CA Insurance Exam

Terms in this set (165)

Which statement pertaining to nonqualified retirement plan is correct?

a. Contributions by the employer are income to the employee
b. The employer may discriminate
c. The plan must be approved by the Department of Labor
d. Contributions by the employer are tax deductible
b. The employer may discriminate

Essentially, the term nonqualified might as well mean nondeductible contributions. A nonqualified plan need not meet ERISA guidelines, hence it may choose whom it covers (i.e. discriminate). However, when distributions are made they are deductible to the employer and taxable as ordinary income to the employee.
An applicant does not smoke, exercises, seldom drinks, and eats moderately.
For which status would they likely qualify?

a. Substandard status and pay a higher premium
b. Preferred status and pay a higher premium
c. Standard status and pay a standard premium
d. Preferred status and pay a lower premium
d. Preferred status and pay a lower premium

Individuals who meet certain requirements (such as ideal health, height and weight, low occupational stress, etc.) are preferred risks.
The owner of a Variable Life Policy may allocate the premium into a sub-account which is managed by the insurer, this sub-account is also known as a:

a. Accumulation Account
b. Side Fund
c. Separate Account
d. Allocation Account
c. Separate Account

Variable Life, like Whole Life, has a fixed premium schedule. Yet, unlike Whole Life, Variable Life allows the insured/owner to assume all the risk in accumulating cash values. As such, these funds are held in separate accounts, and not commingled with the cash values of traditional Whole Life or Universal type contracts in which the insurer bears all the risk.
Of the following, which best describes being an admitted insurer in this state?

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

Admitted insurers have been authorized by the Commissioner (Director or Superintendent) of Insurance to conduct business in this state.
All are types of managed care plans, except:

a. POSs
b. Indemnity Plans
c. PPOs
d. HMOs
b. 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.
A specified period before new coverage goes into effect for a specified condition is known as which of the following?

a. Waiting period
b. Exclusion
c. Probationary period
d. Morbidity table
c. Probationary period

The question establishes a period before coverage goes into effect for specified conditions, not a period before an employee is even eligible to enroll for group benefits, which would be a waiting period.
Before an insurer can operate in this state, it must have which of the following?

a. Certificate of Authority issued by the State Department or Division of Insurance
b. Approval of the National Association of Life Underwriters
c. U.S. Senate approval
d. Certificate of Automatic Authority issued by the state
a. Certificate of Authority issued by the State Department or Division of Insurance

A Certificate of Authority from the Department or Division of Insurance is required for an insurer to operate in most states whether the insurer is domestic, foreign, or alien.
Each Health and Disability Income Policy must express the conditions and provisions for ____________.

a. Policy corrections
b. Continuation of the contract
c. Conditional coverage
d. Refunds of premium at maturity
b. Continuation of the contract

Each policy must express the conditions and provisions for renewal or continuation of coverage.
Which of the following is true regarding the licensing of an individual in this state?

a. The applicant must pass a state licensing exam
b. The applicant must have an insurance degree
c. The applicant must have a law
degree
d. The applicant must be 32 year of age
a. 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.
Regarding group health insurance, which is true?

a. The plan sponsor is issued the Master Policy
b. Each plan participant receives a policy
c. The premium payment is the responsibility of each individual
d. Individual underwriting is utilized
a. The plan sponsor is issued the Master Policy

In group health insurance, only the plan sponsor (typically an employer, but not necessarily) is issued the Master Policy. Covered individuals receive only a Certificate of Insurance. As the policyowner, it is the plan sponsor's responsibility to pay the premium.
The Commissioner or Director of Insurance possesses all of the following duties and authority, except?

a. To file and keep all books and papers as required by law
b. To aid in the interpretation of any federal insurance law
c. To regulate the internal affairs of the Department or Division of Insurance
d. To structure and control insolvency procedures
b. To aid in the interpretation of any federal insurance law

The Commissioner or Director of Insurance has the authority to take the necessary steps to enforce and administer the insurance laws.
Which of the following is true of Medicare Part A, in terms of coverage?
a. Helps pay for routine physical exams
b. Helps pay for outpatient services
c. Helps pay for hospital care and skilled nursing facility care as an inpatient plus home or hospice care
d. None of the answers listed
c. Helps pay for hospital care and skilled nursing facility care as an inpatient plus home or hospice care

Part A covers inpatient hospital services, home health care and hospice care.
Making a false oral or written statement that is intended to injure someone in the business of insurance is an example of:

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

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

a. NAIC
b. States
c. Federal Government
d. Insurers
b. States

The states regulate the insurance industry.
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. Hospitalization date
c. Policy date
d. Date of birth
d. 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.
Which provision of group health plans is used to determine primary and secondary coverage when covered by more than one plan to help reduce overinsurance?

a. Coordination of Benefits
b. Extension of Benefits
c. Schedule of Benefits
d. Primary Care Coverage
a. Coordination of Benefits

Coordination of Benefits is the method of determining primary and secondary coverage when an insured is covered by more than one group policy to help reduce overinsurance.
How is the funding for Social Security provided?


a. Through FICA taxes that are paid by employers
b. Through FICA taxes that are paid by employees
c. Through special fundraising programs
d. Through FICA taxes that are paid by both employers and employees
d. 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.
Which of the following is not true of Medicare Part B?


