life insurance products.

Question 65

A long-term care insurance policy is designed to provide coverage for at least how many months?

• 12
• 18
• 24
• 36

Answer 65

12

Long-term care insurance is designed to provide coverage for at least 12 months for necessary diagnostic, preventive, therapeutic, rehabilitative, or personal care services provided in a setting other than the acute care unit of a hospital.

Question 66

Horizon Computers Inc. added a group health insurance policy to its employee benefits program. Which document must Horizon give to each insured employee as evidence of their coverage under the policy?

• certificate of insurance
• certificate of authority
• policy summary
• outline of coverage

Answer 66

certificate of insurance

Question 67

Which statement about life insurance cash value withdrawals is NOT correct?

• Universal life insurance policies allow withdrawals from their cash values.
• A policyowner can withdraw amounts less than the full cash value.
• The policy continues in force as long as the values that remain in the contract can cover the monthly deductions.
• Owners of traditional whole life insurance and universal life insurance are unable to access their cash values through policy loans, full policy surrenders, or partial surrenders.

Answer 67

Owners of traditional whole life insurance and universal life insurance are unable to access their cash values through policy loans, full policy surrenders, or partial surrenders.

Question 68

Jack bought a life insurance policy to make sure his surviving family members would have an income for ten years if he died prematurely. Five years after purchasing the policy, Jack died. Beginning with the date of his death, the policy began paying a level monthly benefit to his family for ten years. What type of policy did Jack buy?

• ten-year family income policy
• ten-year family maintenance policy
• ten-year family protection policy
• endowment

Answer 68

ten-year family maintenance policy

Question 69

Under which one of the following circumstances are life insurance policy dividends taxable?

• when paid in cash to a third party
• when paid in cash to a policyowner
• when used to reduce premiums
• when used to buy additional insurance

Answer 69

when paid in cash to a third party

Question 70

Helena signed a consent form in which she agreed to undergo HIV testing for her health insurance application. However, she decided that she could not afford the insurance and did not apply for a policy. Which statement is correct if she decides to apply for a policy three years later?

• Her original consent form is still valid.
• The insurer cannot ask her to sign a new consent form.
• The insurer can no longer ask her to undergo HIV testing.
• She must sign a new consent form before undergoing HIV testing.

Answer 70

She must sign a new consent form before undergoing HIV testing.

A signed consent form for HIV testing remains valid for 30 months. Helena must therefore sign a new consent form before undergoing HIV testing.

Question 71

Medical expense insurance policies are typically what type of contracts?

• presumptive contracts
• valued contracts
• contracts of indemnity
• value-added contracts

Answer 71

contracts of indemnity

A medical expense insurance contract is a contract of indemnity. This means that the benefit cannot be greater than the contract owner’s actual loss or the face amount of the policy, whichever is less. A valued contract, such as a life insurance policy, pays a stated amount regardless of the amount of the loss.

Question 72

After being injured in an automobile accident, Chris was awarded a sum of money by the court. The award was not made all at once; payments were made over several months. Which of the following best describes this arrangement?

• court award
• mutual settlement
• structured settlement
• brokered settlement

Answer 72

structured settlement

Question 73

All of the following statements about the funding of Social Security benefits are correct, EXCEPT:

• Self-employed workers pay a lower FICA tax than employees.
• The FICA tax is split between a worker and his or her employer.
• Social Security benefits are funded through payroll taxes.
• The FICA tax is allocated between OASDI and Medicar

Answer 73

Self-employed workers pay a lower FICA tax than employees.

Question 74

Which of the following best describes the present value of money?

• Present value is the amount of money needed to provide lifetime income based on the payee’s current age.
• Present value is the sum of money needed today to grow to a specified sum in the future, using a specified rate of interest.
• Present value is the amount of money paid to contingent beneficiaries if the primary beneficiary dies first.
• Present value is the amount that a life insurance policy’s cash value will grow to when the benefits are paid as a death benefit.

Answer 74

Present value is the sum of money needed today to grow to a specified sum in the future, using a specified rate of interest.

Question 75

Melina paid $5,000 out of pocket for medical care this year. If her adjusted gross income is $36,000 this year, how much of these expenses can she deduct from her income taxes, if any?

• $5,000
• $1,400
• $0
• $2,300

Answer 75

$1,400

A person under age 65 can deduct unreimbursed medical expenses that exceed 10 percent of his or her adjusted gross income (AGI). In this case, Melina can deduct $1,400 ($5,000 - $3,600), the amount by which her expenses exceed 10 percent of her AGI.

Question 76

Amanda bought a $50,000 ten-year renewable term policy. The premiums she pays for the policy will be

• less than for a $50,000 ten-year nonrenewable policy.
• the same as for a $50,000 ten-year nonrenewable policy.
• more than for a $50,000 ten-year nonrenewable policy.
• the same as her initial premium when she decides to renew the policy.

Answer 76

more than for a $50,000 ten-year nonrenewable policy.

Question 77

How often must the Commissioner examine the affairs of a domestic insurer?

• at least once every five years
• at least once every three years
• at least once every year
• only when a written request is made by an insurer’s shareholders

Answer 77

at least once every five years

Question 78

Which statement about the interest-only life settlement option is NOT correct?

