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1,278 terms

Q-Bank Life & Health

STUDY
PLAY
Which of the following statements BEST summarizes the function of insurance?
It spreads financial risk over a large group so as to minimize the loss to any one individual.
With regard to insurance, risk can be defined as:
uncertainty regarding loss
The risk that involves the chance of both loss and gain is:
speculative risk.
All of the following statements pertaining to risk are correct EXCEPT
a stock market venture is an example of a pure risk
Which of the following statements regarding risk factors is NOT correct?
Jill is 15 years younger than her supervisor, and as such, poses a higher risk to an insurance company.
All forms of insurance are alike in all of the following ways EXCEPT:
the nature of the perils covered is the same
Alcoholism is an example of a:
moral hazard.
For health insurance purposes, which of the following is NOT a peril?
Alcoholism
Major risk factors in health insurance underwriting include the following EXCEPT:
marital status.
Which of the following would be considered a moral hazard in underwriting a health insurance risk?
Excessive drinking
Assume lightning strikes a home and starts a fire that destroys its structure and contents. By insurance definition, the fire is the:
peril
A flood is an example of
a peril
Self-insurance is an example of what kind of risk treatment?
Retention
Treating risk by purchasing insurance is an example of:
transferring risk
Paul is a single father with two young daughters. He has decided to give up his two favorite hobbies--skydiving and race car driving--because they are risky pursuits that could lead to his premature death. This method of dealing with risk is called risk:
avoidance
Bob and Tina's California neighborhood was ravaged by wildfires last summer. As a result, they installed a sprinkler system in their home to minimize damage in the event of a fire. This method of dealing with risk is called:
risk reduction
The law of large numbers states that:
the larger the number of risks combined into one group, the less uncertainty there will be as to the amount of loss that will be incurred.
Assume there are four different mortality tables. Of these, the most reliable would be the mortality table covering:
10,000,000 lives
Which of the following situations constitutes an insurable interest?
The policyowner must expect to suffer a loss when the insured dies or becomes disabled.
With regard to life insurance, all of the following statements are correct EXCEPT:
insurable interest must be maintained throughout the life of the contract.
The phrase "the applicant for insurance has more to gain if the insured continues to live than if the insured dies" is the rule defining:
insurable interest
Alan, age 39, is married and has a small son. He is employed as a sales manager by R.J. Links, a sole proprietorship that owes much of its success to Alan's efforts. He recently borrowed $50,000 from his brother-in-law, Pete, to finance a vacation home. On the basis of these facts, which of the following individuals does NOT have an insurable interest in Alan's life?
One of his customers
With a life insurance contract, an insurable interest must exist:
at the inception of the contract
Upon the issuance of a life insurance policy, an insurable interest must exist between:
the applicant and the insured
Who would NOT have an insurable interest for a life insurance policy?
The closest friend of the insured
Which of the following people would NOT have an insurable interest for a life insurance policy?
The closest friend of the insured
An insurable interest may be found in which of the following?
An employer in the life of a key employee
An individual may purchase a life insurance policy on all of the following persons EXCEPT:
a neighbor
With regard to life insurance, all of the following statements are correct EXCEPT:
an insurable interest must exist at the time of the claim
Insurable interest must exist between the policyowner and the beneficiary:
at the time the contract is entered into
An insurable interest exists between all of the following individuals EXCEPT:
two neighbors who are not related.
Insurable interest exists in all of the following relationships EXCEPT
teacher and student
If Tony is insured under a life insurance policy, all of the following individuals have an insurable interest in Tony EXCEPT:
Marcie, his ex-wife, who has remarried
All of the following are considered to have insurable interests when they purchased insurance on the life of another EXCEPT:
a woman who buys insurance on her next-door neighbor
All of the following statements about insurable interest are correct EXCEPT:
A policy obtained by a person without an insurable interest in the insured is enforceable
Which of the following risks is insurable?
Pure risks.
All of the following are elements of an insurable risk EXCEPT
the loss must be catastrophic
In order to be insured, a group must be randomly selected in order to avoid:
adverse selection
From an insurer's perspective, when a group is organized for some definite purpose other than to obtain group insurance, it is known as:
a natural group
With regard to insurable risks, which of the following statements is NOT correct?
An insurable risk must involve loss that is within the insured's control.
A contract based on the principle of indemnity:
attempts to return the insured to his original financial position
Which of the following is an "insurer"?
Insurance company.
commercial insurer can take all of the following forms EXCEPT
individual benefit society
All of the following are considered to be insurers EXCEPT:
a group of employees enrolled in an insurance plan.
Which one of the following would be considered an insurer?
Company
Which of the following statements pertaining to life insurance companies is CORRECT?
The primary purpose of a life insurance company that is organized as a stock company is to earn a profit for its stockholders.
A stock insurance company that issues both participating and nonparticipating policies is classified as:
a mixed company
All of the following statements about stock insurance companies are correct EXCEPT:
they must be nonprofit corporations
An incorporated insurer whose capital is divided into shares and owned by its stockholders is a:
stock insurer
Which kind of insurance company is owned by individuals who buy shares of it and receive the profits in the form of dividends?
Stock insurance company
Which one of the following is owned by shareholders and receives profits in the form of dividends?
Stock insurers
An insurance company that is owned by its policyowners is known as a:
mutual life insurance company
The term mutualization refers to:
transferring control of a company from stockholders to policyowners
An advance premium assessable mutual company:
charges a premium at the beginning of the policy period.
John works for a mutual insurance company that was formed to handle the insurance needs of lawyers. The type of company that John works for is called a:
risk retention group
Who are the owners of a mutual insurance company?
Policyowners
Concerning group health insurance plans, which of the following is a CORRECT statement?
Plans issued by mutual companies usually provide for dividends.
In a mutual insurance company, any surplus remaining after the company pays its operating costs is:
distributed to policyholders through policy dividends
Which of the following is incorporated without capital stock and has an elected governing body?
Mutual insurer
Which of the following is an incorporated insurer that is owned by its policyholders and does not have capital stock or shares?
Mutual company.
Which of the following statements regarding insurance company organization is CORRECT?
A policyholder in a mutual company may receive a dividend.
A mutual insurance company is an incorporated entity owned by its:
policyowners
All of the following statements about mutual insurance companies are correct EXCEPT:
they are unincorporated
An incorporated insurer that does not have permanent stock is a
mutual insurer
Which one of the following is an incorporated insurer, without capital stock, that has a governing body elected by its policyholders?
Mutual insurer
What type of insurance companies are organized and incorporated under state laws but have no stockholders?
Mutual insurers
A group of individuals who agree to share each others' losses is known as:
a reciprocal exchange
An unincorporated group of subscribers who operate through an attorney-in-fact to provide indemnity insurance for each other is called:
a reciprocal exchange
To qualify as a fraternal benefit society, an organization must have all of the following EXCEPT:
a large sales force
The Goodwill Society was formed as a fraternal benefit society to help underprivileged children. The founding members set up the society as a for-profit entity, and established a representative form of government with elected officers. The society also sells life insurance only to members of the society, and is considering offering sickness and accident insurance to its members as well. Which one of the following statements about the society is CORRECT?
The society must be operated as a nonprofit entity if it is a fraternal benefit society.
The Order of the Benevolent Brothers was formed to raise money for private religious schools in cities. A nonprofit organization with a representative form of government and elected officers, it sells life insurance only to its members, and is considering offering health insurance as well. The Order would be considered a:
fraternal benefit society
Which of the following statements is NOT correct regarding fraternal benefit societies?
They operate solely for profit.
All of the following statements about fraternal benefit societies are correct EXCEPT:
insurance may be sold to members as well as nonmembers.
A nonprofit incorporated society that does not have capital stock and operates for the sole benefit of its members is known as:
a fraternal benefit society
Which one of the following is NOT a characteristic of fraternal benefit societies?
Organization as profit-making operation with capital stock.
Which one of the following statements about fraternal benefit societies is NOT correct?