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

Part B - Medical Insurance (Outpatient) is a voluntary program of government-subsidized insurance requiring participants to make premium payments.
The cash value of a Modified Endowment Contract is treated in a similar manner for federal income tax purposes as the following vehicles, except:

a. A nonqualified tax deferred annuity
b. Balances in a 401(k) Plan
c. Permanent policies passing the 7-Pay Test
d. Balances in a 403(b) Annuity
c. Permanent policies passing the 7-Pay Test

Any policy passing the 7-Pay Test is not a MEC by definition. The MEC provisions were adopted to limit access to the CSV of a life insurance policy. However, the CSV continues to grow on a tax-deferred basis. As such, the CSV in a MEC is similar to the balances in a nonqualified tax deferred annuity or any tax qualified retirement plan. A MEC has similar penalties and restricted access as these two arrangements.
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. $246
c. $550
d. $492
d. $492

Policies generally specify the benefit limit for covered expenses. They will pay the actual expenses incurred up to the limit.
If an insured lives to be 100 years of age, owning a Whole Life Policy, the insurer will pay the face value to the insured. Why will this happen?


a. Because the cash values exceed the death benefit
b. Because risk exceeds reward to the insurer
c. Because the policy endows
d. Because the mortality costs exceed the premium
c. Because the policy endows

Whole Life policies are structured to endow (i.e. mature) at age 100. At endowment, the cash value equals the death benefit.
In Disability Income underwriting, the single most important rating factor from an underwriting standpoint is the applicant's:

a. Occupation
b. Finances
c. Gender
d. Health
a. Occupation

Although many factors are considered in the underwriting process, the applicant's occupation is the single most important.
The following statement is true concerning the income received from an individually owned disability income policy:

a. Premiums paid with after tax dollars=Income benefit taxable
b. Premiums are tax sheltered=Income benefit not taxable
c. Premiums paid with after tax dollars = Income benefit not taxable
d. Premiums are tax sheltered=Income benefit taxable
c. 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.
Which of the following determines the effective date of a life insurance policy?

a. The amount of the premium
b. The type of receipt given
c. The agent's discretion
d. The insurer's discretion
b. The type of receipt given

The type of receipt determines when a policy will go into effect.
For which of the following reasons may an insured return the policy for a full refund within the Free Look Period?


a. Decline in financial rating of the insurance company
b. Increase in premium
c. Death of the agent
d. Any reason
d. Any reason

The insured/owner has the right to examine the policy for 10 days after receipt of delivery. If returned within that period, a full refund of premium is granted. It is the insurer's responsibility to prove date of receipt.
The purpose of the Unfair Trade Practices Act is to:

a. All of the above.
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. Regulate practices in business by defining what practices are fair and descriptive.
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.
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). Correct
b. The policy endows in 7 years
c. The cash values are 75% of death benefit at the end of 7 years.
d. The cash value at the end of year 7 exceeds the total premiums paid.
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). Correct

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.
All are correct statements concerning group life, except?

a. The Conversion Period is 31 days.
b. Premiums are calculated by underwriting each individual in the group
c. Only the plan sponsor is responsible for paying premiums.
d. If employer sponsored, an employee must work a minimum number of hours per week to be eligible.
b. Premiums are calculated by underwriting each individual in the group

Since no proof of insurability is required on the part of the plan participants, the insurer looks at the group collectively, factoring a number of variables.
Using the dividends so that at some future date no additional premium will be due constitutes the ____ dividend option.

a. Premium Elimination
b. Consideration Waiver
c. Paid-Up
d. Elimination of Outlay
c. Paid-Up

When a policy is paid up, no more premiums are due (e.g. after year 20 in a 20 Pay Whole Life Policy). Paid up status is achieved when the amount at risk to the insurer (i.e. death benefit less CSV) is sufficiently small, that the insurer requires no more premiums. Paid up status is unique to Whole Life among permanent policies.
When a policy is paid up, no more premiums are due (e.g. after year 20 in a 20 Pay Whole Life Policy). Paid up status is achieved when the amount at risk to the insurer (i.e. death benefit less CSV) is sufficiently small, that the insurer requires no more premiums. Paid up status is unique to Whole Life among permanent policies.

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

LTC benefits are usually not subject to federal income tax.
An employee who is covered under an employer group life insurance plan may assume all of the following are true of the opportunity of conversion, except?

a. The employee chooses which type of insurance to convert to
b. The premiums are greater than required for the group policy coverage
c. No proof of insurability is required.
d. The policy to which the employee converts is individual permanent insurance.
a. The employee chooses which type of insurance to convert to

The greatest advantage of group life conversion is that evidence of insurability is not required. Since this suggests that some adverse selection will occur, the insurance company requires conversion to a permanent life only.
Which of the following regarding Medicare Part B is true?

a. It is free for those who qualify
b. It covers routine dental checkups
c. Provides coverage for inpatient services.
d. Voluntary, supplemental coverage of Part A gaps, pays 80% of covered expenses, with a monthly premium and annual deductible.
d. Voluntary, supplemental coverage of Part A gaps, pays 80% of covered expenses, with a monthly premium and annual deductible.

Part B - Medical Insurance (Outpatient) is a voluntary program of government-subsidized insurance requiring participants to make premium payments.
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 premiums would be suspended and later paid back by the son
c. The policy would most likely lapse
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.
An agent who promises or gives to any applicant anything of value that isn't specified in the contract is guilty of:

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

Rebating is offering a discount of premium, advantage, or valuable consideration that is not specified in the policy.
If a replacement is involved, the replacing producer or agent is required to give to the applicant all of the following, except:

a. An outline of coverage and the replacement notice.
b. A copy of the state regulations regarding replacements
c. A reminder that new evidence of insurability may be required
d. A copy of each sales proposal.
b. A copy of the state regulations regarding replacements

Although the producer or agent is required to follow the state regulations regarding replacement, the producer or agent does not give the client a copy of such regulation.
If an insured exercises the Guaranteed Insurability Rider, what will the premium be based upon?

a. Contractual age
b. Attained age
c. Issue age
d. No greater than issue age plus 5 years
b. Attained age

When exercised, the Guaranteed Insurability Rider allows additional insurance to be purchased without proof of insurability. Premiums are based upon attained age.
To reduce a substandard disability risk an insurer may take all of the following actions, except:

a. Reduce the amount of benefit
b. Charge additional premium
c. Remove all of the exclusion riders
d. Increase the period of elimination
c. Remove all of the exclusion riders

The underwriter might utilize a Full Exclusion Rider when a condition appears certain to result in recurrent disabilities.
All of the following groups are eligible for group rates, except:

a. Labor unions
b. Associations
c. Employers
d. Groups formed to reduce premiums
d. Groups formed to reduce premiums

A group cannot be formed for the express purpose of reducing premiums. Employers (the most frequent), labor unions, and associations are eligible plan sponsors.
Of the following, each is an unfair or deceptive business practice, except?