• When a policyowner selects the interest only option, the insurer holds the policy proceeds until a future date and pays the interest that those proceeds earn.
• The policy specifies the minimum interest rate.
• The insurer pays interest at least annually but no more often than monthly.
• Though a policy guarantees a minimum interest rate, if the interest earned is more than the guaranteed minimum, the company pays the lower amount.

Answer 78

Though a policy guarantees a minimum interest rate, if the interest earned is more than the guaranteed minimum, the company pays the lower amount.

Question 79

If insurers do not allow minors to be beneficiaries of life insurance, what do they do if no adults are available to receive death benefits?

• Insurers hold the proceeds in trust until the child reaches maturity.
• The state receives the funds and holds them in escrow until the child is age 21.
• Insurers require the court to appoint a legal guardian before paying benefits to a minor child.
• Each state treats these situations differently.

Answer 79

Insurers require the court to appoint a legal guardian before paying benefits to a minor child.

Question 80

If an agent is selling insurance for a company that does not have a certificate of authority to operate in that state, what is the status of the company in that state?

• It is an alien company.
• It is a non-admitted company.
• It is an unregistered company.
• It is a limited lines company.

Answer 80

It is a non-admitted company.

Question 81

Sid is applying for Medicaid. What must he do in order to apply?

• Disclose all assets and sources of income and meet his state’s requirement for maximum allowable assets and income.
• Sell his home.
• Exceed his state’s maximum allowable assets and income by no more than 20 percent.
• Exclude his home and other real estate assets from his application.

Answer 81

Disclose all assets and sources of income and meet his state’s requirement for maximum allowable assets and income.

Question 82

All of the following are true statements regarding health insurance premiums EXCEPT:

• A certain portion of each premium is set aside as a reserve.
• The expense factor is used in the computation of premiums.
• Interest is included with expense to compute premiums.
• Unlike life insurance, health insurers cannot invest health insurance premiums.

Answer 82

Unlike life insurance, health insurers cannot invest health insurance premiums.

Like life insurance premiums, the insurer invests health insurance premiums to earn a return. The insurer’s expected investment return is also factored into its premium rates.

Question 83

Section 529 plans are used to pay for which of the following?

• retirement expenses
• college tuition and related expenses
• any child-related expenses
• medical expenses

Answer 83

college tuition and related expenses

Question 84

What is the purpose of the prohibited policy provisions imposed on insurers by most states?

• They help the federal government protect the insurance-buying public.
• They allow extensive federal oversight of life insurance.
• They protect policyowners from unfair manipulation and detrimental behavior by insurance companies and their representatives.
• They make life insurance policies consumer-friendly and let the insurance companies regulate themselves.

Answer 84

They protect policyowners from unfair manipulation and detrimental behavior by insurance companies and their representatives.

Question 85

All of the following statements about HMO point-of-service (POS) options are correct, EXCEPT:

• A POS option allows the HMO member to get treatment from a provider outside the HMO network.
• The member has to pay a deductible and coinsurance. A deductible is usually not required in an HMO. Coinsurance is a small percentage of the cost in an HMO.
• The deductible is usually $250 to $500 with the POS option.
• Under a typical POS option, HMOs reimburse members for 100 percent of the cost for out-of-network medical services.

Answer 85

Under a typical POS option, HMOs reimburse members for 100 percent of the cost for out-of-network medical services.

Under a typical POS option, HMOs reimburse members for 75 or 80 percent of the cost for out-of-network medical services, as in traditional indemnity coverage.

Question 86

Abby is an actress but can no longer perform onstage after being injured in a car accident. She now works as an acting coach and earns $40,000 a year, $20,000 less than she did while acting. What benefit will her income replacement disability policy will pay?

• $60,000
• $40,000
• $20,000
• $0

Answer 86

$20,000

Question 87

All of the following are typical uses of business life insurance EXCEPT

• to fund a buy-sell agreement
• to insure the life of a key employee
• to fund the funeral of a key employee
• to retire business debt incurred after the death of a key employee

Answer 87

to fund the funeral of a key employee

Question 88

What of the following uses employee withholdings to fund out-of-pocket costs for health and medical care that insurance does not reimburse, including annual deductibles and co-payments?

• health savings account (HSA)
• flexible spending account (FSA)
• IRC 457 plan
• medical savings account (MSA)

Answer 88

flexible spending account (FSA)

A flexible spending account (FSA) uses employee withholdings to fund out-of-pocket costs for health and medical care that insurance does not reimburse, including annual deductibles and co-payments.

Question 89

Angela is the beneficiary of her mother’s group life insurance policy. At her mother’s death, Angela decides to receive the proceeds under a life with term certain settlement option. Which portion of the payments will be subject to taxation?

• the entire payment
• the portion representing the principal amount of the proceeds
• the portion representing the interest on the death proceeds
• none of the payments

Answer 89

the portion representing the interest on the death proceeds

The death benefits paid to the employee’s beneficiary under a group life insurance plan are exempt from income taxes if they are paid in a lump sum. If they are paid under a settlement option, the interest portion of each periodic payment is taxable to the beneficiary.

Question 90

A husband and wife, ages 49 and 51, earn $175,000 a year. Each also participates in a qualified plan at work and contributes to a traditional IRA each year. Which of the following statements is correct?

• Any contributions that they make to a traditional IRA will not be tax deductible.
• Only part of their IRA contributions will be tax deductible.
• They are not eligible to contribute to a traditional IRA this year because their income is too high.
• They are also eligible to contribute to a Roth IRA, provided the total does not exceed the overall contribution limit.

