Life & Health Exam Questions Flashcards

Question 1

Q

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

A. Concealment
B. Indemnity
C. Representation
D. Warranty

Answer

A

D. Warranty

A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties but representations. Representations are statements that are true to the best of the applicant’s knowledge.

Question 2

Q

Which of the following would qualify as a competent party in an insurance contract?

A. The applicant is intoxicated at the time of application.
B. The applicant is a 12-year-old student.
C. The applicant is under the influence of a mind-impairing medication at the time of application.
D. The applicant has a prior felony conviction.

Answer

A

D. The applicant has a prior felony conviction.

When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent.

It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12-year-old student is considered to be underage in most states, and a person under mind-impairing medication most likely would not be mentally competent.

Question 3

Q

Which of the following is NOT the consideration in a policy?

A. The premium amount paid at the time of application.
B. The promise to pay covered losses.
C. The application given to a prospective insured.
D. Something of value exchanged between parties.

Answer

A

C. The application given to a prospective insured.

Consideration is something of value that is transferred between the two parties to form a legal contract.

Question 4

Q

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT:

A. Conditions.
B. Consideration.
C. Legal purpose.
D. Offer and acceptance.

Answer

A

A. Conditions.

Conditions are part of the policy structure. Consideration is an essential part of a contract.

Question 5

Q

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will:

A. Pay the policy proceeds up to an established limit.
B. Not pay the policy proceeds under any circumstances.
C. Automatically pay the policy proceeds.
D. Pay the policy proceeds only if it would have issued the policy.

Answer

A

D. Pay the policy proceeds only if it would have issued the policy.

The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.

Question 6

Q

Which part of an insurance application would contain information regarding the cause of death of the applicant’s deceased relatives?

A. Agent’s Report
B. General Information
C. Medical Information
D. Inspection Report

Answer

A

C. Medical Information

Part 2 - Medical Information of the application includes information on the prospective insured’s medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives.

Question 7

Q

Which of the following best describes the aleatory nature of an insurance contract?

A. Only one of the parties being legally bound by the contract
B. Ambiguities are interpreted in favor of the insured
C. Policies are submitted to the insurer on a take-it-or-leave-it basis
D. Exchange of unequal values

Answer

A

D. Exchange of unequal values

An aleatory contract is a contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.

Question 8

Q

If a policy includes a free-look period of at least 10 days, the Buyer’s Guide may be delivered to the applicant:

A. Upon issuance of the policy.
B. Within 30 days after the first premium payment was collected.
C. Prior to filling out an application for insurance.
D. With the policy.

Answer

A

D. With the policy.

If a life insurance policy contains a free-look period of at least 10 days, the buyer’s guide can be delivered with the policy. If it doesn’t, the buyer’s guide must be delivered prior to accepting the initial premium.

Question 9

Q

Which of the following reports will provide the underwriter with the information about an insurance applicant’s credit?

A. Any federal report
B. Consumer report
C. Inspection report
D. Agent’s report

Answer

A

B. Consumer report

Consumer reports include written and/or oral information regarding a consumer’s credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.

Question 10

Q

Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process?

A. Insurance Index
B. Policy Summary
C. Illustrations
D. Buyer’s Guide

Answer

A

D. Buyer’s Guide

The Buyer’s Guide is a consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process. It is a generic guide that does not address the specific policy of the insurer, instead explaining life insurance in a way that the average consumer can understand.

Question 11

Q

Which of the following individuals must have insurable interest in the insured?

A. Producer
B. Policyowner
C. Beneficiary
D. Underwriter

Answer

A

B. Policyowner

The policyowner must have an insurable interest in the insured (his/her own life if the policyowner and the insured is the same person), or in the life of a family member or a business partner.

Question 12

Q

The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective?

A. As of the application date
B. As of the policy delivery date
C. As of the first of the month after the policy issue
D. As of the policy issue date

Answer

A

A. As of the application date

If the full premium was submitted with the application and the policy was issued as requested, the policy coverage effective date would generally coincide with the date of application.

Question 13

Q

In insurance, an offer is usually made when:

A. An applicant submits an application to the insurer.
B. The insurer approves the application and receives the initial premium.
C. The agent hands the policy to the policyholder.
D. An agent explains a policy to a potential applicant.

Answer

A

A. An applicant submits an application to the insurer.

In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer’s underwriter approves the application and issues a policy.

Question 14

Q

All of the following are duties and responsibilities of producers at the time of application EXCEPT:

A. Check to make sure that there no unanswered questions on the application.
B. Change any incorrect statement on the application by personally initialing next to the corrected statement.
C. Explain the nature and type of any receipt the producer is giving to the applicant.
D. Probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information.

Answer

A

B. Change any incorrect statement on the application by personally initialing next to the corrected statement.

Any changes to information on an application must be initialed by the applicant.

Question 15

Q

If an insurer requires a medical examination of an applicant in connection with the application for life insurance, who is responsible for paying the cost of the examination?

A. The examiner
B. The applicant
C. The insurer
D. The cost of the examination will be waived

Answer

A

C. The insurer

During the underwriting process, an insurer may require that an applicant receive a medical examination. The insurer is responsible for the associated costs of the examination.

Question 16

Q

If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT:

A. Erase the incorrect answer and record the correct answer.
B. Draw a line through the first answer, record the correct answer, and have the applicant initial the change.
C. Note on the application the reason for the change.
D. Destroy the application and complete a new one.

Answer

A

A. Erase the incorrect answer and record the correct answer.

An agent should not use white-out, erase, or obliterate any answers given to a question on an application. It could prevent an insurer from contesting the application, should it be necessary.

Question 17

Q

Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles?

A. Standard risk requires extra rating.
B. Standard risk is also known as high exposure risk.
C. Standard risk is representative of the majority of people.
D. Standard risk pays a higher premium than substandard risk.

Answer

A

C. Standard risk is representative of the majority of people.

Standard risks are representative of the majority of people in their age and with similar lifestyles. They are the average risk.

Question 18

Q

An applicant who receives a preferred risk classification qualifies for:

A. Lower premiums than a person who receives a standard risk.
B. Dividends payable for lack of claims.
C. Higher premiums than a person who receives a sub-standard risk.
D. Higher premiums than a person who receives a standard risk.

Answer

A

A. Lower premiums than a person who receives a standard risk.

The preferred risk category is reserved for those persons with a superior physical condition, lifestyle, and habits.

Question 19

Q

When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will:

A. Issue the policy anyway and pay the face value to the beneficiary.
B. Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved.
C. Return the premium to Y’s estate, since it has no obligation to pay the death claim.
D. Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued.

Answer

A

A. Issue the policy anyway and pay the face value to the beneficiary.

The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.

Question 20

Q

Which of the following information about the applicant is NOT included in the General Information section of the application for insurance?

A. Gender
B. Occupation
C. Marital status
D. Medical background

Answer

A

D. Medical background

Part 1 - General Information of the application includes the general questions about the applicant, including name, age, address, birth ate, gender, income, marital status, and occupation. The applicant’s medical background is addressed in Part 2 - Medical Information.

Question 21

Q

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe?

A. Unilateral
B. Conditional
C. Personal
D. Adhesion

Answer

A

D. Adhesion

A contract of adhesion is prepared by only the insurer; the insured’s only option is to accept or reject the policy as it is written.

Question 22

Q

Why should the producer personally deliver the policy when the first premium has already been paid?

A. To ensure the producer gets paid commission
B. To find out how the family has been doing since the initial presentation
C. To make sure the policy is not stolen or lost
D. To help the insured understand all aspects of the contract

Answer

A

D. To help the insured understand all aspects of the contract

It is the producer’s responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.

Question 23

Q

If an insurer issued a policy based on the application that had unanswered questions, which of the following will be TRUE?

A. The policy will be void.
B. The insurer may deny coverage later, because of the information missing on the application.
C. The policy will be interpreted as if the insurer waived its right to have an answer on the application.
D. The policy will be interpreted as if the insured did not have an answer to the question.

Answer

A

C. The policy will be interpreted as if the insurer waived its right to have an answer on the application.

Any unanswered questions need to be answered before the policy is issued. If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived its right to have an answer for the question, and will not be able to deny coverage later because of unanswered questions.

Question 24

Q

What describes the specific information about a policy?

A. Buyer’s guide
B. Producer’s report
C. Policy summary
D. Illustrations

Answer

A

C. Policy summary

A policy summary describes the features and elements of the specific policy for which a person is applying.

Question 25

Q

An insurance contract must contain all of the following to be considered legally binding EXCEPT:

A. Competent parties.
B. Beneficiary’s consent.
C. Offer and acceptance.
D. Consideration.

Answer

A

B. Beneficiary’s consent.

The four essential elements of all legal contracts are offer and acceptance, consideration, competent parties, and legal purpose.

Question 26

Q

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave it basis are classified as:

A. Binding contracts.
B. Contracts of adhesion.
C. Unilateral contracts.
D. Aleatory contracts.

Answer

A

B. Contracts of adhesion.

Insurance policies are written by the insurer and submitted to the insured on a take-it-or-leave-it basis. The insured does not have any input into the contract, but simply adheres to the contract.

Question 27

Q

Which of the following is NOT an essential element of an insurance contract?

A. Legal purpose
B. Counteroffer
C. Consideration
D. Agreement

Answer

A

B. Counteroffer

In order for insurance contracts to be legally binding, they must have four essential elements: agreement (offer and acceptance), consideration, competent parties, and legal purpose. Counteroffer is not required.

Question 28

Q

The insurer discovered that one of the applicants for life insurance missed a couple of questions on the application. What must the insurer does with the application?

A. Acknowledge the missed questions with a signature and continue the policy issue process.
B. Proceed with issuing a policy.
C. Return to the applicant for completion.
D. Answer the missed questions for the applicant.

Answer

A

C. Return to the applicant for completion.

Any unanswered questions need to be answered before the policy is issued. If the insurer receives incomplete applications, they need to be returned to the applicants for completion.

Question 29

Q

Which is the appropriate action by the insurer if a prospective insured submitted an incomplete application?

A. Fill in the blanks to the best of the insurer’s knowledge
B. Return the application to the applicant for completion
C. Issue a policy anyway since the application has been submitted
D. Ask the producer who solicited the policy to complete and resign the application

Answer

A

B. Return the application to the applicant for completion

Any unanswered questions need to be answered before the policy is issued. If the insurer receives incomplete applications, they need to be returned to the applicants for completion.

Question 30

Q

The Federal Fair Credit Reporting Act:

A. Regulates telemarketing.
B. Prevents money laundering.
C. Regulates consumer reports.
D. Protects customer privacy.

Answer

A

C. Regulates consumer reports.

The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports.

Question 31

Q

Which of the following will be included in a policy summary?

A. Comparisons with similar policies
B. Primary and secondary beneficiary designations
C. Premium amounts and surrender values
D. Copies of illustrations and application

Answer

A

C. Premium amounts and surrender values

A policy summary must be delivered along with the policy and will provide the producer’s name and address, the insurance company’s home office address, the generic name of the policy issued, and premium, cash value, surrender value, and death benefit figures for specific policy years.

Question 32

Q

Upon policy deliver, the producer may be required to obtain any of the following EXCEPT:

A. Signed waiver of premium.
B. Statement of good health.
C. Payment of premium.
D. Delivery receipt.

Answer

A

A. Signed waiver of premium.

The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a Statement of Good Health from the applicant at the time of policy delivery. Waiver of premium is a rider that can be added to a life insurance policy, and not something to be obtained from the applicant.

Question 33

Q

Which of the following best details the underwriting process for life insurance?

A. Reporting and rejection of risks.
B. Selection, classification, and rating of risks.
C. Solicitation, negotiation, and sale of policies.
D. Issuance of policies.

Answer

A

B. Selection, classification, and rating of risks.

The underwriting process is accomplished by reviewing and evaluating information about an applicant and applying what is known of the individual against the insurer’s standards and guidelines for insurability and premium rates.

Question 34

Q

When must insurable interest exist in a life insurance policy?

A. At the time of loss
B. At the time of application
C. At the time of policy delivery
D. When there is a change of the beneficiary

Answer

A

B. At the time of application

In life insurance, insurable interest must exist at the time of application.

Question 35

Q

Which of the following best describes the MIB?

A. It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance.
B. It is a government agency that collects medical information on the insured from the insurance companies.
C. It is a member organization that protects insured against insolvent insurers.
D. It is a rating organization for health insurance.

Answer

A

A. It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance.

The Medical Information Bureau (MIB) is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

Question 36

Q

What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act?

A. $100 per violation
B. Revocation of license
C. $2,500
D. $1,000

Answer

A

C. $2,500

An individual who willfully violates this Act enough to constitute a general pattern or business practice will be subject to a penalty of up to $2,500.

Question 37

Q

What is the purpose of a conditional receipt?

A. It is intended to provide coverage on a date prior to the policy issue.
B. It guarantees that a policy will be issued in the amount applied for.
C. It serves as proof that the applicant has been determined insurable.
D. It is given only to applicants who fully prepay the premium.

Answer

A

A. It is intended to provide coverage on a date prior to the policy issue.

Coverage commences on the date of the application or the date of a medical examination, whichever is later, on the condition that the applicant is determined to be insurable at the rate applied for.

Question 38

Q

When is the earliest a policy may go into effect?

A. When the first premium is paid and the policy has been delivered.
B. When the insurer approves the application.
C. After the underwriter reviews the policy.
D. When the application is signed and a check is given to the agent.

Answer

A

D. When the application is signed and a check is given to the agent.

The policy can be effective as early as the date of the application, if the premium is submitted with the application and the policy is issued as applied for.

Question 39

Q

An applicant signs an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant dies the following day, which of the following is TRUE?

A. The premium would be returned to the insured’s estate because the policy was not issued.
B. The death claim will be rejected.
C. The application will be voided.
D. The beneficiary will receive the full death benefit if it is determined that the application qualified for the policy.

Answer

A

D. The beneficiary will receive the full death benefit if it is determined that the application qualified for the policy.

The conditional receipt provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable either on the date the application was signed or the date of the medical examination, if one is required.

Question 40

Q

Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT:

A. Alcohol and tobacco consumption.
B. Recent surgeries.
C. Other insurance coverages.
D. Family health history.

Answer

A

C. Other insurance coverages.

Part 2 of the application contains questions regarding the applicants’ health history. Part 1 of the application includes questions regarding current coverage being applied for as well as any other insurance coverage with the same or other insurers.

Question 41

Q

A producer agent must do all of the following when delivering a new policy to the insured EXCEPT:

A. Disclose commissions earned from the sale of the policy.
B. Explain the policy provisions, riders, and exclusions.
C. Collect any premium due.
D. Explain the rating procedures if the policy is rated differently than applied for.

Answer

A

A. Disclose commissions earned from the sale of the policy.

A producer must explain policy provisions, exclusions, and riders at the time of delivery, as well as the rating procedures, especially if the policy is rated differently than applied for. The producer must also collect any due premium and have the insured sign the statement of continued good health.

Question 42

Q

An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin?

A. When the agent submits the application to the company and the company issues a conditional receipt.
B. When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health.
C. On the designated effective date.
D. On the application date.

Answer

A

B. When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health.

If the initial premium is not paid with the application, the agent will be required to collect the premium at the time of policy delivery. In this case, the applicant will most likely need to fill out a Statement of Good Health.

Question 43

Q

Which of the following is NOT an example of insurable interest?

A. Child in parent
B. Debtor in creditor
C. Business partners in each other
D. Employer in employee

Answer

A

B. Debtor in creditor

The three recognized areas in which insurable interest exists are as follows: a policyowner insuring his or her own life, the life of a family member (relative or spouse), or the life of a business partner, key employee, or someone who has a financial obligation to them. A debtor does not have an insurable interest in the creditor.

Question 44

Q

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?

A. Consideration
B. Legal purpose
C. Contract of adhesion
D. Acceptance

Answer

A

A. Consideration

Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.

Question 45

Q

When would a misrepresentation on the insurance application be considered fraud?

A. Any misrepresentation is considered fraud.
B. If it is intentional and material.
C. Never: statements by the applicant are only representations.
D. When the application is incomplete.

Answer

A

B. If it is intentional and material.

A misrepresentation would be considered fraud if it is intentional and material. Fraud would be grounds for voiding the contract.

Question 46

Q

What is a definition of a unilateral contract?

A. Two or more parties go into a contract understanding there may be an unequal exchange of value.
B. One author: the company wrote the contract, the insured must accept it as written.
C. If one party makes a condition, the other party can counteroffer.
D. One-sided: only one party makes an enforceable promise.

Answer

A

D. One-sided: only one party makes an enforceable promise.

An insurance contract is unilateral in that only one of the parties to the contract is legally bound to do anything.

Question 47

Q

Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report:

A. Must be informed of the source of the report.
B. Are entitled to obtain a copy of the report from the party who ordered it.
C. Must be advised that a copy of the report is available to anyone who requests it.
D. May sue the reporting agency in order to get inaccurate data corrected.

Answer

A

A. Must be informed of the source of the report.

Under the Fair Credit Reporting Act, if an insurance policy is declined or modified because of information contained in a consumer report, the consumer must be advised and provided with the name and address of the reporting agency.

Question 48

Q

In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports?

A. They provide information about a customer’s character and reputation.
B. The customer has no knowledge of this action.
C. The customer’s associates, friends, and neighbors provide the report’s data.
D. They provide additional information from an outside source about a particular risk.

Answer

A

C. The customer’s associates, friends, and neighbors provide the report’s data.

Both consumer reports and investigative consumer reports provide additional information from an outside source about a customer’s character and reputation, and both types of reports are used under the Fair Credit Reporting Act. The main difference is that the information for investigative consumer reports is obtained through an investigation and interviews with associates, friends, and neighbors of the consumer.

Question 49

Q

Representations are written or oral statements made by the applicant that are:

A. Immaterial to the actual acceptability of the insurance contract.
B. Considered true to the best of the applicant’s knowledge.
C. Guaranteed to be true.
D. Found to be false after further investigation.

Answer

A

B. Considered true to the best of the applicant’s knowledge.

Question 50

Q

Which of the following includes information regarding a person’s credit, character, reputation, and habits?

A. Consumer history
B. Insurability report
C. Agent’s report
D. Consumer report

Answer

A

D. Consumer report

Consumer reports include written and/or oral information regarding a customer’s credit, character, and habits collected by a reporting agency from employment records, credit reports, and other public sources.

Question 51

Q

Which of the following is the basic source of information used by the company in the risk selection process?

A. Agent’s report
B. Warranty
C. Consumer report
D. Application

Answer

A

D. Application

The application is the basic source of information an insurer uses in the risk selection process.

Question 52

Q

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?

A. Conditional
B. Adhesion
C. Personal
D. Unilateral

Answer

A

A. Conditional

A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.

Question 53

Q

An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?

A. Estoppel
B. Material misrepresentation
C. Waiver
D. Utmost Good Faith

Answer

A

B. Material misrepresentation

A material misrepresentation will affect whether or not a policy is issued. If the insured had been truthful, it is very likely that the policy would not be issued.

Question 54

Q

Which of the following is a risk classification used by underwriters for life insurance?

A. Excellent
B. Standard
C. Poor
D. Normal

Answer

A

B. Standard

The three ratings classifications that denote the risk level of insureds are standard, substandard, and preferred. This classification system helps insurers to decide if an insured should pay a higher premium.

Question 55

Q

An insurer receives a report regarding a potential insured that includes the insured’s financial status, hobbies, and habits. What type of report is that?