They are exempt from the licensing requirements if they provide insurance benefits to their members only
Which of the following statements about Lloyd's of London is NOT correct?
It was formed to insure people in the same business or profession.
An insurer of an insurer is known as:
a reinsurer
A contract in which one insurer cedes all or part of a risk to another insurer is known as:
reinsurance.
In reinsurance, the insurance company that transfers part of a risk it underwrites to another insurer is called the
ceding insurer
Agent licenses can be issued for all of the following kinds of insurance EXCEPT:
surplus lines through appropriate brokers.
A corporation or other limited liability association that assumes and spreads the liability exposure for any of its group members is called
a risk retention group
Self-insurance is:
practiced by organizations that establish reserves to protect themselves against loss.
Suppose a life insurance company is organized in Detroit, where it maintains its home office. In Michigan, the company is classified as
a domestic company
Which of the following terms correctly describes a life insurance company that is organized outside the United States or its possessions?
Alien
A life insurance company organized in Pennsylvania, with its home office in Philadelphia, is licensed to conduct business in New York. In New York, this company is classified as
a foreign company.
An insurance company formed under the laws of any country other than the United States would be considered a(n):
alien insurance company.
Professional Insurers, Inc. was incorporated in Delaware, where it holds a certificate of authority. It would like to do business in Massachusetts but is not licensed in the state. In Massachusetts, Professional Insurers, Inc. is considered a(n):
nonadmitted insurer
An individual appointed by a life and health insurer to administer its business in a given territory is called
a general agent
A field representative who works between the insurance company's central office and the agency force in the representative's territory is:
a special agent
An agent represents an insurance company in all of the following ways EXCEPT:
the agent searches for the least expensive insurance for a consumer
A captive agent who has an exclusive contract with an insurer may:
not represent another insurer selling an identical policy.
A licensed independent life or health insurance producer may represent:
1 or more authorized insurers
Which of the following statements regarding mass marketing insurance is CORRECT?
It is marketed through various forms of print, visual, and aural media.
Insurers that deal directly with insureds without the use of agents are known as:
direct writers
Jessica saw an advertisement in the local newspaper for a new type of health insurance policy offered by Protective Insurers, Inc. She noticed that Protective Insurers was also selling these policies through vending machines. Protective Insurers would be considered what type of insurer?
Direct writer
An insurance company that transacts insurance directly with consumers without the assistance of producers is called
a direct response company.
In the direct-selling marketing system, insurance can be sold to the public through all of the following methods EXCEPT
agents
Which of the following statements describes franchise insurance?
It may be issued to individuals with or without evidence of insurability.
In an insurance transaction, who does a licensed agent legally represent?
Insurer
Which of the following statements regarding professions in the insurance business is CORRECT?
A public adjuster represents the insured.
In general, people who represent fraternal benefit societies to solicit insurance are:
considered insurance producers and must meet all licensing requirements.
An insurance producer who solicits insurance on behalf of an insurer represents the:
insurer
Who represents an insurance company in an insurance transaction?
Agent
According to insurance law, an insurance agent is defined as a person who:
solicits, negotiates, procures or effects insurance or annuity contracts on behalf of an insurer
The individual who represents the insured, not an insurer, in any controversy and helps to negotiate insurance contracts for others is known as a(n):
Broker
In an insurance contract, who represents the insured?
Broker
Who does an insurance broker represent in an insurance transaction?
Insured
Who negotiates insurance contracts and represents the insured in a controversy?
Broker
In an insurance transaction, licensed brokers legally represent which of the following?
Applicant and insured
A person authorized by an agent or broker to solicit insurance applications and collect premiums is called a(n):
solicitor
Which of the following individuals is an independent contractor who is paid a fee from his client to provide advice about insurance?
Consultant
Which of the following insurance professionals advises others about their insurance needs and coverages and receives compensation that is not directly related to the amount of any insurance sold?
Consultant
Suppose a mid-sized insurance company makes a modest contribution to a candidate's gubernatorial campaign. This contribution is
illegal
What did passage of the McCarran-Ferguson Act accomplish with respect to the regulation of the insurance industry?
It ensured continued state regulation of insurance
The insurance industry in the United States is primarily regulated by:
State government.
Of the following governmental entities, which has primary responsibility for regulating the insurance industry in the United States?
State
All of the following statements regarding when a person may purchase a credit report on another are correct EXCEPT:
it is not necessary to inform an applicant that a report on him has been ordered
Which of the following statements regarding the consumers' right to opt out of having their financial information shared with third parties is CORRECT?
The privacy notice given to consumers must explain how a consumer may opt out of having his information shared.
What is the purpose of the Fair Credit Reporting Act?
It gives consumers the right to question reports made about them by investigative agencies.
All of the following statements pertaining to the Fair Credit Reporting Act are correct EXCEPT:
the Fair Credit Reporting Act is a state law that helps to assure accurate reporting of information about consumers.
Which of the following acts of legislation requires fair and accurate reporting of a consumer's buying and bill-paying history?
Fair Credit Reporting Act.
Typically, within how many days must an applicant be notified that a credit report has been requested by the insurer?
3 days.
What authority establishes the minimum number of persons to be insured under a group health insurance policy?
State Law
When conducting examinations, the Commissioner of Insurance can do all of the following EXCEPT:
require parties to appear only in person.
Which of the following is the organization that actively opposes federal oversight of insurance business?
NCOIL
Parties to a public hearing held by the Commissioner of Insurance have the right to do all of the following EXCEPT
withhold incriminating evidence
The Commissioner of Insurance is responsible for all of the following duties EXCEPT:
passing insurance laws and regulations
All of the following are duties of the director of insurance EXCEPT:
creating insurance laws for the state.
When appropriate, the Commissioner reports a violation of insurance law to:
attorney general
The Commissioner is responsible for all of the following duties EXCEPT:
reporting violations of insurance laws to the state police
All the following are duties of the Commissioner EXCEPT:
drafting and enacting insurance laws
When appropriate, the Commissioner reports a violation of insurance law to the:
district attorney or the attorney general
The chief officer of the state insurance department is NOT responsible for
enacting insurance laws
All of the following are examples of unfair claim settlement practices EXCEPT:
requiring a claimant to fill out extensive proof of loss forms
All of the following are considered to be unfair claims settlement practices EXCEPT:
compelling a claimant to undergo medical examinations by an independent physician.
An example of an unfair claim settlement practice would include
advising a claimant of the possibility that, should the claimant reject a settlement offer, an arbitration award might be less than the offer.
All of the following actions are considered unfair claim practices EXCEPT
insisting on investigating a claim for which the cause of death is uncertain.
Which of the following practices is NOT an unfair claims method?
Investigating a claim that appears suspicious
Which of the following is the practice of using misrepresentation to induce a policyholder to replace a policy?
Twisting
All of the following are unfair claim settlement practices EXCEPT
requiring the submission of a proof of loss form before paying a claim.
Which of the following is NOT considered to be an unfair claims settlement practice?
Replacing one insurance policy with another.
All the following are considered unfair claim practices EXCEPT:
investigating a claim in which the cause of death is uncertain
All of the following, if performed frequently enough to indicate a general business practice, are unfair claims settlement practices EXCEPT
delaying the payment of claims by requiring submission of preliminary claim reports and formal proof of loss that contain different information
Which of the following actions is NOT an unfair claims method?
Denying a claim within a reasonable time after a proof of loss statement was completed
An advertisement for health insurance that uses an unusual amount paid for a unique claim on an advertised policy as an illustration of the policy's benefits:
is misleading and must not be used
The amount of money an insurer sets away to pay future claims is called the
reserve
Elizabeth is shopping for a whole life insurance policy and is evaluating the financial strength and stability of various insurers. As her financial advisor, you would advise Elizabeth to purchase a policy from a company that has a rating of
A++ to A-
Domestic insurers may invest their assets in all of the following EXCEPT:
obligations of any European country
All of the following can be regarded as liabilities of a domestic insurer EXCEPT:
commissions
By examining an insurer's records, the Insurance Commissioner assesses the insurer's:
compliance with state laws
The Commissioner examines a domestic insurer to accomplish all of the following EXCEPT:
to approve the location of the insurer's offices.