Answer 90

They are also eligible to contribute to a Roth IRA, provided the total does not exceed the overall contribution limit.

Question 91

Before people can join an employer’s group health plan, they have to meet the criteria for eligibility. Which of the following usually sets these criteria?

• the state in which the group resides
• the insurer underwriting the plan
• the employer
• the employees

Answer 91

the employer

Question 92

Annuity contracts include a provision to pay a death benefit if the owner or annuitant dies before the contract annuitizes. What does this death benefit typically equal?

• either the contract’s accumulated value or the amount of premium the owner invested, whichever is less
• either the contract’s accumulated value or the amount of premium the owner invested, whichever is greater
• the contract annuity amount or the owner’s imputed value amount, whichever is greater
• either the contract’s accumulated value or the amount of any outstanding loans, whichever is greater

Answer 92

either the contract’s accumulated value or the amount of premium the owner invested, whichever is greater

Question 93

Jim incurred $6,000 in medical expenses for a recent illness. He submitted a claim for benefits to his primary plan, which covered $4,000 of these costs. Which of the following statements is CORRECT?

• Once the primary insurer has paid, Jim can submit the entire claim to his secondary insurer.
• Jim can receive no more than $6,000 in benefits from both the primary and secondary insurers.
• Jim can submit a claim for benefits with his secondary provider at the same time that he submits the claim to his primary plan.
• Jim’s primary plan will pay benefits only to the extent his other insurance plan did not cover the loss.

Answer 93

Jim can receive no more than $6,000 in benefits from both the primary and secondary insurers.

Question 94

Which of the following entities regulates variable insurance products?

• state insurance departments
• Securities and Exchange Commission
• state insurance departments and the SEC
• State and Federal Banking Commission

Answer 94

state insurance departments and the SEC

Question 95

Which of the following statements about a reinstated health insurance policy is CORRECT?

• It will only cover sicknesses that begin more than ten days after the policy is reinstated.
• It will only cover accidents that occur more than one month after reinstatement.
• Coverage for accidents and sickness begins immediately upon reinstatement.
• Reinstatement of a health insurance policy is generally prohibited.

Answer 95

It will only cover sicknesses that begin more than ten days after the policy is reinstated.

Question 96

Tori’s accident and health insurance policy contains a change of occupation provision. When she applied for the policy, she worked as an accountant, but she now works as a construction worker. What can the insurer do?

• start a new incontestability period
• reduce benefits
• increase the number of exclusions in the policy
• increase the premium

Answer 96

reduce benefits

Question 97

Carolyn bought a $500,000 five-year renewable term policy with a guaranteed renewal rate. Two years after buying it, she develops cancer and is no longer insurable. If Carolyn is alive at the end of the five-year term, which of the following statements is most correct?

• She can renew the policy but must pay a higher premium based on her age at the time of renewal.
• She must prove insurability before the insurer can renew the policy.
• The insurer can increase her premiums because of her health problems.
• She will not be able to renew the policy.

Answer 97

She can renew the policy but must pay a higher premium based on her age at the time of renewal.

Question 98

Which statement about group life insurance plans is not correct?

• At least ten persons must be covered under one master policy.
• Individual medical examinations are generally not required.
• The employer must pay the entire premium.
• Each participant in a group plan must receive a certificate of insurance.

Answer 98

The employer must pay the entire premium.

Question 99

All of the following statements about disability buy-out policies are correct, EXCEPT:

• Only the business may own the policy.
• They provide a benefit only if the insured becomes totally disabled.
• They require the insured to remain disabled for the entire elimination period.
• They pay a benefit that is used to buy out a disabled owner’s or partner’s interest

Answer 99

Only the business may own the policy.

Question 100

The payor benefit rider for a juvenile insured sets the terms for when and how long the premium waiver stays in effect. If the payor becomes totally disabled or dies before the specified age, which of the following happens?

• The waiver usually stays in effect until the payor recovers or the child enrolls in college.
• The waiver usually stays in effect until the payor recovers or the child reaches a certain age.
• The premiums are waived for the duration of the policy.
• The premiums are reduced by an amount set in the policy.

Answer 100

The waiver usually stays in effect until the payor recovers or the child reaches a certain age.

Question 101

The insurance policy provision that prohibits an insurer from disputing a claim after the policy has been in force for a certain period is called

• the exclusions cause
• the insuring clause
• the policyowner’s rights clause
• the incontestability clause

Answer 101

the incontestability clause

The incontestability clause states that after a policy has been in force for a certain period (usually two years from the date of issue), the insurer cannot contest a claim for any reason except for nonpayment of premiums.

Question 102

Jeff is injured while working at home and becomes partially disabled. Although he can no longer work as a fireman, he has started working part-time at the local library. Which of the following statements is NOT correct?

• Jeff is not eligible for Social Security benefits because he is not totally disabled.
• Jeff is not eligible for Social Security benefits because he is working part-time.
• Jeff’s disability must last at least six months in order to be eligible for Social Security disability benefits.
• Jeff must be unable to work in any gainful occupation in order to be eligible for Social Security disability benefits.

Answer 102

Jeff’s disability must last at least six months in order to be eligible for Social Security disability benefits.

To be eligible for Social Security disability benefits, the disability must be expected to last at least one year or to result in the person’s death.