A. Inspection Report
B. Medical Information Bureau’s report
C. Agent’s Report
D. Underwriter’s Report

Answer

A

A. Inspection Report

Inspection reports cover moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies. Companies that use inspection reports are subject to the rules outlined in the Fair Credit Reporting Act.

Question 56

Q

Another name for a substandard risk classification is:

A. Elevated.
B. Rated.
C. Controlled.
D. Declined.

Answer

A

B. Rated.

Substandard risk classification is also referred to as “rated” since these policies could be issued with the premium rated-up, resulting in a higher premium.

Question 57

Q

Which is generally true regarding insureds who have been classified as preferred risks?

A. They can decide when to pay their monthly premiums.
B. They keep a higher percentage of any interest earned on their policies.
C. Their premiums are lower.
D. They can borrow higher amounts off of their policies.

Answer

A

C. Their premiums are lower.

The preferred risk classification indicates that an insured is in excellent physical condition and employs healthy lifestyles and habits. These individuals qualify for lower premiums than those in the other categories.

Question 58

Q

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe?

A. Conditional
B. Unilateral
C. Unidirectional
D. Aleatory

Answer

A

B. Unilateral

In a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy.

Question 59

Q

Most agents try to collect the initial premium for submission with the application. When an agent collects the initial premium from the applicant, the agent should issue the applicant a:

A. Statement of good health.
B. Backdated receipt.
C. Warranty.
D. Premium receipt.

Answer

A

D. Premium receipt.

When collecting the initial premium, the agent should issue the applicant a premium receipt.

Question 60

Q

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

A. Adhesion
B. Conditional
C. Aleatory
D. Good health

Answer

A

C. Aleatory

In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price.

Question 61

Q

If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about:

A. The gender of the applicant.
B. The type of policy requested.
C. Which individual will pay the premium.
D. Whether an insurable interest exists between the individuals.

Answer

A

D. Whether an insurable interest exists between the individuals.

An insurable interest must exist at the time the policy is issued. Some relationships are automatically presumed to qualify as an insurable interest, e.g., spouses, parents, children, and certain business relationships.

Question 62

Q

The responsibility of making certain that an application for insurance is filled out completely, correctly, and to the best of his or her knowledge is the responsibility of whom?

A. The applicant
B. The producer
C. The beneficiary of the applicant
D. The insurance company

Answer

A

B. The producer

It is the responsibility of the producer (agent) to make sure an application for insurance is filled out correctly.

Question 63

Q

In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT:

A. Applicant’s present occupation.
B. Applicant’s past income.
C. Applicant’s past medical history.
D. Applicant’s present physical condition.

Answer

A

B. Applicant’s past income.

In classifying a risk, the Home Office underwriting department will look at the applicant’s past medical history, present physical condition, occupation, habits, and morals.

Question 64

Q

If an agent fails to obtain an applicant’s signature on the application, the agent must:

A. Sign the application for the applicant.
B. Sign the application, stating it was by the agent.
C. Send the application to the insurer with a note explaining the absence of signature.
D. Return the application to the applicant for a signature.

Answer

A

D. Return the application to the applicant for a signature.

All applications must have the appropriate authorized signatures.

Answer 65

A

D. When an insurer’s underwriter approves coverage.

In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer’s underwriter approves the application and issues a policy.

Answer 66

A

C. Conditional

A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.

Answer 67

A

C. Insurers

The Medical Information Bureau (MIB) is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have discovered.

Answer 68

A

A. Substandard risk

The “substandard” rating indicates that an individual represents an under-average insurance risk because of physical condition, personal or family history of disease, occupation, habits, or hobbies. This rating incurs the highest premium if policy is issued.

Answer 69

A

A. 5 days

Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information.

Answer 70

A

B. Consideration

The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

Answer 71

A

D. A policy summary

A policy summary usually includes all the listed information, and must be delivered along with a new policy.

Answer 72

A

B. Ancestry.

The Fair Credit Reporting Act regulates what information may be collected and how the information may be used. Consumer Reports include written and/or oral information regarding a consumer’s credit, character, reputation, and habits collected by a reporting agency from employment records, credit reports, and other public sources. Ancestry is not a relevant factor assessed in these reports.

Answer 73

A

A. Inspection report.

An inspection report may be ordered about an applicant from an independent investigating firm or credit agency. It is a general report of the applicant’s finances, character, work, hobbies, and habits.

Answer 74

A

C. Conditional.

The contract is formed on the basis that certain conditions are met.

Answer 75

A

D. Insurable interest.

Because the purchaser of a stranger-originated life insurance policy doesn’t know the insured, or have any interest in the insured’s longevity, STOLI policies violate the principle of insurable interest.

Answer 76

A

A. 3 days

Investigative consumer reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested.

Answer 77

A

D. A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.

Answer 78

A

C. A debtor has an insurable interest in the life of a lender.

A lender has an insurable interest in the life of a debtor, but only to the extent of the debt. The debtor does not have an insurable interest in the life of the lender.

Answer 79

A

B. Disputes regarding consumer report information.

As defined by the Act, negative information includes information regarding a customer’s delinquencies, late payments, insolvency, or any other form of default. Customer disputes are not considered negative information, and, in fact, must be included in consumer reports.

Answer 80

A

B. Fair Credit Reporting Act

The Fair Credit Reporting Act governs what information can be collected and how the information can be used.

Answer 81

A

D. The person must have at least completed secondary education.

The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.

Answer 82

A

B. The Fair Credit Reporting Act

The purpose of the Fair Credit Reporting Act is to protect consumers against the circulation of inaccurate or obsolete information and to ensure that consumer reporting agencies are fair and equitable in their treatment of consumers.

Answer 83

A

A. The date of medical exam

If the company acknowledges receipt of the premium with a conditional receipt, the policy is in effect on the date of the application or the date of the medical exam (whichever is later), provided that the applicant is found insurable at the rate applied for.

Answer 84

A

B. Respond to the consumer’s complaint.

The consumer has the right to request the information on the report, the reasons for turn down and any adverse underwriting decisions. The reporting agency is required to respond to the consumer’s complaint, and, if necessary, to reinvestigate the report.

Answer 85

A

B. Application

The application contains most of the information used for underwriting purposes. This is why its completeness and accuracy are so crucial.

Answer 86

A

B. Unilateral

In a unilateral contract, only one of the parties to the contract is legally bound to do anything.

Answer 87

A

A. Charge a higher premium.

The premium rate will be adjusted to reflect the insurer’s increased risk.

Answer 88

A

C. It will likely be higher because the applicant is a substandard risk.

Applicants are considered substandard risks because of physical condition, personal or family history of disease, occupation, or dangerous habits. Substandard risks are usually issued a higher premium than standard risks.

Answer 89

A

C. Aleatory

An insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk.

Answer 90

A

B. To explain features and benefits of a proposed policy to the consumer

Disclosure statements will help the applicants to make more informed and educated decisions about their choice of insurance.

Answer 91

A

D. A STOLI policy.

Stranger-originated life insurance (STOLI) policies are usually purchased by people who have no relationship with the insured with the intention of selling them for life settlements.

Answer 92

A

D. Insurable interest and consent

To ensure legal purpose of a life insurance policy, it must have both insurable interest and consent.

Answer 93

A

B. Insurance companies from adverse selection by high risk persons.

The MIB makes information available to underwriters to assist them in the underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

Answer 94

A

B. Education.

Education is not an underwriting factor nor is it information included on the application.

Answer 95

A

A. Application

The application contains most of the information used for the underwriting purposes. This is why its completeness and accuracy are so crucial.

Answer 96

A

D. Within 30 days of initial discovery

Relevant SAR reports must be filed with FinCEN within 30 days of initial discovery of a suspicious transaction.

Answer 97

A

C. To allow the consumer to compare the costs of different policies

The buyer’s guide provides generic information about life insurance policies and allows the consumer to compare the costs of different policies. The policy summary provides specific information about the issued policy, as well as the insurer’s information.

Answer 98

A

D. Issue the policy that is requested.

The producer does not issue the policy but delivers the policy. The producer has a duty to solicit business that will fall within the underwriting guidelines and represent profitable business to the insurer (help prevent adverse selection).

Answer 99

A

B. The Medical Information Bureau

An agent’s report and inspection report provide personal information. Medical exams provide information on current health. Only the MIB will provide information about an applicant’s medical history.

Answer 100

A

C. $100,000

In joint life policies, the death benefit is paid upon the first death only.

Answer 101

A

C. Equity Indexed Annuity.

The interest rates of Equity Indexed Annuities are tied to the S&P Index.

Answer 102

A

D. Depends on the performance of the separate account.

The death benefit is not fixed, and may increase or decrease over the life of the policy depending on the investment performance of the underlying sub-account. It cannot, however, decrease below the initial face amount of the policy.

Answer 103

A

B. The beneficiary will receive the greater of the money paid into the annuity or the cash value.

If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value, whichever is greater.

Answer 104

A

D. They earn lower interest rates than fixed annuities.

Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities.

Answer 105

A

B. Joint Life

A Joint Life policy covering two lives would be the least expensive because the premiums are based on average age, and it would pay a death benefit only at the first death.

Answer 106

A

B. Annuitization period

The “annuitization period” (annuity period) is the time during which accumulated money is converted into an income stream.

Answer 107

A

D. Immediate

With an immediate annuity, distribution starts within 1 year of purchase.

Answer 108

A

C. Upon the last death.

Survivorship life pays on the last death rather than upon the first death.

Answer 109

A

B. It has a guaranteed minimum interest rate.

While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

Answer 110

A

A. The annuitant receives a fixed amount of return.

Equity indexed annuities have a guaranteed minimum interest rate, so while they are aggressive in nature, the annuitant will not have to worry about receiving less than what the minimum interest rate would yield.

Answer 111

A

A. Limited-pay Life

In limited-pay policies, the premiums for coverage will be completed paid-up well before age 100, usually after a specified number of years.

Answer 112

A

D. When the income payments begin.

The main difference between immediate and deferred annuities is when the income payments begin. Immediate annuities will begin payments within the first year, while deferred annuities will not begin payments until sometime after the first year.

Answer 113

A

D. An index like the Standard & Poor’s 500.

Equity indexed annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity, the equity indexed annuity has a guaranteed minimum interest rate. Interest rates on equity indexed annuities are often tied to a familiar index, such as the Standard and Poor’s 500.

Answer 114

A

C. Death benefit

A fixed annuity is fixed in the sense that it provides a guaranteed minimum rate of interest and income payments that do not vary from one to the next. The company also guaranteed the specified dollar amount for each payment and the length of the payout period. Annuities do not provide a death benefit.

Answer 115

A

D. Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount

If an annuitant dies before annuitization, the beneficiary will receive either the amount paid into the plan or the cash value of the plan, whichever is greater.

Answer 116

A

C. Joint Life Policy

Joint life policies cover the lives of two insureds; rates are blended. Upon the death of the first insured, the policy ends.

Answer 117

A

C. Adjusted to the insured’s age at the time of renewal.

If a level term product is renewed at the end of the term period the premium will be based upon the attained age of the insured.

Answer 118

A

C. Interest

During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation.

Answer 119

A

D. Single premium whole life.

Single premium whole life requires the entire premium to be paid in one lump sum at the policy’s inception.

Answer 120

A

B. It is a period during which the payments into the annuity grow tax deferred.

The “accumulation period” is the period of time over which the annuitant makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred.

Answer 121

A

A. Required a premium increase each renewal.

Annually Renewable Term policies’ premiums are adjusted each year to the insured’s attained age; however, the policy may be guaranteed renewable. Death benefits remain level, and as with any term policy, there are no cash values.

Answer 122

A

D. Interest-sensitive Whole Life

Because the cash values are generated by investments, interest rates will affect the amount of the cash value.

Answer 123

A

B. The Guaranty Association

Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.

Answer 124

A

A. It would not occur in a deferred annuity.

The “accumulation period” is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity).

Answer 125

A

B. The insurance company

Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. Income payments do not vary from one payment to the next. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio. The company makes conservative enough investments to insure a guaranteed rate to the annuity owners.

Answer 126

A

B. Lower.

Survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life.

Answer 127

A

C. They have a guaranteed minimum interest rate.

While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

Answer 128

A

A. Survivorship life

Survivorship life (also referred to as “second-to-die” or “last survivor” policy) is much the same as joint life in that it insures two more lives for a premium that is based on a joint age.

Answer 129

A

D. Pay-in period

The accumulation period is also known as the pay-in period. It is the period of time over which the annuitant makes payments (premiums) into an annuity.

Answer 130

A

C. Benefit payment amounts are not guaranteed.

Under a variable annuity, the issuing insurance company does not guarantee a minimum interest rate or the benefit payment amounts. The annuitant’s payments into the annuity are invested in the insurer’s separate account. Agents selling variable annuities are required to have a securities license in addition to their life agent’s license.

Answer 131

A

D. It may last for the lifetime of the annuitant.

The “annuity period” is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected.

Answer 132

A

D. FINRA.

Because variable annuities are considered to be securities, a person must be registered with the FINRA (formerly NASD) and hold a securities license in addition to a life agent’s license in order to sell variable annuities.

Answer 133

A

A. Life Paid-up at Age 65

Limited Pay Whole Life premiums are all paid by the time the insured reaches age 65. The policy endows when the insured turns 100. It is the premium paying period that is not limited, not the maturity.

Answer 134

A

C. Upon conversion, the death benefit of the permanent policy will be reduced by 50%.

Convertible term insurance is convertible without proof of insurability up to the full term death benefit. However, upon conversion, the premium for the permanent policy will be based on the insured’s attained age.

Answer 135

A

D. Seek higher returns.

Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor’s 500.

Answer 136

A

A. Option A

Under Option A, the death benefit remains level while the cash value gradually increases. The death benefit will increase at a later date in order to maintain a gap between the cash value and the death benefit before the policy matures.

Answer 137

A

C. Increases annually.

Annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured

Answer 138

A

D. A level annual premium for the life of the insured

Straight Life policies charge a level annual premium for the lifetime of the insured and provide a level, guaranteed death benefit.

Answer 139

A

C. The annuitant must be a natural person.

Owners of annuities can be individuals or entities like corporations and trusts, but the annuitant must be a natural person, whose life expectancy is taken into consideration for the annuity.

Answer 140

A

D. Decreasing term

A decreasing term policy’s face amount decreases as the amount of debt is reduced.

Answer 141

A

A. Convertible Term Policy.

A convertible term policy has a provision that allows the policyowner to convert to permanent insurance.

Answer 142

A

C. Depreciation period

The “annuitization period” is the time during which accumulated money is converted into an income stream. It is also referred to as the annuity, liquidation, or pay-out period.

Answer 143

A

B. The annuitant cannot be the same person as the annuity owner.

While they don’t have to be, the annuitant and annuity owners are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant’s life expectancy is taken into consideration, the annuitant must be a natural person.

Answer 144

A

C. An annuity

An annuity is a contract used to accumulate funds that are to be distributed at a specified time in the future as a periodic payment of accumulated funds.

Answer 145

A

B. Hedge against inflation.

Fixed annuities invest premium payments into a general account - a safe and conservative investment portfolio. They also provide a specified dollar amount for each annuity payment regardless of the purchasing power of the money. Variable annuities premiums are invested in securities, hopefully maintaining a constant purchasing power, and therefore providing protection against inflation.

Answer 146

A

B. Annually Renewable Term

Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured’s attained age.

In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts.

In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.

Answer 147

A

A. It is level term insurance.

Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.

Answer 148

A

D. Single payment or periodic payments

Annuities are characterized by how they can be paid for: either a single payment (lump sum) or through periodic payments in which the premiums are paid in installments over a period of time. Periodic payment annuities can be either level, in which the annuitant/owner pays a fixed installment, or the payments can be flexible, in which the amount and frequency of each installment varies.

Answer 149

A

A. Option B

Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value.

Answer 150

A

C. The owner must be the party to receive benefits.

The “owner” is the person who purchases the contract and has all of the rights such as naming the beneficiary and surrendering the annuity. The owner, however, does not have to be the one who receives the benefits; it could be the annuitant (if different from the owner) or the beneficiary.

Answer 151

A

D. Straight Life

Straight whole life policies have a level guaranteed face amount and a level premium for the life of the insured.

Answer 152

A

B. Its premium steadily decreases over time, in response to its growing cash value.

Straight Life policies charge a level annual premium throughout the insured’s lifetime and provide a level, guaranteed death benefit.

Answer 153

A

D. To keep the policy in force

The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

Answer 154

A

C. The death benefit can be increased by providing evidence of insurability.

The policyowner (insured) would need to prove insurability for the amount of the increase.

Answer 155

A

A. Annuitant

The annuitant receives payments from an annuity and is the person whose life expectancy is considered when writing the contract. The annuitant and annuity owner are often the same person but do not have to be.

Answer 156

A

A. Limited pay whole life

Premium payments will cease at her age 65, but coverage will continue to her death or age 100.

Answer 157

A

B. Immediate annuity

An annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution will be most suitable for this arranagement.

Answer 158

A

B. The period of time during which accumulated money is converted into income payments

The annuity period is the time during which accumulated money is converted into an income stream.

Answer 159

A

B. The insured may renew the policy for another 10 years, but at a higher premium rate.

Policies that are guaranteed renewable and convertible may be renewed, without evidence of insurability, for another like term, or may be converted to permanent insurance, without evidence of insurability.

Answer 160

A

D. The beneficiary

If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value - whichever is greater.

Answer 161

A

D. The payable premium amount steadily declines throughout the duration of the contract.

Premiums remain level with a decreasing term policy; only the face amount decreases.

Answer 162

A

D. The premiums are invested in the insurer’s general account.

Insurer’s selling variable products invest their customer’s monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk.

Answer 163

A

C. When the insured reaches age 100

A limited-pay whole life policy, just like straight life, endows for the face amount if the insured lives to age 100. The premium is, however, completely paid off in 20 years.

Answer 164

A

A. Variable annuity

A variable annuity is considered to be a security and is regulated by the SEC in addition to state insurance regulations. For that reason, a person must hold a securities license in addition to a life agent’s license in order to sell variable annuities.

Answer 165

A

C. SEC registration.

Agents selling variable life products must be registered with FINRA, have a securities license, and must be licensed within the state to sell life insurance. SEC registration is for securities, not agents.

Answer 166

A

C. Both a life insurance and a securities license

Agents are required to have both a life insurance license and a securities license to sell variable annuities.

Answer 167

A

D. Variable whole life has a guaranteed death benefit.

Variable universal life insurance may or may not have a minimum death benefit, unlike variable whole life which guarantees a minimum death benefit.

Answer 168

A

B. The annuitant assumes the risks on investment.

The payments that the annuitant invests into the variable annuity are invested in the insurer’s separate account. The separate account under many annuities provides the annuitant with a dozen or more investment options ranging from “money market funds” to “growth stock funds” to “precious metal funds”. Therefore, the annuitant assumes the risk of the investment.

Answer 169

A

D. Annuity

An annuity is a contract that provides income for a specified period of years, or for life. An annuity protects a person against outliving his or her money.

Answer 170

A

C. Deferred

Deferred annuities may be purchased with either a single lump sum or periodic payments, but they do not begin the income payments until sometime after 1 year from the date of purchase.

Answer 171

A

D. For 20 years or until death, whichever occurs first.

Under a 20-pay life policy, all of the premiums necessary to cause the policy to endow at the insured’s age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit.

Answer 172

A

A. The death benefit is fixed.

In a variable universal life policy, the death benefit is adjustable, and the cash values are not guaranteed. While the death benefit may decrease and increase, it cannot go below a guaranteed minimum face amount.

Answer 173

A

A. The performance of the policy portfolio

The cash value of a variable life policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer.