An impaired insurer is a company that
is potentially unable to fulfill its contractual obligations.
Which of the following statements about state guaranty associations is CORRECT?
They cover consumers' unpaid claims if an insurer becomes insolvent.
The state guaranty association assures policyowners that:
their claims with be paid if the insurer becomes insolvent
An outline of coverage for a Medicare supplement policy must include all of the following EXCEPT:
a detailed comparison of rates
Which of the following must adhere to advertising regulations?
Prepared sales presentations for use by agents
In addition to the Buyer's Guide, what must be delivered to an applicant or insured either with or before the delivery of a life insurance policy?
Policy summary
Which of the following is NOT acceptable when advertising group health insurance?
Providing a summary of benefits that minimizes the coverage's limitations.
Which of the following statements is an example of an unethical (and illegal) act?
A life insurance analyst charges a fee for a service associated with the servicing of a policy written by the analyst.
A person applying for a resident insurance producer license must meet all of the following qualifications EXCEPT:
be a college graduate.
Who investigates, settles, and reports claims arising under insurance contracts?
Adjuster
All of the following constitute the transaction of insurance EXCEPT:
applying for an agent's license
A business entity acting as an insurance producer must obtain what kind of license?
Insurance producer license
All of the following are examples of insurance transactions EXCEPT
licensing producers
According to insurance law, which of the following BEST describes an insurance agent's duties?
An agent solicits, negotiates, procures, or effects insurance or annuity contracts on behalf of an insurer.
Which of the following is NOT considered to be transacting insurance?
Writing advertisements for insurers
Which of the following jobs does NOT require a certificate of authority or license?
Writing advertisements for insurance companies
All of the following must hold a permanent insurance producer license EXCEPT
salaried employees who do not negotiate or solicit insurance
All of the following life insurance products are exempt from solicitation regulations EXCEPT:
whole life policies
An applicant for an insurance license must meet all of the following qualifications EXCEPT:
be a U.S. citizen
To obtain a producer license, a person must comply with all of the following EXCEPT:
earn a college degree
As part of the application process for a producer license, a person must:
pass a licensing examination
All of the following individuals may be issued a temporary license EXCEPT
a client of a producer who has gone on an extended vacation
Which of the following persons may receive a temporary insurance agent's license?
The surviving spouse of an agent who dies
All of the following people may be granted a temporary producer license EXCEPT:
the spouse of a licensed producer who has moved out of state
Which of the following people could NOT be granted a temporary producer license?
An insurance client of a deceased producer
All of the following are duties of insurance licensees EXCEPT
file with the commissioner the list of appointments
When making a change of address, it is typically required that the producer notify the head of the Department of Insurance:
within a specified time period
Maintaining a producer's insurance license typically involves all of the following EXCEPT:
certifying the producer is in compliance with all insurance laws
When does a notice of appointment expire?
When the appointee files a notice of cancellation
In order to sell insurance for an insurer, the producer must first
be appointed by that insurer
An insurer who terminates a producer's appointment must inform the commissioner within how many days?
30 days
All of the following actions may result in license suspension or revocation EXCEPT:
making a factual but subjective comparison of 2 policies
The Commissioner of Insurance may, without a hearing, immediately suspend the certificate of authority of an insurer for each of the following reasons EXCEPT
failing to pay claims when due
A producer's license may be revoked for all of the following activities EXCEPT:
soliciting a relative for life insurance
The Commissioner can suspend the license of all of the following EXCEPT
producers who make conservation efforts regarding the replacement of policies
The Commissioner may suspend an insurance producer's license for committing all of the following acts EXCEPT
failing to meet the appointing insurer's sales goals for the year
If an insurance producer violates any section of the insurance code, what can the Commissioner issue to stop the producer from committing the violation?
Cease and desist order
In the sales presentation, which of the following should the producer definitely NOT do?
Send all disclosure documents by mail after the sale
Which of the following statements about using the state's guaranty association is CORRECT?
It is a violation of any state's insurance code to use the association's existence as an endorsement for a particular policy
Suppose an insurance producer writes a majority of insurance business on the employees and officers of the business owned by the agent's spouse. This kind of business is defined as a:
controlled business
Controlled business is insurance sold to cover the lives, businesses, properties, or risks of all the following EXCEPT:
a friend of the insurance producer
Which of the following statements pertaining to agents and brokers is CORRECT?
Technically, a broker represents the client in an insurance transaction.
Agency law encompasses all of the following EXCEPT:
knowledge of the principal is knowledge of the agent
When agents act on behalf of insurers, they are acting under which legal principle?
Agency
An insurance producer who solicits insurance represents the:
insurer
In an insurance transaction, licensed agents legally represent which of the following?
Insurer
Properly licensed agents legally represent:
Insurer
Morris is a licensed insurance agent. His principal is the
insurer
The authority that an insurer gives to its agents by means of the agent's contract is known as:
express authority
An agent in the XYZ Insurance Company, equipped with business cards, sample XYZ policies, and an XYZ rate book, informs a prospect that XYZ has given him unlimited binding authority. The prospect assumes this is true. Given the prospect's assumption, which of the following terms correctly defines the agent's authority in this case?
Apparent authority
All of the following statements regarding a producer's authority are correct EXCEPT:
advising an applicant to answer questions in a manner that will pass underwriting is an example of apparent authority
Which of the following types of agent authority is specifically set forth in writing in the agent's contract?
Express
Doreen is appointed by an insurance company to transact insurance on its behalf. She prints business cards and letterhead with the company's name on it. By what authority can she do so?
Implied
Alex is an insurance agent for a health insurance company. He meets with a prospective buyer who asks him to modify the company's policy before buying coverage. The modification would cover a preexisting condition that would otherwise be excluded. Alex agrees to do so. He submits the premium with the application to his company, which issues the policy. If the insured later makes a claim under the modified policy, what is likely to happen?
The insurer will be responsible for the claim
Which of the following types of agent authority is specifically set forth in writing in the agent's contract?
Express
Bob is an agent for the Assured Insurance Company. He visits Mary, a prospect, in her home. He arrives with business cards, sample policies from Assured, and an Assured rate book. He recommends Assured policies that can meet Mary's needs for insurance. Which of the following terms describes the kind of authority that Bob has in this situation?
Apparent
Which of the following statements regarding the disposition of fiduciary funds is CORRECT?
Funds collected as premiums are to be kept separate from those used for personal expenses or investments.
If a broker diverts funds belonging to an insurer to his or her own use, he or she has committed the illegal act of:
theft
How must insurance producers account for each insurance policy and the premiums they receive on it?
As a separate account of the insured
All of the following are agent responsibilities toward the applicant EXCEPT
prepaying the initial premium
An individual who occupies a position of trust when handling the financial affairs of another is:
a fiduciary
All of the following statements pertaining to an agent's handling of premium money are correct EXCEPT:
an agent may spend premium money for his personal use
An agent's primary responsibility is to
act in accordance with the agency agreement
What is the definition of a fiduciary?
A person in a position of trust and confidence who handles the affairs and funds of others
In legal terms, voluntary relinquishment of a known right is called:
waiver
In an insurance transaction, the insurer is represented by the:
agent
If an agent fails to perform an act required by a policy, the insurer:
is still required to fulfill its obligation
What kind of policy will protect an insurance agent against liability arising out of acts committed in his professional capacity?
Errors and omissions
Which of the following situations would create a possible errors and omissions liability to the producer?
During the sale of a replacement health policy, the producer tells an applicant that the new policy will cover expenses ordinarily paid by Medicare.