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

A representation is a statement that is believed to be true; it is not an unfair trade practice.
Industrial Life Insurance is synonymous with:

a. Facility of Payment Policy
b. Debit Life Insurance (Home Service-Monthly Debit Ordinary)
c. Burial Policy
d. Minimum Premium Policy
b. Debit Life Insurance (Home Service-Monthly Debit Ordinary)

Industrial life policies are policies of a smaller death benefit, and premiums are collected by a Debit Agent.
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. Substandard
b. Standard
c. Rated
d. Preferred
d. Preferred

Individuals who meet certain requirements (such as ideal health, height and weight, low occupational stress, etc.) are preferred risks.
Which is not a characteristic of a Fixed Annuity?

a. Money is held in the insurer's general account
b. A minimum rate of interest
c. Money is held in a separate account
d. The insurer bears all risk
c. Money is held in a separate account

It is a Variable Annuity that balances are held in a separate account, while those in a Fixed Annuity are held in the insurer's general account. A Fixed Annuity functions much like a tax-deferred savings account with the insurer crediting interest with a stated minimum rate. As such, the insurer bears all risk.
Insurance policies that do not pay dividends to policyowners are:

a. Nonparticipating policies
b. Dividend Reinvestment Plan
c. Mutual policies
d. Stock Accumulation Plan
a. Nonparticipating 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.
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 contingent beneficiary
b. The primary beneficiary
c. No one, the insured (niece) is still living
d. The estate
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. Premium Delay Plan
b. Minimum Premium Plan
c. Reserve Reduction Plan
d. Retrospective Rating Plan
b. 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.
If an insured is not able to work full-time as a result of a current disability, and is receiving a disability income based upon this partial loss, it is considered a?

a. Residual Disability
b. Presumptive Disability
c. Recurrent Disability
d. Partial Disability
d. Partial Disability

Partial Disability is an inability to perform one or more of the regular duties of an occupation.
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.
An insured owning an Adjustable Life Policy enjoys a policy that has characteristics of both ______ and _______.

a. Permanent and Term
b. Increasing and Decreasing Term
c. Life Expectancy and Level Term
d. Level and Increasing Term
a. Permanent and Term

Adjustable Life, the precursor to Universal Life, issues a term component for death benefit and an interest sensitive side fund for cash value.
An insured has paid $1000 in annual premiums for her permanent life insurance policy for 12 years. Now upon surrendering the policy she is due to receive $15,000 of cash value. How much of this cash value is taxable?

a. 0
b. $3,000
c. $15,000
d. $12,000
b. $3,000


The Cost Recovery Rule states that at surrender, cash values will be recovered tax-free to the extent of the cost basis of the policy. The cost basis is $12,000 (i.e. 12 years x $1,000 annual premium). The $3,000 excess over cost basis ($15,000 of CSV less $12,000 cost basis) is taxed as ordinary income.
A life policy would include which rider if the insured is allowed to make, without proving insurability, future additions to the death benefit at rates based upon attained age?

a. Guaranteed Insurability Rider
b. Family Protection Rider
c. Living Need Rider
d. Non-medical 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.
A Basic Hospital Expense Policy provides coverage for the insured while ________.

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

A Basic Hospital Expense Policy covers hospital expenses.
Most group Disability Income contracts are offered on a/an:

a. Noncontributory basis
b. Nonoccupational basis
c. Contributory basis
d. Occupational basis
b. Nonoccupational basis

Workers' Compensation is designed to cover occupational or job related accidents and disease.
Which of the following best describes the consideration given by the insured?

a. The acceptance of the contract
b. The purpose of the contract must be legal
c. Premium payment and health representations at the time of application
d. The offer of the contract.
c. Premium payment and health representations at the time of application

Consideration is something promised, given, or done that has the effect of making an agreement a legally enforceable contract.
Which of the following are powers of the Commissioner or Director of Insurance?

a. Set premiums
b. Change insurance statutes and regulations
c. Prosecute violations of insurance law
d. Receive documentary evidence, subpoena and cross-examine witnesses
d. 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 insured should receive necessary claim forms within _____ days after notice of claim.

a. 10
b. 5
c. 15
d. 20
c. 15

According to the Claim Forms Provision (a Mandatory Uniform Provision), the insured should receive the necessary claim forms within 15 days after notice of claim.
An insured pays $6,000 annually for his family's health insurance, which began on January 1. He informs the insurer on June 30, that he is cancelling the policy. The refund from the insurance company will be:

a. Less than $3,000
b. More than $3,000
c. -0-
d. $3,000
a. Less than $3,000

Cancellation is an Optional Uniform Provision. If the insured cancels, the refund is made on a short rate basis (i.e. not pure pro rata because an administrative charge is assessed). A pro rata refund would be $3,000, but since an administrative charge is subtracted, the refund is less than $3,000.
A person wishing to participate in the growth of the economy would most likely not purchase:

a. An Equity Indexed Annuity
b. A Fixed Annuity
c. A Variable Annuity
d. A Single Premium Variable Annuity
b. A Fixed Annuity

A Fixed Annuity provides many assurances, for example, guaranteed minimum interest rate and the backing of the insurer. However, it does not participate in the overall growth of the economy as an investment in stocks would. Variable Annuities, single premium or otherwise, afford that opportunity. True, an Equity Indexed Annuity is a special type of fixed annuity, but it credits interest to the contract based upon the performance of the stock index. Therefore, technically, it does participate to a degree in the growth of the economy.
Annuities are funded with systematic contributions being made on either a ____ or a ____ basis.