Answer 174

A

D. The policy contains sufficient cash value to cover the cost of insurance.

In Universal Life Insurance, the policyowner may skip a premium payment without lapsing the policy as long as the policy contains sufficient cash value at the time to cover the cost of insurance for that premium period.

Answer 175

A

A. Face amount

Decreasing term policies feature a level premium and a death benefit that decreases each year over the duration of the policy term.

Answer 176

A

C. Target premium

The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

Answer 177

A

C. Universal life

Universal Life policies allow for policyholders to withdraw a limited portion of the policy’s cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.

Answer 178

A

D. Level fixed

Variable Whole Life insurance is a level fixed premium investment-based product.

Answer 179

A

B. Single Premium

Like other types of whole life policies, Single Premium Whole Life (SPWL) endows for the face amount of the policy if the insured lives until the age of 100. The distinguishing feature of a SPWL is the fact that it generates immediate cash value, due to the lump-sum payment made to the insurer.

Answer 180

A

B. Policyowner

Convertible term insurance gives the policyowner the right to convert the policy to a permanent insurance policy without evidence of insurability.

Answer 181

A

C. $50,000

The cash value of a variable life insurance policy is not guaranteed. However, even if investments devalue significantly, they cannot be lower than the initial guaranteed benefit amount.

Answer 182

A

D. Separate accounts.

Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account.

Answer 183

A

A. Increasing

Return of premium (ROP) life insurance is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid.

Answer 184

A

C. Universal Life - Option A

Universal Life Option A (Level Death Benefit option) policy must maintain a specified “corridor” or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.

Answer 185

A

B. Universal life

Universal Life products allow the partial withdrawal, or surrender, of the policy cash value.

Answer 186

A

D. Insurance and cash account

A universal policy has two components: an insurance component and a cash account. The insurance component of a universal life policy is always annual renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the current rate, whichever is higher.

Answer 187

A

C. The recommended amount to keep the policy in force throughout its lifetime

The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

Answer 188

A

B. Universal life

The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.

Answer 189

A

A. A separate account.

Under a variable life insurance policy, assets must be placed in a separate fund, used primarily for the investment of stocks, bonds, and other security investment options.

Answer 190

A

B. Annually Renewable Term policy with a cash value account.

A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.

Answer 191

A

A. Securities

Variable products are governed in part by the Securities and Exchange Commission; therefore, agents selling variable life policies must also secure a securities license.

Answer 192

A

C. Annually Renewable Term

A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.

Answer 193

A

C. Life insurance and securities

An individual must be licensed for both securities and life insurance in order to sell variable universal life.

Answer 194

A

D. Common Disaster Clause

The Common Disaster Clause provision states that when an insured and beneficiary die in a common accident, and the beneficiary dies before or within a specific period of time after the insured, the insurer will proceed as if the insured outlived the beneficiary.

Answer 195

A

C. The insured’s estate.

Because there is no viable beneficiary at the time of death, proceeds are paid to the insured’s estate.

Answer 196

A

C. $200,000

The beneficiary would most likely receive twice the face value of the policy, since his fatal injuries were caused by an accident and he died within the 90-day benefit limit stipulated in most policies.

Answer 197

A

C. The rider is usually level term insurance.

The spouse term rider allows a spouse to be added for coverage. It is available for a limited amount of time, typically expiring at age 65. A spouse term rider (just like any other insured rider) is usually level term insurance.

Answer 198

A

A. Insuring clause

The insuring clause states that the insurer aggress to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured’s death. If no beneficiary is named, the policy proceeds will be paid to the insured’s estate.

Answer 199

A

A. Proof of insurability is not required.

If a Children’s Term rider is attached to a life insurance policy, children can be covered un the policy until they reach the maximum age stated in the policy. At that point, they can convert their coverage to a new policy without having to issue proof of insurability.

Answer 200

A

B. Paid-up option

With the paid-up option, the insurer can accumulate dividends at interest and use them, in addition to interest and the policy’s cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.

Answer 201

A

C. If the father is disabled for more than 6 months

Payor benefit only pays if the owner, the father in this example, is disabled for at least 6 months.

Answer 202

A

C. $100,000

The triple indemnity accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy’s death benefit.

Answer 203

A

C. Family term rider

A single rider that provides coverage on every family member is called a “family rider”.

Answer 204

A

B. Cash option

The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check.

Answer 205

A

C. Other-insured rider.

The other-insureds rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance.

Answer 206

A

C. They are required by state law to be included in the policy.

Nonforfeiture values are required by state law to be included in the policy, and cannot be altered by the policyowner. A table showing the nonforfeiture values for the next 20 years must be included in the policy.

Answer 207

A

A. Incontestability clause.

If an insurer wishes to contest any statements on an application, they must do so within the first two years.

Answer 208

A

D. If the primary beneficiary predeceased the insured.

The daughter, as contingent beneficiary, would need to outlive the insured and primary beneficiary.

Answer 209

A

D. Income for 2 or more recipients until they die.

The Life Income Joint and Survivor option guarantees an income for two or more recipients for the duration of their lives. Most contracts stipulate that the surviving partner will receive a reduced payment after the other dies, although some will continue to pay the same amount. There is no guarantee that all the life insurance proceeds will be paid out.

Answer 210

A

A. Term rider

Term riders may be used to customize a permanent life insurance policy to meet the needs of the policyowner.

Answer 211

A

A. Revocable beneficiary.

The policyowner may change a revocable designation at any time and without the consent of the beneficiary. Irrevocable beneficiaries, on the other hand, have a vested interest in the policy, so the policyowner may not be able to exercise certain rights without their consent.

Answer 212

A

D. Interest only

Nonforfeiture values include cash surrender, extended term, and reduced paid-up. Interest only is a settlement option.

Answer 213

A

B. Fixed period

Under the fixed-period installments option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. The payments will continue for the specified period even if the recipient dies before the end of that period.

Answer 214

A

B. Payor Benefit Rider

Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.

Answer 215

A

B. Policyowner

Only the policyowner has the ownership rights under the policy, and not the insured or the beneficiary.

Answer 216

A

C. The insured’s estate.

In the absence of a viable beneficiary, proceeds will be paid to the estate of the insured.

Answer 217

A

B. Entire contract.

The policy, together with the attached application, constitutes the entire contract. This provision limits the use of evidence other than the contract and the attached application in a test of the contract’s validity. This is a mandatory provision in life insurance.

Answer 218

A

C. Exclusions clause.

Exclusions are restrictions of coverage as stated in the policy.

Answer 219

A

D. Fixed amount

When the fixed amount settlement option is chosen, the policyowner sets the amount of each installment. The insurer will determine how long the installments are to be paid.

Answer 220

A

A. Cash surrender

Once the cash surrender value is paid, the contract is over.

Answer 221

A

D. The balance of the loan will be taken out of the death benefit.

If the loan and interest are not repaid and the insured dies, then it will be subtracted from the death benefit.

Answer 222

A

B. That the cash value will not be lost

Because permanent life insurance policies have cash values, there are certain guarantees built into the policy that cannot be forfeited by the policyowner. Nonforfeiture values give the insured the right to the cash value even if the policy lapses or is surrendered.

Answer 223

A

D. The beneficiary will only receive payments of the interest earned on the death benefit.

With the Interest Only settlement option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals (monthly, quarterly, semiannually, or annually).

Answer 224

A

A. Automatic premium loan

Automatic premium loan provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

Answer 225

A

B. Coverage ends and the policy cannot be reinstated.

Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated.

Answer 226

A

D. Set premium rates.

The insurer sets premium rates based upon underwriting considerations.

Answer 227

A

A. Term

Children’s term riders provide term insurance with coverage expiring when the minor reaches a certain age.

Answer 228

A

D. This rider is available to all insureds with no additional premium.

The guaranteed insurability rider may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates, and events without proving insurability; however, the coverage is purchased at the insured’s attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured’s age 40.

Answer 229

A

D. Refund the premiums paid.

If the insured commits suicide within 2 years following the policy effective date, the insurer’s liability is limited to a refund of premium.

Answer 230

A

C. Lump sum

Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.

Answer 231

A

B. Life income with period certain

The life income with period certain option guarantees payments for the life of the recipient and also specifies a guaranteed period of continued payments. If the recipient should die during this period, the payments would continue to a designated beneficiary for the remainder of the period.

Answer 232

A

C. The insured’s age at death.

The insured’s age at death will not be considered, but the longer the life expectancy of the recipient, the lower the payments will be.

Answer 233

A

C. Copy of the original application

An insurance contract must contain a copy of the original application.

Answer 234

A

D. Insuring clause

The insuring clause contains the company’s promise to pay.

Answer 235

A

D. Waiver of premium.

Waiver of premium rider waives the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insured and the waiver of cost of insurance is found in Universal Life.

Answer 236

A

D. A minor son of the insured

Because a minor does not have the legal capacity to release the insurer from further obligation, benefits normally have to be passed through a guardian or trustee.

Answer 237

A

D. Substitute insured rider

The substitute insured rider, or change of insured rider, allows the policyowner to change the insured listed under the policy, subject to insurability. This rider is often used in business life insurance policies.

Answer 238

A

B. They can be changed only with the written consent of that beneficiary.

Once irrevocable beneficiaries are indicated for the policy, their written consent is required to change the beneficiary.

Answer 239

A

C. The policy will terminate when the cash value is reduced to nothing.

This option, usually elected at the time of application, provides that in case of a possible policy lapse, the premium will be automatically paid from the contract’s guaranteed cash value. However, once the cash value is exhausted, the policy will terminate.

Answer 240

A

C. The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.

When the reduced option is written as “joint and 2/3 survivor,” the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.

Answer 241

A

A. Paid-up option

With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy’s cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.

Answer 242

A

D. Grace period

The grace period is the period of time after the premium due date that the policyowner has to pay the premium before the policy lapses (usually 30 or 31 days). The purpose of the grace period provision is to protect the policyholder against an unintentional lapse of the policy.

Answer 243

A

D. Increasing Term

The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

Answer 244

A

B. Payor Benefit

If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

Answer 245

A

C. Taxable.

Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.

Answer 246

A

D. The interest is not taxable since it remains inside the insurance policy.

The interest credited under this option is TAXABLE, whether or not the policyowner receives it.

Answer 247

A

B. Return of premium

The Return of Premium Rider pays the beneficiary not only the face amount of the policy but also the amount that had been paid in premiums. The rider stipulates that death must occur prior to a certain age in order for the premium amount to be returned. The Return of Premium Rider is funded by using increasing term insurance.

Answer 248

A

A. Becomes terminally ill.

The accelerated benefits provisions allow the owner to be advanced a significant portion of the death benefit when the insured is terminally ill.

Answer 249

A

A. Annual

Annual premiums are the only modes of payment that do not result in service fee, so the overall payment will be lower.

Answer 250

A

A. The insured’s premiums will be waived until she is 21.

If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

Answer 251

A

A. Cash value

The policy loan option is found only in policies that contain cash value.

Answer 252

A

B. Interest only option

With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

Answer 253

A

A. Policyowner

Mandatory provisions give these rights to the policyowner.

Answer 254

A

A. Both the principal and interest will be liquidated over a selected period of time.

Under the fixed-period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. Both the principal and interest are liquidated together over the selected period of time.

Answer 255

A

B. The original age is used for premium determination.

The reinstatement provision allows the policyowner an opportunity to put a lapsed policy back in force, subject to proving continued insurability. If the policyowner elects to reinstate the policy, as opposed to purchasing a new policy, the reinstated policy is restored to its original status.

Answer 256

A

D. Collateral assignment

The business owner could make a collateral assignment of his or her life insurance policy to the bank.

Answer 257

A

D. Joint and survivor.

A joint and survivor option pays while either beneficiary is still living.

Answer 258

A

B. Life income

The life-income option, also known as straight life, provides the recipient with an income that he or she cannot outlive. It pays the benefit while the beneficiary is alive; however, the payments stop at the beneficiary’s death.

Answer 259

A

C. It will pay double or triple the face amount.

The Accidental Death Rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.

Answer 260

A

D. Guaranteed insurability option

The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability.

Answer 261

A

C. Level or flexible

A level premium is one in which the premium payment never changes. A flexible premium is found in Universal life policies where the insured changes their premium payment.

Answer 262

A

B. Guaranteed insurability rider.

The Guaranteed Insurability rider allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability. Rates for the additions are based upon attained age.

Answer 263

A

C. It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age.

Children’s rider is term insurance covering all of the children in the family, including newly born children, and is convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability.

Answer 264

A

A. The same face amount as in the whole life policy.

Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy.

Answer 265

A

D. Reduction of Premium

The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year’s premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

Answer 266

A

B. Common Disaster

Under the Uniform Simultaneous Death Law, Common Disaster provision, the law will assume that the primary beneficiary dies first in a common disaster as long as the beneficiary dies within this specified period of time following the death of the insured (usually 30 days). This provides that the proceeds will be paid to either the contingent beneficiary or the insured’s estate, if no contingent beneficiary is designated.

Answer 267

A

C. The beneficiary must have insurable interest in the insured.

A beneficiary is the person or interest to whom the policy proceeds will be paid upon the death of the insured. Beneficiaries do not have to have an insurable interest in the policyholder.

Answer 268

A

C. 6 months

Insurers writing variable life insurance policies may defer loan requests for up to 6 months. This excludes loan requests used to pay policy premiums.

Answer 269

A

B. It transfers rights of ownership from the owner to another person.

The policyowner may assign a part of the policy (collateral assignment) or the entire policy (absolute assignment).

Answer 270

A

B. Paid-up additions.

When this option is selected, the annual dividend acts as a single premium each year to buy additional amounts of insurance, based on the insured’s currently attained age.

Answer 271

A

D. Long-term care

Long-term care rider provides for the payment of part of the death benefit (called accelerated benefits) in order to take care of the insured’s health care expenses, which are incurred in a nursing or convalescent home.

Answer 272

A

A. Funds exceeding the premium paid are taxable as ordinary income.

The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.

Answer 273

A

B. It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated.

Upon policy reinstatement, the policyowner will be required to pay all back premiums plus interest, and may be required to repay any outstanding loans and interest.

Answer 274

A

D. The contingent beneficiary.

A contingent beneficiary receives the death benefit if the primary beneficiary predeceases the insured. If there are no designated beneficiaries surviving the insured, the benefits are paid to the estate of the insured.

Answer 275

A

D. An insured is diagnosed with cancer and needs help paying for her medical treatment.

Accelerated benefits are paid when insureds endure financial hardship due to severe illness. They may request immediate payment of some portion of the policy’s death benefit, usually 50-100%, depending on the insurer. Benefits are not taxable.

Answer 276

A

D. To provide a guaranteed income for a certain amount of time

When the fixed-period installments option is selected, the insurer agrees to pay the proceeds in equal installments over a specified period of time.

Answer 277

A

A. Dividend amounts are guaranteed in the policy.

Dividends cannot be guaranteed.

Answer 278

A

C. Guaranteed insurability.

Guaranteed insurability is a rider that is included at the time of application (or can be added at a later date) which allows the insured to increase the amount of insurance without proving evidence of insurability.

Answer 279

A

C. Reinstatement provision

A lapsed policy may be reinstated within 3 years by paying back premiums, with interest, and proving insurability.

Answer 280

A

D. Absolute and collateral.

Absolute assigns the entire policy. Collateral assigns a part or all of the benefits.

Answer 281

A

D. 6 months

Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.

Answer 282

A

C. $9,800

In this scenario, the death occurred within the mandatory 30-day grace period. Past due premium would be subtracted from the face amount of the policy.

Answer 283

A

C. It commences when the policy is delivered.

The free look provision is a mandatory provision that allows the insured to examine a policy, and if dissatisfied for any reason, return the policy for a full refund of any premiums paid.

Answer 284

A

A. Extended Term

The Extended Term nonforfeiture option has the same face amount as the original policy, but for a shorter period of time.

Answer 285

A

B. Transfer of all ownership rights in a policy.

Absolute Assignment involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policyowner does not need to have an insurable interest in the insured.

Answer 286

A

C. It allows the insured to reject the policy with a full refund.

The free-look provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium.

Answer 287

A

D. Death due to plane crash for a fare-paying passenger

Generally, policies do not exclude conditions in which an insured is a fare-paying passenger on a commercial airline.

Answer 288

A

D. Owner’s Rights

Policyowners can learn about their ownership rights by referring to the policy.

Answer 289

A

C. Grace period.

Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force.

Answer 290

A

B. War or military service

There are two different types of exclusions that may be used by life insurers that limit the death benefit if the insured dies as a result of war or while serving in the military. The status clause excludes all causes of death while the insured is on active duty in the military. The results clause only excludes the death benefit if the insured is killed as a result of an act of war.

Answer 291

A

C. Suicide is excluded for a specific period of years and covered thereafter.

In most states, if death results from suicide within a certain period, the insurer is not obligated to pay the death benefits.

Answer 292

A

B. To purchase a smaller amount of the same type of insurance as the original policy.

The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.

Answer 293

A

B. Lump sum

Upon the death of the insured, or endowment, the contract is designed to pay the proceeds in cash, called a lump sum, unless the recipient chooses an optional mode of settlement.

Answer 294

A

D. It has the highest amount of insurance protection.

Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.

Answer 295

A

D. Reduction of premium

The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year’s premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

Answer 296

A

B. It remains the same no matter how many children are added to the policy.

The premium does not change on the inclusion of additional children; it is based on an average number of children.

Answer 297

A

B. The amount of premium payment

The consideration clause states that the value offered by the insured is the premium and statements made in the application, so it will include the information about the amount and frequency of premium payments.

Answer 298

A

A. Purchase a single premium policy for a reduced face amount.

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy.

Answer 299

A

C. $50,000

The face of the term policy would be the same as the face amount provided under the whole life policy.

Answer 300

A

B. 2 years

The incontestability clause prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a material fact.

Answer 301

A

D. The death benefit will be smaller.

If an insured withdraws a portion of the death benefit by the use of this rider, the benefit payable at death will be reduced by that amount, plus the amount of earnings lost by the insurance company in interest income.

Answer 302

A

C. Pay the death benefit

The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years, even on the basis of a material misstatement of facts or concealment of a material fact.

Answer 303

A

A. One-year term option.

The dividend is utilized to purchase one-year term insurance.

Answer 304

A

C. Automatic premium loan

This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

Answer 305

A

D. It is reduced to the amount of what the cash value would buy as a single premium.

In a reduced paid-up policy, the original policy’s cash value is used a single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured’s death.

Answer 306

A

B. Reduced paid-up

The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.

Answer 307

A

B. It determines who receives policy benefits if the primary beneficiary is deceased.

Naming a secondary beneficiary (also referred to as a contingent beneficiary) ensures that there is a beneficiary to receive policy proceeds if the primary beneficiary dies before the insured. If there is no secondary beneficiary, the policy benefits will go to the insured’s estate.

Answer 308

A

A. Fixed-period installments.

Fixed-period installments is a settlement option, and not one of the dividend options.

Answer 309

A

C. Policy loans can be made on policies that do not accumulate cash value.

The policy loan option is only found in policies that contain cash value.

Answer 310

A

D. Consideration.

“Consideration” is the value offered by the insured to the insurer, and vice versa. The insured makes accurate statements in the application and remits premium payments. In exchange, the insurer provides benefits as stipulated in the contract.

Answer 311

A

D. A copy of the original application for insurance.

An insurance contract must contain a copy of the original application.

Answer 312

A

A. The loan amounts are deducted from the death benefit.

In the event an insured dies, any outstanding policy loans and accrued interest is deducted from the policy proceeds. Loans cannot exceed the cash value of the policy.