Gina Williams submitted an application for a $250,000 life insurance policy with ABC Insurance Company along with the first month's premium. However, ABC Insurance did not issue the policy as applied for but informed Gina that it would issue another policy at a different premium rate. In this case, ABC Insurance Company's action is considered:
Counteroffer
Brian met with an insurance producer to discuss how much life insurance he'd need to support his family in the event of his premature death. Both parties agreed that a $750,000 life insurance policy would be sufficient. When Brian stated that he wanted to discuss the matter with his wife, the producer asked him to sign a general background information form before he left. However, the document was actually an application form that the producer submitted to the insurer. If the insurer then issues a contract, it will be legally unenforceable because
Brian did not make a valid offer
Who are the parties to a life insurance contract?
Applicant and the insuring company
After comparing policies for the last three months, Carol finally found a health insurance policy that she would like to purchase. When Carol submits the application with the initial premium
Carol has made an offer that the insurance company can accept or reject.
With regard to insurance, the term "consideration" means the:
price of the contract (the premium)
Bill, age 45, purchased a life insurance policy from AllPro Insurers and named his 8-year-old son Ted as beneficiary. Which of the following statements regarding this situation is CORRECT?
Ted is not a party to the insurance contract
Jill met with an insurance agent to discuss purchasing a $500,000 term life insurance policy. If she signs a contract two weeks later while intoxicated
Jill will not be presumed to be competent
All of the following are considered competent parties to enter into insurance contracts EXCEPT
minors
Jake and Sue signed a contract whereby Sue agreed to pay half of the life insurance proceeds to Jake if he murdered her estranged husband. The contract between Jake and Sue would not be enforceable in court because:
the contract lacks a legal purpose
Mark and Steve signed a contract in which Mark agreed to apply for health insurance and Steve would submit fraudulent medical claims through his physician billing service. Mark and Steve plan to share the proceeds. The contract between Mark and Steve can best be described as
void
Which provision sets forth the insurer's basic promise to pay benefits upon the insured's death?
Insuring clause
Which section of a health insurance policy specifies the conditions, times and circumstances under which the insured is NOT covered by the policy?
Exclusions
A provision in a policy that expressly cites a risk that is NOT covered is known as a(an):
exclusion
Steve, age 50, has suffered from a heart condition for the last five years. When he signed a new health insurance contract, he thought the policy would cover his heart problem immediately. However, the insurer denied the claims he submitted, stating that the contract stated that preexisting conditions were not covered for the first 6 months after policy issuance. If the contract terms concerning the coverage of Steve's preexisting condition are ambiguous, any ambiguity in the contract will be interpreted in favor of:
Steve
Which of the following is the legal principle that allows a court to order an insurer to provide coverage not explicitly provided for in the contract?
Adhesion
Which of the following statements pertaining to a life insurance contract is CORRECT?
A "valued" contract pays a stated sum when the loss occurs
A life insurance policy is all of the following EXCEPT:
a reimbursement contract
Parties to an insurance contract must act in utmost good faith, which means that both the agent and the applicant:
make no attempt to deceive each other
When negotiating a contract of insurance, the parties make no attempt to conceal or disguise important facts or deceive each other. The contact is said to be one of:
utmost good faith
A contract is voidable when it:
is binding unless the party with the right to set it aside wishes to do so
An insurance contract is prepared by one party, the insurer, rather than by negotiation between the contracting parties. Which of the following statements explains this characteristic of insurance contracts?
The insurance contract is a contract of adhesion
Since only the insurer prepares the insurance contract, it is called a contract of:
adhesion
With a life insurance contract, which of the contracting parties makes an enforceable promise?
Insurer
Which of the following is a promise in exchange for an action?
A unilateral contract
Which of the following terms indicates that a life insurance contract contains the enforceable promises of only one party?
Unilateral
The fact that an insurance contract promises to pay benefits contingent on a future uncertainty (such as death or illness) makes it what type of contract?
Conditional
Since the obligations of the insurance company hinge on certain acts of the policyowner, the beneficiary, or both, the insurance contract is termed
conditional
Statements guaranteed to be true are called:
warranties
Which of the following statements regarding representations is CORRECT?
A representation may not be altered after the insurance is in effect.
Statements made on an application regarding the applicant's medical history or health that require a medical opinion are called:
Representations
Statements made by an applicant in completing a life insurance application are considered to be:
Representations
All of the following statements regarding life insurance applications are correct EXCEPT:
statements made by the applicant on the application are considered to be warranties
The intentional failure to disclose known facts on an insurance application is called:
Concealment
A false statement of fact is known as:
misrepresentation
Kirk applies for a disability income policy. He notes on the application that he races cars on weekends as a hobby. Which of the following underwriting techniques would be considered illegal?
Change Kirk's application after he has submitted it and take out the information about his hobby.
Who performs the function of risk selection in determining an individual's insurability for policy issue?
Underwriter
All of the following are sources of insurability information about life insurance applicants EXCEPT:
Social Security reports
Which of the following statements pertaining to sources of insurability information is CORRECT?
Special questionnaires are used to obtain additional information when an extra hazard or risk may be involved, and to replace the application in unusual cases.
Which of the following statements regarding life insurance is NOT correct?
Kyle wonders whether his policy is voided when the company learns his parents died in a train wreck, rather than an airplane crash, as he stated on his application. The policy can be canceled because statements on the application are warranties and not representations.
During the underwriting process, an insurer may do all of the following EXCEPT:
order a criminal background check
An agent must notify the applicant that all of the following sources will be used to assess the applicant's application EXCEPT:
Personal references
Which section of the application should contain a record of any injuries the applicant may have suffered?
Medical section
Angela, a recent applicant for a $50,000 life insurance policy, failed to state on her application that she suffered a heart attack a year earlier, fearing it would affect her insurability. Which of the following terms describes Angela's action?
Concealment
Which of the following statements pertaining to inspection reports and credit reports on life insurance applicants is NOT correct?
Inspection reports are requested regardless of the size of the policy
Which of the following statements pertaining to a life insurance policy application is CORRECT?
An agent must be very specific when listing an applicant's occupation on an application.
An insurer will use all of the following to determine if a person should be issued a policy EXCEPT
the work history of the applicant
What is the basic source of information for life insurance underwriting and policy issue?
Application
When completing the application, a producer should do all the following EXCEPT:
if the applicant is married, always obtain the spouse's signature on the application
A producer has met his responsibility of explaining the sources of insurability to an insurance applicant when he explains that:
the primary source of information used in underwriting will be the application
Bernice has placed her home telephone number on the National Do-Not-Call Registry. In which of the following cases is the call prohibited?
Wanda, Bernice's friend, gave Bernice's phone number to a personal financial advisor who calls to seek an appointment
If a medical report is required on an applicant, it is completed by:
a paramedic or examining physician
When meeting with an applicant for health insurance, an insurance producer notices a pack of cigarettes in the applicant's shirt pocket, even though the applicant says he has been a nonsmoker for ten years. Which of the following phrases best describes the producer's responsibility?
Provide an agent's report to the insurer explaining what he observed
All of the following statements pertaining to inspection reports on life insurance applicants are correct EXCEPT:
they provide information obtained principally from law enforcement officials
All of the following statements pertaining to the Medical Information Bureau (MIB) are correct EXCEPT:
The MIB is organized and supported by private hospitals
Which of the following statements pertaining to the Medical Information Bureau (MIB) is CORRECT?
Information obtained by the MIB may be used by an insurer to decide whether to insure an applicant
When applicable, all of the following forms require an applicant's signature EXCEPT:
agent's report
Each application for life insurance requires the signature of all of the following EXCEPT:
the beneficiary
AGC Publishing applied for key-person life insurance on its chief executive officer. Which of the following parties must sign the application?
The CEO, another officer of AGC, and the agent handling the application
Bob works as a dentist and mountain climbs, skis, and flies airplanes in his spare time. When he applies for a life insurance policy, the agent's and Bob's signatures will be required on all of the following documents EXCEPT
the report issued by the Medical Information Bureau
In the underwriting of insurance policies, some amount of discrimination is:
present in many cases, because of differing levels of risk
Major risk factors in health insurance underwriting include all of the following EXCEPT:
marital status
Which of the following criteria may be used when determining the premium rate for an insurance applicant?
