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An insured, whose policy is in force, intentionally kills herself 7 months after purchasing the policy. The policy includes an accidental death and dismemberment rider. How much will the insurer pay?

a. Nothing
b. Refund of premiums paid only
c. The capital amount
d. The principal amount

b. Refund of premiums paid only

Suicide is a policy exclusion; usually within 2 years of policy issue (varies by state). In any event, suicide would most likely not be covered under an AD&D rider, as an accident is unforeseen and unintended and suicide is intended. Only premiums paid are refunded.

An insured owns a $50,000 permanent life policy that she purchased 4 years ago. She wanted to be assured of the opportunity to increase the face amount in the future without further proving insurability. Which rider did she purchase?

a. Guaranteed Insurability Rider
b. Guaranteed Renewability Rider
c. Death Benefit Escalation Rider
d. Accelerated Benefit Rider

a. Guaranteed Insurability Rider

The Guaranteed Insurability Rider, purchased at an additional cost, effectively preserves an individual's insurability, allowing him or her to purchase additional life insurance without providing proof of insurability at various ages and in certain events and circumstances.

With a Contributory Group Life Plan, what percentage of the employees must participate?

a. A full 100%
b. At least 60%
c. At least 75%
d. Between 75% and 100%

c. At least 75%

A Contributory Plan is one in which the participants pay all or a portion of the premiums. The insurer wants to maximize premium cash flow to address inherent adverse selection considerations.

Which of the following is true regarding the licensing of an individual in this state?

a. The applicant must be 32 year of age
b. The applicant must have an insurance degree
c. The applicant must pass a state licensing exam
d. The applicant must have a law degree

c. The applicant must pass a state licensing exam

A license applicant must successfully pass the examination for the lines of authority for which he or she has applied.

Which policy could provide a substantial immediate cash value?

a. Enhanced Whole Life Policy
b. Endowment Policy
c. Modified Whole Life Policy
d. Single Premium Whole Life Policy

d. Single Premium Whole Life Policy

A single premium policy is paid up (i.e. requires no more premiums due) after only one premium. As a result, it starts with substantial cash value.

Which of the following are untrue with regard to insurable interest of a life insurance policy?

a. A lender has an insurable interest in a borrower.
b. A possibility of economic loss must exist.
c. A loss of love and affection can constitute an insurable interest.
d. A borrower has an insurable interest in a lender.

d. A borrower has an insurable interest in a lender.

Insurable interest exists when there is a reasonable expectation that the beneficiary will benefit from the continued life of the insured, or experience a loss at the death of the insured.

Which of the following is a prohibited form of advertising?

a. Advertisements for Medicare Supplements containing information that create undo anxiety in the minds of the insureds.
b. An advertisement that uses the words 'only', 'just', 'merely', 'minimum', or similar words to imply a minimal imposition of restrictions and reductions.
c. When an insurer excludes coverage for preexisting conditions, an advertisement of the policy that implies that the applicant's medical condition or history will not affect eligibility or payment.
d. All are prohibited.

d. All are prohibited.

All responses reflect prohibited forms of advertising.

A policyowner has decided upon the Fixed Amount Settlement Option. Which of the following best describes this option?

a. The death benefit is paid in lump sum fashion.
b. The insurer determines the number of periods that payments are made.
c. Only the death benefit with no interest is paid.
d. The owner specifies the amount of each periodic payment and the insurer pays that amount until the funds (i.e. death benefit) are exhausted.

d. The owner specifies the amount of each periodic payment and the insurer pays that amount until the funds (i.e. death benefit) are exhausted.

In the Fixed Amount Settlement Option, a set amount determined by the owner, is paid each period while the funds (e.g. death benefit) are deposited at interest. Since the interest rate credited fluctuates, the number of payments cannot be guaranteed.

An insured selecting the annuity benefit option that provides the highest amount of period benefit for life assuming the balance at annuitization and the age of the annuitant to be equal would be.

a. Life Income, Period Certain
b. Straight Life Option (Life Income)
c. Life Income with Refund
d. Temporary Annuity

b. Straight Life Option (Life Income)

Among the three single life options, Life Income, Life Income Period Certain and Life Income with Refund, assuming the annuity balance and age of the annuitant are the same; the periodic payout is greatest under the Straight Life Option because the annuitant stands to lose the most if he dies early, as the insurer keeps the outstanding balance.

Initially an insured paid premiums annually on her life insurance policy. She would now like to change to a monthly premium payment. What must occur to effect this change?

a. Insured and beneficiary must agree in writing to the change and amend the original contract
b. Insurer and beneficiary must agree in writing to the change and amend the original contract
c. Insurer and owner must agree in writing to the change and amend the original contract
d. Beneficiary and owner must agree in writing to the change and amend the original contract

c. Insurer and owner must agree in writing to the change and amend the original contract

Any changes to the contract, including mode of premium must be agreed to in writing, by the insurer (an executive of the company) and the only person who controls the rights in the policy, the owner. Typically, but not always, the insured, applicant and owner are the same person.

Of the following statements, which is true of the One-Year Term Dividend Option?

a. Doubles the death benefit for one year.
b. The dividend is used to purchase a one-year term policy equal to the cash value.
c. Pays a death benefit of the face amount plus total premiums paid.
d. Pays a death benefit of the face amount plus total dividends paid.

b. The dividend is used to purchase a one-year term policy equal to the cash value.

In a permanent participating policy, the One-Year Term Dividend Option purchases term insurance in the amount of the cash surrender value. Should the insured die, the beneficiary receives the death benefit in the amount of the face plus CSV.

A trustee-to-trustee transfer between tax qualified retirement plans does not expose itself to:

a. Federal income tax on future distributions
b. The 10% penalty on premature distribution
c. The 20% withholding tax
d. Federal estate taxes should the plan participant die

c. The 20% withholding tax

The 20% withholding tax was implemented to discourage trustee to participant to trustee rollovers. By transferring trustee to trustee, the mandatory 20% withholding is avoided. Premature distributions (i.e. before 59 1/2) still suffer a 10% penalty tax.

The rates charged by Independent Practice Association, HMO physicians are negotiated in advance and are on a ________ basis.
Choose one answer.
a. Reimbursement
b. Fee for service
c. Indemnity
d. Out-of-pocket

b. Fee for service

IPAs pay providers based upon a predetermined fee arrangement (fee for service). Reimbursement, indemnity and out-of-pocket are all terms associated with insured plans.

An insured is nearing retirement and has accumulated $175,000 in an annuity. He needs the option that will pay the largest monthly benefit for as long as he lives. Which option should he choose?
Choose one answer.
Incorrect Score for this question: 0/1.
a. Fixed Amount
b. Life Income with Refund
c. Joint Life
d. Life Income

d. Life Income

Among all the life income options, the Life Income (Pure or Straight Life) provides the highest payment to the annuitant because under the option the annuitant assumes the greatest risk of forfeiture (i.e. if he or she dies early, the insurer keeps the balance).

The Director, Commissioner, or Superintendent may suspend or revoke a license if the licensee has:

a. Been convicted of an armed criminal action.
b. Had license suspended in another state.
c. Been found to be twisting, rebating, and/or illegal inducing.
d. All of the answers listed.

d. All of the answers listed.

All actions listed would be a basis for a license to be suspended or revoked.