Question 103

Deferred annuities accumulate funds for future distribution. Under what circumstances are these funds forfeitable to the insurer?

• only if the owner stops paying premiums
• only at the annuitant’s death, if it occurs before the annuity starting date
• under no circumstances
• only if the owner is convicted of a felony

Answer 103

under no circumstances

Question 104

A life insurance policyowner has the right to do all of the following, EXCEPT:

• transfer the policy and pledge the policy’s values
• pledge the policy’s cash values
• select and change the contract’s dividend schedule
• elect settlement options and non-forfeiture provisions

Answer 104

select and change the contract’s dividend schedule

Question 105

A key provision of a viatical settlement is that the insured must be terminally ill. This means that the insured’s life expectancy is generally not longer than how long?

• 12 to 24 months
• 48 to 60 months
• 6 to 10 years
• 11 to 15 years

Answer 105

48 to 60 months

A person with a life expectancy of no more than 48 to 60 months is generally considered terminally ill for purposes of a viatical settlement.

Question 106

Which type of Medicare supplement marketing method fails to disclose that the purpose of the advertisement is to sell insurance?

• twisting
• cold lead advertising
• high-pressure sales tactics
• illegal inducement

Answer 106

cold lead advertising

Question 107

The Georgia Life and Health Insurance Guaranty Association does not provide coverage for which of the following types of insurance?

• reinsurance policies
• group life insurance policies
• annuity contracts
• individual life insurance policies

Answer 107

reinsurance policies

Question 108

Which of the following is the most likely elimination period used in disability income policies that are purchased by a company for disability buy-out purposes?

• 24 months
• 12 months
• 180 days
• 0 days

Answer 108

24 months

To ensure that the insured owner is indeed permanently disabled and his interest in the business is not bought out too early, the elimination period in a disability buy-out policy is generally much longer than that found in individual (personal) DI policies.

Question 109

Eric fails to pay the annual premium on his major medical insurance policy. The grace period provision allows him to pay the premium within how many days after the due date?

• 7
• 14
• 21
• 30

Answer 109

30

A policyholder is entitled to a 30-day grace period in which to pay the premium due on an annually renewable health insurance policy.

Question 110

A whole life insurance policy has premiums that start lower than comparable straight whole life and then increase annually for a limited period of time. What is this type of policy called?

• limited pay whole life
• graded premium whole life
• modified premium whole life
• single premium life

Answer 110

graded premium whole life

A graded premium whole life insurance policy generally has premiums that begin very low compared to straight whole life. Premiums then increase annually for a long period and stay level for the rest of the policy. The period during which premiums increase each year may be 10 to 15 years, and is called the grade-in period.

Question 111

Your client has a life insurance policy with an accidental death benefit rider. He is seriously injured in an automobile accident. After a month, he is released from the hospital to continue rehabilitation at home. During rehabilitation, he dies from pneumonia. What will the rider pay?

• 100 percent of the face amount, double if there is a rider
• 100 percent of the face amount
• 50 percent of the face amount
• nothing

Answer 111

nothing

An accidental death benefit rider pays its additional benefit only if death occurs directly because of an accident. Death from illness or self-inflicted wounds would not qualify for the benefit.

Question 112

Caleb bought a single-premium deferred annuity ten years ago. He paid $25,000. Today, the contract’s value is $46,000. What would the tax consequence be if Caleb withdrew $15,000?

• It would not be subject to tax because it would come from interest.
• It would be subject to a 50 percent tax because it would come from interest.
• It would not be subject to tax because it would come from principal.
• It would be fully subject to income tax.

Answer 112

It would be fully subject to income tax.

If Caleb were to withdraw $15,000, it would be fully subject to tax, since it would be deemed to come from interest.

Question 113

As whole life insurance policies mature, they build cash value, which can be accessed through loans, withdrawals, or policy surrender. What is the ability to use a policy’s cash value in these ways generally called?

• death benefit
• personal benefit
• living benefit
• survivor’s benefit

Answer 113

living benefit

Question 114

Which statement describes the purpose of the Georgia Life and Health Insurance Guaranty Association?

• It guarantees that insurers will pay minimum returns on variable insurance and annuity contracts.
• It protects policyholders against an insurance company’s failure to perform its contractual obligations because of impairment or insolvency.
• It provides access to life and health insurance to individuals who would otherwise be uninsurable.
• It protects domestic and foreign insurers that are experiencing financial problems.

Answer 114

It protects policyholders against an insurance company’s failure to perform its contractual obligations because of impairment or insolvency.

Question 115

Terry decides to open a new IRA with her broker and wants to roll over all of the funds that are in her IRA at her bank. The current IRA is worth $200,000. How much will the bank withhold from the distribution?

• $0
• $10,000
• $20,000
• $40,000

Answer 115

$0

This change is a direct transfer and no penalty applies.

Question 116

The Acme Company sets up a plan that provides annuities to its employees when they retire. The individuals those annuities cover hold “certificates of participation.” Which type of plan is that?

• fixed annuity
• multiple-lives annuity
• group annuity
• 403(b) plan

Answer 116

group annuity

Annuities can also be used by employers on a group basis. A group annuity has the same features as an individual annuity, except that it is written on a group basis.

Question 117

A claimant on a health insurance policy must give written notice of the claim to the insurer within how many days following a loss?