Age
Insurers can set different premium rates for different individuals based on
classifications that are the result of actual cost experience
Underwriting is a process of:
selecting, classifying, and rating risks
Underwriting techniques commonly used by insurers in issuing policies to applicants who do not measure up to a standard rating include the following EXCEPT:
averaging total risks pending
What is the most common approach for rating life insurance applicants who are determined to be substandard risks?
Issuing a policy in the amount applied for, with a higher than standard premium
With regard to substandard health insurance risks, which of the following statements is CORRECT?
When the applicant represents a substandard risk, the policy may be modified to exclude a specific kind of illness or condition
Jim is applying for individual medical insurance coverage. All of the following factors will adversely affect his ability to obtain coverage at a reasonable premium EXCEPT:
working at a desk every day
All of the following are basic premium factors EXCEPT
the insured's annual income
Assume the following persons buy identical life insurance policies from the same company. Who would pay the LOWEST premium rate?
Linda, age 30
Ben is considering the purchase of a $75,000 whole life policy. Which of the following options would tend to lower his premiums?
Paying premiums annually as opposed to monthly.
A life insurance gross premium is:
net single premium plus expense.
When establishing premiums, insurers express the rate as a:
cost per $1,000 of face amount.
All of the following factors influence an applicant's mortality EXCEPT:
credit report
A primary consideration as to occupational risk in the underwriting of health insurance is
type of employment
Gene, Tom, Barry, and Mark are all applicants for health insurance and each has a different occupation. The insurer has classified Gene's occupation as AAA, Tom's as AA, Barry's as B, and Mark's as C. Based on this, which applicant poses the LEAST occupational risk to the insurer?
Gene
With individual health insurance, all of the following would factor into the premium rate EXCEPT
insurer's reserves
Regular notices sent to policyowners for payment of their life insurance policy premiums reflect:
gross premium
The annual gross premium of a life insurance policy is defined as the:
net premium plus expense
All of the following are basic factors used to compute life insurance premiums EXCEPT:
a morbidity factor that covers the risk of becoming disabled and triggering the waiver of premium provision
What tool do life insurance actuaries use to help establish premium rates based on the probabilities of death at various ages?
Mortality table
A mortality table reflects:
the average number of deaths that will occur during a given year for a given age group of individuals.
Which of the following statements regarding the mortality rate is NOT correct?
It is used in the determination of health insurance rates
Which of the following age groups normally experiences the largest number of deaths in a year?
50 yr old
Which of the following statements is CORRECT?
George's brother, his father, and grandfather had diabetes during their lifetimes. Family history will be considered a risk factor when George applies for insurance
What factor in life insurance is comparable to the morbidity factor in health insurance?
Mortality
All of the following statements regarding morbidity are correct EXCEPT:
morbidity figures reveal when and how long an individual will be disabled
Which of the following premium factors has the greatest effect on life insurance premium calculations?
mortality
Which of the following statements regarding morbidity tables is CORRECT?
They indicate the average number of individuals from a given group who will become disabled.
Which of the following has the greatest impact in making one individual's life insurance premium different from that of another individual, assuming both own the same type of policy?
The policy's mortality factor
All of the following statements pertaining to life insurance premiums are correct EXCEPT:
in establishing premium rates, a company must assume it will earn a high rate of interest on its invested premiums
An insurer invests the premiums it receives in order to earn interest. Which of the following statements regarding this interest factor is CORRECT?
It is factored into the premium rates the insurer charges, which keeps those rates lower than they would be if there were no interest earnings.
In the life insurance business, a word that is synonymous with "expenses" is:
loading
With group health insurance, two major factors that influence dividends or experience-rating premium refunds are
expenses and claims costs
The annual premium on Rhoda's life insurance policy is due December 1, 2007. She paid the premium, which was for:
2008
The funds set aside by an insurer to cover future claims on its life or health insurance policies is known as the:
reserve
When an employer establishes a group health insurance plan, what evidence of insurance does each participating employee receive?
Certificate of insurance
Typically, a contract for group life insurance is issued to the:
employer
All of the following are eligible for group life insurance EXCEPT:
groups formed to procure group insurance
Which of the following groups is least likely to be eligible for coverage through a group health plan?
A group of neighbors who wish to insure themselves and their families.
A woman may be eligible for group credit insurance in which of the following situations?
She recently purchased a car and financed it through the dealership.
In group health insurance plans, if the plan is noncontributory, the employer:
pays the entire premium
Group life insurance and individual life insurance differ in all of the following ways EXCEPT:
individual insurance is generally available at lower rates than group insurance
A company has 1,200 eligible employees for its group life insurance program, and the company pays the total premium. How many employees must be insured to initiate the plan?
1,200 employees
All of the following statements about the classification of applicants are correct EXCEPT:
a substandard applicant can never be rejected outright by the insurer
Which one of the following statements about group and individual life insurance is CORRECT?
Group plans involve experience rating while individual policies require individual underwriting and evidence of insurability.
Which of the following factors is the most pronounced difference between group and individual medical insurance plans?
Underwriting process
In writing group insurance, insurance companies use all of the following underwriting procedures to guard against adverse selection EXCEPT:
medical examinations for prospective insureds who are borderline risks
In a group health insurance plan, employees may NOT be classified by:
age
A company is interested in providing a group health insurance plan for its employees. An insurer will require that the company meet all of the following requirements in order to be eligible for insurance EXCEPT:
all employees must be in good health
Which of the following statements about group life insurance and individual life insurance policies is NOT correct?
Insureds under both types of policies select the type and amount of insurance coverage to be provided
If a company has 2,000 employees eligible for a noncontributory group life insurance program, how many would be required to participate?
2,000.00
Joyce joined a company and is working 16 hours a week. Which of the following statements regarding her eligibility to participate in the company's health insurance plan is CORRECT?
She will not be able to participate in her new employer's plan
All of the following are characteristics of group life insurance EXCEPT:
each insured in the group receives a policy
All of the following statements regarding group health coverage are correct EXCEPT
both the policyowner and the insured receive a copy of the policy
Which of the following is NOT an acceptable method of delivering a group health policy?
Instructing the employer to post a copy of the certificate of insurance on the lunchroom bulletin board.
Which of the following would be a source of instant liquidity upon the death of an estate owner?
A life insurance policy on the estate owner's life, payable to the estate
All of the following are advantages of life insurance as property EXCEPT:
the death proceeds are exempt from federal estate tax
All of the following factors usually are included in a final expense fund when determining life insurance needs of a family EXCEPT:
funds to pay off a mortgage
According to the human life value approach to determine the proper amount of life insurance, a person's economic value can be determined by:
discounting estimated future net earnings used for family purposes at a reasonable rate of interest
To determine the amount of life insurance required, the needs approach takes into account the amount of benefits to be received from all of the following sources EXCEPT:
future inheritances
The needs approach can be used to determine all of the following EXCEPT:
amount needed to pay debts to creditors
Which of the following is NOT taken into account when using the needs approach to determine the proper amount of insurance protection?
The projected future earnings of the breadwinner and number of years he expects to work
Herb and Felicia have been married for several years and are interested in increasing their life insurance protection as their family grows. Herb is a lawyer with a mid-sized firm. Felicia is a freelance writer of children's books. In planning for the future, when might they expect that their family will have its greatest need for income?
While the children are in school
With regard to a breadwinner's death, the blackout period generally can be defined as:
he period from when the youngest child is grown to the surviving parent's retirement age.
Which of the following terms refers to that period following the death of a breadwinner during which the children are living at home?