All of the following are authorities and powers held by the Commissioner or Directory of Insurance, except?

a. To inquire into all violations of insurance laws in this state.
b. To set and determine insurance rates so that they are not excessive or unfairly discriminatory.
c. To subpoena witnesses and documents for testimony on any insurance related matter or hearing.
d. To issue, refuse, revoke or suspend licenses or Certificates of Authority.

b. To set and determine insurance rates so that they are not excessive or unfairly discriminatory.

The Commissioner or Director of Insurance has the authority to take the necessary steps to enforce and administer the insurance laws. Individual insurers determine and set their rates, and the Division or Department of Insurance monitors them for adequateness.

A Whole Life policyowner elects to use his dividends to pay off the policy sooner than originally planned. Which option allows this to occur?

a. Premiums Reduction Option
b. Paid-Up Additions Option
c. Paid-Up Option
d. Cash Surrender Option

c. Paid-Up Option

The Paid-Up Option is designed so that at a future point the base policy is paid up (i.e. no more premiums are due). In Paid-Up Additions, only the additions are paid up, not the base policy. Only a Whole Life (i.e. fixed policy) can achieve paid-up status, not Universal or Variable.

Under the Modified Endowment Contract rules the 7-Pay Test is defined as:

a. The first 7 years of total premiums paid into a life policy exceed the net premiums of a 7-Pay Policy (i.e. the policy would be paid-up in less than 7 years).
b. The cash value at the end of year 7 exceeds the total premiums paid.
c. The policy endows in 7 years.
d. The cash values are 75% of death benefit at the end of 7 years.

a. The first 7 years of total premiums paid into a life policy exceed the net premiums of a 7-Pay Policy (i.e. the policy would be paid-up in less than 7 years).

The MEC legislation came about because of the abuse of Single Premium Whole Life (which is always a MEC). As such, the law sought to restrict sought to restrict access to cash values in contracts that were deemed primarily savings vehicles rather than true insurance. Essentially, if you pay too much too fast (i.e. paid up in 7 years) it is a MEC.

If there is enough cash value within a life policy to pay the premium, exercising the Automatic Premium Provision prevents the policy from:

a. Lapsing
b. Renewing
c. Terminating
d. Reinstating

a. Lapsing

The owner always has a right to borrow from the cash value. The APL gives the insurer the right to initiate the loan to prevent lapse.

LTC coverage for such things as occasional visits and care by registered, practical or vocational nurses or a hospice organization in the home would be a feature of:

a. Home Health Care
b. Adult Day Care
c. Custodial Care
d. Intermediate Care

a. Home Health Care

Usually, a private nurse or a state-licensed home health care agency provides Home Health Care in the home of the patient.

Which of the following is not true of Medicare Part B?

a. All retirees are automatically covered.
b. Provides coverage for outpatient services.
c. All recipients pay a monthly premium.
d. It is optional coverage for those eligible for Part A.

a. All retirees are automatically covered.

Part B - Medical Insurance (Outpatient) is a voluntary program of government-subsidized insurance requiring participants to make premium payments.

When does the Status Clause exclude coverage?

a. When the insured dies while on active duty in the military.
b. When the insured dies in basic training.
c. When the insured dies of a non-war related disease.
d. Anytime the insured dies, whether active duty or not.

a. When the insured dies while on active duty in the military.

The Status Clause excludes coverage of individuals with military status. This clause is seldom used. Typically, the Results Clause will take priority (i.e. if the insured dies while on active duty, but not as a result of war, the death benefit will be paid.)

When the Guaranteed Insurability Rider to a life insurance policy, the insured would pay increased premiums based upon:

a. Calendar age
b. Issue age
c. Actual age
d. Attained age

d. Attained age

The Guaranteed Insurability Rider guarantees the insured's right to purchase additional death benefit periodically, but not the right to purchase it at the rate when the policy was issued (i.e. issue age).

Which of the following is correct pertaining to underwriting a group health policy?

a. The average age of the group is not taken into consideration.
b. All participants are always eligible immediately.
c. Group insurance cannot be based upon community experience.
d. Premiums are generally re-evaluated annually and may be based upon prior claims.

d. Premiums are generally re-evaluated annually and may be based upon prior claims.

Typically, all groups have an annual evaluation. If the plan is experience rated, the prior year's claims will be a significant factor in establishing the next year's premiums. However, if a group is too small, it may be community rated. In all cases, the average age of the group is a consideration. It is the sponsor's option to impose a waiting period.

A procedure used by dental insurance carriers to determine the benefit to be paid is known as?

a. Preliminary Evaluation.
b. Pretreatment Examination.
c. Least Coverage Provision.
d. Precertification.

d. Precertification.

Precertification or Predetermination of Benefits, although not normally mandatory, allows both the patient and the dentist to know what will be covered before treatment.

Insurance policies that may pay annual dividends to policyowners are:

a. Reciprocal policies
b. Premium Refund policies
c. Shareholder Benefit plans
d. Participating policies

d. Participating policies

Participating policies pay dividends, a refund of excess premiums. Typically, Mutual companies (i.e. those owned by the policyowners, since there are no stockholders) issue participating policies.

Insurable interest in life insurance is necessary only at the time of:

a. Delivery
b. Loss
c. Application
d. Death

c. Application

In Life and Health Insurance, insurable interest must exist at the time of application.

An organization that is formed as a lodge or for charitable reasons, but also sells insurance to its members, is considered a:

a. Fraternal Association
b. Lloyd's Association
c. Retention Group
d. Reciprocal Company

a. Fraternal Association

Fraternal insurers are nonprofit organizations that operate based on a lodge, society or order and normally sell insurance only to their members.

All of the following options must be provided or offered in a group health insurance plan, except:

a. Cosmetic surgery
b. Mammography coverage
c. Speech and Hearing Disorder Coverage
d. Genetic testing

a. Cosmetic surgery

Cosmetic surgery must neither be offered nor provided in group health coverage; whereas, all of the other choices must. Some states stipulate various coverages must be provided, while others merely state offered.

John has had his individual Health and Disability Income policies for many years, he has been drinking lately, and he was injured in a single car accident while intoxicated. Who covers the medical expense for John?

a. John is liable for all expenses.
b. His health policy pays all expenses.
c. Health covers medical; disability covers income.
d. Medicaid pays the medical expenses.

a. John is liable for all expenses.

According to the Intoxicants and Narcotics Provision (an Optional Uniform Provision), the insurer may deny liability for John's accident, thereby making John liable for all expenses.

If an insured is hospitalized and incurs a daily room charge of $492 and his Medical Expense Policy stipulated coverage for a hospital room up to $550 per day. How much will the insurer pay?

a. $450
b. $550
c. $492
d. $246

c. $492

Policies generally specify the benefit limit for covered expenses. They will pay the actual expenses incurred up to the limit.

The Unpaid Premiums Optional Uniform Provision allows an insurer to:

a. Charge the insured a credit charge if premiums are not paid.
b. Reduce the amount of a claim payment by the premium due.
c. Cancel the policy during the grace period.
d. Charge interest on past due premiums.

b. Reduce the amount of a claim payment by the premium due.

An insurer can withhold unpaid premiums, to which it has a legal right, when paying a claim that has occurred during the grace period.

The purpose of the Unfair Trade Practices Act is to:

a. Regulate practices in business by defining what practices are fair and descriptive.
b. Eliminate business by defining what practices are unfair and deceptive.
c. Regulate practices in the business of insurance by defining what practices are unfair and deceptive.
d. All of the above.

c. Regulate practices in the business of insurance by defining what practices are unfair and deceptive.

Unfair trade practices define the unfair methods of competition and unfair or deceptive acts or business practices in the business of insurance.