• 7
• 10
• 14
• 20

Answer 117

20

Question 118

Under the integrated long-term care option, the beneficiary receives the remainder of the face amount as the death benefit at the insured’s death. In this way, the long-term care integrated option is similar to which of the following?

• term life insurance
• a family term rider
• an accelerated benefits rider
• a disability income benefit rider

Answer 118

an accelerated benefits rider

Question 119

Henry is in the market for health insurance, but he is diabetic and has heart disease. An insurer will insure him but insists on an exclusion rider. What can Henry expect from this rider?

• not being able to receive medical treatment from the better providers and facilities
• paying a higher deductible for treatments related to his pre-existing conditions
• coverage for himself but not for his dependents
• coverage exclusions for his pre-existing conditions

Answer 119

coverage exclusions for his pre-existing conditions

Question 120

Which of the following best describes a life insurance policy’s contingent beneficiary?

• a beneficiary who is paid the death benefit when the insured dies
• a beneficiary who is paid the death benefit if the primary beneficiary is removed or dies before the insured
• a beneficiary who is paid the death benefits if the insurance company disqualifies the primary beneficiary
• a beneficiary who is paid the death benefits if the secondary beneficiary is removed or dies before the insured

Answer 120

a beneficiary who is paid the death benefit if the primary beneficiary is removed or dies before the insured

Question 121

XYZ Company is a close corporation with several shareholders. The company buys the ownership interest of a recently deceased shareholder. This buy-sell agreement is known as an entity plan or which of the following?

• a partnership plan
• a cartel plan
• a business cross-purchase plan
• a stock redemption agreement

Answer 121

a stock redemption agreement

If the business that owns the entity plan is a close corporation, the buy-out agreement is also called a stock redemption agreement.

Question 122

What is one difference between individual disability income policies and group disability income policies?

• Group plans are underwritten as a whole while individual policies consider the insurability of the applicant.
• Group policies are portable while individual plans are not.
• Individual disability insurance is easier to obtain than group coverage.
• Individual disability insurance is less expensive than group coverage.

Answer 122

Group plans are underwritten as a whole while individual policies consider the insurability of the applicant.

Question 123

Tandy Enterprises pays $25,000 in premiums each year for its group term life insurance plan, which covers all of its rank-and-file employees. When filing its income tax return, what can (or cannot) Tandy Enterprises do?

• It can take a partial deduction for the premiums.
• It can take a deduction for the entire premium paid.
• It cannot take a deduction for the premium.
• It can take a deduction only if it also pays the premium for a group plan covering highly compensated employees.

Answer 123

It can take a deduction for the entire premium paid.

Question 124

Insurers can sell both qualified and non-qualified LTC policies. What can those who buy qualified policies do?

• buy additional benefits unavailable to those who buy non-qualified policies
• exclude benefits from tax-qualified long-term care insurance policies from the recipient’s income with no limits
• deduct their premiums from their state income taxes
• deduct their premium payments from their federal income taxes within certain specified limits

Answer 124

deduct their premium payments from their federal income taxes within certain specified limits

Question 125

A disability waiver under a universal life policy can take the form of a waiver of stipulated premium or a waiver of which of the following?

• cost of insurance
• payment of cash value
• mortality charges
• expenses

Answer 125

cost of insurance

Question 126

All of the following statements about health savings accounts (HSAs) are correct, EXCEPT:

• Health savings accounts are available on either an individual or a group basis.
• If an employer offers an HSA, employees must first have a high-deductible, high-cost insurance plan and set up an HSA account.
• The employer contributes to the employee’s account, up to the annual limit for employer contributions to HSAs.
• Employers cannot discriminate in any way when making HSA contributions.

Answer 126

The employer contributes to the employee’s account, up to the annual limit for employer contributions to HSAs.

Question 127

Managed care companies have entered the Medicare services market through the expansion of which of the following?

• Medicare supplement policies
• Part A
• Part B
• Part C

Answer 127

Part C

In 1997, Medicare was expanded to include another option, Part C (called Medicare Advantage. Part C opened the program to new health-care providers and managed care plans.

Question 128

Premiums for Medicare Part B and Medicare supplement insurance are tax deductible if, when added to other medical expenses, they exceed how much of a person’s adjusted gross income?

• 2 percent
• 5 percent
• 7.5 percent
• 10 percent

Answer 128

10 percent

Question 129

Into how many classes do many dental plans group their covered treatment and benefits?

• one class
• two classes
• three classes
• four classes

Answer 129

three classes

Question 130

When a policy has been issued on a substandard (rated) basis, which nonforfeiture option is normally NOT available?

• cash surrender option
• extended term option
• reduced paid-up option
• cash surrender and withdrawal provision

Answer 130

extended term option

Question 131

Beta Industries set up a retirement plan solely for the benefit of its top executives, and it plans to contribute the same amount to each employee’s account every year. Which statement is correct if Beta wants to obtain IRS approval as a qualified plan?

• The plan will probably receive qualified plan status.
• The plan must benefit at least 75 percent of its top executives to receive qualified plan status.
• The plan will not be considered a qualified plan because it does not consider an employee’s earnings when determining contributions to the plan.
• The plan will not be considered a qualified plan because it discriminates in coverage.

Answer 131

The plan will not be considered a qualified plan because it discriminates in coverage.

A qualified plan cannot discriminate in coverage, which means that the employer cannot set up the plan mainly for the benefit of key employees or the business owners. Beta’s plan will therefore not meet the general requirements for obtaining qualified plan status.