Answer 313

A

B. Mode

The premium mode is the manner or frequency that the policyowner pays the policy premium.

Answer 314

A

C. Pay a reduced death benefit

The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years. However, it does not apply to statements relating to age, sex, and identity.

Answer 315

A

A. Must allow the policyowner to return the policy for a full refund.

This provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. The beginning of this free-look period starts when the policyowner receives the policy, not when the insurer issues the policy.

Answer 316

A

B. To protect the insurer from persons who purchase life insurance with the intention of committing suicide

The suicide provision protects the company from those individuals who purchase life insurance with the intention of committing suicide. If the insured commits suicide after the 2 year period, the policy will pay the death proceeds to the designated beneficiary the same as if the insured had died of natural causes.

Answer 317

A

A. Equal to the original policy for as long as the cash values will purchase.

With this option, the cash value is used as a single premium to purchase the same face amount as the original policy for as long a period of time as the cash will buy at the insured’s current age.

Answer 318

A

C. The insured’s contingent beneficiary

Under the Uniform Simultaneous Death Law, the law will assume that the beneficiary dies first in a common disaster. This provides that the proceeds will be paid to the contingent beneficiary or to the insured’s estate if none is designated.

Answer 319

A

B. Grace period

Grace period is a mandatory provision found in all life and health insurance policies that provides coverage for a period of time after the premium becomes past due.

Answer 320

A

A. The beneficiary can only be changed with written permission of the beneficiary.

If a policy has an irrevocable beneficiary designation the beneficiary can only be changed with written permission of the beneficiary.

Answer 321

A

C. Adjustment in the amount of death benefit.

If the applicant has misstated his or her age or gender on the application, the insurer, in the event of a claim, is allowed under this provision to adjust the benefits to an amount that the premium at the correct age or gender would have otherwise purchased.

Answer 322

A

B. Size of each installment

The size of each installment determines the length of time that benefits are received under the Fixed Amount settlement option. It logically follows that larger installments translate into shorter benefit periods.

Answer 323

A

A. The policy is owned by the company.

The policy is owned by the employee.

Answer 324

A

D. Viator

Viator means the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract.

Answer 325

A

B. Taxation on accumulation

Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.

Answer 326

A

B. At distribution, all amounts received by the employee are tax free.

Funds in a qualified plan accumulate on a tax-deferred basis; however, at distribution any amount received by the employee will be treated as ordinary income for tax purposes.

Answer 327

A

B. The employees receive individual policies.

The employer receives a master policy, and employees receive a certificate of insurance.

Answer 328

A

D. From trustee to trustee

In a direct rollover, the distribution is made directly from the trustee of the first plan to the trustee or administrator/custodian of the new IRA plan.

Answer 329

A

D. Generally not taxed as income.

Life insurance death benefits are generally not taxed as income.

Answer 330

A

D. An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan.

A collateral assignment is the transfer of some or all of the death benefits of the policy to a creditor as security for a loan, but does not give the creditor the rights of ownership. In the event of the insured’s death, the creditor would only be able to recover that portion of the policy’s proceeds equal to the creditor’s remaining interest in the loan.

Answer 331

A

C. Survivor protection.

Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured’s death. This is known as survivor protection.

Answer 332

A

C. Premiums are determined by the age, sex, and occupation of each individual certificate holder.

Premiums are determined by the age, sex, and occupation of the entire group.

Answer 333

A

B. The cash value available to the policyowner.

Liquidity in life insurance refers to availability of cash to the insured. Some life insurance policies offer cash values that can be borrowed at any time and used for immediate needs.

Answer 334

A

B. Executive is the owner, and the executive pays the premium.

Executive buys the policy and pays the premium, and the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income.

Answer 335

A

D. Cash values can be borrowed at any time.

Liquidity in life insurance refers to availability of cash to the insured through cash values.

Answer 336

A

C. Viatical settlement

A viatical settlement allows an insured with a life-threatening condition to sell the existing policy in order to receive benefits when they are most needed. Viators typically receive a percentage of the policy’s face value from the person who purchases the policy.

Answer 337

A

C. Buy-sell agreement.

Personal uses of life insurance include survivor protection, estate creation and conservation, cash accumulation, and liquidity. A buy-sell agreement is for business uses of life insurance.

Answer 338

A

C. The seller must be terminally ill.

With Life Settlements, unlike with viatical settlements, the seller does not need to be terminally ill. They usually involve life insurance policies with a face amount of $250,000 or more, “key-person” coverage, corporate owned policies, or policies representing excess coverage that is no longer needed, and could be sold for an amount greater than the current cash value.

Answer 339

A

A. Costs of training a replacement

A Key person insurance policy will pay for costs of running the business and replacing the employee.

Answer 340

A

A. The plan is funded by permanent insurance only.

Key Person coverage may be funded by any type of life insurance.

Answer 341

A

B. 6 credits

To be considered currently (or partially) insured, an individual must have earned 6 credits during the last 13-quarter period.

Answer 342

A

D. The owner

Life Settlement Broker is a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract. Life settlement brokers represent only the policyowners.

Answer 343

A

C. Workers Compensation

Workers Compensation is a benefit payable when a worker is injured by a work-related injury, regardless of fault or negligence. It is not considered a business use of insurance.

Answer 344

A

B. Funding against company’s general financial loss.

Both life and health insurance can be used for a variety of purposes in a business setting, including the funding of business continuation agreements, compensating executives, and protecting the firm against financial loss resulting from the death or disability of key employees.

Answer 345

A

D. To lessen the risk of financial loss because of the death of a key employee

A business can suffer a financial loss because of the premature death of a key employee that has specialized knowledge, skills, or business contacts. A business can lessen the risk of such loss by the use of key person insurance.

Answer 346

A

A. Executive bonus.

When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called an executive bonus.

Answer 347

A

C. Cross-purchase plan.

In a Cross-Purchase Plan each partner involved purchases insurance on the life of each of the other partners. With a cross-purchase plan, each partner is the owner, premium-payor, and beneficiary of the life insurance on the lives of the other partners. The amount of the life insurance is equal to each partner’s share of the purchase price of the deceased partner’s interest in the business.

Answer 348

A

B. Owner’s income

Traditional IRA contributions are tax deductible, but may be limited if the owner’s income exceeds a certain level.

Answer 349

A

A. The benefit is received tax free.

Should a key person die, the benefit is treated as a reimbursement to the business for loss of services from that key person.

Answer 350

A

B. Life expectancy

Life Expectancy is an important concept in life settlement contracts. It refers to a calculation based on the average number of months the insured is projected to live due to medical history and mortality factors (an arithmetic mean).

Answer 351

A

C. A policyowner who is not the insured

Third-party owner is a legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it.

Answer 352

A

D. Buy-sell agreement.

Buy-Sell agreements are used to contractually establish the intent of someone else to purchase the business upon the insured’s death, and to set a value (purchase price) on a business. Life insurance is used to fund the buy-sell agreement. Any type of life insurance may be purchased to provide the necessary funds for the agreement. Insurance can be used to either fully or partially fund the buy-sell agreement.

Answer 353

A

B. The policyowner of the life insurance policy

The term owner refers to the owner of the policy who may seek to enter into a life settlement contract. The term does not include an insurance provider, a qualified institutional buyer, a financing entity, a special purpose entity, or a related provider trust.

Answer 354

A

D. The earnings in the plan accumulate tax deferred.

Contributions are tax deferred, and earnings on the money in the plan accrue on a tax-deferred basis.

Answer 355

A

D. HR-10 (Keogh Plan).

HR-10 (Keogh Plans) are plans specifically for self-employed and their employees.

Answer 356

A

B. Those who have been insured under the plan for at least 5 years

If the master contract is terminated, every individual who has been on the plan for at least 5 years will be allowed to convert to individual insurance of the same coverage.

Answer 357

A

C. An individual not covered by an employer-sponsored plan who has earned income

Individuals who are not covered by an employer-sponsored plan may deduct the amount of their IRA contributions regardless of their income level.

Answer 358

A

B. Modified endowment contract.

Any cash value life insurance policy that develops cash value faster than a seven-pay whole life contract is called a Modified Endowment Contract. It loses the benefits of a standard life contract.

Answer 359

A

C. The employer is the owner and beneficiary.

With the key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary.

Answer 360

A

A. It is approved by the IRS.

A qualified retirement plan is approved by the IRS, which then gives both the employer and employee benefits such as deductible contributions and tax-deferred growth.

Answer 361

A

C. Third-party ownership

Contracts that are owned by someone other than the insured are known as third-party ownership. Most policies involving third-party ownership are written in business situations or for minors in which the parent owns the policy.

Answer 362

A

B. 6 credits.

To be considered partially insured, an individual must have earned 6 credits during the last 13-quarter period.

Answer 363

A

D. Premiums are not tax deductible as a business expense.

The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free.

Answer 364

A

A. Are subject to vesting requirements.

Qualified plans must have a vesting requirement.

Answer 365

A

B. Tax-deductible contributions.

Qualified plans have these tax advantages: employer contributions are tax deductible and are not taxed as income to the employee; the earnings in the plan accumulate tax deferred; lump-sum distributions to employees are eligible for favorable tax treatment.

Answer 366

A

D. The amount of the distribution is reduced by the amount of a 20% withholding tax.

Distributions from 401(k) plans are taxable as ordinary income in the year of the distribution. However, if the distribution is rolled over to a Traditional IRA, taxes are deferred until the required minimum IRA distributions begin (which is generally no later than age 72). Since this client actually took a distribution (instead of making a trustee-to-trustee roll over), the distribution is subject to 20% withholding tax.

Answer 367

A

C. Not subject to income taxation by the Federal Government.

When premiums are paid with after tax dollars, the death benefit is generally not subject to federal income taxation.

Answer 368

A

C. To create an estate

With insurance, the death benefit creates an immediate estate should the insured die.

Answer 369

A

C. It determines if the insurance policy is a MEC.

The Seven-pay Test determines whether an insurance policy is “over-funded” or if it’s a Modified Endowment Contract (MEC). In other words, the cumulative premiums paid during the first seven years of a policy must not exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest.

Answer 370

A

B. 100% participation of members is required in noncontributory plans.

If the employer pays all of the premium, then all employees must be included.

Answer 371

A

B. Fully insured.

A worker is fully insured under Social Security if the worker has accumulated the required number of credits based on his/her age.

Answer 372

A

D. 100%

If the employer pays all of the premium, all employees must be covered to avoid adverse selection.

Answer 373

A

C. They are tax deferred until withdrawn.

Taxation is deferred on both contributions and earnings until funds are withdrawn.

Answer 374

A

B. Unemployment income.

Social Security is designed to provide protection against financial loss due to old age, disability, or death. It also provides income during retirement.

Answer 375

A

B. Tax deductible by the employer.

The premiums that an employer pays for life insurance on an employee, whereby the policy is for the employee’s benefit, are tax deductible to the employer as a business expense.

Answer 376

A

C. Old Age Survivors Disability Insurance

Social Security is formally called Old Age Survivors Disability Insurance - OASDI.

Answer 377

A

C. $10,000, no tax consequence

During an IRA direct transfer (or direct rollover), the full amount gets reinvested from one plan to the other.

Answer 378

A

B. The insurer will pay the full death benefit from the group policy to the beneficiary.

The employee usually has a period of 31 days after terminating from the group in order to exercise this conversion option. During this time, the employee is still covered under the original group policy.

Answer 379

A

A. She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan.

If a person has life insurance under a group plan and then leaves the group, he/she may convert group coverage to individual coverage within 31 days of leaving the plan without proof of insurability.

Answer 380

A

B. They are not included as income for the employee, but are taxable upon distribution.

Funds contributed are excluded from the employee’s current taxable income, but are taxable upon withdrawal.

Answer 381

A

A. Welfare benefits.

Social Security is an entitlement program, not a welfare program.

Answer 382

A

B. Premiums paid by an employer on a $30,000 group term life insurance plan for employees

As a general rule, premiums paid for life insurance are not tax deductible. The exception to this rule is when an employer buys group term life insurance for his employees since it is considered a business expense.

Answer 383

A

C. Withdrawals are not taxable.

Any distributions from MECs are taxable, including withdrawals and policy loans. All of the other statements are true.

Answer 384

A

C. At least 1,000 employees.

A SIMPLE plan is available to small businesses that employ not more than 100 employees receiving at least $5,000 in compensation from the employer during the previous year.

Answer 385

A

C. Interest only

If a beneficiary receives payments that contain both principle and interest portions, only the interest is taxable as income.

Answer 386

A

B. For 31 days.

An employee has 31 days under the conversion privilege to convert to an individual policy.

Answer 387

A

D. It is only taxable if the cash value exceeds the amount paid for premiums.

The cash value of a surrendered policy is only considered to be taxable as income if the cash value exceeds the amount of premiums paid for the policy.

Answer 388

A

A. The insured may choose to convert to term or permanent individual coverage.

When group coverage is converted to an individual policy, the insurer will determine the type of coverage, usually permanent insurance.

Answer 389

A

C. Retirement

Profit-sharing plans are qualified plans where a portion of the company’s profit is contributed to the plan and shared with employees. A 401(k) qualified retirement plan allows employees to take a reduction in their current salaries by deferring amounts into a retirement plan. The company can also somehow match the employee’s contribution, whether it is dollar for dollar or on a percentage basis.

Answer 390

A

C. Certain groups of employees only.

A tax-sheltered annuity is a special tax-favored retirement plan available only to certain groups of employees (nonprofit charitable, education, religious, and other 501c(3) organizations, including all employees in public education).

Answer 391

A

D. 40

The term “fully insured” refers to someone who has earned 40 quarters of coverage (10 years of work times 4 maximum annual credits).

Answer 392

A

A. A nonqualified annuity plan.

Nonqualified plans are a perfectly legal way for selected employees to receive certain types of benefits. Before-tax corporate dollars can be used for these plans, and they are not subject to government standards. Because of this, however, nonqualified plans contributions are not tax-deductible, unlike with qualified plans.

Answer 393

A

B. Have attained fully insured status

Although Social Security offers many benefits, such as retirement, survivors, and Medicare, only those who have attained fully insured status are eligible for Disability Income benefits. Contributing to Social Security for 40 quarters (10 years) attains fully insured status.

Answer 394

A

D. Attained age.

If an employee terminates membership in the insured group, the employee has the right to convert to an individual whole life policy without proving insurability. The insurer will determine what type(s) of policy an employee may convert to, but it must be issued at a standard rate, based on the individual’s attained age.

Answer 395

A

A. Grow tax deferred.

Generally life insurance cash values are only income taxed if the policy is surrendered (totally or partially) and the cash value exceeds the premiums paid.

Answer 396

A

C. Being age 65.

The term fully insured refers to someone who has earned 40 quarters of coverage (the equivalent of 10 years of work), and is therefore entitled to receive Social Security retirement, Medicare, and survivor benefits. The waiting, or elimination period for Social Security disability benefits is 5 months.

Answer 397

A

B. Settlement option.

A settlement option is exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender.

Answer 398

A

C. 5

If the master contract is terminated, every individual who has been on the plan for at least 5 years will be allowed to convert to individual insurance of the same coverage.

Answer 399

A

C. SEPs are suitable for large companies.

A SEP is a benefit plan that is designed to be provided by a small employer for the benefit of the employees.

Answer 400

A

B. Employees.

Qualified plans are designed for the exclusive benefit of the employees and their beneficiaries.

Answer 401

A

C. 75%

Under a contributory group plan, an insurer will require that 75% of eligible employees be included in the plan.

Answer 402

A

A. $3,000

The difference between the premiums paid and the cash value would be taxable.

Answer 403

A

A. The plan must provide an offset for social security benefits.

Plans must meet the general requirements established by IRS.

Answer 404

A

B. The employer can receive a current tax deduction for any contributions made to the plan.

Employers do not receive a current tax deduction for any contributions made to a nonqualified plan. The plans are legal; however, they do not qualify for any favorable tax treatment under the IRS rules.

Answer 405

A

C. Split-dollar plan

Examples of nonqualified plans are individual annuities and deferred compensation plans for highly paid executives, split-dollar insurance arrangements, and Section 162 executive bonus plans.

Answer 406

A

D. Money borrowed from the cash value is taxable.

Money borrowed from the cash value is not taxable. Policy loans can be repaid at any time, including surrender and death. An insurer can charge interest on outstanding policy loans.

Answer 407

A

A. It needs IRS approval.

Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.

Answer 408

A

C. Dividend

The return of unused premiums is called a dividend. Dividends are not considered to be income for tax purposes, since they are the return of unused premiums.

Answer 409

A

A. Dividends are not taxable.

Dividends are not considered to be income for tax purposes, since they are the return of unused premiums. The interest earned on the dividends, however, is subject to taxation as ordinary income.

Answer 410

A

C. Keogh

The Keogh or HR-10 plan allow self-employed individuals to establish tax favored retirement plans for themselves and their eligible employees.

Answer 411

A

C. It has a tax benefit for both employer and employee.

A qualified plan is approved by the IRS, which then gives both the employer and employee benefits in deductibility of contributions and tax deferral of growth.

Answer 412

A

B. They are tax free to terminally ill insured.

When accelerated benefits are paid under a life insurance policy, they are received tax free by terminally ill insured, and tax free up to a limit for chronically ill insured.

Answer 413

A

B. A portion of the benefit up to a limit is tax free; the rest is taxable income.

When accelerated benefits are paid to a chronically ill insured, they are tax free up to a certain limit. Any amount received in excess of this dollar limit must be included in the insured’s gross income.

Answer 414

A

A. Employer contributions are not tax deductible.

Tax-qualified annuities must be approved by the IRS and allow for tax deductible employer contributions. All withdrawals are taxed and earnings grow tax deferred.

Answer 415

A

B. The CEO of a private corporation.

Not all public employees are eligible for 403(b) plans, or tax-sheltered annuities, only employees of public education (local, state, or federal), as well as employees of charitable organizations.

Answer 416

A

B. He will have to pay a penalty if he is younger than 59 1/2.

Any cash value life insurance policy that develops cash value faster than a seven-pay whole life contract is called a Modified Endowment Contract. It loses the benefits of a standard life contract. All withdrawals are subject to taxation on a LIFO basis, and if withdrawals are made earlier than the age of 59 1/2, a 10% penalty is imposed.

Answer 417

A

A. $3,000

If $100,000 of life insurance proceeds were used in a settlement option paying $13,000 per year for 10 years, $10,000 per year would be income tax free (as principal) and $3,000 per year would income taxable (as interest).

Answer 418

A

B. The president and employee of a family corporation.

Keogh plans are for self-employed individuals and their employees.

Answer 419

A

C. A qualified plan for a small business

A Simplified Employee Pension (SEP) is a type of qualified plan suited for the small employer or for self-employed. A SEP is an employer-sponsored IRA with an expanded contribution rate up to 25% of compensation or a specified maximum contribution amount.

Answer 420

A

A. Simplified Employee Pension plan.

A Simplified Employee Pension (SEP) is an employer sponsored IRA. Contributions to the plan are not included in the employee’s taxable income for the year, to the extent that they do not exceed the maximums allowed. Distributions from a SEP are taxable as ordinary income when received at retirement.

Answer 421

A

B. Profit sharing plan

A profit sharing plan is one where the employer will contribute monies into an employee’s retirement plan when the company shows a profit. The others are all qualified plans, but company profit isn’t an issue with them.

Answer 422

A

D. 403(b) Plan (TSA).

Under a 403(b) Plan, tax-sheltered annuities may be established for the employees of specified nonprofit charitable, educational, religious, and other 501c(3) organizations, including teachers in public school systems. Such plans generally are not available to other kinds of employees.