An insurer authorized to do business within this state is considered what type of insurer?

a. Foreign
b. Domestic
c. Admitted
d. Certified

c. Admitted

An insurer authorized to do business in this state is referred to as admitted, and could be either domestic, foreign, or alien domiciled.

Allowing individuals of the same class and hazard to be charged different rates for the same insurance coverage is:

a. A way to make a higher commission
b. Unfair Discrimination
c. Risk Management
d. None of these

b. Unfair Discrimination

Permitting individuals of the same class and hazard to be charged different rates for the same insurance coverage is Unfair Discrimination.

An underwriter usually discovers information pertaining to an applicant's prior health from the:

a. Medical Information Bureau
b. Federal Information Bureau
c. Medical Doctors Association
d. Inspection Report

a. Medical Information Bureau

The Medical Information Bureau is supported by insurance companies and it collects adverse medical information about an applicant's health.

Which is not an unfair trade practice?

a. Selling better coverage that costs more.
b. Selling by omitting material facts.
c. Selling by refunding monies not stipulated in the contract.
d. Selling by charging persons in the same class a different rate.

a. Selling better coverage that costs more.

Selling better coverage at a higher premium is not an unfair trade practice.

Part B of Medicare would exclude which of the following medical expenses?

a. A regular dental checkup
b. Home health care
c. Outpatient hospital treatment
d. Clinical laboratory services

a. A regular dental checkup

Part B does not cover routine dental services.

Which of the following would not provide dental services for an insured?

a. Periodontist
b. Podiatrist.
c. Prosthodontist
d. Endodontist

b. Podiatrist.

A podiatrist is a foot doctor.

With _______, the patient must pay 20% of covered charges plus the deductible.

a. Medicaid
b. A Medicare Supplement
c. Medicare Part B
d. None of the answers listed

c. Medicare Part B

Medicare Part B pays 80% of allowable charges.

All of the following are Optional Uniform Provisions, except:

a. Illegal Occupation
b. Legal Actions
c. Change of Occupation
d. Misstatement of Age

b. Legal Actions

Legal Actions is a Mandatory Uniform Provision. All other responses are Optional Uniform Provisions.

All of the following are correct concerning partial disability, except:

a. Partial disability payments are usually 75% of the total disability amount.
b. Partial disability is an inability to perform one or more of the regular duties of an occupation.
c. It pays a benefit for three to six months.
d. Partial disability payments are usually up to 50% of the total disability amount.

a. Partial disability payments are usually 75% of the total disability amount.

Partial disability is an inability to perform one or more of the regular duties of an occupation. The benefit usually pays up to 50% of a total disability benefit for three to six months.

One characteristic of life insurance is that the insurer is obligated to pay a claim in the event of the death of the insured, however the insured is not contractually obligated to do anything other that keep the policy in force. This is a:

a. Contract of Adhesion
b. Unilateral Contract
c. Aleatory Contract
d. Conditional Contract

b. Unilateral Contract

In a Unilateral Contract, only one party is legally bound to contractual obligations after the premium is paid.

Concerning eligibility for a 403(b) retirement plan, which of the following would not qualify?
a. School board member
b. County librarian
c. School janitor
d. School teacher

b. County librarian

A 403(b) Tax Sheltered Annuity is a retirement plan specifically for public school employees.

An heir inherits a substantial sum of money and wants to have the money distributed to her over the rest of her life. Which product offered by the life insurance industry will allow her to accomplish her objective?

a. Single Premium Immediate Annuity
b. Systematic Installment
c. Flexible Payout Arrangement
d. Deferred Distribution Arrangement

a. Single Premium Immediate Annuity

A Single Premium Immediate Annuity involves payment of a single sum to the insured with periodic payments commencing within one year of deposit of the sum.

The exception to the rule concerning the non-deductibility of life insurance premiums is:
Choose one answer.
a. Key Employee Insurance.
b. Employer paid group life insurance premium up to $50,000 of coverage.
c. Life insurance to fund a Buy-Sell Agreement.
d. Third Party Ownership Policies.

b. Employer paid group life insurance premium up to $50,000 of coverage.

An employer may deduct group life premium up to $50,000 of coverage. Any coverage exceeding $50,000 is still deductible, but shows up on the employee's W-2 as income. Typically, the IRS will not allow both deductibility of premium and tax-free death benefit.

Which of the following is true concerning the Benefit Period of a LTC Policy?

a. None of the answers listed.
b. It is the time between the beginning of a policyholder's disability and the beginning of the policy's benefits.
c. It is always for the life of the insured.
d. Once the elimination period has been satisfied, it is how long benefits will be payable.

d. Once the elimination period has been satisfied, it is how long benefits will be payable.

The Benefit Period is the amount of time that policy benefits will be paid.

If an insured/owner is receiving accelerated benefits from his life insurance, policy the insurer must provide a report listing total:

a. Payments and value of remaining death benefit
b. Cost Comparison
c. Policy Summary
d. Buyer's Guide

a. Payments and value of remaining death benefit

The Living Need or Accelerated Benefits Rider advances death benefit; therefore, distributions are not taxable. While the number of reports required annually varies by state, the policyowner must be informed how much death benefit has been exhausted and what remains.

An individual has secured a $12,000 loan from the bank to purchase a boat, which is scheduled for repayment in monthly installments over 48 months. Which life insurance would protect the lender should the borrower die prior to retiring the debt?

a. Decreasing Term
b. Modified Premium Life
c. Enhanced Whole Life
d. Level Term

a. Decreasing Term

In Decreasing Term, the death benefit declines systematically, as does most debt. Decreasing Term is used almost exclusively in credit insurance. Modified Premium and Enhanced Whole are types of Whole Life, and not appropriate for short-term creditor protection.

Which of the following is not considered one of the essential elements of a contract?

a. Competent Parties
b. Offer and Acceptance
c. Conditions
d. Legal Purpose

c. Conditions

The essential elements of a contract are offer and acceptance, consideration, competent parties, and legal purpose.

An insured with an individual LTC policy is deducting the premiums he is paying for the plan on his income taxes. Once he begins to receive an income from this plan, what will be the tax consequences on this income?

a. Not taxable
b. Fully taxed
c. 7.5% is taxable
d. Tax-deferred

a. Not taxable

LTC benefits are usually not subject to federal income tax.

Which of the following is consistent with group health underwriting?

a. Individual health histories are required.
b. Participants must submit to individual physical exams.
c. Each member of the group is covered regardless of his or her health history.
d. Smokers pay a higher rate.

c. Each member of the group is covered regardless of his or her health history.

Group health insurance does not engage in individual underwriting, therefore, the group is either accepted or rejected as a whole. If accepted, all of the group members are covered, regardless of their health history.

Of the following listed choices, which is true as it pertains to Medicare Part A?

a. It covers all prescription drugs.
b. It is prepaid through FICA taxes and is automatic when that worker qualifies for social security benefits.
c. All recipients pay a monthly premium.
d. Provides coverage for outpatient services.

b. It is prepaid through FICA taxes and is automatic when that worker qualifies for social security benefits.

Part A - Hospital Insurance (Inpatient) coverage is automatic for all eligible people and is financed by a payroll tax on employers and employees.

The Unfair Trade or Unfair Methods of Competition Acts apply to all of the following, except?

a. All licensed persons.
b. All admitted insurers.
c. All insurers including motor clubs and nonprofit hospital associations.
d. All insureds.

d. All insureds.

Insurers and producers must not commit any of the unfair trade practices.