a. Permanent, temporary
b. Fixed, flexible
c. Guaranteed, discretionary
d. Life, periodic
b. Fixed, flexible

Contributions made during the accumulation period are made on either a fixed or a flexible basis. This relates to both amount and timing. Payouts made during the annuitization phase are made on either a life or periodic basis.
Which term refers to statements made on the application that are considered true to the best of the applicant's knowledge?


a. Waivers
b. Concealments
c. Warranties
d. Representations
d. Representations

Representations are statements made on the application by the applicant that are believed to be true to the best of his/her knowledge.
With a Contributory Group Life Plan, what percentage of the employees must participate?

a. At least 60%
b. Between 75% and 100%
c. A full 100%
d. At least 75%
d. 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 requires an insurer to disclose to an applicant the name and address of the consumer reporting agency providing the underwriting information?

a. FRCA
b. Fair Credit Reporting Act
c. APS
d. MIB
b. Fair Credit Reporting Act

The Fair Credit Reporting Act requires the insurer to report the source of the credit information to the applicant.
When Jim traveled from Hereville to There City, his plane crashed and he was slightly injured. Who paid for his medical expenses? He flew Slow Air.

a. His travel accident insurance.
b. His accident and health personal policy
c. Slow Air's group plan.
d. His flight insurance
b. His accident and health personal policy

The question is asking which policy would pay for the person's routine medical expenses, not a limited policy.
It is the responsibility of an agent, when replacing an existing policy, to perform all of the following, except:

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

All solicitation material must be disclosed when replacing a policy.
Which provision states that the insurance company must pay claims immediately?

a. Payment of Claims
b. Relation of Earnings to Insurance
c. Time of Payment of Claims
d. Legal Actions
c. 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.
With regard to a Whole Life Policy with a graded premium, which is correct?

a. Premiums are based on a term rate for 2 years, then increase.
b. Premiums are lower initially, increase annually, and then level off at some point for the remainder of the policy.
c. Premiums vary at the discretion of the owner/insured.
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.
Concerning PPOs, which is a true statement?

a. PPOs provide all services at one location
b. The insured may only utilize providers contracted with the insurer.
c. The insured has a financial incentive to use providers who have agreed to predetermined discounted rates for medical services
d. PPOs are typically not for profit.
c. The insured has a financial incentive to use providers who have agreed to predetermined discounted rates for medical services

While PPOs cover out-of-network providers, a financial incentive is provided to use in-network providers (i.e. those who have agreed to predetermined rates). However, an insured may utilize providers not contracted with the insurer (i.e. out-of-network), and receive some reimbursement. PPOs provide services wherever the providers are located and are for profit insurers.
Which principle states that an insured may claim only up to the amount of the actual loss?

a. Adverse Selection
b. Large Numbers
c. Indemnity
d. Insurable Risk
c. Indemnity

The Principle of Indemnity states that the insured should not profit from or lose from an insurance transaction.
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. Premium reduction
c. Cash
d. Dividend reinvestment
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.
An insured with a Whole Life Policy, passes away of natural causes at the age of 89. Which of the following would the insurer not pay to the beneficiary?

a. Interest expense to the insurer
b. Unearned premium
c. Cash value
d. Administrative costs of the claim
c. Cash value

Absent a rider or a dividend option that would pay cash surrender value to the beneficiary, the insurer retains the cash values and pays only the death benefit. Death benefit minus cash values by the amount at risk to the insurer.
Permitting individuals of the same class and hazard to be charged different rates for the same insurance coverage (unless the rate differential is based upon sound actuarial principles or is related to actual experience) is an example of:

a. Baiting
b. Illegal inducements
c. Unfair discrimination
d. Discounting
c. Unfair discrimination

Charging different rates for individuals of the same class and hazard is unfair discrimination.
Lucy uses her dividends to purchase single premium additional permanent benefits at her attained age. Which Dividend Option is Lucy exercising?

a. Paid-up Option.
b. One-Year Term.
c. Paid-up Additions
d. Reduced Paid-Up
c. Paid-up Additions

Only Paid-up Additions, Paid-up Option and One-Year Term are dividend options; Reduced Paid-Up is a nonforfeiture option. Lucy wanted additional permanent benefits so she should choose Paid-up Additions.
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.
All are true of a substandard risk, EXCEPT:

a. They may be rated as older than actual age
b. The premium would be higher.
c. They may have a flat rate added to their premium.
d. The premium would be discounted.
d. The premium would be discounted.

Individuals whose risk factors do not measure up to underwriting standards are usually issued rated policies.
The fact that only one deductible applies when several family members are injured in the same accident refers to the:

a. Stop-Loss Provision.
b. Recurrent Disability Provision
c. Common Accident Provision
d. Single Accident Provision.
c. Common Accident Provision

The Common Accident Provision limits a loss to one deductible even though several family members are injured in a common accident.
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. 10
b. 20
c. 6
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 provision is an Optional Uniform Provision?

a. Physical Examination
b. Claim Forms
c. Payment of Claims
d. Other Insurance With This Insurer
d. Other Insurance With This Insurer

Other Insurance With This Insurer is an Optional Uniform Provision. The other choices are Mandatory Uniform Provisions.
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. Rebate
b. Fraud
c. Replacement
d. Rider
c. Replacement

A policy that is taking the place of existing coverage is a replacement.
Of the following choices, which is false concerning Long-Term Care Insurance?

a. It designed to cover an individual with a long-term illness or disability.
b. It provides a form of medical care without hospitalization
c. It provides coverage for health services
d. It is a qualified retirement plan
d. 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.
What are the three common rating classifications that impact an insured's premium or rate?

a. Minimum, maximum and standard
b. Low, medium and high
c. Standard, preferred and substandard
d. Rated, nonrated and subrated
c. Standard, preferred and substandard

The three classifications for risks are standard, preferred and substandard.
Based upon Optional Uniform Provisions, an insurer would have the right to deny claim payment in all of the following circumstances, except:

a. A claim involving an injury sustained in a bank robbery.
b. A broken leg injury suffered as the result of ingesting an illegal drug.
c. A claim is covered by another insurer.
d. Misstatement of age on the application
d. Misstatement of age on the application

Misstatement of age would not void the policy, but cause a reduced benefit to be paid. The Insurance With Other Insurers, Illegal Occupations and Actions, and Intoxicant and Narcotics optional provisions could allow an insurer to deny a claim.
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 describes which type of contract?