Answer 423

A

D. Self-employed plumber

Self-employed persons may contribute to an HR-10 Plan.

Answer 424

A

D. Someone who works 400 hours per year

A person must have worked at least 1,000 hours per year to be eligible for a Keogh Plan.

Answer 425

A

C. Teachers and not-for-profit organizations.

Tax sheltered annuities commonly referred to as 403(b) plans, are designed for teachers and not-for-profit organizations.

Answer 426

A

C. Application

An individual can submit an application to an insurer, which requests that the insurer review the information and issue an insurance contract.

Answer 427

A

B. The agent

it is the responsibility of the agent to make sure that the application has been properly signed and that all questions have been answered correctly.

Answer 428

A

D. Applicant

Any changes made to the application must be initialed by the applicant.

Answer 429

A

B. The applicant must be informed of the sources contacted and how the information is being gathered.

It is required by law that an insurer informs the applicant of all sources that will be contacted in determining the applicant’s insurability, in addition to how the information will be gathered.

Answer 430

A

C. Entire contract.

When a policy is issued, a copy of the application, any riders and amendments are attached to the back of the policy and become part of the entire contract.

Answer 431

A

A. The spouse of the policyowner.

Every health insurance application requires the signature of the proposed insured, the policyowner (if different than the insured), and the agent who solicits the insurance.

Answer 432

A

C. Have the insured sign a statement acknowledging that he is aware of the change.

If the insurer makes a change to the policy, the change must be explained to the insured, and the insured must sign a statement acknowledging that the change was explained.

Answer 433

A

C. Attending Physician’s Statement

An Attending Physician’s Statement (APS) is the best way for an underwriter to evaluate an insured’s medical history. The report includes past diagnoses, treatments, length of recovery time, and prognoses.

Answer 434

A

C. Neither approved the application nor issued the policy

When the agent receives the application and issues a conditional receipt, the insurer has not yet approved the application and issued the policy.

Answer 435

A

B. Insurer

If an insurer requests a medical examination, the insurer is responsible for the costs of the exam.

Answer 436

A

A. Assets.

In a replacement situation the agent must be careful to compare the benefits, limitations, and exclusions found in the current and proposed replacement policy.

Answer 437

A

A. Insurer

Only insurers, not agents, can bind coverage.

Answer 438

A

A. Held or transmitted in any form.

Under the Privacy Rule for HIPAA, protected information includes all individually identifiable health information held or transmitted by a covered entity or its business associate in any form or media, whether electronic, paper, or oral. This is called protection health information (PHI).

Answer 439

A

B. Start over with a fresh application.

Most companies require that the app be filled out in ink. The agent might make a mistake when filling out the app or the applicant might answer a question incorrectly and want to change it. There are two ways to correct an application. The first and best is to simply start over with a fresh application. If that is not practical, draw a line through the incorrect answer and insert the correct one. The applicant must initial the correct answer.

Answer 440

A

D. The agent

It is the responsibility of the agent to deliver the policy.

Answer 441

A

A. The applicant

It is required by law that an insurer inform the applicant of all sources that will be contacted in determining the applicant’s insurability, in addition to how the information will be gathered.

Answer 442

A

C. Collect payment at time of delivery

The agent has the responsibility to deliver the policy to the insured and to collect any premium that may be due at the time of delivery.

Answer 443

A

C. Ask her to sign a statement of good health.

If the premium is not collected until the policy is delivered, the agent must receive a statement of good health, which acknowledges that the insured’s health status has not changed since the policy was approved.

Answer 444

A

C. Premiums always stay the same.

Underwriting is important when replacement is involved. It is an underwriter’s duty to evaluate risk and decide whether or not a person is eligible for coverage. When replacement is involved, the insured may be under the assumption that a replacing policy is in his/her best interests, but after being evaluated by an underwriter, where premium and risk are exchanged, an insured may not be paying the same premium or receiving the same benefits.

Answer 445

A

D. At the time of application.

A notice to the applicant must be issued to all applicants for health insurance coverage.

Answer 446

A

C. The old policy should stay in force until the new policy is issued.

The agent must make sure that the current policy is not canceled before the new policy is issued.

Answer 447

A

B. The applicant must give prior informed written consent.

A separate written consent form must be obtained prior to an HIV exam. HIV exam results may be disclosed to underwriters, but not agents.

Answer 448

A

C. A policy is issued to each insured individual.

The actual policy, called the “master contract”, is issued to the group sponsor only; the individuals covered under the policy are issued certificates of insurance as proof that they are covered under the master contract. Dependents are covered under group plans. If the group contract is terminated, insureds may convert to individual policies without having to provide proof of insurability.

Answer 449

A

B. Income.

AD&D policies cover loss of body parts or life only.

Answer 450

A

A. 20 employees.

Under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), any employer with 20 or more employees must extend group health coverage to terminated employees and their families.

Answer 451

A

A. Termination of employment due to downsizing

Employee qualifying events include the termination of employment for reasons other than for misconduct; dependents qualifying events include the death of the employee, divorce or legal separation.

Answer 452

A

C. Surgery to repair a wrist damaged by tendonitis

Accident-only policies cover medical costs caused by accidents, not sickness. Because the wrist was damaged by a sickness, not an accident, the policy would not cover any medical claims relating to the surgery or the condition itself.

Answer 453

A

C. Copayment

A copayment is a specific dollar amount of the cost of care that must be paid by the member. For example, the member may be required to pay $5 or $10 for each office visit.

Answer 454

A

B. Individual insurance does not require medical examinations, while group insurance does require medical examinations.

In individual coverage, policies are issued based upon individual underwriting. In group plan, everyone is covered for the same coverage and there is no individual underwriting selection.

Answer 455

A

B. Individual members of the group may select the level of benefits for their own coverage.

In group health insurance, all individuals are covered under the master policy for the same coverages.

Answer 456

A

A. One

It is common in most vision expense insurance plans to restrict benefits to one exam and one pair of glasses in any 12-month period.

Answer 457

A

A. None

General disability policies do not cover losses caused by war, military service, intentionally self-inflicted injuries, overseas residence, or injuries suffered while committing or attempting to commit a felony.

Answer 458

A

C. Relative value

In a relative-value approach, a surgical procedure is assigned an amount of points relative to the maximum coverage allowed for a given surgery.

Answer 459

A

D. Copayment

A copayment is a specific dollar amount of the cost of care that must be paid by the member.

Answer 460

A

B. Guaranteed renewability

The benefit amount payable under most LTC policies is usually a specific amount per day, and some policies pay the actual charge incurred per day. Most LTC policies are also guaranteed renewable; however, insurers do have the right to increase the premiums.

Answer 461

A

A. The group is assessed individually for insurability.

Group health insurance policies must cover everyone in the group, regardless of age, health history, and occupation. Because of this blanket coverage, the group as a whole is assessed for insurability. The size, average age, gender ratio, persistency, and industry of the group are considered, along with other factors, when determining premiums. Groups can be reassessed annually in order to adjust premium amounts.

Answer 462

A

D. Rent.

Business overhead insurance is designed to pay the ongoing business expenses of a small business owner while they are disabled and unable to work. It does not pay the salary of the business owner or their loss of profits. However, it will provide the funds needed to pay the salary of the employees other than the owners and their other ongoing business expenses, such as rent.

Answer 463

A

A. Convert to an individual health policy

It is perfectly legal for a company to terminate the master contract of a group health insurance policy. When this happens, the insureds can convert to individual health policies within a specified period of time, without having to provide proof of insurability.

Answer 464

A

B. The PPO will pay reduced benefits.

The group health plan will not pay the full amount charged by the non-PPO doctor.

Answer 465

A

B. Cash to the owner’s business partner to accomplish a buyout

If an owner dies or becomes disabled, the disability policy under the buy-sell agreement would provide enough cash to accomplish a buyout of the company.

Answer 466

A

A. Disability Buy-Sell

The Disability Buy-Sell agreement specifies how a business will pass between business owners if one of the owners dies or becomes disabled.

Answer 467

A

C. Doctor

Skilled nursing care is daily nursing care that can only be provided by medical personnel, under the direction of a physician. Skilled care is almost always provided in an institutional setting.

Answer 468

A

C. Occasional nursing or rehabilitative care

Intermediate care is nursing and rehabilitative care provided by medical personnel for stable conditions that require assistance on a less frequent basis than skilled care.

Answer 469

A

A. During which illness-related disabilities are excluded from coverage.

The probationary period limits coverage on new policies for certain illness-related conditions.

Answer 470

A

A. Indemnity

A Hospital Indemnity policy pays a fixed amount each day the insured is hospitalized, unrelated to medical expenses.

Answer 471

A

C. In an institutional setting

Skilled nursing care is performed under the direction of a physician, usually in an institutional setting.

Answer 472

A

D. To provide continuation of coverage for terminated employees

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires any employer with 20 or employees to extend group health coverage to terminated employees and their families after a qualifying event.

Answer 473

A

C. It is divided into geographic territories.

HMOs offer services to those living within specific geographic boundaries that may be formed by county lines or city limits. If one lives within the boundaries, they are eligible to belong to the HMO, but if they do not live within the boundaries, they ineligible.

Answer 474

A

C. Health Care Accounts and Dependent Care Accounts

There are 2 types of Flexible Spending Accounts: a Health Care Account for out-of-pocket health care expenses, and a Dependent Care Account to help pay for dependent care expenses which make it possible for an employee and his or her spouse, if applicable, to work.

Answer 475

A

C. Endorsement to a health policy.

Long-term care insurance policies may be purchased on an individual or group basis, or as an endorsement to a life insurance policy.

Answer 476

A

D. COBRA

Dependents of employees are eligible to receive group health insurance under the employee’s plan. If the employee and the dependent become legally separated or divorced, or if the employee dies, the dependent will be eligible for COBRA benefits for up to 36 months.

Answer 477

A

D. Early detection through regular checkups

The goal of the HMO is early detection so members are encouraged to participate in regular checkups. In this way the HMO hopes to catch disease in its earliest stages when treatment has the greatest chance for success.

Answer 478

A

C. Endorsement to a health policy.

Long-term care insurance policies may be purchased on an individual or group basis, or as an endorsement to a life insurance policy.

Answer 479

A

D. COBRA

Dependents of employees are eligible to receive group health insurance under the employee’s plan. If the employee and the dependent become legally separated or divorced, or if the employee dies, the dependent will be eligible for COBRA benefits for up to 36 months.

Answer 480

A

D. Early detection through regular checkups

The goal of the HMO is early detection so members are encouraged to participate in regular checkups. In this way the HMO hopes to catch disease in its earliest stages when treatment has the greatest chance for success.

Answer 481

A

C. Group coverage must be extended for terminated employees up to a certain period of time at the former employee’s expense.

COBRA requires employers with 20 or more employees to continue group medical insurance for terminated workers and dependents for up to 18 months to 36 months. The employee can be required to pay up to 102% of the coverage’s premium.

Answer 482

A

D. A benefit for each day the insured is in a hospital.

Hospital confinement indemnity policies pay specific amounts that depend on the amount of time the insured is confined to the hospital.

Answer 483

A

C. Integrated dental plan.

When dental coverage is covered under the benefits of a major medical plan, the dental coverage and medical coverage would be an integrated plan. Any deductible amount can be met by either dental or medical expenses.

Answer 484

A

B. Acute care in a hospital

A long-term care policy may provide coverage for home health care, adult day care, hospice care, or respite care. Acute (severe, intense) care is not covered under a long-term care policy.

Answer 485

A

B. The primary care physician refers the member.

In order for the member to get to see a specialist, the primary care physician must refer the member. If the member feels that the specialist should be treating him or her but is unable to get the referral from the primary care physician, the member might consider changing primary care physicians. In some HMOs there is a financial cost to the primary care physician for referring a patient to a more expensive specialist.

Answer 486

A

D. Critical illness.

A critical illness policy covers multiple illnesses, such as heart attack, stroke, renal failure, and pays a lump-sum benefit to the insured upon the diagnosis (and survival) of any of the illnesses covered by the policy.

Answer 487

A

C. Medical

Integrated plans allow for dental plans to be included in a medical plan, providing coverage for both under a single contract. Sometimes the deductibles are merged, but this does not have to be the case.

Answer 488

A

A. Home health care

Home health care is given in the home, but skilled nursing, intermediate, and custodial care may all be provided in an institutional setting.

Answer 489

A

D. 6 months to 2 years.

Short-term disability is defined as a disability lasting not more than 2 years.

Answer 490

A

B. Basic expense

A basic expense policy will provide coverage on a first-dollar basis (no deductible). After the limits of the basic policy are exhausted, the insured must pay a corridor deductible before the major medical coverage will pay benefits.

Answer 491

A

B. The capital amount in a lump sum

AD&D policies pay a capital amount (a percentage of the principal amount) for the loss of one limb or loss of sight in one eye. The principal amount is paid for death or often for the loss of 2 limbs or loss of sight in both eyes. Benefits are paid in a lump sum.

Answer 492

A

B. The IRS.

The IRS sets limits for the annual contribution for Dependent Care Accounts.

Answer 493

A

B. Special Risk Policy

The Special Risk Policy will cover unusual types of risks that are not normally covered under AD&D policies. It covers only the specific hazard or risk identified in the policy, such as a racecar driver test-driving a new car.

Answer 494

A

D. Loss of one eye.

The definition of a presumptive disability varies by company, but generally includes a total loss of sight, speech, hearing, or the use of any two limbs.

Answer 495

A

B. Business Overhead Expense.

Business Overhead insurance is often purchased by small employers to pay the ongoing business expenses (such as payroll) in the event the owner of the business becomes disabled. Premiums paid are deductible as a business expense, but proceeds paid are taxable as income.

Answer 496

A

D. Business overhead expense policy

Business Overhead Expense (BOE) insurance is sold to small business owners for the purpose of reimbursing the policyholder for various business overhead expenses during a period of total disability. Expenses such as rent, utilities, and employee salaries are covered.

Answer 497

A

C. Divorce

Other qualifying events include the voluntary termination of employment; an employee’s change from full time to part time; or the death of the employee.

Answer 498

A

A. Benefits are usually limited to six months.

Business Overhead Expense (BOE) insurance is sold to small business owners for the purpose of reimbursing the policyholder for business overhead expenses during a period of total disability. Premiums are tax-deductible for a business, but any benefits received are taxable as income. Overhead expenses, including equipment and employee salaries, are covered by the plan. Salaries and profits of the employer are not protected.

Answer 499

A

C. Death benefits are paid only if death occurs within 24 hours of an accident.

Under an AD&D insurance policy, the death benefit will be paid if the accidental death occurs within 90 days of the accident, not 24 hours.

Answer 500

A

D. Adult day care

Adult day care is designed for those who require assistance with various ADLs on a daily basis, but not around the clock. Custodial care is usually the only service provided by adult day care facilities.

Answer 501

A

D. Probationary period

Probationary period is the period of time after a policy is in effect before claims arising out of an illness are covered. This is to prevent adverse selection, persons waiting until they have been exposed to a cause of loss before purchasing coverage.

Answer 502

A

D. Full benefits

Presumptive Disability plans offer full benefits for specified conditions. These policies typically require the loss of at least two limbs (Loss of use does not qualify in some policies.), total and permanent blindness, or loss of speech or hearing. Benefits are paid, even if the insured is able to work.

Answer 503

A

C. 90 days.

Most policies will pay the accidental death benefit as long as the death is caused by the accident and occurs within 90 days.

Answer 504

A

D. First-dollar basis.

Another term used to describe “no deductible” is “first-dollar basis”.

Answer 505

A

D. $102

The employer is permitted to collect a premium from the terminated employee at a rate of no more than 102% of the individual’s group premium rate (in this scenario, 102% of $100 total premium is $102). The 2% charge is to cover the employer’s administrative costs.

Answer 506

A

D. They are tax deductible.

An individual covered by a high deductible health plan can make a tax-deductible contribution to an HSA and use it to pay for out-of-pocket medical expenses.

Answer 507

A

A. The number of days confined in a hospital.

Hospital indemnity/hospital confinement indemnity policy provides payment based only on the number of days confined in a hospital.

Answer 508

A

B. The employer contributions are not included in the individual insured’s taxable income.

HSA contributions made by an employer are not included in the determination of an individual’s taxable income.

Answer 509

A

C. A lump-sum benefit payment option

Buyout plans usually allow for a lump-sum payment of the benefit.

Answer 510

A

D. 20%

An HSA holder who uses the money or a nonhealth expenditure pays tax on it, plus a 20% penalty.

Answer 511

A

A. It requires all employers, regardless of the number or age of employees, to provide extended group health coverage.

COBRA Act applies to only employers with 20 or more employees.

Answer 512

A

A. It is designed to pay on a first dollar of expense basis.

A major medical policy usually has deductibles and a copayment requirement. Basic medical, but not major medical, expense policies pay on a first dollar basis.

Answer 513

A

A. Preferred Provider Organization (PPO).

The insurer negotiates the rates for specific procedures for their subscribers. If the subscriber chooses to go to a provider outside the preferred provider, they will have to pay a part of the cost of service.

Answer 514

A

D. Major medical coverage.

The corridor deductible derives its name from the fact that it is applied between the basic coverage and the major medical coverage.

Answer 515

A

A. Skilled care.

Custodial care, respite care, home health care, and adult day care at all coverages used to reduce the necessity of admission into a care facility. Skilled care is almost always provided in an institutional setting.

Answer 516

A

A. $0

As with other types of basic medical expense coverage, there is no deductible, but coverage is limited.

Answer 517

A

C. 36 months

The maximum period of coverage under COBRA is 36 months, in the event of the covered employee’s death or divorce.

Answer 518

A

B. Help individuals save for qualified health expenses.

HSAs help individuals save for qualified out-of-pocket health care expenses such as the deductible expense from a high deductible health plan.

Answer 519

A

D. Alzheimer’s disease

Most LTC policies exclude coverage for drug and alcohol dependency, acts of war, self-inflicted injuries, and nonorganic mental conditions. Organic cognitive disorders such as Alzheimer’s disease, senile dementia, and Parkin’s disease are covered.

Answer 520

A

D. The employer

In key person disability insurance purchased by a business, the business is the policyowner and the beneficiary, and the key person is the insured.

Answer 521

A

C. Increases.

LTC policies define the benefit period for how long coverage applies, after the elimination period. The longer the benefit period, the higher the premium will be.

Answer 522

A

C. Accident-only

Accident-only policies cover medical benefits related to an accident. Medical conditions related to sickness are not covered.

Answer 523

A

D. Presumptive disability

Presumptive disability is a provision that is found in most disability income policies which specifies the conditions that will automatically qualify the insured for full disability benefits.

Answer 524

A

A. Amanda is 67 and is covered by a basic medical expense policy.

To be eligible for a Health Savings Account, an individual must be covered by a High Deductible Health Plan (HDHP), must not be covered by other health insurance except for specific injury, accident, disability, dental care, vision care, or long-term care insurance, must not be eligible for Medicare (usually age 65), and can’t be claimed as a dependent on someone else’s tax return.

Answer 525

A

C. Its goal is to channel patients to providers that discount services.

Insureds are treated by providers who have agreed to discount their charges.

Answer 526

A

B. No benefits

Presumptive Disability plans offer full benefits for specified conditions. These policies typically require the loss of use of at least two limbs, total and permanent blindness, or loss of speech or hearing. Benefits are paid, even if the insured is able to work. Because the insured’s blindness was only temporary and the loss of use in only 1 leg, he does not qualify for presumptive disability benefits.

Answer 527

A

D. Key Person Disability

Key person disability is purchased by the employer on the life of a key employee to cover the expense of hiring and training a replacement for the key person.