Dependency period
After a family's breadwinner dies, the blackout period generally can be defined as the period:
that begins when the youngest child turns 16 and ends when the surviving parent reaches age 60
The best reason for designating a trust as a life insurance policy beneficiary is to:
make it possible to manage the policy proceeds for the long-term benefit of an individual or organization
Nicole plans to take out a $200,000 mortgage for a vacation home. Her bank, however, requires her to provide some type of collateral for the loan. If Nicole owns a $500,000 whole life insurance policy, the policy:
may be used as collateral for the loan
If a policyowner purchases a $250,000 single-premium whole life insurance policy and needs additional funds for retirement six months later:
he can draw on the cash value to supplement his retirement income
Regarding the Life Insurance Surrender Cost Index, a low index figure represents a relatively:
low policy cost in the event of policy surrender at the end of a designated period
Statements about the use of the Life Insurance Cost Index must include an explanation that indexes are useful only for comparing the relative costs of:
two or more similar policies
Brenda and Ted have an estate worth $10 million, the majority of which is invested in their family business. In order to pay the federal estate tax that will be due at the death of the survivor, they should consider purchasing a:
second-to-die policy
Which of the following risks is most likely to be insurable under a life insurance policy?
Greg is concerned about the financial impact his premature death would have on his family
Arthur and Donna establish a Coverdell education savings account for their son, Anthony. Although Anthony attends college full time and graduates, the Coverdell account still contains some funds. Which of the following would be the only way for Arthur, Donna, and Anthony to dispose of these remaining funds without incurring a tax penalty?
Roll over the funds to another Coverdell account established for Anthony's younger sister Mary, who is 20.
Which of the following statements regarding a deferred compensation plan is CORRECT?
The employee agrees to forgo part of his current income until a specified future date, typically retirement, and may use life insurance as the funding vehicle for the plan
Which of the following statements pertaining to key-person life insurance is CORRECT?
The policy is a company-owned asset
Which of the following statements pertaining to key-person life insurance is NOT correct?
The ABC Company purchased a $75,000 permanent life insurance policy on its general sales manager five years ago. This likely was reflected each year in the company's balance sheet as a loss
A corporation has key-person life insurance on its president and vice president. The policies show a current total cash value of $15,000. Which of the following statements is CORRECT?
The company may use the policies' cash value for emergencies
Cybil is insured under a key-person life insurance policy owned by Delta Corporation and then quits her job. Which of the following statements is NOT correct?
Cybil can convert the policy to an individual policy
Which of the following statements pertaining to sole proprietor buy-sell plans is CORRECT?
Life insurance is an ideal medium for funding a buy-sell agreement because, for a reasonable premium, it makes money available when needed to activate the sale of the business
Which of the following statements pertaining to partnership buy-sell plans is CORRECT?
By law, a partnership ceases to exist when a partner dies.
Three equal partners in a business worth $600,000 decide to set up an insured cross-purchase buy-sell agreement. How large a policy would each partner buy to insure the lives of the other partners?
$100,000.00
Hazel, Philip, and Anita are equal partners in a partnership worth $150,000. They decide to arrange an insured cross-purchase buy-sell agreement. Which of the following statements pertaining to this arrangement is CORRECT?
Hazel will purchase and maintain a $25,000 life insurance policy each on the lives of Philip and Anita.
With three partners in a business, how many life insurance policies would be required to insure an entity buy-sell plan?
Three policies
A company with 5 partners is considering a buy-sell plan. All of the following statements pertaining to buy-sell plans and this partnership are correct EXCEPT:
if the company installed a cross-purchase buy-sell agreement, the business would be a party to the agreement.
All of the following descriptions of buy-sell plans in close corporations are correct EXCEPT:
Like a partnership, a corporation ceases to exist after the death of one of its owners. It is not necessary to make an agreement to dispose of a deceased stockholder's interests.
A company with three partners is considering a buy-sell plan. All of the following statements pertaining to buy-sell plans and this partnership are correct EXCEPT:
no benefits will accrue to the partnership from the buy-sell agreement until one of the partners dies
All of the following statements regarding nonqualified deferred compensation plans are correct EXCEPT:
under a nonqualified deferred compensation plan, an employee can rely on guaranteed future benefits
Which of the following statements pertaining to deferred compensation plans is CORRECT?
A deferred compensation arrangement is a non-qualified plan funded by the employee
An executive bonus plan is a nonqualified employee benefit arrangement in which an employer pays a bonus to an employee, who then:
uses it to pay the premiums on a life insurance policy covering his life
All of the following statements about executive bonus plans are correct EXCEPT:
at the employee's death, the company receives the death proceeds free of tax.
Which of the following statements regarding executive bonus plans is NOT correct?
The employer becomes the policyowner of the insurance policy
Under an executive bonus plan, if the employee takes loans from the insurance policy, the funds are:
taxed as ordinary income.
A company's total stock is valued at $480,000 and held in equal shares by four stockholder-employees who have finalized an insured stock-redemption agreement. How much life insurance must be purchased on the life of each of the four individuals to fund the buy-sell plan?
$120,000.00
Robert and his employer agree on the purchase of a split-dollar life insurance policy. If it is a traditional plan, each year the employer will contribute to the premium an amount equal to:
the increase in the policy's cash value.
All of the following statements about how a life insurance policy could benefit a qualified charitable organization are correct EXCEPT:
a death benefit used as a charitable gift can be contested by the insured's relatives
John names the United Way as the beneficiary of his $250,000 life insurance policy. At John's death, who is responsible for the income taxes payable on the lump sum proceeds received by the charity?
There is no income tax payable on the death proceeds
Which of the following statements pertaining to key-person life insurance is CORRECT?
A corporation has key-executive life insurance on its president and vice president. The policies show a current total cash value of $15,500, which may be used by the corporation for emergencies.
When Lisa applied for a life insurance policy, the agent issued a receipt stating that coverage will be effective only after the insurer has approved the application and before the policy is delivered. This type of receipt is known as:
an approval receipt.
Elaine signs an application for a $50,000 life policy, pays the first premium, and receives a conditional receipt. If Elaine were killed in an auto accident two days later:
her beneficiary would receive $50,000, if Elaine qualified for the policy as applied for
Upon issuance of a conditional receipt to an insurance applicant who has paid the insurer an initial premium
the insurance company is conditionally assuming the risk
The primary distinction between the insurability and approval types of conditional receipts is when:
coverage goes into effect
When is a conditional receipt normally given to an applicant?
When the initial premium is paid
Bill applied for a nonmedical life insurance policy through ABC Insurance and paid the initial premium on the date he signed the application. ABC issued a conditional insurability receipt and subsequently found Bill to be insurable only on a substandard basis. If Bill dies two days later, before accepting the rated policy counteroffered by the insurer
there will be no coverage
Sam applied for a term life insurance policy, paid the initial premium, and received a conditional receipt on December 1. If the insurer issued the policy on January 1 and the agent delivered the policy on January 3, the policy effective date will be:
December 1
James signed an application for a $50,000 life insurance policy and paid the first premium on October 1. The agent issued an insurability receipt. A week later, James took the required medical examination and was found to be insurable. If he dies before the insurer approves the application
the coverage will be retroactively effective
Which of the following statements regarding a conditional receipt is CORRECT?
It is given only if the initial premium has been submitted with the signed application
Phil applied for a $100,000 whole life policy but did not pay the initial premium at the time of application. When the agent later delivers the policy, the agent must collect the premium and obtain which of the following statements from Phil?
A statement of good health
If a premium payment has not been given with the application, the policy becomes effective only when the producer delivers the policy and:
explains its provisions and obtains the initial premium and a signed statement of continued good health
If a life insurance applicant is given a binding receipt, when does his or her coverage become effective?
Date the receipt is given
On August 1, Roger completed an application for a major medical policy, gave his agent a check for the initial premium and received an insurability receipt from the agent. No medical examination was required. On August 3, the agent submitted Roger's application and premium to the insurance company. On August 6, Roger was involved in an accident and admitted to a hospital. On August 12, the agent received Roger's policy from the insurance company. Which of the following statements concerning this situation is CORRECT?
Roger's coverage began when he received the insurability receipt
Anna applied for a $2 million life insurance policy and paid the first premium but was later found to be uninsurable. The agent gave her a receipt that guarantees coverage until the insurer formally rejects her application. Which type of receipt did Anna receive?
Binding
Which of the following statements pertaining to a temporary insurance agreement is CORRECT?
It provides temporary coverage until an application is rejected or the policy is issued.