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

In a Unilateral Contract, only one party is legally bound to contractual obligations after the premium is paid.
All states have adopted the Uniform Individual Accident and Sickness Policy Provision Law. If an insurer changes any of these provisions, they must make sure it does not:

a. Weaken the application wording
b. Create a less favorable meaning than the original wording
c. Conform to NAIC requirements
d. Cancel the law of large numbers.
b. Create a less favorable meaning than the original wording

The insurer must assure that any variation must be at least as favorable as the original wording, and no provision may be deleted.
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. Agents do not, but insurers are prohibited from using the existence of the State Guaranty Association to induce a prospect to purchase.
b. Insurers do not, but agents are prohibited from using the existence of the State Guaranty Association to induce a prospect to purchase.
c. Agents and insurers have no restrictions with its inclusion.
d. Insurers and agents are prohibited from using the existence of the State Guaranty Association to induce a prospect to purchase
d. 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.
It is unlawful to publish, circulate or place before the public any advertisement, announcement or communication that is untrue, deceptive or misleading. This is which unfair practice?

a. False entries
b. False information and advertising
c. Intimidation
d. Representation
b. False information and advertising

Presenting any information or advertisement that is false or misleading in the conduct of insurance business is false information and advertising.
Which is not a requirement to obtain an insurance producer's license?

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

A college degree is not a required to obtain a producer's license.
An insured bought a whole life policy 15 years ago and it has accumulated a cash value of several hundred dollars. She named her spouse as the owner at the time of purchase. Who has the right to change beneficiaries and access the cash value?

a. The spouse
b. The insured
c. The insurer
d. The estate
a. The spouse

Ownership provides privileges. Only the owner, in this case the spouse, controls the rights in the policy. In the vast majority of cases, the insured, owner and applicant is the same person, but not always (e.g. third party ownership.)
Which of the following is true concerning the Benefit Period of a LTC Policy?

a. It is always for the life of the insured.
b. Once the elimination period has been satisfied, it is how long benefits will be payable.
c. None of the answers listed.
d. It is the time between the beginning of a policyholder's disability and the beginning of the policy's benefits.
b. 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.
What is defined as a systematic distribution of accumulated funds, either over one's life, or a specified period?

a. Guaranteed Distribution
b. Annuitization Option
c. Reverse Mortgage
d. Liquidation Option
b. Annuitization Option

An Annuitization Option usually involves a systematic, even series of distributions made to an individual over his or her life, or a specific period. Annuitization Period is the payout phase of the annuity product, while the period during which deposits are made is the Accumulation Period.
Which is true with regard to insurer insolvency?

a. An insurer must immediately sell all assets to raise capital
b. This means an insurer is in a position financially to meet all policyholder obligations
c. Insolvency means any impairment of minimum paid in capital required of an insurer for the classes of insurance which it transacts.
d. An insurer can escape the condition of insolvency by increasing its liabilities.
c. Insolvency means any impairment of minimum paid in capital required of an insurer for the classes of insurance which it transacts.

An insolvent insurer is an insurer that is unable to meet its financial obligations.
Which of the following is the best definition of a Limited Accident Policy?

a. Provides specific benefits for specific injuries from specific causes.
b. Only covers for a limited time after the accident.
c. Limited in geographical scope (i.e. only in the state where written).
d. All answers are correct
a. Provides specific benefits for specific injuries from specific causes.

A Limited Accident Policy provides specific benefits for specific injuries from specific causes.
What type of insurer is described as an organization that is formed as a lodge or for charitable reasons, but also sells insurance to its members?

a. Fraternal Association
b. Retention Group
c. Reciprocal Company
d. Lloyd's Association
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.
A document that provides information for underwriting purposes is called a / an:

a. Underwriting Questionnaire
b. Claim Form
c. Rider
d. Application
d. Application

An application is primarily an underwriting document for the insurer to assess potential risk.
In order for a claimant to be eligible for _______ benefits, they must qualify based upon need.

a. Long-Term Care
b. Medicaid
c. Medicare
d. Medicare Supplement
b. Medicaid

Medicaid is a federal and state administered medical benefit program for persons, regardless of age, whose income and resources are insufficient to pay for health care.
A procedure used by dental insurance carriers to determine the benefit to be paid is known as?

a. Preliminary Evaluation
b. Precertification.
c. Least Coverage Provision
d. Pretreatment Examination.
b. 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.
Concerning eligibility for a 403(b) retirement plan, which of the following would not qualify?

a. County librarian
b. School janitor
c. School teacher
d. School board member
a. County librarian

A 403(b) Tax Sheltered Annuity is a retirement plan specifically for public school employees.
With health and life insurance a/an _____ ______ is required at the time of the application.

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

Insurable interest must exist at the time of application.
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. Claims rating
c. Cost rating
d. Community 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.
The owner of the policy and insurer must meet certain conditions in order for the health insurance policy to be enforceable.

Which type of contract does this describe?


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

A Conditional Contract is one in which both parties to a contract must perform certain duties to make the contract enforceable.
Who of the following could hold a temporary insurance license?

a. Real estate agent selling mortgage protection
b. A direct marketing agent
c. A personal representative of a deceased agent
d. NAIC President
c. A personal representative of a deceased agent

In most states, the personal representative of a deceased agent, a disabled agent, or an existing agent called to the armed forces, can seek a temporary license.
Which of the following is not a Mandatory Uniform Provision of an Accident and Health policy?