Making, issuing, or circulating any written or oral statement that misrepresents the benefits, conditions, or terms of any insurance policy, or transaction is an example of:

a. Twisting
b. Unfair
c. Misrepresentation
d. Concealment

c. Misrepresentation

Making misleading representations or fraudulent comparisons of insurance policies, misrepresenting the terms or benefits of an insurance policy, or making misleading representations as to the financial condition of an insurer is misrepresentation.

Many insurers pay benefits based on the average fee charged in a geographical area. This is referred to as which of the following?

a. Reimbursement.
b. Cash
c. Scheduled
d. Usual Customary and Reasonable.

d. Usual Customary and Reasonable.

UCR is not scheduled, but is based on the average fee charged by all doctors in a given geographical area.

A Child Rider that is added to an insured's permanent policy includes which of the following features?

a. Coverage is for the same amount as the primary insured.
b. All children (beyond 14 or 15 days of age) are covered, and the rider may be converted to permanent coverage at a specified age without evidence of insurability.
c. The covered child becomes the premium payor.
d. If the child rider death benefit is paid, it reduces the face amount of coverage.

b. All children (beyond 14 or 15 days of age) are covered, and the rider may be converted to permanent coverage at a specified age without evidence of insurability.

The benefit of a Child Rider is twofold; it provides basic coverage, and is convertible to a permanent policy without proof of insurability, when the child reaches the maximum age.

Any transaction in which new life insurance or an annuity is to be purchased, and it is known, or should be known to the agent, that existing life insurance or an annuity will be amended to reduce benefits or coverage is covered under which regulation?

a. Replacement
b. Conservation
c. Buyer's Guide
d. Advertising Guides

a. Replacement

The question is stating the definition of replacement.

With a Business Overhead Expense Policy, all of the following are covered, except?

a. Utilities
b. Office rent
c. Employee labor
d. The salaries and profits of the employer

d. The salaries and profits of the employer

Business Overhead Expense provides the funds to cover the overhead expenses of a business when the owner becomes disabled, such as office rent, employee labor, utilities, etc. Employer salary and profits are not included.

When an insured decides to change her mode of premium payment from annually to monthly, what impact does this have on the total premium due?

a. It would fluctuate
b. It would decrease
c. It would remain the same
d. It would increase

d. It would increase

Additional charges are included in modes other than annual to offset the lost interest earnings and increased administration costs.

Traditional individual retirement accounts require distributions to start upon reaching the age of 70 1/2. Which one does not?

a. A Roth IRA
b. Keogh IRA
c. 403(b)
d. 501(c)(3)

a. A Roth IRA

Keogh's, 403(b), and 501(c)(3) are employer sponsored plans. The Roth IRA has many outstanding features, one of which is the provision that there are no mandatory distributions at any age.

Which type of the following policies do not require renewability and, through the development of cash values, allows the policy to stay in force to or beyond life expectancy?

a. Perpetual Insurance
b. Life Expectancy Insurance
c. Annually Renewable Insurance
d. Permanent Life Insurance

d. Permanent Life Insurance

Insurance is either permanent or temporary. Examples of permanent insurance are Whole Life and Endowments, etc. Term is temporary insurance.

Accident and Health Insurance, insures for two major perils, they are:

a. Driving under the influence and driving while intoxicated.
b. On the job and off the job.
c. Accidental injury and sickness.
d. Automobile and home health care.

c. Accidental injury and sickness.

Accidental injury and sickness are the perils insured. Intentional losses are excluded.

Which of these choices is untrue with regard to a Disability Buy-Sell Policy?

a. It provides money for the business to buy the interest of the deceased officer or partner.
b. It pays a lump sum for the business to buy out the totally disabled party's interest in the business.
c. Policy proceeds are tax-free.
d. All of the answers listed.

a. It provides money for the business to buy the interest of the deceased officer or partner.

Disability Buy-Sell Policy pays a lump sum, enabling a partnership or business to buy out the totally disabled party's interest in the business. Policy proceeds are normally received tax-free.

The following statement is true concerning the income received from an individually owned disability income policy:

a. Premiums are tax sheltered=Income benefit taxable
b. Premiums paid with after tax dollars = Income benefit not taxable
c. Premiums paid with after tax dollars=Income benefit taxable
d. Premiums are tax sheltered=Income benefit not taxable

b. Premiums paid with after tax dollars = Income benefit not taxable

The premiums are not tax deductible and the benefits are not subject to federal income or FICA tax.

When an underwriter evaluates the risks presented with a particular group life application, which of the following are most important?

a. The plan sponsor's credit rating.
b. Group size, turnover, average age and purpose of the group.
c. The sales volume of the employer.
d. The religion of the majority of the participants.

b. Group size, turnover, average age and purpose of the group.

The cost of a typical group plan is a function of a number of variables, most notably average age and size of the group, industrial classification, financial stability of the sponsor, and claims experience if the group is of sufficient size. If smaller, geographic location is considered.

Accident and Health policies provide coverages for all, except:

a. Medical expenses
b. Accidental death and dismemberment
c. Workers' Compensation
d. Loss of income

c. Workers' Compensation

Workers' Compensation is a general casualty contract, written with a Property/Casualty license, covering job related injury. It is not a policy written by Accident and Health insurers.

Which of the following types of coverage provides custodial care outside the home for individuals not requiring confinement?

a. Hospice Care
b. Adult Day Care
c. Respite Care
d. Home Health Care

b. Adult Day Care

Adult Day Care provides custodial services outside the home for individuals not requiring a 24-hour confinement in a nursing home.

The arrangement under which an insurer agrees to receive, monitor and pay claims, print benefit books, negotiate provider networks where necessary and provide other miscellaneous services for a plan sponsor is call a/n:

a. Reserve-Reduction Arrangement
b. Administrative Services Only Arrangement
c. Point of Service Arrangement
d. Tri-Care Provider Arrangement

b. Administrative Services Only Arrangement

The arrangement in which an insurer does not actually insure, but merely provides administration is called an ASO (Administrative Services Only) arrangement. Reserve- Reduction Arrangement is a modified fully insured plan; POS is a type of managed care plan, as is Tri-Care, which is managed care for military personnel.

With regard to a Whole Life Policy with a graded premium, which is correct?

a. Premiums vary at the discretion of the owner/insured.
b. Premiums are lower initially, increase annually, and then level off at some point for the remainder of the policy.
c. Premiums are based on a term rate for 2 years, then increase.
d. Death benefit is lower initially than regular whole life.

b. Premiums are lower initially, increase annually, and then level off at some point for the remainder of the policy.

To make the Whole Life product more affordable, Graded Premium Whole Life alters the fixed nature of the premiums, gradually increasing them until they level off at some point in the future.

Managed Health Care attempts to contain costs by controlling the behavior of participants in all of the following ways, except:

a. Controlled Provider Access
b. Preventive Care
c. Risk Sharing
d. Partial Case Management

d. Partial Case Management

Comprehensive Case Management is employed as opposed to partial.

Which of the following regarding assignment of a life policy is not true?

a. The assignee assumes the rights of the policyowner.
b. The policyowner must first obtain the insurer's permission.
c. Assignment of all rights constitutes an absolute assignment.
d. The death benefit received by the beneficiary is reduced by the amount of the assignment.

b. The policyowner must first obtain the insurer's permission.

An assignment is not an insurance term per se; it is a generic legal term. In theory, anything in which an individual has rights can be assigned. The policyowner controls all the rights in the policy, one of which is the ability to assign.