Question 132

Jason wants to buy life insurance and is considering two policies: a $250,000 modified premium whole life insurance policy and a $250,000 ordinary life policy. All other factors being equal, which of the following statements is NOT correct?

• The premium for the modified premium policy will be lower at first than the premium for the ordinary life policy.
• The modified premium policy will build cash value more slowly than the ordinary life policy during the initial policy period.
• Both types of policies give permanent insurance protection.
• The premium for the modified premium policy will be higher at first than the premium for the ordinary life policy but will then decrease for the remainder of the policy.

Answer 132

The premium for the modified premium policy will be higher at first than the premium for the ordinary life policy but will then decrease for the remainder of the policy.

Question 133

The convertibility provision of a term life policy lets the owner convert the term coverage into what type of policy?

• a convertible term policy
• a renewable term policy
• a permanent life insurance policy
• a paid-up whole life insurance policy

Answer 133

a permanent life insurance policy

Question 134

Gerry is covered under a retirement plan in which the employer contributes 3 percent of each employee’s salary to an individual account. Gerry does not know what his final benefit will be under the plan at retirement. Instead, it depends on whatever the contributions and earnings grow to. What type of plan does Gerry have?

• a defined contribution plan
• a Roth IRA
• a deferred compensation plan
• a defined benefit plan

Answer 134

a defined contribution plan

Under a defined contribution plan, individual accounts must be set up for each participating employee, and the final benefit that a participant will receive at retirement is not known in advance. Rather, it depends on the amount to which the contributions and the earnings on those contributions have accumulated.

Question 135

In addition to defining the insurer’s rights to cancel coverage, what else do renewability provisions define?

• the right of insurers to reduce or increase the policy’s coverage amounts beyond the current coverage period
• the right of policyowners to continue the policy’s coverage beyond the current coverage period
• the right of policyowners to withhold premium payments for 30 to 60 days following the current coverage period
• the right to increase premium amounts with cause after the current coverage period

Answer 135

the right of policyowners to continue the policy’s coverage beyond the current coverage period

Question 136

Roberta owns a whole life insurance policy and has indicated her desire to provide the beneficiary with a settlement option “without a life contingency”. At her death, all of the following are available to her beneficiary EXCEPT:

• a lump-sum cash payment
• interest-only payments on the policy proceeds
• fixed payments of both principal and interest for a temporary period
• income payments for life or for a specified number of years, whichever is longer

Answer 136

income payments for life or for a specified number of years, whichever is longer

Lump-sum, interest-only, and temporary fixed payments of principal and interest are Roberta’s options under the “without a life contingency” settlement option. Income payments for life or for a specified number of years (life with period certain) would be available only if she had chosen a “with a life contingency” settlement option.

Question 137

Jenny misstated her age on her application for insurance, stating she was 38, when her actual age was 42. If her policy contains a provision that addresses this situation, is Jenny entitled to benefits?

• Yes, but at a level her premium would buy at her true age.
• Yes, but a retroactive charge to account for past owed premiums will be assessed to her.
• No, but her policy remains in force.
• No, and her policy will be canceled.

Answer 137

Yes, but at a level her premium would buy at her true age.

Question 138

All of the following are eligible for favorable tax treatment of their retirement plans EXCEPT:

• Western Widget Works, which maintains a defined contribution plan for its employees
• Robert, who opened an individual retirement arrangement specifically for retirement funding
• Storm, who is self-employed and funding a Keogh plan
• Eastern Widget Limited, which provides deferred compensation plans to its key employees

Answer 138

Eastern Widget Limited, which provides deferred compensation plans to its key employees

All of the examples provided, except Eastern Widget, are offering qualified plans, which receive favorable federal tax treatment. A deferred compensation plan is a nonqualified plan.

Question 139

Tom is employed by Acme Industries and is covered by its group long-term disability plan. The company pays 80 percent of the premium and Tom pays 20 percent. Tom becomes disabled and receives $3,000 a month in disability income payments. What amount of this income will Tom receive tax free?

• He will receive 80 percent of this income ($2,400) tax free.
• He will receive 20 percent ($600) of this income tax free.
• He will receive all of this income tax free.
• He will receive none of this income tax free.

Answer 139

He will receive 20 percent ($600) of this income tax free.

Question 140

Natasha is insured under a $500,000 universal life insurance policy. Her son, Todd, is the beneficiary. On October 1, Natasha took a $15,000 loan from the policy and died six months later without paying it back. What amount will Todd receive?

• $500,000
• $515,000
• $480,000
• $485,000 less any interest owed on the loan

Answer 140

$485,000 less any interest owed on the loan

The policy’s death benefit is reduced on a dollar-for-dollar basis for the amount of the full, unpaid loan at Natasha’s death. The insurer will also deduct any unpaid interest from the proceeds. Todd would, therefore, receive $485,000 less any interest owed on the loan.

Question 141

Tamara is 55. Her husband is 67 and now retired and receiving Social Security. They have a 15-year-old son. Tamara is eligible for what portion of her husband’s PIA?

• nothing until she turns 62
• 50 percent of the PIA
• 100 percent of the PIA
• reduced benefits until age 62

Answer 141

50 percent of the PIA

If there is a dependent child under the age of 16, the spouse is entitled to the 50 percent benefit, no matter what his or her age.