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

The other choices are Mandatory Uniform Provisions. Waiver of Premium is a provision that may or may not be included.
One of your clients just reinstated their Accident and Health Policy. When is coverage effective for sickness and accident?

a. 10 days for accident and 48 hours for sickness.
b. 30 days for sickness, immediate coverage for accidents
c. Immediately for both accident and sickness.
d. 10 days for sickness, and immediately for accidental injuries.
d. 10 days for sickness, and immediately for accidental injuries.

Upon reinstatement, accidents are covered immediately and sickness after 10 days.
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. Terminating
c. Renewing
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.
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. There is not a federal government agency that regulates life insurance policy forms.
d. The National Association of Insurance Commissioners.
c. 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.
With a Variable Life Policy, which of the following is guaranteed?

a. Dividends
b. Cash value
c. Interest rate
d. Death benefit
d. 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.
Individuals covered under a Blue Cross/Blue Shield Plan are typically referred to as:

a. Participants
b. Subscribers
c. Insureds
d. Members
b. Subscribers

Individuals covered under a fee for service arrangement (i.e. one in which the service provider is paid) are referred to as subscribers. Those covered under indemnity (i.e. reimbursement) arrangements are called insureds.
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. Mutual Funds
b. Limited Payment Policies
c. Annuities
d. Endowment Contracts
c. 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 statement is true of dividends?

a. They are a characteristic of nonparticipating policies and are paid as declared.
b. They are the property of the policyowner and may be withdrawn anytime there is an accumulation.
c. They are a return of excess premiums paid and are guaranteed.
d. The dividends as well as interest earned on them are taxable as income
b. They are the property of the policyowner and may be withdrawn anytime there is an accumulation.

Dividends are not guaranteed; only the interest is taxable; and they are a characteristic of participating policies.
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?

a. Fixed Amount
b. Joint Life
c. Life Income
d. Life Income with Refund
c. 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).
What is the status of a policy that has been mailed to an insured by an insurer?

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

A policy may be delivered by registered or certified mail with a signed receipt of delivery.
When a producer receives an application for life insurance that is completed and signed, but without premium payment, when does coverage start?

a. 30 days after the application is received
b. At the end of the free-look period
c. On the date the application is received
d. On the date the policy is delivered.
d. On the date the policy is delivered.

The policy will go into effect upon delivery and collection of the premium.
The Unfair Trade or Unfair Methods of Competition Acts apply to all of the following, except?

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

Insurers and producers must not commit any of the unfair trade practices.
An annuity purchased 10 years ago would have some value at this time. The accumulation units may now be converted to annuity units. What type of annuity is this?

a. Variable
b. Fixed
c. Taxable Annuity
d. Ten Year Certain
a. Variable

Remember, Variable Annuities are paid in terms of units, rather than dollars. Upon annuitization, accumulation units are converted to annuity units, and the income is paid on the value of the annuity units.
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. Only the death benefit with no interest is paid
c. 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 insurer determines the number of periods that payments are made
c. 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.
In the event a policy is delivered by an agent to the insured, and the premium payment is to be collected at the time of this delivery, what else must the agent obtain to make the delivery complete?

a. Assurance that the insured's health status has not changed since the time of application with a statement of good health.
b. Additional premium payment.
c. None of the answers listed
d. An affidavit
a. Assurance that the insured's health status has not changed since the time of application with a statement of good health.

It is the agent's responsibility to deliver the policy and verify that the insured has remained in good health.
Traditional individual retirement accounts require distributions to start upon reaching the age of 70 1/2. Which one does not?

a. 501(c)(3)
b. A Roth IRA
c. 403(b)
d. Keogh IRA
b. 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.
An applicant for life insurance faces potential financial loss in the event of injury or sickness of an insured.

What does the applicant have?

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

Insurable interest exists when there is a reasonable expectation that the beneficiary will benefit from the continued health of the insured.
Which provision interprets the policy as if the beneficiary died first, if the insured and beneficiary are in a common accident even if it is known that the beneficiary died just a few days following the insured?

a. Beneficiary Death Clause
b. Accidental Death Clause
c. Uniform Simultaneous Death clause (Common Disaster)
d. Contingent Beneficiary Clause
c. Uniform Simultaneous Death clause (Common Disaster)

The Common Disaster (Uniform Simultaneous Death Law) ensures that if the insured and primary beneficiaries die in a common accident, the beneficiary will be presumed to have died first. Both parties must die within a stated period following the accident, typically 90 days, although the beneficiary need not technically be the first to die.
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 is not an unfair trade practice?

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

Selling better coverage at a higher premium is not an unfair trade practice.
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. One-Year Term
b. Automatic Premium Loan
c. Premium Reduction
d. Conservation Provision
b. 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.
Charging a different premium for two separate individuals who are in the same insuring classification, just because one of the individuals has a higher net worth, would be an example of:

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

Charging different rates for individuals of the same class and hazard is unfair discrimination.
Which of the following is true concerning a Medical Expense Policy for a family?

a. It will not continue to cover their physically handicapped 30-year-old child
b. All of these are true
c. It will continue to cover their 28-year-old child who is a full-time college student.
d. It will continue to cover their unemployed 26-year-old child who is habitually unemployed.
d. It will continue to cover their unemployed 26-year-old child who is habitually unemployed.

Policies providing dependent coverage must cover an unemployed dependent child up age of 26.
A Medicare Supplement Policy must include, as a core benefit, Medicare Part B coinsurance in the amount of ____.

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

All Medicare Supplement Policies must cover as a core benefit the 20% Medicare Part B coinsurance for medical insurance.
With Long-Term Care Insurance coverage, the longer the _________is, the higher the premium is.

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

A long benefit period is more costly to the insurer. Therefore, the premium is higher.
Which is not correct concerning a Blue Cross and Blue Shield Plan?

a. Benefits are paid directly to the insured individual.
b. They are fee for service plans.
c. In most states, they are considered not-for-profit organizations.
d. The offer both individual and group coverage.
a. Benefits are paid directly to the insured individual.