If the insurer cancels an individual health plan, what happens to the unearned premium?

a. It is refunded on a pro rata basis.
b. The total is refunded.
c. It is refunded on a short rate basis.
d. It is used to offset underwriting costs.

a. It is refunded on a pro rata basis.

According to the Cancellation Provision (an Optional Uniform Provision), if the insurer cancels on the insured, unearned premiums are refunded on a pro rata basis.

Right to Examine is the same as:

a. Elimination Period
b. Probationary Period
c. Waiting Period
d. Free Look Period

d. Free Look Period

Right to Examine is the same as Free Look Period. It allows the insured a specified number of days, upon the deliver of the policy, to look over the policy and to return it for a full refund if dissatisfied for any reason.

An insured is hospitalized for at least 3 days. How long will Medicare pay for confinement in a skilled nursing facility?

a. Up to 90 days
b. Up to 30 days
c. Up to 365 days
d. Up to 100 days

d. Up to 100 days

Medicare Part A will provide coverage for up to 100 days of post-hospital skilled nursing care.

When an individual is covered by more than one health plan and is injured, how is it resolved as to which plan pays and how much?

a. Coordination of Benefits
b. Conversion Privilege
c. Continuation of Coverage
d. Extension of Benefits

a. Coordination of Benefits

Consistent with the purpose of insurance, the Coordination of Benefits Provision exists so that no more than the amount of the claim will be paid. It presents the opportunity for gain by over insuring.

With a Variable Life Policy, which of the following is guaranteed?

a. Cash value
b. Death benefit
c. Dividends
d. Interest rate

b. Death benefit

The face amount is the guaranteed minimum death benefit. Cash values are not guaranteed, since the insured/owner chooses the investment option(s) developing cash values, thereby assuming all the risk. Variable Life is not a participating policy and no dividends are paid. Likewise, interest rates are not guaranteed.

Which of the following are responsible for ensuring that the application is filled out completely?

a. Producer
b. Underwriter
c. Actuary
d. Insurer

a. Producer

It is the agent/producer's responsibility to make certain the application is filled out completely, correctly, and to the best of his/her knowledge.

Charging a different premium for two separate individuals who are in the same insuring classification, just because one of the individuals has a higher new worth, would be an example of:

a. Coercion
b. Defamation
c. Boycott
d. Discrimination

d. Discrimination

Charging different rates for individuals of the same class and hazard is unfair discrimination.

If a policy requires the payment of an additional premium for the continuation of coverage for a newborn, the insurer must be notified within 31 days of the ______.

a. First day of the month of birth
b. Policy date
c. Date of birth
d. Hospitalization date

c. Date of birth

Notification of birth or adoption and payment of the required premium must be within 31 days after the date of birth or adoption in order to continue coverage beyond 31 days.

Of the following, which best describes being an admitted insurer in this state?

a. Registered
b. Certified
c. Authorized
d. Filed

c. Authorized

Admitted insurers have been authorized by the Commissioner (Director or Superintendent) of Insurance to conduct business in this state.

All of the following describe the responsibilities of an agent or producer, except?

a. Accepts premiums
b. Represents the insurer
c. Solicits applications for contracts
d. Sets the premiums

d. Sets the premiums

The agent or producer does not set premiums; this is the responsibility of the insurer.

All of the following are true purposes of the replacement regulations, except?

a. Regulate the activities of insurers and agents.
b. Protect the interests of insurers.
c. Assure that the purchaser receives enough information to make an informed decision.
d. Establish penalties for failure to comply with the rules of replacement.

b. Protect the interests of insurers.

The purpose is to protect the insureds, not the insurers.

Part A of Medicare pays for:

a. None of the answers listed
b. Outpatient expenses
c. Dental expenses
d. Hospital expenses

d. Hospital expenses

Medicare Part A covers inpatient hospital expenses.

Which issue relating to AIDS is false?
Choose one answer.
a. Insurers may refuse to issue a policy to individuals based on positive HIV test results.
b. Applicants may or may not be informed that testing for HIV helps determine insurability.
c. The HIV Consent Form specifies which types of individuals may receive the test results.
d. Insurers are to avoid making or permitting unfair distinctions between individuals of the same class in the underwriting for the risk of AIDS.

b. Applicants may or may not be informed that testing for HIV helps determine insurability.

Insurers are to require the maintenance and strict confidentiality of personal information obtained through testing and to require informed consent before testing for HIV.

When the death of an insured occurs within a specified period, causing the policy to pay double or triple benefits, this policy must have which of the following riders?

a. Increased Death Benefit Rider
b. Enhanced Settlement Rider
c. Accidental Death Rider
d. Accelerated Benefit Rider

c. Accidental Death Rider

Also known as the Double Indemnity Rider, the policy pays the stated multiple of the face amount should the insured die as the result of an accident.

In the event there is a policy issued and there are questions on the insurance application that went unanswered:

a. The agent will fill in the answers after the fact.
b. It will be assumed that the insurer waived their right to have answers to those questions.
c. The insurer will cancel the policy.
d. A new application must be filed.

b. It will be assumed that the insurer waived their right to have answers to those questions.

If a policy is issued with questions unanswered, the contract will be interpreted as if the question had not been asked and is therefore waived by the insurer.

Which requirement is needed to act as an insurance producer or agent?
a. Obtain a bonding license.
b. Obtain an insurance professional designation.
c. Pass a state insurance examination.
d. Take a fiduciary oath of office.

c. Pass a state insurance examination.

In most states, one cannot be licensed as an insurance producer or agent without passing a licensing examination. Some states will allow an exemption in given situations, if one has passed a like exam in a former state, and is now moving to a new state.

How is the funding for Social Security provided?

a. Through FICA taxes that are paid by employees.
b. Through FICA taxes that are paid by employers.
c. Through FICA taxes that are paid by both employers and employees.
d. Through special fundraising programs.

c. Through FICA taxes that are paid by both employers and employees.

Unless one is self-employed, both the employer and employee fund Social Security through paying FICA taxes.

The insured may select a managed care version of a traditional Medicare Supplement Policy at a lower premium by choosing a policy that limits care to a specific list of hospitals and physicians. This would be called a:

a. Medicare Select Policy
b. Medicare Supplement Policy
c. Medicaid Select Policy
d. Medicaid Supplement Policy

a. Medicare Select Policy

Medicare Select is a managed care version of a traditional Medicare Supplement Policy that may require you to use hospitals and, in some cases, doctors within its network, to be eligible for full benefits.

Which of the following products are offered by insurers to protect families from the financial setback of a family member's premature death?

a. Endowment Contracts
b. Mutual Funds
c. Nonqualified Tax Deferred Annuities
d. Life Insurance

d. Life Insurance

Only Life Insurance provides an immediate fund at the time of a premature death. All of the other options are primarily, although not exclusively, savings and investment vehicles.

Which is not a characteristic of a Variable Annuity?

a. Minimum guaranteed rate of interest
b. Multiple investment options
c. Regulation by the SEC
d. Balance held in a separate account

a. Minimum guaranteed rate of interest

A Variable Annuity enjoys tremendous flexibility, the cost being the sacrifice of a number of guarantees, one of which is a minimum guaranteed rate of interest. Having multiple investment options, a Variable Annuity is regarded as a security, subject to the regulations of the SEC. Balances are held in a separate account since the owner of the annuity, not the insurer, is assuming all risk.