Answer 528

A

B. 15 days

A probationary period refers to the amount of time that coverage is not available for illness-related disabilities, so it would not apply to a broken leg. The elimination period, however, is the time that must elapse between the onset of the disability and when the benefits will start being paid. In this case, the individual is considered disabled for 45 days, and the benefits will start to be paid after 30 days. So, the client will receive benefits for 15 days.

Answer 529

A

A. Care can be provided outside of the service area.

The HMO provides the member with inpatient hospital care, in or out of the service area. The services may be limited for treatment of mental, emotional, or nervous disorders, including alcohol or drug rehabilitation or treatment.

Answer 530

A

B. When the amount payable under Social Security is more than the amount payable under the rider.

These riders provide benefits when the amount payable under Social Security is less than the amount payable under the rider (in this case only the difference will be paid).

Answer 531

A

C. To provide an incentive for the insured to return to work

The reason that insurers don’t pay benefits that are equal to the insured’s prior earnings is to reduce the chance of malingering on the part of the insured. Limiting the amount of coverage provides an incentive for the insured to return to work after a disability, as opposed to collecting benefits when he or she is capable of returning to work.

Answer 532

A

A. Adverse selection.

If an insurer issues a group health insurance policy, they must cover everyone in the group under the master contract. Group underwriting is designed to avoid adverse selection.

Answer 533

A

B. 12

Long-term care policies, which can be marketed in the form of individual policies, group policies, or as riders to life insurance policies, provide coverage for individuals who are no longer able to live an independent lifestyle and require living assistance at home or in a nursing home facility. They must provide coverage for at least 12 consecutive months in a setting other than an acute care unit of a hospital.

Answer 534

A

C. They are available for an additional premium.

Optional benefits, such as guarantee of insurability and return of premium, are available with Long-Term Care policies for an additional premium.

Answer 535

A

A. Provide medical services only from physicians in the network

A Preferred Provider Organization attempts to provide subscribers with a choice of health care providers while effecting some cost-savings by contracting with providers for such services.

Answer 536

A

A. Key employee disability insurance.

The business is the contract holder and would receive benefits if a specified key employee became disabled.

Answer 537

A

A. First dollar

First-dollar coverages do not require the insured to pay a deductible.

Answer 538

A

A. Attending physician

Home health care is care provided in one’s home and could include occasional visits to the person’s home by registered nurses, licensed practical nurses, licensed vocational nurses, or community-based organizations like hospice. Home health care might include physical therapy and some custodial care such as meal preparations.

Answer 539

A

C. PPO

PPOs contract on a Fee-for-service basis.

Answer 540

A

B. The insured is not required to pay a deductible.

The three basic types of coverage (hospital, surgical, and medical) are often referred to as first-dollar coverage because they usually do not require the insured to pay a deductible.

Answer 541

A

D. Elimination period.

The elimination period is the time immediately following the start of a disability when benefits are not payable. This is used to reduce the cost of providing coverage and eliminates the filing of many claims.

Answer 542

A

A. Replace income lost due to a disability.

Disability income insurance is designed to replace income loss because the insured is disabled.

Answer 543

A

D. $120 a day

Answer 544

A

D. Broader in general.

A policy that uses the accidental bodily injury definition will provide broader coverage than a policy that uses the accidental means definition.

Answer 545

A

D. The individual member

When an individual becomes a member of the HMO, he or she will choose a primary care physician. Once chosen, the primary care physician will be regularly compensated for being responsible for the care of that member.

Answer 546

A

C. It does not have limits on contributions.

A Flexible Spending Account (FSA) is a form of cafeteria plan benefit funded by salary reduction. The employees are allowed to deposit a certain amount of their paycheck into an account before paying income taxes. FSA benefits are subject to annual maximum and “use-or-lose” rule.

Answer 547

A

C. The elimination period.

The elimination period is a waiting period, expressed in days, not dollars, imposed on the insured from the onset of disability until benefit payments commence.

Answer 548

A

C. Premiums are deductible, and benefits are taxed.

The premiums paid for BOE insurance are tax deductible to the business as a business expense. However, the benefits received are taxable to the business as received.

Answer 549

A

B. The first day of disability and the day the insured starts receiving benefits.

The elimination, or waiting, period starts at the onset of a disability claim and is the period of time the insured must wait before benefits start.

Answer 550

A

B. Control specialist costs.

Initially the member chooses a primary care physician, or gatekeeper. If the member needs the attention of a specialist, the primary care physician must refer the member. This helps keep the member away from the higher priced specialists unless it is truly necessary.

Answer 551

A

C. Elimination period.

On disability income insurance, the time between the onset of an injury or sickness and the time benefits is known as the waiting or elimination period.

Answer 552

A

C. Alzheimer’s disease.

While normally mentally and nervous disorders or disease are excluded in long-term care policies, Alzheimer’s disease is not. The rest are all possible exclusions.

Answer 553

A

B. 15-day waiting period / 10-year benefit period

The waiting, or elimination, period is the time from the onset of disability the insured must wait before becoming eligible for benefits. The shorter the waiting period, the higher the premium.

After the insured satisfies the waiting period, they will receive benefits from the insurer for a limited benefit period. The longer the benefit period, the higher the premium.

A disability income policy that includes the shortest waiting period and the longest benefit period would be most expensive.

Answer 554

A

C. Relief for a major care giver

Respite Care is designed to provide relief to the family care giver, and can include a service such as someone coming to the home while the care giver takes a nap or goes out for a while. Adult day care centers also provide this type of relief for the caregiver.

Answer 555

A

D. The extent of benefits is determined by the insured’s income.

Group plans usually specify the benefits based on a percentage of the worker’s income. Group long-term plans provide monthly benefits usually limited to 60% of the individual’s income.

Answer 556

A

D. Conversion factor

In order to determine the amount payable for a given procedure, the assigned points (relative value) of 200 are multiplied by a conversion factor. This conversion factor represents the total amount payable per point. For example, if the conversion factor is $10 and the point value is 200, the policy would pay $2,000 for the procedure (200 x 10).

Answer 557

A

D. Coverage is unlimited.

Basic Surgical Expense Coverage is commonly written in conjunction with Hospital Expense policies. These policies pay for the costs of surgeons’ services, whether the surgery is performed in or out of the hospital. Coverage includes surgeons’ fees, anesthesiologist, and the operating room when it is not covered as a miscellaneous medical item. As with the other types of basic medical expense coverage, there is no deductible, but coverage is limited.

Answer 558

A

B. Coverage applies both on and off the job.

Employees who are injured on the job are covered by Workers Compensation insurance. Group Disability Income insurance is designed to cover employees only while they are off the job, so the coverage is considered to be nonoccupational in nature.

Answer 559

A

A. Surgeon’s services

Basic medical expense coverage offers a wide range of limited benefits that typically result in high out-of-pocket costs. Basic medical expense coverage provides coverage for nonsurgical services a physician provides and can be used for emergency accident benefits, maternity benefits, mental and nervous disorders, hospice care, home health care, outpatient care, and nurses’ expenses.

Answer 560

A

D. The attending physician will be paid a fee for service, but the member patient will have to pay a higher coinsurance amount.

If a non-member physician is utilized under the Point-Of-Service plan, then the attending physician will be paid fee for service, but the member patient will have to pay a higher coinsurance amount or percentage for the privilege.

Answer 561

A

B. Reimbursement

Traditionally the insurance companies have provided the financing while the doctors and hospitals have provided the care. The HMO concept is unique in that the HMO provides both the financing and the patient care for its members. The HMO provides benefits in the form of services rather than in the form of reimbursement for the services of the physician or hospital.

Answer 562

A

A. Diagnostic and preventive care

Dental expense insurance is a form of medical expense health insurance that covers the treatment, care and prevention of dental disease and injury to the insured’s teeth. An important feature of a dental insurance plan which is typically not found in a medical expense insurance plan is the inclusion of diagnostic and preventive care (teeth cleaning, fluoride treatment, etc.).

Answer 563

A

B. Gets higher.

LTC policies also define the benefit period for how long coverage applies, after the elimination period. The benefit period is usually 2 to 5 years, with a few policies offering lifetime coverage. Obviously the longer the benefit period, the higher the premium will be; and the shorter the elimination period, the higher the premium will be.

Answer 564

A

A. Contracting with insurance companies

HMOs seek to identify medical problems early by providing preventative care. They encourage early treatment and whenever possible provide care on an outpatient basis rather than admitting the member into the hospital. Contracts are between the insured and the HMO, not an insurance company.

Answer 565

A

A. 0%

General disability policies do not cover losses caused by war, military service, intentionally self-inflicted injuries, overseas residence, or injuries suffered while committing or attempting to commit a felony.

Answer 566

A

B. High-deductible health plan.

To be eligible for an HSA, an individual must be covered by a high-deductible health plan.

Answer 567

A

A. Hospital, Surgical, Medical

Basic medical policies and major medical policies are commonly grouped into medical expense insurance. The three basic coverages are hospital, surgical, and medical, and may be purchased separately or as a package.

Answer 568

A

D. No coverage will apply, since the injury could have been foreseen.

An accidental means clause states that if the insured meant to do whatever caused their injury, no coverage applies since the resulting injury should have been foreseen.

Answer 569

A

B. Elective services

HMOs emphasize preventive health care as a method of reducing medical expenses by early detection of health problems before they may require more costly treatment.

Answer 570

A

D. All of the above are correct.

In a PPO, the insured does not have to select a primary care physician (PCP). Conversely, in a PPO, all network providers are considered “preferred,” and you can visit any of them, even specialists, without first seeing a PCP. Certain services may require plan precertification, an evaluation of the medical necessity of inpatient admissions and the number of days required to treat your condition.

Answer 571

A

B. Number of family dependents.

Long-Term Care policies can vary in the number of days of confinement covered, the number of home health visits covered, the amount paid for nursing home care, and other contract provisions.

Answer 572

A

C. Disability buyout

The disability buyout agreement specifies who will purchase a disabled partner’s interest and legally obligates that person or party to purchase such interest upon disability.

Answer 573

A

B. Nothing; illness is not covered during the first 20 days of the contract.

Loss by illness is not covered if it occurs during the probationary period.

Answer 574

A

D. Corridor

The basic expense policy will provide coverage on a first-dollar basis (no deductible). After the limits of the basic policy are exhausted, the insured must pay a corridor deductible before the major medical coverage will pay benefits. The corridor deductible derives its name from the fact that it is applied between the basic coverage and the major medical coverage.

Answer 575

A

C. Loss of two limbs

Presumptive disability is a provision that is found in most disability income policies that specifies conditions that will automatically qualify the insured for full disability benefits, such as the loss of two limbs.

Answer 576

A

B. A member of an HMO can receive care in or out of the HMO service area, but care is preferred in the service area.

Emergency care must be provided for the member in or out of the HMO’s service area. If emergency care is being provided for a member outside of the service area, the HMO will be eager to get the member back into the service area so that care can be provided by salaried member physicians.

Answer 577

A

B. Yes, and they may use any preferred physician, even if not part of the HMO

In a POS plan the individuals can visit an in-network provider at their discretion. If they decide to use an out-of-network physician, they may do so.

Answer 578

A

A. POS

Point-of-Service (POS) plans are a combination if HMOs and PPOs.

Answer 579

A

D. Allison is insured by a High Deductible Health Plan (HDHP)

To be eligible for a Health Savings Account, an individual must be covered by a High Deductible Health Plan (HDHP), must not be covered by other health insurance except for specific injury, accident, disability, dental care, vision care, or long-term care insurance, must not be eligible for Medicare, and can’t be claimed as a dependent on someone else’s tax return.

Answer 580

A

C. It allows guaranteed acceptance of all applicants.

A different choice can be made every time a need arises for medical services.

Answer 581

A

D. Loss of the owner’s income.

If business owners want coverage for the loss of their own income due to total disability, they need to purchase a separate individual disability income policy.

Answer 582

A

C. Agree to follow the PPO standards and charge the appropriate fees.

Any physician or hospital that qualifies for and agrees to follow the PPO’s standards and charges the established fees can be added to the PPO’s approved list at any time. The providers may withdraw their name from the list at any time, as well.

Answer 583

A

D. 65

After age 65, a withdrawal from an HSA used for nonhealth purposes will be without a penalty, although taxed.

Answer 584

A

B. Employers are no longer forced to offer HMO plans.

The HMO Act of 1973 forced employers with more than 25 employees to offer an HMO plan as an alternative to their regular health plans. The part of the act requiring dual choice has expired and has not been reinstated.

Answer 585

A

D. Geographic areas

The HMO offers services to those living within specific geographic boundaries (for example, along county lines). Persons who live within the boundaries eligible to belong to the HMO, but if they do not live within the boundaries, they are ineligible.

Answer 586

A

D. Jeremy had to have both legs amputated, but has learned how to take care of himself and to get around in a wheelchair.

Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves.

Answer 587

A

D. During the open enrollment period

FSA benefits may be changed during open enrollment, unless the circumstances are deemed a Qualified Life Event.

Answer 588

A

C. Surgeons’ fees

Hospital expense policies cover hospital room and board, and miscellaneous hospital expenses, such as lab and x-ray charges, medicines, use of operating room and supplies, while the insured is confined in a hospital.

Answer 589

A

C. Tax deductible.

Contributions to HSAs by individuals are deductible, even if the taxpayer does not itemize. Contributions by an employer are not included in the individual’s taxable income.

Answer 590

A

A. There will be a tax.

An HSA holder who uses the money for a nonhealth expenditure pays tax on it, plus a 20% penalty. After age 65, a withdrawal is used for a nonhealth purpose will be taxed, but not penalized.

Answer 591

A

B. 12 months

It is common in most vision expense insurance plans to restrict benefits to one exam and one pair of glasses in any 12-month period.

Answer 592

A

B. Pay a special deductible on his major medical policy

Before a major medical policy pays benefits not covered under an exhausted basic medical policy, the insured must pay a corridor deductible.

Answer 593

A

D. Gatekeeper

The HMO subscriber must choose a primary care physician (PCP) who acts as a gatekeeper. If the member needs the attention of a specialist, the PCP must make a referral. This helps the member avoid higher priced specialists unless it is truly necessary.

Answer 594

A

D. Principal sum

AD&D coverage only pays for accidental losses and is thus considered a pure form of accident insurance. The principal sum is paid for accidental death. In case of loss of sight or accidental dismemberment, a percentage of that principal sum will be paid by the policy, often referred to as the capital sum.

Answer 595

A

A. Death benefits are paid only if death occurs within 24 hours of an accident.

Under an AD&D insurance policy, the death benefit will be paid if the accidental death occurs within 90 days of the accident, not 24 hours.

Answer 596

A

D. The PPO will pay reduced benefits.

The group health plan will not pay the full amount charged by the non-PPO doctor.

Answer 597

A

C. Usual, customary, and reasonable.

The usual, customary, and reasonable approach for determining insurance benefits is based upon the fees normally charged for specific procedures in the geographic location where the services are provided.

Answer 598

A

D. Rates by class

On a guaranteed renewable health insurance policy, the insurer may increase premiums on a class basis only and not on an individual policy.

Answer 599

A

D. Claim is denied if his policy contains the Illegal Occupation provision.

This optional provision specifically excludes coverage for injuries incurred while performing an illegal act. The insurer will not be liable for any loss to which a contributing cause was the insured’s commission of or an attempt to commit a felony or to which a contributing cause was the insured’s being engaged in an illegal occupation.

Answer 600

A

D. It allows the insured to return the policy within 10 days for a full refund of premiums if dissatisfied for any reason.

Free look is a mandatory provision found in all life/health policies that allows the insured to return the policy within a specified number of days and receive a full refund of premium if dissatisfied with the policy for any reason.

Answer 601

A

B. The longer the elimination period, the lower the cost of coverage.

The “elimination period” is a period of days which must expire after the onset of an illness or occurrence of an accident before benefits will be payable. The longer the elimination period is, the lower the cost of coverage will be.

Answer 602

A

A. Disability income

A waiver of premium rider generally is included with guaranteed renewable and noncancelable individual income policies. It is a valuable provision because it exempts the insured from paying the policy’s premium during periods of total disability.

Answer 603

A

A. Immediately

Coverage for accidents is immediate when reinstatement occurs, but coverage for sickness may have a waiting period of about 10 days.

Answer 604

A

D. Impairment rider

The impairment rider excludes a specified condition from coverage, therefore, reducing benefits. An insurance company will not charge extra for a rider that reduces benefits.

Answer 605

A

D. Is renewable at the insured’s option to a specified age.

Guaranteed renewable means that the insured has the right to keep the policy until a specific age; however, while the insurer cannot increase the rates on an individual basis, the insurer can increase the rates for all insureds by class.

Answer 606

A

B. The insurer may terminate the contract only at renewal for certain conditions.

The insurance company cannot cancel a noncancellable policy, nor can the premium be increased beyond what is stated in the policy. The insured has the right to renew the policy for the life of the contract; however, the guarantee to renew coverage usually only applies until the insured reaches age 65.

Answer 607

A

B. An independent examination as often as reasonably required.

While a claim is pending, an insurance company may require an independent exam as often as reasonably required.

Answer 608

A

C. Promising to pay in accordance with the contract terms

The consideration clause requires the insurer to promise to pay in accordance to the terms stated in the contract.

Answer 609

A

D. Unlimited

The Physical Exam and Autopsy provision allows the insurer to examine the insured as much as is reasonably necessary while the claim is being processed, provided that the insurer pays the expenses.

Answer 610

A

D. The larger the percentage that is paid by the insured, the lower the required premium will be.

After the insured satisfies the policy deductible, the insurance company will usually pay the majority of the expenses – typically 80% – with the insured paying the remaining 20%. Other coinsurance arrangements exist, such as 90%/10%; 75%/25%; or 50%/50%. When the insured retains a larger share of the risk, they will pay a lower premium.

Answer 611

A

A. Monthly.

If a claim involves disability income benefits, the policy must pay those benefits not less frequently than monthly. In all other cases, the company may specify the time period of 45 or 60 days for payment of claims.

Answer 612

A

C. The insurer can increase the policy premium on an individual basis.

Guaranteed renewable provision has all the same features that the noncancellable provision does, with the exception that the insurer can increase the policy premium on the policy anniversary date. However, the premiums can only be increased on a class basis, not on an individual policy.

Answer 613

A

C. Adjust the benefit in accordance with the decreased risk.

Change of occupation provision allows the insurer to adjust benefits if the insured changes occupations.

Answer 614

A

C. Copayment is a set dollar amount.

With both, copayment and coinsurance provisions, the insured shares part of the cost for services with the insurer. Unlike coinsurance, a copayment has a set dollar amount that the insured will pay each time certain medical services are used.

Answer 615

A

D. They can be changed only with the written consent of that beneficiary.

Once an irrevocable beneficiary is shown for the policy, it requires his or her written consent to change.

Answer 616

A

A. To help the insurance company to prevent overutilization of the policy.

The purpose of the coinsurance provision is for the insurance company to control costs and discourage overutilization of the policy.

Answer 617

A

D. A right to return the policy for a full premium refund.

The free-look period is a mandatory provision found in health insurance policies that allows the applicant to examine the policy and if dissatisfied for any reason, return the policy for a full refund.

Answer 618

A

A. Free Look Period

The Free Look provision allows a policyholder 10 days after the policy is delivered in which to decide whether or not he/she wants the policy. If the policyholder decides to return the policy within this period, he/she receives a full refund of all premiums paid.

Answer 619

A

A. Time of Payment of Claims

The Time of Payment of Claims provision specifies that claims are to be paid immediately upon written proof of loss.