As both Blue Cross and Blue Shield Plans are fee for service programs, they pay the service provider, not the covered individual (i.e. subscriber). They are typically not-for-profit and provide both group and individual coverage.
A Modified Whole Life Policy would charge level premiums that are ______ in early years and then charge a higher fixed premium than whole life for the rest of the term of the policy.

a. Lower
b. Higher
c. Twice as high
d. The same
a. Lower

As its specialty whole life counterpart Graded Premium Whole Life, modified premiums are lower than traditional whole life the early years. Unlike graded premium in which premiums continually rise, modified stays fixed for a period, then increases and stays fixed.
Life insurance policies with fixed rates have a maximum policy loan interest rate of no more than?

a. Prime rate plus 1%
b. 8%
c. 10%
d. The rate base upon Moody's Corporate Bond yield average
b. 8%

Fixed policy loan rates are capped at 8%, while adjustable policy loan rates are based upon Moody's Corporate Bond yield average.
Which of the following describes oral and written statements made that the applicant for insurance believes are true?

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

Representations are statements made on the application by the applicant that are believed to be true to the best of his/her knowledge, but are not warranted.
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 provision requires the application, the contract itself and any riders to be attached to establish a complete contract?

a. The Incontestability Provision
b. The Entire Contract Provision
c. The Valid Contract Provision
d. The Ownership Provision
b. The Entire Contract Provision

The Entire Contract Provision states that the contract consists of the basic policy, a copy of the application, and all riders.
The Commissioner or Director has the authority to hold a fact-finding hearing on any matter related to the business of insurance if he/she has reason to believe that a hearing would be:

a. In the legislatures interest
b. Of interest to the legislature
c. In the public interest
d. Of interest to the public
c. In the public interest

The primary purpose of the Department of Insurance is to protect the public.
Which of the following is correct pertaining to underwriting a group health policy?

a. All participants are always eligible immediately.
b. Group insurance cannot be based upon community experience
c. The average age of the group is not taken into consideration.
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.
Which of the following is true of annuity mortality tables when compared to life insurance mortality tables?

a. Annuity mortality tables reflect greater life expectancy than life insurance mortality tables
b. Annuity mortality tables reflect the same life expectancy as life insurance mortality tables.
c. Annuity products are based on morbidity tables and life insurance products are based on mortality tables.
d. Annuity mortality tables reflect shorter life expectancy than life insurance mortality tables.
a. Annuity mortality tables reflect greater life expectancy than life insurance mortality tables

Annuity mortality tables reflect greater life expectancy than life insurance mortality tables. Remember, annuities protect against one out living their retirement benefits (superannuation).
A married couple is interested in a life insurance policy settlement option that will guarantee them both an income for as long as they live, first for the full amount and then at 2/3 of that amount when the first dies. What should they select?

a. Life Income 2/3 Refund
b. Dual Life Income
c. Joint Life
d. Life Income Joint and Survivor
d. Life Income Joint and Survivor

The Life Income Joint and Survivor Settlement Option pays periodic benefits until the second party dies. However, depending upon which survivor option (e.g. 100%, 75%, 66 2/3%, 50%), the survivor may or may not receive the same benefit the two received together.
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. The covered child becomes the premium payor
c. 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.
d. If the child rider death benefit is paid, it reduces the face amount of coverage.
c. 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.
An insured is hospitalized for at least 3 days. How long will Medicare pay for confinement in a skilled nursing facility?

a. Up to 365 days
b. Up to 30 days
c. Up to 90 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.
What refers to an insurer that is formed under the laws of another state?

a. Alien insurer
b. Interstate insurer
c. Domestic insurer
d. Foreign insurer
d. Foreign insurer

An insurer that is incorporated in another state is called a foreign insurer.
In order for a death benefit to be paid to a beneficiary, with of a 15-pay Whole Life Policy, the insured must pay premiums:

a. For 15 years regardless of when the insured dies
b. Until the insured dies
c. Until the insured's death or 15 years, whichever happens first
d. For 15 years or the insured's death whichever is greater
c. Until the insured's death or 15 years, whichever happens first

A 15-pay Whole Life Policy is a limited payment policy. If the insured dies within the limited period, the death benefit is paid. If the insured does not die within the limited period, premiums cease as the policy is said to be paid up (i.e. no more premiums are due.)
Whole Life is also known as ________ protection.

a. Periodic
b. Permanent
c. Absolute
d. Temporary
b. Permanent

Whole Life is designed to provide the insured protection throughout his or her life. Other types of permanent protection are Endowments, Variable and Variable Universal policies.
Where can the insurer's underwriter find information about an applicant's moral character, hobbies, work and general reputation?

a. Consumer Investigative Report
b. Agent's Report
c. Medical Examination
d. Attending Physician Statement
a. Consumer Investigative Report

A Consumer Investigative Report is a general report of the applicant's finances, character, morals, work, hobbies and other habits. It is sometimes called an Inspection Report.
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. His health policy pays all expenses
b. John is liable for all expenses
c. Health covers medical; disability covers income
d. Medicaid pays the medical expenses
b. 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.
What is the name of a general report of the applicant's finances, character, work and hobbies?

a. Nonmedical Application
b. Agent's Report
c. Inspection Report
d. Research Report
c. Inspection Report

An Inspection Report is a general report of the applicant's finances, character, morals, work, hobbies and other habits. It is sometimes called a Consumer Investigative Report.
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. Buyer's Guide
b. Advertising Guides
c. Replacement
d. Conservation
c. Replacement

The question is stating the definition of replacement.
How was a policy rated if it is issued without special restrictions and without a higher premium?