At the time of her retirement at age 62, Jolene chose a Life Income Payment Option to have her annuity distributed. Five years later, when her health declines, she needs the distribution to be increased. How is this accomplished?

a. She cannot change the distribution once commenced.
b. By adding a Cost of Living Rider.
c. By adding a Waiver of Premium Rider.
d. By adding a Medical Expense Rider.

a. She cannot change the distribution once commenced.

Once a contract has been annuitized in a fixed life fashion, the distribution remains constant. That is the trade-off for the insurer guaranteeing payments for life. Annuitization options do not come with riders.

An agent who promises or gives to any applicant anything of value that isn't specified in the contract is guilty of:

a. Rebating
b. Twisting
c. Fraud
d. Misrepresentation

a. Rebating

Rebating is offering a discount of premium, advantage, or valuable consideration that is not specified in the policy.

The period of time over which a single sum or periodic deposits grow within an annuity is referred to as the:

a. Savings Period
b. Growth Period
c. Accumulation Period
d. Benefit Period

c. Accumulation Period

The Accumulation Period is the time over which a single sum or periodic deposits grow within an annuity. Just as cash values within a life insurance policy, annuity balances grow on a tax-deferred basis, which shelters the income within the contract from taxation while it is accumulating.

An insured owned two life policies, one from which she was already receiving a monthly benefit under the Life Income Option. The other was a term policy with her husband named as beneficiary. She died, so the husband will receive:

a. Her monthly benefit for the rest of this life.
b. The unpaid balance of the first policy and face of the second.
c. Twice the face amount of the term policy.
d. The face amount of the term policy.

d. The face amount of the term policy.

He will receive the face amount of the term policy only. Since she chose the Life Income Option, payments cease upon death; hence, he receives no periodic payments.

Which of the following best depicts statements made to an insurer by an insured that affect the validity of the contract?

a. Warranties
b. Waivers
c. Guarantees
d. Estoppels

a. Warranties

Warranties are statements made in an application for insurance or material stipulations in the policy that are guaranteed as true in all respects. If untrue or if breached, the contract may be voided.

Experience rating utilizes ___________ in determining the rate the insurer will charge for group coverage in the following period of coverage.

a. Credit rating of all participants
b. Actual loss experience of the group
c. The plan sponsor's credit rating
d. Actual loss experience of everyone in that zip code

b. Actual loss experience of the group

While the underwriter may consider a plan's sponsor credit rating, the group's experience (i.e. claims) is critical. Community rating still looks at claims experience, but it is based upon geography (e.g. zip code) not the specific group.

Which product, offered by insurers, allows an individual's savings to be distributed to him periodically over his entire life, regardless of how long he lives?

a. Limited Payment Policies
b. Mutual Funds
c. Endowment Contracts
d. Annuities

d. Annuities

Annuitization affords an individual the option to receive a sum of money spread over his life. The insurer bears the risk of the individual living beyond his life expectancy. The risk to the individual in that arrangement is the loss of purchasing power over a long period in an inflationary environment.

Which of the following is an example of a rebate?

a. Premium reductions, promises and personal services not specified in the policy.
b. Selling insurance only to one's own family.
c. Charging a fee for researching an insurance quote.
d. None of the answers listed.

a. Premium reductions, promises and personal services not specified in the policy.

Rebating is offering a discount of premium, advantage, or valuable consideration that is not specified in the policy.

To be fully insured for Social Security, a person that attained age 21 prior to 1950 must have been covered by Social Security for_____ quarters.

a. 6
b. 10
c. 20
d. 40

d. 40

To be fully insured for Social Security if one attained age 21 prior to 1950, they must have been covered by Social Security for 40 quarters.

Which of the following is not a Mandatory Uniform Provision of an Accident and Health policy?

a. Payment of Claims
b. Time limit on Certain Defenses
c. Proof of Loss
d. Waiver of Premium

d. Waiver of Premium

The other choices are Mandatory Uniform Provisions. Waiver of Premium is a provision that may or may not be included.

A 22 year-old applicant for life insurance has a limited budget for premiums. Which of the following policies would provide for the highest face value, for a given premium amount?

a. Endowment Policy
b. Whole Life
c. Annually Renewable Term
d. Limited Payment Life

c. Annually Renewable Term

Term insurance is pure risk coverage. As such, almost all of the premium funds mortality charges and not cash values. As a result, it buys significantly more death benefit for the same premium, than its permanent life counterparts do.

A mother with a teenage son purchases a life policy on his life. The policy includes an optional rider called the Payor Benefit. What will happen to the policy if the mother dies or is disabled?

a. The amount of coverage is reduced as the policy is paid up
b. The policy would most likely lapse
c. The premiums would be suspended and later paid back by the son
d. The premiums on the son's policy would be waived until the son reaches a specified age

d. The premiums on the son's policy would be waived until the son reaches a specified age

The Waiver of Payor Premium Rider allows the insurer to forego collection of premium in the event of the total disability or death of the owner/premium payor of the policy. The Payor Benefit Rider is used in third-party policies in which the insured and owner are not the same.

Any life insurance transaction in which a new life insurance policy is being purchased and an existing policy is being surrendered or lapsed is a?

a. Fraud
b. Rebate
c. Replacement
d. Rider

c. Replacement

A policy that is taking the place of existing coverage is a replacement.

Of the following, each is an unfair or deceptive business practice, except?

a. Misrepresentation
b. Representation
c. Defamation
d. Discrimination

b. Representation

A representation is a statement that is believed to be true; it is not an unfair trade practice.

An agent develops a marketing brochure that lists the benefits of doing business with his firm. Under what context may he not include a reference of the State Guaranty Association?

a. Insurers and agents are prohibited from using the existence of the State Guaranty Association to induce a prospect to purchase.
b. Agents and insurers have no restrictions with its inclusion.
c. Agents do not, but insurers are prohibited from using the existence of the State Guaranty Association to induce a prospect to purchase.
d. Insurers do not, but agents are prohibited from using the existence of the State Guaranty Association to induce a prospect to purchase.

a. Insurers and agents are prohibited from using the existence of the State Guaranty Association to induce a prospect to purchase.

No insurer or producer may use the existence of the State Guaranty Association for the purpose of insurance sales.

Clarice pays a $99 monthly health insurance premium, due on the first day of each month. As of April 10, how much of her premium has been earned by the insurance company.

a. $66
b. $33
c. $99
d. Nothing

b. $33

All premiums are due at the beginning of the period of coverage; hence, the earned premium is based upon the days for which coverage has been provided.

Which is true regarding Variable Annuities?

a. Values are determined by the equity of the stock market.
b. None of the answers listed are true.
c. Generate an immediate estate.
d. Generally sold by property and casualty companies.

b. None of the answers listed are true.

All statements are false regarding Variable Annuities. Values are determined by the performance of the separate account(s); they are sold by life and securities licensed individuals; and life insurance, not annuities, generates an immediate estate.

When does the Results Clause exclude coverage?

a. When the insured dies from any military activity.
b. When the insured dies as a result of an act of war.
c. When the insured dies while on active duty.
d. If the insured dies while in uniform.

b. When the insured dies as a result of an act of war.

The Results Clause excludes coverage for death due to an act of war, declared or undeclared, not merely for being in the military. That would involve application of the Status Clause.

Making the purchase of insurance from a particular source the condition to another business transaction is an example of which of the following unfair practices?

a. Unfair discrimination
b. Boycott, Coercion or Intimidation
c. Defamation
d. False Statement

b. Boycott, Coercion or Intimidation

Boycott, Coercion or Intimidation is an unfair trade practice that occurs when someone in the insurance business refuses to have business dealings with another until he or she complies with certain conditions or concessions.