Question 142

Health insurance plans are divided into which two distinct classes?

• medical expense plans and managed care plans
• individual plans and group plans
• HMOs and PPOs
• indemnity plans and managed care plans

Answer 142

indemnity plans and managed care plans

Question 143

Mike and Joyce’s health coverage is provided by their employer, Acme MFG, Inc. As such, how is their insurance provided?

• as individual policies
• as part of a state health plan
• on a group basis
• at a prohibitively high cost

Answer 143

on a group basis

Question 144

What is the period after a disability starts during which no benefits are payable known as?

• elimination period
• probationary period
• exclusion provision
• benefit period provision

Answer 144

elimination period

Question 145

Ted is the insured under a ten-year family income policy that will pay a $500 monthly income. What will happen if he dies 15 years after taking out the policy?

• Ted’s family will get a $500 monthly income for ten years.
• Ted’s family will get a $500 monthly income for five years.
• Ted’s family will get a $500 monthly income for ten years plus the face amount of the underlying policy.
• Ted’s family will not receive monthly income payments but will only be paid the face amount of the underlying policy as the death benefit.

Answer 145

Ted’s family will not receive monthly income payments but will only be paid the face amount of the underlying policy as the death benefit.

Under Ted’s family income policy, the insurer will pay the $500 monthly income benefit only if he dies within the ten-year term period, which begins when the policy is issued. Because Ted died after the term period, the insurer pays only the face amount of the underlying policy as the death benefit.

Question 146

Nora is insured under a point-of-service PPO plan and received a second opinion about a cancer diagnosis from an out-of-network provider. What is the result?

• The second opinion will not be covered.
• The second opinion will be covered at a higher percentage than if Nora went to an in-network provider.
• The second opinion will be covered if she received a referral to see the specialist.
• The second opinion will be covered at a lower rate or percentage than if Nora went to an in-network provider.

Answer 146

The second opinion will be covered at a lower rate or percentage than if Nora went to an in-network provider.

Question 147

Which of the following statements best describes the Medicaid benefit program?

• Medicaid provides a range of health services for beneficiaries, but services vary from city to city.
• Medicaid provides the same range of health services for beneficiaries in all states.
• Medicaid provides a range of health services for beneficiaries in all states, but services vary from county to county.
• Medicaid provides a range of health services for beneficiaries, but services vary from state to state.

Answer 147

Medicaid provides a range of health services for beneficiaries, but services vary from state to state.

Question 148

When received in a lump sum, how are life insurance death benefits commonly taxed to the beneficiary?

• Death benefits from a life insurance policy are generally taxable to the beneficiary.
• Fifty percent of death benefits from a life insurance are taxable to the beneficiary.
• Death benefits from a life insurance policy are generally not taxable to the beneficiary.
• Death benefits from a life insurance policy are received tax deferred.

Answer 148

Death benefits from a life insurance policy are generally not taxable to the beneficiary.

(When received in a lump sum)

Question 149

In an insurance transaction, what does the applicant give as consideration?

• the initial premium
• the promise to pay premiums during the entire policy period
• the promise to be a responsible policyowner
• the promise to follow the terms of the insurance contract

Answer 149

the initial premium

Question 150

If an annuity requires only that each premium deposit be above a certain minimum, this is most likely which type of annuity?

• immediate annuity
• fixed premium deferred annuity
• flexible premium deferred annuity
• immediate variable annuity

Answer 150

flexible premium deferred annuity

Flexible premium deferred annuities allow the owner to make premium deposits of any amount whenever he or she wants. However, a certain minimum amount may be required.

Question 151

Which of the following statements about Georgia’s life insurance advertising rules is CORRECT?

• Advertisements do not include prepared sales talks.
• Advertisements cannot mention any limitations or benefits offered by the policy.
• Advertisements cannot use testimonials.
• Advertisements must clearly identify the insurer and policy being sold.

Answer 151

Advertisements must clearly identify the insurer and policy being sold.

Question 152

All of these are types of term life insurance policies EXCEPT:

• decreasing
• permanent
• increasing
• renewable

Answer 152

permanent

Permanent life insurance is the opposite of temporary or term insurance. It is not tied to a specific time period and can last for the duration of the insured’s life or to age 100.

Question 153

At what point do insurers need to decide if insurable interest exists?

• when they issue a policy
• before the applicant submits an application
• before the insured dies
• before entering into the contract

Answer 153

before entering into the contract

Question 154

Which of the following statements about taxes on business overhead expense (BOE) insurance for a partnership is NOT correct?

• The benefits, when received, are taxable as income in the year received.
• The expenses the benefits cover are typically deductible as reasonable and ordinary business expenses.
• The taxes the insured must pay on the benefits are balanced by the overhead expenses the insured can deduct.
• The benefits are taxable to the business, not the partners.

Answer 154

The benefits are taxable to the business, not the partners.

Question 155

After Lisa was laid off from her job, she decided to convert her group term life insurance coverage to an individual policy. With respect to group life conversion, which of the following statements is NOT correct?

• Lisa need not give evidence of insurability before buying an individual policy.
• Lisa must apply for a conversion policy within 31 days after being laid off.
• Lisa may convert to a whole life policy.
• Lisa’s new policy will become effective 60 days after her date of termination.

Answer 155

Lisa’s new policy will become effective 60 days after her date of termination.

Question 156

Which statement regarding life insurance policy dividends is NOT correct?