Answer 620

A

D. 50/50

After the deductible has been paid, the insurance company will pay a specified amount for a physician’s visit, while the insured pays the remaining percentage. This is called “coinsurance”. Plans will often be listed in a fraction format, with the first number representing the amount that will be paid by the insurer. The less the insurer must pay with coinsurance payments, the lower the premiums will be. Therefore, Ray should choose the 50/50 plan.

Answer 621

A

A. The method of premium payment.

The insuring clause, usually on the first page of the policy, is the general statement that defines the insurance agreement and identifies the insured and the insurance company and states what kind of loss (peril) is covered.

Answer 622

A

C. Unearned premiums are retained by the insurance company.

This rider allows the insurer to cancel the policy at any time, or at the end of the policy period. Any unearned premium must be returned to the policyholder. If the insurer cancels, the unearned premium will be returned on a pro rata basis.

Answer 623

A

D. Cancellable

A cancellable policy may be canceled at any time with proper written notice from the insurer and a refund of any unearned premium. The insurer must continue to honor any claims submitted before the cancellation date.

Answer 624

A

D. To renew the policy until the insured has reached age 65.

The guaranteed renewable provision is similar to the noncancellable provision, with the exception that the insurer can increase the policy premium on the policy anniversary date. As with the noncancellable policy, coverage is generally not renewable beyond the insured’s age 65.

Answer 625

A

A. The insured is in an accident and incurs a large claim.

The company may not cancel coverage due to covered claims. All the rest are allowable reasons for an insurer to terminate the contract.

Answer 626

A

C. Time of Payment of Claims

The Time Payment of Claims provision requires that claims will be paid immediately upon receipt of proofs of loss except for periodic payments, which are to be paid as specified in the policy.

Answer 627

A

B. Pay the claim.

Because the accident occurred during the grace period, the insurance company will pay the claim.

Answer 628

A

A. Attained age.

The premium charged for the increase will be based upon the attained age of the insured.

Answer 629

A

A. Insurer to the insured

Upon receipt of a notice of claim, the company must supply claims forms to the insured within a specified number of days.

Answer 630

A

C. Waiver of Premium rider.

The Waiver of Premium rider causes the insurer to waive future premiums when an accident or disease causes a disability lasting at least six months.

Answer 631

A

C. Insuring clause.

The insuring clause is a provision on the first page of the policy that states the coverage and when it applies.

Answer 632

A

C. Amounts payable under the policy will reflect the insured’s correct age.

If an insured misstates his or her age upon policy application, the optional misstatement of age provision will change the payable benefit to that which would have been purchased at the insured’s actual age.

Answer 633

A

C. Stop-Loss Limit

A “stop-loss limit” is a specified dollar amount beyond which the insured no longer participates in the sharing of expenses.

Answer 634

A

C. A specified dollar amount that the insured must pay first before the insurance company will pay the policy benefits.

The purpose of a deductible is to have the insured absorb the smaller claims, while the coverage provided under the policy will absorb the larger claims. The higher the deductible, the lower the premium.

Answer 635

A

A. Entire contract.

The policy, together with the attached application, constitutes the entire contract. This provision limits the use of evidence other than the contract and the attached application in a test of the contract’s validity. This is a mandatory provision in life insurance.

Answer 636

A

B. A reinstated policy provides immediate coverage for an illness.

Accidental injury is covered immediately, but to protect the insurer against adverse selection, losses resulting from sickness are covered only if the sickness occurs at least 10 days after the reinstatement date.

Answer 637

A

D. Coverage for dependents

Most medical expense policies will not cover expenses for dental care, self-inflicted injuries, or injuries incurred as a result of military service (among other exclusions). Most policies include coverage for dependents.

Answer 638

A

B. The insured may carry over the amount of this year’s expenses to next year, which will help satisfy next year’s deductible.

Under the carry over provision, if the insured did not incur sufficient medical costs during the year to meet the deductible, any medical expenses incurred during the last three months may be carried forward to the next year, offsetting the total deductible costs for that year.

Answer 639

A

D. Coinsurance.

The larger the percentage that is paid by the insured, the lower the required premium will be.

Answer 640

A

C. The policy will not lapse for 31 days if the premium is not paid when due.

A mandatory provision of life insurance policies requires that a grace period be provided. The grace period is the period of time after the premium due date in which premiums may still be paid before the policy lapses for nonpayment of the premium.

Answer 641

A

A. Adjust the benefit in accordance with the increased risk.

A part of the premium rating concerns the hazard of occupation.

Answer 642

A

A. Entire contract clause.

Entire contract is a mandatory provision that is required by law.

Answer 643

A

D. As long as the policy is in force

An insurer can contest a fraudulent misstatement as long as the policy is in force. No other statement or misstatement made in the application at the time of issue will be used to deny a claim after the policy has been in force for 2 years.

Answer 644

A

B. The insured was in compliance with the policy requirements regarding claims.

If claims forms are not furnished to the insured, the claimant is deemed to have complied with the requirements of the policy if he or she submits written proof of the occurrence, nature of the loss, and extent of loss to the insurer.

Answer 645

A

D. Legal actions.

This mandatory provision requires that no legal action to collect benefits may be started sooner than 60 days after the proof of loss is filed with the insurer. This gives the insurer time to evaluate the claim.

Answer 646

A

B. Consideration Clause.

The consideration clause specifies that both parties to the contract must give some valuable consideration. The payment of the premium is the consideration given by the applicant. Because the applicant had not paid an initial premium, she is not covered by insurance.

Answer 647

A

A. Policyholder to renew the policy to a stated age, with the company having the right to increase premiums on the entire class.

Coverage is guaranteed, but rates can be adjusted for the entire class.

Answer 648

A

D. 90 days of a loss.

Under the Uniform Required Provisions, proof of loss under a health insurance policy normally should be filed within 90 days of a loss.

Answer 649

A

C. The mode of the premium payment

The grace period is 7 days on a policy with a weekly premium mode; 10 days if a monthly premium mode; 31 days on other premium modes.

Answer 650

A

C. Notice of Claim

The Notice of Claim Provision spells out the insured’s duty to provide the insurer with reasonable notice in the event of a loss.

Answer 651

A

D. Stop-loss limit

A “stop-loss limit” is a specified dollar amount beyond which the insured no longer participates in the sharing of expenses.

Answer 652

A

C. $900 (deductible + 20% of the bill after the deductible [20% of $2,000])

L would first pay the $500 deductible; out of the remaining $2,000, the insurer will pay 80% ($1,600) and the insured will pay 20% ($400).

Answer 653

A

D. The insured.

Payments for loss of life benefits are to be made to the designated beneficiary. If no beneficiary has been named, payment proceeds are to be paid to the deceased insured’s estate. Claims other than death benefits are to be paid to the insured or the insured’s estate, unless otherwise assigned by the insured.

Answer 654

A

B. Join the group after the effective date.

The probationary period is the waiting period new employees must satisfy before becoming eligible for benefits.

Answer 655

A

C. The insurer is considered to be notified since the notification to agent equals notification to the insurer.

Notice to the agent equals notice to the insurer. The agent is the insurer’s representative.

Answer 656

A

B. Payment of premium

The two types of consideration on the part of an insurance applicant are payment of premiums and representations on the application.

Answer 657

A

A. Adjust the claim benefit to reflect the insured’s true age

The Misstatement of Age provision says that if a client has misstated her age, whether intentional or unintentional, they will adjust the benefit being paid. It doesn’t matter when the mistake was found.

Answer 658

A

C. A list of available doctors

The Insuring Clause lists the insured, the insurance company, what kind of losses are covered, and for how much the losses would be compensated.

Answer 659

A

A. Payment of Claims

The Payment of Claims provision states that the claims must be paid to the policyowner, unless the death proceeds need to be paid to a beneficiary.

Answer 660

A

D. Is not covered.

An insurance company will pay the usual, reasonable, or customary amount for a given procedure based upon the average charge for that procedure.

Answer 661

A

A. Physical examination and autopsy

Physical examination and autopsy is a mandatory provision required by law. The other answer choices are optional provisions.

Answer 662

A

D. Within 90 days or as soon as reasonably possible, but not to exceed 1 year

The “proof of loss” provision states the claimant must submit a proof of loss within 90 days; however, if it is not possible to comply, the time parameter is extended to 1 year. The one-year limit does not apply if the claimant is not legally competent to comply with this provision.

Answer 663

A

B. Insurer’s executive officer

Only an executive officer of the company, not an agent, has authority to make any changes to the policy. The insurer must have the insured’s written agreement to the change.

Answer 664

A

A. A statement that is sufficiently clear to identify the insured and the nature of the claim.

The Insurance Code requires that each policy must include, “Written notice of claim must be given to the insurer within 20 days after the occurrence or commencement of any loss covered by the policy, or as soon thereafter as is reasonably possible”.

Answer 665

A

B. 10 days

The grace period is 7 days of the premium is paid weekly, 10 days if paid monthly, and 31 days for all other modes.

Answer 666

A

D. 24 months.

The relation of earnings to insurance provision allows the insurance company to limit the insured’s benefits to his/her average income over the last 24 months.

Answer 667

A

D. 90 days of a loss.

Under the Uniform Required Provisions, proof of loss under a health insurance policy normally should be filed within 990 days of a loss.

Answer 668

A

D. Renewal provision

Renewability provisions are included in each health insurance contract and outlines both the insurer’s and insured’s right to cancel or renew coverage. This is considered to be a very important provision required by HIPAA, the federal Health Insurance Portability and Accountability Act of 1996.

Answer 669

A

C. Income assistance for work-related injury.

Medicaid covers a variety of medical costs, from eyeglasses to hospitalization.

Answer 670

A

A. Part A.

Medicare Part A pays for these services, subject to copayments and limitations on the number of days of care.

Answer 671

A

B. All providers will have the same coverage options and conditions for each plan.

In reference to the standard Medicare Supplement benefits plans, the term “standard” implies that all providers will have the same coverage options and conditions for each plan.

Answer 672

A

A. Parts A and B of Medicare

To buy a Medigap policy, the applicant must generally have both Medicare Part A and Part B.

Answer 673

A

D. The terminally ill.

Under certain conditions, hospital insurance can help pay for hospice care for terminally ill insureds, if the care is provided by a Medicare-certified hospice.

Answer 674

A

A. It is fully funded by Social Security taxes (FICA).

Part B is funded by monthly premiums and from the general revenues of the federal government.

Answer 675

A

A. Disability expected to last for at least 6 months.

For the purposes of obtaining benefits, the Social Security Act defines disability as inability to engage in any gainful employment due to a medically determinable physical or mental impairment that is expected to result in death or last for a continuous period of 12 months.

Answer 676

A

B. Medicare Part A.

To receive Medicare prescription drug benefits, beneficiaries must sign up with a plan offering this coverage in their area and must be enrolled in Medicare Part A or in Parts A and B.

Answer 677

A

C. Medicare Part C.

Medicare consists of Hospital Insurance protection (Part A), Medical Insurance protection (Part B), and Medicare Advantage (Part C) (formerly known as Medicare+Choice). Medicare Part D is a “stand alone” drug insurance policy for persons who need the coverage and are eligible for Medicare Part and/or Part B.

Answer 678

A

C. To be eligible, one must meet certain requirements.

A person must have been employed in a job that is covered under Social Security, or the spouse of a deceased covered worker.

Answer 679

A

B. The individual’s son gets a part-time job to help support the family.

Benefits cease the individual reaches age 65, dies, or is no longer disabled. If a person has been receiving Social Security disability benefits at the time that he or she turns age 65, the disability benefits cease, and are replaced by Social Security retirement benefits. At death, family benefits will continue as survivor benefits. Benefits will continue for an adjustment period of three months if an individual no longer satisfies the definition of disability.

Answer 680

A

C. Have accumulated 6 work credits in the past 3 years.

To qualify for disability benefits under SS, the disabled person must have earned a certain amount of work credits. A maximum of 4 work credits can be earned each year. The amount of credits required varies by age. Persons disabled before the age of 24 can qualify for SS benefits with only 6 work credits earned in the 3 years prior to the start of the disability.

Answer 681

A

B. Worker’s occupation

A worker’s specific occupation is not a factor in determining benefits, so long as the worker has earned the required amount of work credits.

Answer 682

A

B. 20

Following hospitalization for at least three days, if medically necessary, Medicare pays for all covered services during the first 20 days in a skilled nursing facility. Days 21 through 100 require a daily copayment.

Answer 683

A

A. Physician’s and surgeon’s services.

Physician’s and surgeon’s services are covered under Part B.

Answer 684

A

B. Long-term care

Hospice care, which includes respite care, and hospital care are included in Medicare Part A.

Answer 685

A

C. 5 Months

Under SS disability benefits, a person will have to wait five months before any benefits will be paid. Actual benefit payments start with the sixth month of disability.

Answer 686

A

B. It consists of 3 parts: Part 1: hospitalization, Part B: doctor’s services, Part C: disability income.

Medicaid is a state program funded by state and federal taxes that provide medical care of the needy. Parts A-C are part of Medicare.

Answer 687

A

A. It is solely a federally administered program.

Medicaid is assistance program for persons with insufficient income and/or resources to pay for health care. States administer the program that is financed by federal and state funds.

Answer 688

A

B. The Medicare Part A deductible

Medicare Supplement Plan A provides the core, or basic, benefits established by law. All of the above are part of the basic benefits, except for the Medicare Part A deductible, which is a benefit offered through nine other plans.

Answer 689

A

C. Offer the supplement policy on a guaranteed issue basis.

Once a person becomes eligible for Medicare supplement plans, and during the open enrollment period, coverage must be offered on a guaranteed issue basis.

Answer 690

A

B. Fully insured status

SS Disability benefits are available only if the worker is fully insured. Benefits are provided only after a 5-month waiting period.

Answer 691

A

A. All plans

The benefits in Plan A are considered to be core benefits and must be included in the other types. Therefore, all types contain the core benefits offered by Plan A.

Answer 692

A

C. First 3

Medicare supplemental policies cover costs of deductibles and coinsurance for Parts A and B. Since Medicare will not pay for the first 3 pints of blood, a Medicare Supplement plan will cover that. This is considered to be a core benefit.

Answer 693

A

A. Part B coverage is provided free of charge when an individual turns age 65.

Those who desire Part B coverage must enroll and pay a monthly premium.

Answer 694

A

A. 20% of covered charges above the deductible

After the deductible, Part B will pay 80% of covered expenses, subject to Medicare’s standards for reasonable charges.

Answer 695

A

D. 25%

Once the initial benefit limit is reached, an insured is only responsible for 25% of the prescription drug cost. This percentage applies to generic and brand name drugs.

Answer 696

A

B. They cover the cost of extended nursing home care.

Medicare supplement policies (Medigap) do not cover the cost of extended nursing home care. Medigap plans are designed to fill the gap in coverage attributable to Medicare’s deductibles, copayment requirements, and benefit periods. These plans are issued by private insurance companies.

Answer 697

A

D. Nothing

Nothing needs to be done in this case. Medicare Part A and B will automatically be effective the month you turn 65.

Answer 698

A

C. Medicaid

Medicaid is a “needs” tested program administered by the states to provide assistance to persons who are not able to provide for themselves.

Answer 699

A

C. Guaranteed renewable

Medicare supplements must be at least guaranteed renewable.

Answer 700

A

D. Medicare Part A is automatically provided when an individual qualifies for Social Security benefits at age 65.

Workers who have paid FICA taxes automatically qualify for Medicare Part A at age 65. Part A has been prepaid through the FICA taxes. Workers who qualify for Part A are also eligible for Part B; however, it requires that a monthly premium is withheld from SS benefits.

Answer 701

A

B. Medicaid is a state funded program that provides health care to persons over age 65, only.

Medicaid is a government funded (both state and federal) program designed to provide health care to poor people of all ages.

Answer 702

A

C. 6 months

An open enrollment period is a 6-month period that guarantees the applicants the right to buy Medigap once they first sign up for Medicare Part B.

Answer 703

A

D. It is a compulsory program.

Part B is elective. Individuals become eligible for Part B at the same time they become eligible for Part A, however Part B requires that a monthly premium be paid.

Answer 704

A

C. Outpatient Hospital Treatment

Outpatient treatment is covered under Part B.

Answer 705

A

D. Need.

Medicaid is a program operated by the state, with some federal funding, to provide medical care for those in need.

Answer 706

A

A. Cosmetic surgery

Cosmetic surgery is excluded from coverage by Medicare.

Answer 707

A

B. 12 credits

Persons disable between ages 24 and 31 can qualify for benefits if they have credit for having worked half of the time between age 21 and the start of the disability. For example, if Joe becomes disabled at age 27, he would need 12 credits (or 3 years’ worth) out of the prior 6 years (between ages 21 and 27).

Answer 708

A

C. Prescription drug benefit.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) was passed in November 2003. This act implemented a plan to add a Part D - Prescription Drug Benefit to the standard Medicare Coverages.

Answer 709

A

C. It pays for physician services, diagnostic tests, and physical therapy.

For those who have purchased the coverage, Part B pays 80% of out-patient medical cost after a deductible has been met. Part B covers physician and outpatient hospital services, and other medical and health services, such as diagnostic tests, and physical therapy.

Answer 710

A

B. Old Age, Survivors, and Disability Insurance

SS benefits are also known as Old Age, Survivors, and Disability Insurance (OASDI).

Answer 711

A

A. A retired person age 50.

Under the current federal laws, any of the described persons could qualify for Medicare, except for individuals under age 65 who have no special circumstances.

Answer 712

A

A. Anyone who is willing to pay a premium.

For Medicare Part A, a person must be age 65 or otherwise qualify.

Answer 713

A

A. Elective cosmetic procedures are covered.

There advantages of an HMO or PPO for a Medicare recipient may be that there are no claims forms required, almost any medical problem is covered for a set fee so health care costs can be budgeted, and the HMO or PPO may pay for services not usually covered my Medicare or Medicare supplement policies, such as prescriptions, eye exams, hearing aids, or dental care.

Answer 714

A

C. Automatic enrollment

There are 3 types of enrollment periods for Medicare Part A: initial enrollment period, general enrollment period, and special enrollment period.

Answer 715

A

B. 20% of covered charges above the deductible

As established by Medicare, the patient must pay 20% of covered charges above the deductible.

Answer 716

A

D. 100

Treatment in a skilled nursing facility is covered in full for the first 20 days. From days 21 to 100, the patient must pay the daily copayment. There are no Medicare benefits provided for treatment in a skilled nursing facility beyond 100 days.

Answer 717

A

C. The individual must be at least 65 years old.

It is difficult to receive Social Security disability benefits. Prospective recipients must have a particular insured status and satisfy a waiting period. Recipients must also meet a strict definition of total disability, making qualifying for benefits difficult.

Answer 718

A

A. Routine dental care

Medicare Part B covers dental expense resulting from an accident only.

Answer 719

A

B. Medicare Advantage must be provided through HMOs.

Medicare Part A provides hospital care; Medicare Part B provides doctors and physician services, and Medicare Advantage (previously Medicare+Choice) offers expanded benefits for a fee through private health insurance programs such as HMOs and PPOs.

Answer 720

A

B. Plan A

In order to standardize the coverage provided under Medicare supplement policies, the NAIC has developed standard Medicare Supplement benefit plans which are identified with the letters A through N. The benefits in Plan A are considered to be core benefits and must be included in the other types.

Answer 721

A

B. The employer plan is primary coverage, and Medicare is secondary coverage.

Employees age 65 or older will be covered under their employer’s health insurance plans, regardless of age. Although employees are still eligible for Medicare at age 65, it will act as secondary insurance to the employer’s health plan. In other words, employer plans continue to be primary coverage, and Medicare is secondary coverage.