_____ Options allow for the distribution of death benefit, cash surrender value, or balance at endowment, either in periodic or systematic fashion to the contract owner, or named beneficiaries, as the situation dictates.

a. Settlement
b. Dividend
c. Nonforfeiture
d. Accumulation

a. Settlement

A Settlement Option dictates a mode of payment to an owner or beneficiary (e.g. Fixed Amount, Fixed Period, Life Income, etc.) The owner may choose Settlement Option for a beneficiary that may not be changed by the beneficiary if the owner dictates.

All are types of managed care plans, except:

a. Indemnity Plans
b. HMOs
c. PPOs
d. POSs

a. Indemnity Plans

HMOs, PPOs, and POSs are all types of managed care plans (i.e. those in which an organization contracts with providers in advance to control costs). A true indemnity plan is in no way, managed care.

If an insured enjoys a premium that is lower than others that are in the same class, this insured is considered to be rated as?

a. Rated
b. Standard
c. Substandard
d. Preferred

d. Preferred

Individuals who meet certain requirements (such as ideal health, height and weight, low occupational stress, etc.) are preferred risks.

An insured has a $175,000 permanent life insurance policy and is having difficulty keeping up with the premium payments. Which Nonforfeiture Option would allow him to forego the premiums and retain the same face amount until CSV is exhausted?

a. Cash Surrender
b. Extended Term
c. Premium Reduction
d. Paid-Up Additions

b. Extended Term

Premium Reduction and Paid-Up Additions are dividend options. Cash Surrender is a Nonforfeiture Option; however, the policy is no longer in force. Extended Term continues the same coverage until the cash value from which the premium is paid is exhausted.

When an insurer uses the experience of the group to be insured, in determining the rates to be charged, it is called:

a. Experience rating
b. Community rating
c. Claims rating
d. Cost rating

a. Experience rating

If an insurer bases premiums upon the group's claims and cost to the insurer, the group is said to be Experience Rated.

Which rider would eliminate coverage for a preexisting condition?

a. Return of Premium Rider
b. Impairment Rider
c. Lifetime Benefit Rider
d. None of these

b. Impairment Rider

The Impairment Rider eliminates coverage for preexisting conditions, but at the same time may make insurance available for an otherwise uninsurable person.

Under the Legal Actions Mandatory Uniform Provision, an insured must wait at least _____ days after providing proof of loss before he or she can take legal action against the insurer.

a. 60 days
b. 90 days
c. 180 days
d. 45 days

a. 60 days

An insured must allow a reasonable passage of time for an insurer to live up to its contractual obligations. In this case, reasonable is 60 days.

An employer who has an Open Enrollment Period four times during a policy period for group dental coverage might cause the insurer to have concerns about which of the following?

a. Insurable Interest.
b. Premium Payments.
c. Adverse Selection.
d. Stability of Membership.

c. Adverse Selection.

Frequent Open Enrollment periods would cause the insurer more exposure to immediate claims and concerns of increasing adverse selection.

Which is not a requirement to obtain an insurance producer's license?

a. Appointment of an insurer
b. College degree
c. Passing a written insurance examination
d. Being of good moral character

b. College degree

A college degree is not a required to obtain a producer's license.

Which of the following are powers of the Commissioner or Director of Insurance?

a. Receive documentary evidence, subpoena and cross-examine witnesses
b. Set premiums
c. Change insurance statutes and regulations
d. Prosecute violations of insurance law

a. Receive documentary evidence, subpoena and cross-examine witnesses

The Commissioner or Director of Insurance has the authority to take the necessary steps to enforce and administer the insurance laws. This includes receiving documentary evidence, subpoenaing and cross-examining witnesses. Changes to insurance statutes and regulations are done by legislative action.

An applicant for life insurance pays the agent the initial premium and receives a Conditional Receipt in return. If the policy was to be issued as standard, but the applicant dies prior to policy issue:

a. The insurer must pay the death benefit.
b. The insurer will refund any premiums paid.
c. The insurer pays nothing.
d. None of the answers listed.

a. The insurer must pay the death benefit.

With a Conditional Receipt, if premium is paid, coverage will be in effect the date of application.

A grandparent purchases a life insurance policy on a granddaughter and wants to retain control of the policy. Which provision of the policy allows the grandparents to control the policy regardless of the age of the grandchild?
Choose one answer.
a. Conversion Option
b. Incontestability Provision
c. Ownership Provision
d. Reinstatement Provision

c. Ownership Provision

Ownership provides privileges, namely complete control of the policy, regardless of the age of the insured. An insurable interest must exist only at the time of application.

An insured with a participating life insurance policy receives an annual dividend check in the mail. He must have selected which Dividend Option:

a. Accumulate at interest
b. Dividend reinvestment
c. Cash
d. Premium reduction

c. Cash

The dividend, payable at the end of the policy year, is paid directly to the owner under the Cash Option. However, immediately after the dividend is paid, the following year's premium is due; so many people choose the Premium Reduction Option instead.

A public school teacher may contribute part of his or her income into a ____ plan and defer income taxes on not only the contribution but also the growth in the plan.

a. SIMPLE
b. 403(b)
c. 501(c)(3)
d. Section 457

b. 403(b)

All of the plans allow for pre-tax employee contributions (i.e. employee salary deferrals, and tax-deferred growth). However, only a 403(b) is for public school employees.

With Long-Term Care Insurance coverage, the longer the _________is, the higher the premium is.

a. Waiting Period
b. Elimination Period
c. Benefit Period
d. Preexisting Period

c. Benefit Period

A long benefit period is more costly to the insurer. Therefore, the premium is higher.

Which federal government agency regulates the standard life insurance policy form?

a. The National Association of Securities Dealers.
b. The Securities and Exchange Commission.
c. The National Association of Insurance Commissioners.
d. There is not a federal government agency that regulates life insurance policy forms.

d. There is not a federal government agency that regulates life insurance policy forms.

There is no federal regulatory agency with respect to life and health insurance. Each state Department or Division of Insurance prevails in that jurisdiction. The NAIC promotes uniformity, but cannot mandate it.

Which of the following is not an instance of unfair discrimination?

a. Charging a different rate for smokers and nonsmokers.
b. Charging a different rate for persons solely based upon blindness or who may be a victim of domestic abuse.
c. Charging individuals of the same class and life expectancy different rates for life and annuities.
d. Charging individuals of the same class and subject to the same hazards different rates for accident or health insurance.

a. Charging a different rate for smokers and nonsmokers.

Charging different rates for individuals of the same class and hazard is unfair discrimination.

Which provision prevents a Whole Life Policy from lapsing, given adequate cash value if the insured forgets to pay the premium by the end of the grace period?

a. Conservation Provision
b. Premium Reduction
c. One-Year Term
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d. Automatic Premium Loan

d. Automatic Premium Loan

The Automatic Premium Loan Provision (APL) gives the insurer the right to initiate automatically a loan to prevent policy lapse. This works only if adequate cash values are available to pay the interest.

All of the following are coverages provided under a Basic Hospital Expense Policy, except?

a. Specialist care
b. Semi-private room
c. Miscellaneous hospital expenses
d. Board

a. Specialist care

A Basic Hospital Expense Policy pays for hospital room (semi-private) and board, and miscellaneous hospital expenses, up to a limit.

A Medicare Supplement Policy must include, as a core benefit, Medicare Part B coinsurance in the amount of ____.

a. 10%
b. 20%
c. 15%
d. 25%

b. 20%

All Medicare Supplement Policies must cover as a core benefit the 20% Medicare Part B coinsurance for medical insurance.