• Dividends are guaranteed.
• If dividends issued to a participating policyowner do not exceed the policyowner’s total premiums for the policy, then they are not taxable.
• Dividends are generally received income tax free.
• Participating life insurance policies include provisions that enable the policyowner to choose how he or she wants to apply any declared policy dividends.

Answer 156

Dividends are guaranteed.

Question 157

Jill is insured under a $250,000 convertible term policy and would like to convert to a permanent policy. Which of the following statements is most correct?

• She must first prove insurability.
• The amount of the new policy cannot exceed $250,000.
• The premiums for the new policy will be based on Jill’s age when she applied for the term policy.
• She must pay a conversion penalty.

Answer 157

The amount of the new policy cannot exceed $250,000.

The convertibility provision of a term life policy lets a policyowner convert term coverage to a permanent life insurance policy without proving insurability.

Question 158

Group health plans that provide medical expense coverage have a conversion privilege. All of the following statements about conversion privileges are correct, EXCEPT:

• The conversion privilege allows individual insureds to convert their group coverage to an individual plan with the same insurer.
• Insurers can evaluate the person and charge the appropriate premium for the converted coverage.
• Insurers cannot evaluate the person and charge the appropriate premium for the converted coverage.
• The insurer cannot deny the person coverage even if he or she would otherwise be considered uninsurable.

Answer 158

Insurers cannot evaluate the person and charge the appropriate premium for the converted coverage.

Question 159

Which of the following statements about health insurance waiting periods is correct?

• All potential plan participants must have the same waiting period, regardless of their health conditions.
• Waiting periods and pre-existing exclusion periods do not have to run concurrently.
• A waiting period is the time that must pass before an employer offers health benefits to its employees.
• A waiting period is also called an elimination period.

Answer 159

All potential plan participants must have the same waiting period, regardless of their health conditions.

Question 160

June’s employer’s plan has a two-month waiting period and a pre-existing condition exclusion period. June has a pre-existing condition. How many months after the waiting period ends can June’s benefits begin?

• two months
• three months
• four months
• insufficient information

Answer 160

insufficient information

The question cannot be answered without knowing the length of the pre-existing condition exclusion period.

Question 161

Chester and his wife, Nellie, established a 529 plan for their daughter and contributed $5,000 to her account this year. Six months later, they withdrew $20,000 to pay for their daughter’s college tuition. Which statement is correct?

• Chester and Nellie can take an income tax deduction for their contribution.
• Chester and Nellie do not have to pay tax on the distribution.
• Chester and Nellie must pay tax only on the earnings portion of the withdrawal.
• Chester and Nellie can take an income tax deduction for their withdrawal.

Answer 161

Chester and Nellie do not have to pay tax on the distribution.

Funds withdrawn from a Section 529 plan (and the interest earned on those funds) are not taxable. To escape taxes, these funds must be used for qualifying college expenses, such as tuition, fees, room and board, and books. Although contributions are not federally tax deductible, some states may allow contributions to be deducted for state tax purposes.

Question 162

Which of the following best illustrates the difference between a life settlement and a viatical settlement?

• A life settlement requires a terminal illness for transfer to occur; a viatical settlement has no such requirement.
• To effect a viatical settlement, the policyowner must be diagnosed with a terminal illness; a life settlement does not require the diagnosis of a terminal illness for transfer to occur.
• A life settlement occurs before a life insurance policy matures; a viatical settlement occurs after the policy has matured.
• A life settlement pays the policy’s cash value; a viatical settlement pays the amount of premiums paid into the policy.

Answer 162

To effect a viatical settlement, the policyowner must be diagnosed with a terminal illness; a life settlement does not require the diagnosis of a terminal illness for transfer to occur.

Question 163

Cara is considering purchasing an individual disability income policy, while her brother Calvin will receive disability coverage through his new employer’s group plan. Which statement about their policies is correct?

• Calvin will have to go through individual underwriting, but Cara will not.
• The premium for Calvin’s policy will typically be lower than for Cara’s policy.
• Calvin must prove insurability, but Cara does not have to prove insurability.
• Cara will probably be classified as a standard risk, while Calvin will have a harder time proving insurability.

Answer 163

The premium for Calvin’s policy will typically be lower than for Cara’s policy.

Question 164

What is the only restriction on naming an annuitant?

• The annuitant must not be related to the owner.
• The annuitant must be a natural person.
• The annuitant can be a natural or non-natural person.
• The annuitant must be related to the owner.

Answer 164

The annuitant must be a natural person.

Question 165

Which of the following statements about marketing Medicare supplement policies is CORRECT?

• Agents must earn an advanced insurance designation to sell Medicare supplement policies.
• Agents may not sell excessive Medicare supplement insurance.
• Agents must inform applicants that Medicare supplement policies cover all medical expenses.
• Replacement of a Medicare supplement policy is prohibited.

Answer 165

Agents may not sell excessive Medicare supplement insurance.

Question 166

Will has been licensed as a health insurance agent in Georgia for the past five years. Which requirement must he comply with in order to sell Georgia’s Long-Term Care Partnership policies?

• complete an initial eight-hour training program on long-term care insurance
• earn a senior specialist designation
• earn a Medicare and long-term care specialist designation
• complete at least 24 hours of training on long-term care programs

Answer 166

complete an initial eight-hour training program on long-term care insurance