Answer 722

A

A. Fully insured status

Social Security Disability benefits are available only if the worker is fully insured. Benefits are provided only after a 5-month waiting period.

Answer 723

A

B. Age 65, regardless of his employment status.

The individual will still be eligible for Medicare at age 65, but if he is still insured under his employer’s group health plan, the group plan will be his primary coverage and Medicare will be secondary coverage.

Answer 724

A

D. Social Security disability benefit

The amount of the Social Security disability benefit will be based on the person’s Primary Insurance Amount (PIA). The PIA is based on the person’s average indexed earnings on which Social Security taxes have been paid.

Answer 725

A

C. The insured must have first been hospitalized for 3 consecutive days.

Part A coverers the cost of care in a skilled nursing facility as long as the patient was first hospitalized for 3 consecutive days, and the services are medically necessary and only up to amounts deemed.

Answer 726

A

D. 100

Treatment in a skilled nursing facility is covered in full for the first 20 days. From days 21 to 100, the patient must pay the daily copayment. There are no Medicare benefits provided for treatment in a skilled nursing facility beyond 100 days.

Answer 727

A

D. HMOs may pay for services not covered by Medicare.

The advantages of an HMO or PPO for a Medicare recipient may be that there are no claims forms required, almost any medical problem is covered for a set fee so health care costs can be budgeted, and the HMO or PPO may pay for services not usually covered by Medicare or Medicare supplement policies, such as prescriptions, eye exams, hearing aids, or dental care.

Answer 728

A

D. Not tax deductible.

Premiums for personally-owned individual disability policies are not deductible.

Answer 729

A

A. A worker receives benefits only if the work related injury was not his/her fault.

Workers Compensation benefits are payable when a worker is injured by a work-related injury, regardless of fault or negligence.

Answer 730

A

A. Managed care

There are 5 distinguishing features of managed care: controlled access to providers, comprehensive case management, risk sharing, preventative care, and high-quality care.

Answer 731

A

D. $12,000, all of which is taxable.

In noncontributory group health plans, the employer pays the entire cost, so the income benefits are included in the employee’s gross income and taxed as ordinary income.

Answer 732

A

C. State government

The state government offers and regulates Workers Compensation benefits, which vary slightly from state to state.

Answer 733

A

D. Benefits are offered by the insurer.

The state government regulates Workers Compensation benefits, which vary slightly from state to state.

Answer 734

A

C. Present earnings and earnings prior to disability

Residual disability will help pay for loss of earnings by making up the difference between the employee’s present earnings and what they were earning prior to disability.

Answer 735

A

D. Any policy that has a death benefit must also have a Change of Beneficiary provision.

Any policy that has a death benefit must also have a Change of Beneficiary provision. This allows the policyowner to change beneficiaries without the original beneficiary’s consent, unless that person was designated as an irrevocable beneficiary.

Answer 736

A

D. Premiums are tax deductible and benefits are not taxed.

Premiums paid by employers for Group Medical Expense insurance are tax deductible for the employer as a business expense. Also, policy benefits paid out to employees are not taxable as income to employees.

Answer 737

A

D. The remaining 4 primary beneficiaries

If multiple primary beneficiaries are named in a policy, each will receive an equal percentage of the death benefit. In this case, since there are four remaining primary beneficiaries, they would receive the death benefit in equal shares. Only if all of the primary beneficiaries die, the contingent beneficiary would receive the entire death benefit.

Answer 738

A

A. 0%

Premiums are paid with after tax dollars. Benefits are not income taxable.

Answer 739

A

D. 100%

Sole proprietors and partners may deduct 100% of the cost of a medical expense plan provided to them and their families because they are considered self-employed individuals, not employees.

Answer 740

A

A. Employee benefits are tax deductible the year in which they were received.

For group medical and dental expense insurance any premium paid by the employer is deductible as a business expense. However, any premiums provided by the employee are only deductible if certain conditions are met. Group medical and dental expense benefits are received income tax free by the employee.

Answer 741

A

B. Work-related disabilities.

All states have workers compensation laws, which were enacted to provide mandatory benefits for employee’s work related injuries, illnesses, or death.

Answer 742

A

B. Subrogation

After the insured accept payment from the insurer, they have been indemnified. Insurance policies require the insured to transfer any right to recovery to the insurer so that they may seek recovery up to the amount they paid as loss.

Answer 743

A

C. Payment is limited to a certain period of time.

The partial disability benefit is typically 50% of the total disability benefit, and is limited to a certain period of time.

Answer 744

A

D. Subrogation.

Subrogation is a provision found in most insurance policies that gives the insurer, after payment of a loss caused by a third party, the insured’s rights to recovery against that third party. The insurer’s rights are only to the extent of the loss payment.

Answer 745

A

C. 7.5%

The law permits deductions for unreimbursed expenses in excess of 7.5% of the adjusted gross income (AGI).

Answer 746

A

A. The benefits will be coordinated.

Benefits will be coordinated when individuals are covered under two or more health plans.

Answer 747

A

C. Any occupation - more restrictive than other definitions.

If total disability is defined as any occupation, it means the coverage will apply only if the insured cannot find any means of income whatsoever. This is more strict than own occupation, where a person merely has to prove that they cannot perform the job for which they were previously trained.

Answer 748

A

C. A person’s ability to work is significantly reduced or eliminated for the rest of his/her life.

While different policies might define “total disability” differently, any definition would imply that under a total disability a person’s ability to work is significantly reduced or eliminated for the rest of his/her life.

Answer 749

A

D. Control health insurance claims expenses.

Managed care is a system of delivering health care and health care services, characterized by arrangements with selected providers, programs of ongoing quality control, and utilization review and financial incentives for members to use providers and procedures covered by the plan.

Answer 750

A

A. When the expenses exceed a certain percentage of the insured’s adjusted gross income

In either medical expense insurance policies or long-term care insurance policies, unreimbursed medical expenses paid for the insured, the insured’s spouse, and dependents may be claimed as deductions if the expenses exceed a certain percentage of the insured’s adjusted gross income.

Answer 751

A

A. Benefits are considered taxable income to the business.

The buy-sell coverage benefits are tax free.

Answer 752

A

B. The more liberal “own occupation”

Total disability is defined differently under some disability income policies. The more liberal “own occupation” definition of disability makes it easier to qualify for benefits.

Answer 753

A

C. The insurance through his company is primary.

The policy that covers the person filing the claim will be considered the primary policy.

Answer 754

A

A. Nonoccupational coverage.

Most group disability income is nonoccupational coverage, covering insured only off the job. The employer carries workers compensation for on the job injuries or sickness.

Answer 755

A

C. Residual disability

A residual disability will pay an amount to make up the difference between what the insured would have earned before the loss.

Answer 756

A

C. Legal benefits

Under Workers Compensation, medical and rehabilitation benefits, income benefits, and death benefits are all included.

Answer 757

A

B. Change of beneficiary

The change of beneficiary mandatory provision allows the policyowner to change the beneficiary designation.

Answer 758

A

C. Totally tax deductible.

Sole proprietors and partners may deduct 100% of the cost of a medical expense plan provided to them and their families because they are considered self-employed individuals, not employees.

Answer 759

A

A. Decreases

Because the insurer would have the entire premium to invest for a full year, they would reduce the premium amount.

Answer 760

A

B. An employee’s group medical benefits are generally exempt from taxation as income.

Group medical and dental benefits are received tax-free to employees. Also, premiums paid by the employer are deductible as business expenses.

Answer 761

A

C. The policyowner has the right to change beneficiaries in any case.

The policyowner has the right to change beneficiaries unless he/she has chosen to have an irrevocable beneficiary. Otherwise, the policyowner can legally change beneficiaries, without the consent of the former beneficiary.

Answer 762

A

B. $500

Once the primary insurer has paid the full available benefit, the secondary insurer will cover what the first company will not pay, such as deductibles and coinsurance. The insured will, then, be reimbursed for out-of-pocket costs.

Answer 763

A

A. Monthly

If the policyowner chooses to pay the premium more frequently than annually, there will be an additional charge (loading) because the company will not have the premium to invest for a full year, and the company will have additional expenses in billing the premium.

Answer 764

A

B. Recurrent disability.

Recurrent disability is the period of time (usually within 3-6 months) during which the recurrence of an injury or illness will be considered as a continuation of a prior period of disability.

Answer 765

A

C. Disability insurance can be written as occupational or nonoccupational.

All disability insurance can be written on either an occupational or nonoccupational basis.

Answer 766

A

D. Deductible by the employer as an ordinary business expense.

Group disability income premium paid by the employer is considered tax deductible by the business as an ordinary business expense. The premium payments are neither taxable nor tax deductible to the employee.

Answer 767

A

C. Disability Income

The part of the benefit that is provided by the employer’s contribution is income taxable to the employee.

Answer 768

A

C. Workers Compensation

Workers Compensation provides employees with medical, income, death, and rehabilitation benefits in the event of work-related injury.

Answer 769

A

C. Whether the premiums were tax deductible

The taxation status of benefits is often determined by whether the premium has been tax deducted.

Answer 770

A

C. 31 days

Every policy providing coverage for a dependent child until a specified age will not terminate that coverage if the child is dependent upon the insured and is incapable of self-support because of physical or mental handicaps. Proof of the dependency is required within 31 days of the child attaining the maximum age.

Answer 771

A

A. Subrogation.

When the insureds accept loss payment from the insurance company, they must transfer their rights to recovery to the insurer. This prevents the insured from collecting twice for the same loss, and allows the insurer to indemnify the insurance company.

Answer 772

A

A. Unlimited access to providers

There are five distinguishing features of managed care: controlled access to providers, comprehensive case management, risk sharing, preventive care, and high-quality care.

Answer 773

A

C. 10%

Most people who itemize their deductions can claim deductions for unreimbursed medical expenses, those that are not covered by health insurance, that exceed 10% of their adjusted gross income.

Answer 774

A

C. $3,000

On partially contributory group disability income insurance, only that portion of the benefits that are related to the premium paid by the employer is taxable to the employee. In this case, because the employer pays 75% of the premium, the employee will be taxed on 75% of the benefits.

Answer 775

A

B. This is a form of insurance that covers part-time workers.

Partial disability covers full-time-working insureds who are unable to perform some, but not all, of their regular job duties or can no longer work full-time, which ultimately results in a loss of income. Payment from partial disability is typically 50% of the total disability benefit.

Answer 776

A

D. 100%

For group medical and dental expense insurance any premium paid by the employer is deductible as a business expense.

Answer 777

A

A. Benefits are taxable to the employer.

Key person disability income premiums are not deductible to the business, but the benefits are received income tax free by the business.

Answer 778

A

B. Premiums are not tax deductible, and benefits are not taxable.

In individual disability income, benefits are not taxable, and premiums are not tax deductible.

Answer 779

A

B. $5,000

Once the primary plan has paid its full promised benefit, the insured submits the claim to the secondary, or excess, provider for any additional benefits payable.

Answer 780

A

C. Business overhead expense

Business overhead expense (BOE) insurance is a unique type of policy that is sold to small business owners who must continue to meet overhead expenses such as rent, utilities, employee salaries, installment purchases, leased equipment, etc., following a disability.

Answer 781

A

C. The group plan will not pay because the employee was injured at work.

Because the employee’s injuries were work related, the group health policy would not respond. The insured would have to rely on worker’s compensation for coverage.

Answer 782

A

C. If paid by the individual, the premiums are tax deductible.

If an individual purchases his or her own disability insurance with before-tax dollars, any benefits paid are tax free, but the premium is not tax deductible.

If an employer pays the premium, the employer may deduct the premium as a business expense. Any benefits paid to an employee are taxable, unless it is for the permanent loss of a body part, or loss of use of a body part.

Answer 783

A

D. Is defined as the frequency and the amount of the premium payment.

The mode refers to the frequency the policyowner pays the premium: monthly, quarterly, semiannually, or annually. The amount of premium will change accordingly.

Answer 784

A

A. When the benefits received are equal or less than the employee’s percentage of the contribution.

Benefits received by the employee that are attributable to his or her portion of the contribution are not taxable as income.

Answer 785

A

C. $50,000

The proprietors of a business may deduct the cost of a medical expense plan because they are considered to be self-employed individuals instead of employees. The deduction cannot legally exceed the taxpayer’s earned income for the year even if the cost of the medical expense plan exceeds this amount (in this scenario, $50,000).

Answer 786

A

B. Are made by the business and are not tax-deductible.

Premiums are nondeductible to the business; however, benefits are received tax-free by the business.

Answer 787

A

C. “Own occupation” - less restrictive than other definitions

In theory, the brain surgeon could find other work, but because her disability income policy specifies that she is covered for her own occupation, she would be wholly covered.

Answer 788

A

A. Excessive benefits may be taxable.

Regardless of whether or not the insured can deduct individual long-term care premiums, the benefits are received income tax free by the individual. Excessive benefits as determined by statute are taxable as ordinary income.

Answer 789

A

C. Unless the policy designated the current beneficiary as irrevocable, the policyowner can make the change at any time.

Unless a beneficiary is designated as irrevocable, the insured can change beneficiaries without the consent of the former beneficiary.

Answer 790

A

C. Benefits that are attributable to employer contributions are fully taxable to the employee as income.

Group disability income premium payments are considered tax deductible by the business as an ordinary business expense. In a plan funded entirely by the employer, income benefits are included in the employee’s gross income and taxed as ordinary income.

Answer 791

A

A. No tax

Daily benefits from the LTC policy are received income tax free, as long as they do not exceed the daily cost of long-term care.

Answer 792

A

D. Disability Buy-Sell

Disability Buy-Sell Insurance provides funds for business organizations to purchase the business interest of a disabled partner. The premiums are not deductible, but the benefits are received income tax-free.

Answer 793

A

C. Premiums are tax deductible.

The premiums paid for BOE insurance is tax deductible to the business as a business expense. However, the benefits received are taxable to the business as received.

Answer 794

A

D. Income tax free.

In disability buy-sell policies, whether cross purchase or entity, the benefits are received income tax free by the business, but the premiums are not deductible to the business..

Answer 795

A

C. Settlement options.

Answer 796

A

A. No, the group must be formed for a purpose other than obtaining group insurance.

Answer 797

A

B. Within 20 days

This mandatory provision requires the insured to give the insurer, or its agent, written notice of a claim within 20 days of the loss or as soon as reasonable possible. If the nature of disability is such that the insured is legally incapacitated, this requirement is waived.

Answer 798

A

D. Family term

A Family Term policy is created when a Children’s Term Rider and Spouse Term Rider are combined into a single rider which is attached to a whole life policy. Under the Family Term Rider, the entire family is covered under the same policy.

Answer 799

A

C. Replace a percentage of his lost income.

Disability Income insurance covers income only, not medical expenses.

Answer 800

A

A. 60 days after written proof of loss has been submitted.

The insured must wait 60 days, but no later than 3 years (in most states) after proof of loss, before legal action can be brought against the company.

Answer 801

A

D. 30 days

Prior to a policy lapsing because of the outstanding loans, an insurer must provide a written notice to the insured no later than 30 days before the effective date.

Answer 802

A

C. Mental illness.

Mental illness is covered, with some limitations.

Answer 803

A

D. 100%

Sole proprietors and partners may deduct 100% of the cost of a medical expense plan provided to them and their families because are considered self-employed individuals, not employees.

Answer 804

A

B. Supplement Social Security coverage.

Supplement Social Security coverage is a rider to a disability policy.

Answer 805

A

A. 3 days

If a consumer report is requested, the insurer must notify the consumer at least 3 days following the intial request.

Answer 806

A

A. Adult day care

Adult day care is care provided for functionally impaired adults on less than a 24-hour basis. It could be provided by a neighborhood recreation center or a community center. Care includes transportation to and from the day care center, and a variety of health, social, and related activities. Meals are usually included as a part of the service.

Answer 807

A

B. Insurer.

Health insurance applications require the signatures of the proposed insured, the policyowner (if different than the insured), and the agent or producer.

Answer 808

A

A. Within 60 days.

The terminated employee must exercise extension of benefits under COBRA within 60 days of separation from employment.

Answer 809

A

B. Supplementary major medical

Supplementary Major Medical Policies are used to supplement the coverage payable under a basic medical expense policy. After the basic policy pays, the supplemental major medical will provide coverage for expenses that were not covered by the basic policy, and expenses that exceed the maximum. If the time limitation is used up in the basic policy, the supplemental coverage will provide coverage thereafter.

Answer 810

A

A. Conditional Receipt

When an applicant pays the initial premium before the application is approved and the policy is issued, a conditional receipt can be issued in order to acknowledge the payment. Coverage will not begin, however, until the policy has been issued.

Answer 811

A

C. The insurer

The insurer has the option of including optional provisions in the health insurance policy.

Answer 812

A

C. Only if the individual is not identified

Insurance companies must maintain strict confidentiality regarding HIV-related test results or diagnoses. Test results may not be provided to the MIB if the individual is identified.

Answer 813

A

D. Probationary Period

Probationary Period is an optional provision.

Answer 814

A

B. Policyowner’s minor children or business associates

Most policies involving third-party ownership are written in business situations or for minors in which the parent owns the policy.

Answer 815

A

B. Drug addiction.

Treatment for drug and alcohol addiction is provided on a limited basis.

Answer 816

A

A. Health insurance policies in force.

The information about the applicant’s health insurance policies is not material to a life insurance contract.

Answer 817

A

B. Delivered.

When the insurer relinquishes control of the policy by mailing it to the policyowner, policy is considered legally delivered.

Answer 818

A

B. The premium is based on the age of each insured.

Survivorship Life (or “second-to-die” policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age.

Answer 819

A

C. It does not have a guaranteed death benefit.

Straight Life (also called Ordinary Life or Continuous Premium Whole Life) charges a level annual premium for the lifetime of the insured and provides a level, guaranteed death benefit. If the insured lives to age 100, the policy endows (matures) and the face amount is paid to the insured at that time. During the insured’s lifetime the straight life policy builds cash value. The insurer guarantees the cash value and death benefit under a straight life policy.

Answer 820

A

B. Fixed Amount

The fixed-amount option pays a fixed, specified amount in installments until the proceeds (principal and interest) are exhausted. The recipient selects a specified fixed dollar amount to be paid until it is gone. If the beneficiary dies before the proceeds are exhausted, installments will continue to be paid to a contingent beneficiary until all proceeds have been paid out.

Answer 821

A

D. Part A deductible.

Plan A is the core benefits only and does not include coverage for Part A deductibles.

Answer 822

A

A. An association of 35 people.

Group insurance may be issued to employer, employee, or other groups that are together for a purpose other than the purchasing insurance.

Answer 823

A

C. 30 days.

The free-look period for Medicare supplement policies must be at least 30 days.

Answer 824

A

B. Renewability provision

Renewability provisions are included in each health insurance contract and outlines both the insurer’s and insured’s right to cancel or renew coverage. This is considered to be a very important provision required by HIPAA, the federal Health Insurance Portability and Accountability Act of 1996.

Answer 825

A

D. Benefits provided must be the same as for any other physical illness.

All group health insurance benefit plans in Texas must provide for drug and alcohol addiction treatment on the same basis as the benefits provided for physical illness. Coverage amounts may be less, but must be sufficient to treat the chemical dependency.

Answer 826

A

B. Indemnity

Indemnity health insurance plans , otherwise known as first-dollar insurance, do not require insureds to satisfy a deductible before providing benefits.

Brainscape's Knowledge GenomeTM

Life & Health Exam Questions Flashcards

Brainscape's Knowledge Genome^TM