A beneficiary of a life insurance policy on his recently departed spouse selects the Life Income Only Settlement Option in order to get the highest monthly payment for life. Which of the following would not affect the monthly amount he will receive?

a. Age of spouse at time of death
b. The amount of the death benefit
c. The age of the beneficiary at the spouse's death
d. The prevailing interest rate

a. Age of spouse at time of death

It is not the insured's age that is important, but the beneficiary's age at the time of settlement. Any periodic payment made or received is a function of three key variables, principal (e.g. death benefit), prevailing interest rates, and term (i.e. number of payments), just as in a mortgage.

When a policy is mailed to an insured by an insurer, it is considered to be:

a. Purchased
b. Issued
c. Delivered
d. Canceled

c. Delivered

A policy may be delivered by registered or certified mail with a signed receipt of delivery.

Which provision states that the insurance company must pay claims immediately?

a. Payment of Claims
b. Legal Actions
c. Relation of Earnings to Insurance
d. Time of Payment of Claims

d. Time of Payment of Claims

Time of Payment of Claims (a Mandatory Uniform Provision) stipulates that claims be paid immediately upon written proof of loss.

The cash value in an individually owned life insurance policy enjoys the same benefit of ____ ____ ____, as do balances in an employer sponsored tax qualified retirement plan (e.g. 401(k), etc.)

a. Tax deferred growth
b. Tax free distribution
c. Tax deductible contributions
d. Tax free growth

a. Tax deferred growth

As in any employee sponsored tax qualified retirement plan, cash value accumulates on a tax-deferred basis. Tax deferred means tax postpones, not free. Therefore, when a policy is surrendered for its CSV, the amount above cost basis (i.e. total premiums paid) is taxed as ordinary income.

It is the responsibility of an agent, when replacing an existing policy, to perform all of the following, except:

a. Disregard any solicitation material used in the presentation to an applicant.
b. Provide a comparison statement.
c. Provide an outline of coverage.
d. Remind the client that new evidence of insurability may be required.

a. Disregard any solicitation material used in the presentation to an applicant.

All solicitation material must be disclosed when replacing a policy.

Generally, life policies pay benefits in a lump sum. Optional provisions that allow benefits to be paid other than lump sum are referred to as:

a. Settlement Options
b. Mandatory Options
c. Statutory Options
d. Distribution Options

a. Settlement Options

Settlement Options allow for life insurance proceeds to be distributed in a fashion other than lump sum (i.e. Fixed Amount, Fixed Period, Life Income, Life Income Period Certain, etc.) In annuities, the very same options are called payout or annuitization options.

Which of the following insurance policies may be written with Basic Medical Expense Coverage utilizing a Corridor Deductible after the basic plan benefits have been exhausted and before Major Medical benefits begin?

a. Supplementary Major Medical.
b. Hospital Expense.
c. Comprehensive Major Medical.
d. Surgical Expense.

a. Supplementary Major Medical.

The question is describing the characteristics and mechanics of a Supplemental Major Medical Policy.

A homeowner with a 20-year mortgage needs to cover the mortgage amount with term insurance. Which of the following would she choose?

a. Decreasing Term
b. Level Term
c. Increasing Term
d. Re-entry Term

a. Decreasing Term

Level, increasing, or decreasing relate to the death benefit only, not the premium. As a debt is amortized (i.e. paid-off), its balance goes down, as does the death benefit in decreasing term.

An aunt and uncle purchase a life insurance policy for their niece, for whom they are the legal guardians. Both (aunt and uncle) perish in an accident some time later. Who collects the death benefit?

a. The estate
b. The primary beneficiary
c. No one, the insured (niece) is still living
d. The contingent beneficiary

c. No one, the insured (niece) is still living

Even though this may appear to be an example of the Common Disaster Clause, which deals with the simultaneous death of an insured and the primary beneficiary, it is not. The policy insures the life of the niece, and she is still living.

A self-insured health care plan in which the sponsor pays claims directly, but limits liability both on a per claim and aggregate plan basis, is called a:

a. Minimum Premium Plan
b. Premium Delay Plan
c. Reserve Reduction Plan
d. Retrospective Rating Plan

a. Minimum Premium Plan

Virtually all self-insured plans utilize a minimum premium plan to place a limit on a plan's exposure. Not to do so would leave a company open to enormous financial liability that could lead to bankruptcy. The other plans are all modified fully insured plans.

Which provision is a Mandatory Uniform Provision?

a. Misstatement of Age
b. Legal Actions
c. Conformity with State Statutes
d. Illegal Occupation

b. Legal Actions

The only response that is a Mandatory Uniform Provision is Legal Actions. All other responses are Optional Uniform Provisions.

Making a false oral or written statement that is intended to injure someone in the business of insurance is an example of:

a. Rebating
b. Retribution
c. Defamation
d. Malicious

c. Defamation

Defamation is making any false oral or written statement that maliciously intends to injure someone in the business of insurance.

When comparing a Whole Life and an Endowment Policy, all are true, except:

a. Whole life endows at age 100. Endowments typically mature at a specified age prior to 100.
b. Endowment policies reach paid-up status sooner.
c. Endowment policies have a higher cost per thousand dollars of coverage.
d. Endowment policies pay no death benefit.

d. Endowment policies pay no death benefit.

Endowment policies are as much, if not more, a cash accumulation vehicle as they are life insurance.

A Variable Universal Life Policy is generally purchased to provide protection and to accumulate a growing cash value. Which of the following are true characteristics of a VUL policy?

a. The insurer bears all risks in accumulating cash value.
b. The policy has a fixed premium schedule.
c. As long as there is sufficient cash value to fund the death benefit, the insured may pay less or more than the planned premium.
d. The policy does not require a securities license to sell.

c. As long as there is sufficient cash value to fund the death benefit, the insured may pay less or more than the planned premium.

VUL provides all of the beneficial characteristics of Universal and Variable Life, primarily a flexible premium arrangement and multiple investment options for accumulating cash surrender value for which the insured/owner bears all of the risk. As the cash values are held in a separate account, it does require a securities license to sell.

A Basic Hospital Expense Policy provides coverage for the insured while ________.

a. In rehabilitation
b. Confined to the hospital
c. At home
d. In a nursing home

b. Confined to the hospital

A Basic Hospital Expense Policy covers hospital expenses.

Of the following choices, which is false concerning Long-Term Care Insurance?

a. It is a qualified retirement plan.
b. It provides coverage for health services.
c. It designed to cover an individual with a long-term illness or disability.
d. It provides a form of medical care without hospitalization.

a. It is a qualified retirement plan.

Long-Term Care Insurance is intended to provide coverage for not less than twelve months for medically necessary diagnostic, therapeutic or personal care services provided in a setting other than an acute care unit of a hospital.

With health and life insurance a/an _____ ______ is required at the time of the application.

a. Beneficiary status
b. Insurable interest
c. Ownership right
d. Indemnity interest

b. Insurable interest

Insurable interest must exist at the time of application.

Mr. Stanley is injured while attempting to escape from the police following a bank robbery, his A & H coverage will probably pay:

a. Nothing
b. Full claim, less the deductible
c. Amount scheduled
d. One half of normal benefit

a. Nothing

Since Mr. Stanley is injured while committing an illegal act, the Illegal Occupation/Act Provision (an Optional Uniform Provision) stipulates the insurer's right to deny liability.

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