Louise applied for a $40,000 life insurance policy, paid the initial premium, and received a conditional receipt. All of the following statements pertaining to this situation are correct EXCEPT:
if Louise died of a heart attack one day before taking the required medical exam, the insurer would still pay the beneficiary the coverage amount stated in the application
Which of the following statements about how to fix a mistake in an insurance application is NOT correct?
Under no circumstances may an agent correct information on an insurance application once it has been completed by the applicant
With regard to life insurance applications, which of the following statements is CORRECT?
The application includes the names of the insured and beneficiary
Which of the following statements pertaining to delivery of a life insurance policy is NOT correct?
An insurer issues a policy (before the initial premium has been paid) and sends it to the agent with instructions not to deliver it unless the applicant is in good health. This is an example of constructive delivery
Mailing a newly issued policy to an agent, who in turn will deliver it to the policyowner, is known as
constructive delivery
Delivering policies in person gives the agent an opportunity to do all of the following EXCEPT:
make last-minute changes to the policy
Which one of the following statements about policy delivery is CORRECT?
Most insurers require agents to personally deliver the policy so that they can explain the policy's terms, exclusions and riders
Lawrence signed an application for a life insurance policy on September 2, and took a required medical exam on September 4. He gave the agent a check for the initial premium and received a conditional receipt at the time of application. The policy was issued as originally applied for and the agent delivered the policy to him on October 15. The earliest effective date for Lawrence's insurance policy would be:
September 4
Susan applied for life insurance on November 1, but did not submit a premium payment with the application. She underwent a physical examination on November 10, which she passed, and the results of that exam were forwarded to the insurance company. The policy was issued by the company on November 15, and the agent delivered the policy to Susan on November 17, at which time she paid the first premium. When did Susan's coverage become effective?
November 17
Which of the following statements best defines why an applicant would want to backdate an insurance application?
To have the policy's premium based on the insured's age at the earlier date.
Except for direct response insurers, companies must deliver a Buyer's Guide to all prospective buyers:
before accepting an initial premium or premium deposit
It is a producer's responsibility to disclose information about the policy and the underwriting process to an applicant. Which of the following is the best way to do this?
Deliver, review, and obtain a receipt for the Buyer's Guide during the presentation
All of the following can be problems when existing life insurance is replaced with new coverage EXCEPT:
comprehensive coverage may increase under the new policy
Any attempt by an insurer or agent to dissuade a policyowner from replacing existing life insurance or annuities is also known as:
conservation
Which of the following policies would be subject to replacement regulations?
A new policy that causes an existing life insurance policy to be surrendered.
In the replacement of a life insurance policy or annuity, the applicant must receive all of the following items EXCEPT:
a statement, signed by the existing insurer, allowing the replacement
All of the following insurance products are exempt from replacement regulations EXCEPT:
long-term care insurance policies
Which of the following would be an example of replacement?
New policy that causes an existing life insurance policy to be surrendered.
Which of the following is the term that describes any attempt by an existing insurer to dissuade a policyowner from replacing existing life insurance?
Conservation
Replacement regulations apply to which of the following products?
Individual life insurance policy
The life insurance replacement regulation applies to which of the following kinds of insurance?
Most individual life insurance policies and annuities
Which of the following statements regarding policy replacement is NOT correct?
it is an illegal practice.
The Notice Regarding Replacement of Life Insurance includes all of the following information or statements EXCEPT:
a recommendation against proceeding with the replacement
Which of the following statements about policy replacement is NOT correct?
The new insurer must send a letter to the applicant advising him or her to consider the negative consequences of a replacement.
A producer convinces a client that the life insurance policy the producer is offering better fits the client's needs than the policy the client currently has. The client decides to cancel his current policy and purchase a new one from the producer. Which of the following statements regarding this transaction is CORRECT?
Replacement is involved and compliance with replacement regulations is necessary.
Forfeiting a life insurance policy and writing another life policy in its place is known as:
replacement
What term is used to describe the act of issuing a new policy to take the place of a policy already in force?
Replacement
In situations where the sale of a life insurance policy will result in the replacement of an existing policy, the replacing agent is responsible for all the following activities EXCEPT:
notifying the existing policy's agent that a replacement is about to occur
All of the following statements regarding policy replacement are correct EXCEPT:
premiums for replacement policies are generally lower than premiums for the existing policies they replace
All of the following actions constitute a policy replacement EXCEPT:
changing dividend options from paid-up additions to cash payment on an existing whole life policy
"Replacement" is defined as any transaction in which new life insurance is to be purchased, causing the existing life insurance to be:
lapsed
In general, replacement transactions are:
legal if transacted in compliance with state regulations
Which of the following statements regarding the "Notice Regarding Replacement of Life Insurance" is CORRECT?
It must be presented to the applicant no later than upon policy application.
Which of the following must sign the Notice Regarding Replacement?
The applicant and agent.
Which of the following must a producer present to an applicant at the time of application when a life insurance policy is to be replaced?
Important Notice Regarding Replacement of Life Insurance.
Which of the following must a producer do when a new life insurance policy is sold?
Send the insurer a statement, signed by the applicant, disclosing whether or not the new insurance will replace existing insurance
When the purchase of a life insurance policy is likely to result in a policy replacement, which of the following persons must sign the required disclosure statement?
The agent and the applicant
When replacement is involved, a producer must do all of the following EXCEPT:
notify the existing insurer when one of its subsidiaries will issue the replacing policy
When replacing one insurance policy with another, an agent must:
give the applicant a replacement notice
When replacing one life insurance policy with another, an agent must:
leave with the applicant a copy of all sales proposals used in presenting and closing the sale
With each application for life insurance, an agent must have a statement signed by the applicant as to:
whether the proposed policy will replace existing life insurance
All of the following are duties of the agent regarding replacement EXCEPT:
advising the existing insurer of the replacement
When replacement is involved in a transaction, producers MUST do which of the following?
Leave with the applicant a notice regarding replacement and copies of all sales material prepared by the agent.
Which of the following courses of action is required if, during a sales presentation, an insurance producer determines that the policy he is proposing would replace another?
The producer must provide, in writing, information about the policy that will be replaced and submit that information with the application
When replacement is involved, each agent must:
provide the applicant with a Notice Regarding Replacement of Life Insurance
When the replacement of a life insurance policy is involved, producers must send all of the following materials to the insurer EXCEPT:
a copy of the replacing insurer's certificate of authority
When replacement is involved, replacing agents and brokers must do all of the following EXCEPT
send a copy of the replacement notice to the competing agent or broker
When a new policy is sold, producers must do all of the following EXCEPT
notify the producer who sold the original policy that the policy is being replaced
When a new policy is sold, agents must do all of the following EXCEPT
contact the agent who sold the existing policy 90 days before it is to be replaced
When a life insurance policy is to be replaced, what must the producer present to an applicant at the time of taking the application?
Notice Regarding Replacement of Life Insurance
All of the following are duties of the replacing producer when replacement is involved EXCEPT:
submitting copies of the sales proposals to the existing insurer
When selling new life insurance policies, producers must do all of the following EXCEPT:
inform the Commissioner's office of the pending sale
When a life insurance transaction involves replacement, the producer must do all of the following EXCEPT
submit a copy of the replacement notice to the Director
Which of the following statements regarding the "Notice Regarding Replacement of Life Insurance" is CORRECT?
A copy of the notice must be signed by the applicant and submitted with the application.
The term "existing insurer" refers to an insurance company
whose policy is being, or may be, terminated by a replacement
Who must notify an insurer that its policy is in danger of being replaced?
Replacing insurer
Replacing insurers must do all of the following EXCEPT
receive a check for the difference in premium between the existing policy and the new policy
Replacing insurers must do all of the following EXCEPT
seek authorization for replacement from the Department of Insurance
A producer owes a fiduciary responsibility to all of the following EXCEPT:
the commissioner, for license fees
Funds held by an insurance producer in a fiduciary capacity
cannot be converted to an individual's or firm's own use
A producer who receives life insurance premiums holds the money in trust as a:
fiduciary
A premium given to a producer by an insured is done with the expectation that the producer will act with the utmost good faith in forwarding it to the insurer. In this case, the producer is said to have what kind of responsibility to or relationship with the insured?