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

Special restrictions and higher premiums are used for substandard risks.
The dividend option that effectively allows a Whole Life Policy to duplicate Universal Life death benefit Option B is:

a. Paid-Up Additions
b. One-Year Term Option
c. Extended Term
d. Paid-Up Option
b. One-Year Term Option

Universal Life death benefit Option B pays the beneficiary a death benefit in amount equal to the face amount plus cash surrender value. By using the One-Year Term options, which purchases term insurance for the amount of the CSV in that policy year, a participating policy can imitate death benefit Option B.
An insured with a participating life insurance policy receives annual dividends. She has opted for the insurer to use these funds to increase the face amount and accelerate the growth of cash values. This would refer to which option:

a. Reduced Paid-Up
b. One-Year Term
c. Paid-Up Additions
d. Premium Reduction
c. Paid-Up Additions

The Paid-Up Additions Dividend Option buys small paid up portions of life insurance that increase the death and cash values of the policy. Remember only the addition (i.e. the portion the dividend purchased) is paid up, not the base policy. Reduced Paid-Up is a Nonforfeiture Option.
Which of the following accurately describes the principle duties of the Commissioner or Director of Insurance?

a. Enforcement of insurance laws and administration of the Department of Division of Insurance.
b. Prosecute violations of insurance law.
c. Change insurance statutes and regulations.
d. Set premiums
a. Enforcement of insurance laws and administration of the Department of Division of Insurance.

Enforcement and administration are the two main categories of duties of the Commissioner or Director of Insurance. Changes to insurance statutes and regulations are done by legislative action.
A mandatory provision of life insurance is the Entire Contract Provision. Which of the following two documents always constitutes part of the entire contract?

a. The application and policy
b. Policy and Attending Physician's Statement
c. Policy illustration and Agent's Report
d. Application and Agent's Report
a. The application and policy

The entire contract is comprised of the policy itself, the application and any riders attached. The Agent's Report and APS are not included.
Payment of the first premium and an application must be submitted to an insurer for individual coverage within how many days to convert group coverage to an individual policy not requiring proof of insurability?

a. 45 days
b. 28 days
c. 31 days
d. 60 days
c. 31 days

While it may vary by state, most state law affords a 31-day Conversion Period in group health insurance policies.
A Disability Income Policy has a period of deductibility immediately following a disability during which time benefits are not payable. This period is called a / an:

a. Elimination Period
b. Loss of Income
c. Waiting Period
d. Loss of Time
a. Elimination Period

A policy may state six months elimination period for sickness and immediate coverage or as little as seven days in case of an accident.
Which would be incorrect regarding a Variable Annuity?

a. Upon annuitization, the accumulation units are converted to annuity units. The income is paid based on the value of the units
b. The contract owner bears the investment risk and receives the return actually earned on invested assets, less any charges assessed by the insurer.
c. The number of annuity units received, and the unit value, remain level.
d. Premiums paid during the accumulation period are invested in a separate account(s).
c. The number of annuity units received, and the unit value, remain level.

Under Variable Annuities, upon annuitization, the number of units remains level, but the unit values fluctuate.
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 used to offset underwriting costs.
d. It is refunded on a short rate basis.
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.
If an insured/owner is receiving accelerated benefits from his life insurance, policy the insurer must provide a report listing total:

a. Cost Comparison
b. Buyer's Guide
c. Policy Summary
d. Payments and value of remaining death benefit
d. 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.
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. Custodial Care
c. Adult Day 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 types of coverage provides custodial care outside the home for individuals not requiring confinement?

a. Home Health Care
b. Adult Day Care
c. Respite Care
d. Hospice 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.
With _______, the patient must pay 20% of covered charges plus the deductible.

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

Medicare Part B pays 80% of allowable charges.
Income from an individual Long-Term Care Policy is not subject to ______, regardless of the deductibility of the premiums paid for the plan.

a. Sales tax
b. Deductibles
c. Premiums
d. Income tax
d. Income tax

LTC benefits are usually not subject to federal income tax.
Which of the following is not an example of Third Party Ownership?

a. A policy used to fund a Buy-Sell Agreement.
b. A parent purchasing a policy on the life of his or her child
c. A business owner buying a life policy on his own life.
d. A Key Employee Policy
c. A business owner buying a life policy on his own life.

A business owner buying a life policy on his own life is only a two-party transaction. In the vast majority of the cases, the insured and the owner is the same person. Anytime they differ, Third-Party Ownership exists.
A lump sum of money is placed into an account from which the annuitant will draw periodic benefits beginning more than a year from the date of purchase. This describes a:

a. Single Premium Immediate Annuity
b. Flexible Premium Deferred Annuity
c. Single Premium Deferred Annuity
d. Flexible Premium Immediate Annuity
c. Single Premium Deferred Annuity

Single Premium Deferred Annuity has benefits beginning more than one year from date of purchase, while a Single Premium Immediate Annuity has benefits beginning within a year of the date of purchase.
All of the following are Optional Uniform Provisions, except:

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

Legal Actions is a Mandatory Uniform Provision. All other responses are Optional Uniform Provisions.
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. Scheduled
c. Cash
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.
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. Continuation of Coverage
b. Coordination of Benefits
c. Extension of Benefits
d. Conversion Privilege
b. 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.
All of the following are included in a qualified plan Summary Plan Description, except:

a. Name and address of all plan participants
b. Dates of the plan's fiscal year
c. Name of the plan
d. Employer's (i.e. plan sponsors) federal tax I.D. number
a. Name and address of all plan participants

The Summary Plan Description is the document that describes all aspects of a company sponsored retirement plan, and must be formally qualified by the Department of Labor. However, the name and address of participants is not provided in the Summary Plan Description.
An insurer's prior consent is not required when assigning which of the following policies to a third party?

a. Homeowners Insurance
b. Auto Insurance
c. Life Insurance
d. General Liability Insurance
c. Life Insurance

The owner, and only the owner, possesses all of the rights in the policy, one of which is the right to assign. The owner does not require the consent of the insurer to exercise his or her contractual rights.
Which of the following are responsible for ensuring that the application is filled out completely?

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