Fiduciary
Which of the following statements regarding the fiduciary duty of a producer is CORRECT?
All premiums received by an insurance producer must be held in trust and cannot be used for personal matters.
An insurance producer in a position of financial trust to both the client and the insurer best describes a:
Fiduciary
An insurance producer acts in what capacity when holding insurance premiums?
fiduciary
Which of the following statements pertaining to term insurance is CORRECT?
Term insurance provides protection for only a temporary period.
John owns a 5-year $50,000 term life insurance policy, and Maria owns a $50,000 whole life insurance policy. Which one of the following statements is CORRECT?
John's policy, but not Maria's, may have an option to convert.
Ken is the insured under a $40,000 5-year level term policy and a $100,000 whole life insurance policy issued in 2001. He died in 2007. His beneficiary received:
$100,000.00
In contrast to traditional whole life insurance policies, term life insurance:
provides pure insurance protection only
Which of the following life insurance policies with the same face value would have the highest premium if issued to the same person?
10-year renewable and convertible level term
Chester, age 25, has a $25,000, 15-year level term policy. Joel has a $25,000, 15-year decreasing term contract. The policies were issued by the same company to the respective insureds on September 1, 1990. Which of the following statements pertaining to this situation is CORRECT?
If both insureds had died in 2004, Chester's beneficiary would have received more than Joel's beneficiary
Jason is the insured in a $100,000, 10-year renewable term policy. Soon after taking out the policy, he develops a serious heart condition. Which of the following statements pertaining to Jason's rights to renew this policy is CORRECT?
Jason will be able to renew the policy
Which of the following statements about a 1-year renewable term policy is CORRECT?
It renews with an increase in premium based on the insured's age.
David has a $300,000 nonrenewable 5-year term policy. The premium he pays for this policy would be:
less than for a $300,000, 5-year renewable term policy
Which of the following types of life insurance policies would have premiums that are fixed and level, and payable over the life of the policy?
10-year renewable term
Madge took out a $100,000, 10-year convertible term policy at age 30, and at age 36 decides to convert the policy to permanent insurance of the same amount on an original-age basis. All of the following statements pertaining to this situation are correct EXCEPT:
conversion will be contingent upon her evidence of insurability
Gerald, a 40-year-old building contractor, wants financial protection for his family while $150,000 of his assets are tied up in a building project for about five years. Which of the following types of life insurance policies would give him that protection at the lowest cost?
5-year level term
Mike has a term insurance policy in which the amount of protection remains constant during the term period. Which kind of term insurance does Mike have?
Level term
Frank is the insured in a $40,000, 5-year level term policy issued in 2001. He died in 2007. His beneficiary received:
nothing
Bob purchases a $50,000 5-year level term policy. All of the following statements about Bob's coverage are correct EXCEPT:
if the insured dies after the specified five years, only the policy's cash value will be paid
Bob purchases a $50,000 5-year level term policy. All of the following statements about Bob's coverage are incorrect EXCEPT:
the policy provides a straight, level $50,000 of coverage for five years.
Brian, a 45-year old general contractor, wants financial protection for his family while $300,000 of his assets are tied up in a building project for the next five years. Which of the following types of life insurance policies would give him that protection at the lowest cost?
Five-year level term
Brian, age 25, just started working and would like to purchase life insurance to ensure that his wife and child are protected if he dies prematurely. He has very limited funds but would eventually like to have permanent protection. Brian should consider purchasing:
level term life insurance
Decreasing term insurance could be recommended for all of the following EXCEPT:
to build a retirement fund
Roland is 45 years old and married. He has a 19-year-old son who is a freshman at a local university. He also has an 8-year-old daughter. A decreasing term policy could be recommended for Roland for which of the following reasons?
To guarantee that his son's college tuition will be covered
Mrs. Williamson purchases a 5-year $50,000 decreasing term policy with an option to renew. Which of the following statements about the policy's renewability is CORRECT?
The premium for the renewal period will be higher than the initial period
Amanda took out a $250,000 home mortgage when she purchased her house five years ago. What type of life insurance policy would be the best choice to insure the remaining balance on her home mortgage?
Decreasing term
Joe buys his first home after obtaining a 30-year mortgage from his bank. He is considering the purchase of life insurance to ensure that the mortgage will be paid in the event of his death, in which case he will leave the house to his wife and children. What should his life insurance agent recommend as the best life insurance protection for Joe in this situation?
Decreasing term
Increasing term insurance is almost always sold as a(an):
rider
For which of the following situations would selection of the lump-sum cash payment be the best death benefit settlement option choice?
A $250,000 decreasing term life insurance policy that was purchased for mortgage protection purposes
A policy loan is generally available with all of the following types of life insurance policies EXCEPT:
level term life insurance
A life insurance policy in which the face amount remains level and the cash value grows to an amount equal to the face amount when the insured reaches age 100 is
a whole life policy
Which of the following statements pertaining to a whole life policy is NOT correct?
The face amount may be paid as a lump sum at the policyowner's selected retirement age
Darlene owned a $100,000 whole life policy that had a $75,000 cash value when she died at the age of 75. The amount paid by the insurance company as a death benefit was:
$100,000.00
Which of the following policies endows at age 100?
Whole life and limited pay life
Tom has a $50,000 whole life policy. If he continued to pay the required premiums and lived to age 100, he would receive:
$50,000 as an endowment
John would like to purchase a life insurance policy that offers level premiums from the time the policy is issued until his death. He also wants a policy that combines death protection with a savings element that can eventually be used for retirement purposes. John should consider purchasing which of the following plans?
A straight whole life insurance policy
Diane would like to purchase a life insurance policy in which the face amount remains level and the cash value grows each year until she dies (or reaches age 100). Which type of policy should she purchase?
Whole life policy
Mark purchased a 20-year, $100,000, level term life insurance policy and a $250,000 straight whole life insurance policy. Which of the following statements is CORRECT?
Premiums for both policies are set at the time of policy issue and remain level throughout the term of the policies
The party to whom the life insurance policy cash values belong is the:
policyowner
Which of the following statements pertaining to limited pay life policies is CORRECT?
Both limited pay life and whole life policies endow at age 100
Which of the following $50,000 limited pay life policies will have the highest premium for an applicant who is age 30?
20-pay life policy
All of the following statements regarding basic forms of whole life insurance are correct EXCEPT:
Limited payment life provides protection only for the years during which premiums are paid
Assume four individuals, all age 30, purchase the following life insurance policies. If all policies are still in force ten years later, who will have the largest cash value in his policy?
Ralph $100,000 20-pay life
All of the following are distinguishing characteristics of straight whole life policies EXCEPT:
option to renew
Jane, age 35, has just purchased a 20-pay whole life policy. When she turns 55, she will:
cease paying premiums
A whole life policy that makes it possible to stop premium payments at the end of a specified time without a reduction in the death benefit is called:
limited pay
An individual wishes to purchase whole life Insurance but does not wish to pay premiums past retirement age. Which of the following policies should the person buy?
limited pay
All of the following statements regarding limited-pay life insurance are correct EXCEPT:
limited-pay policies mature more quickly than do continuous premium whole life
Which of the following statements regarding current assumption whole life insurance is CORRECT?
Current interest rates/investment earnings, as well as current mortality and expense charges, are used to determine additions to cash values and/or premium amounts
All of the following statements regarding current assumption whole life insurance are correct EXCEPT:
during a period of relatively high interest rates the premiums could be increased.
Which of the following statements about enhanced ordinary life (economatic) products is NOT correct?
The cash value from an existing traditional whole life policy cannot be rolled over into enhanced ordinary life product
Which whole life payment plan uses dividends to purchase additional amounts of coverage?
Enhanced ordinary life
With interest sensitive whole life insurance, the:
cash value fluctuates in accordance with interest rates
Samantha owns a $100,000 whole life insurance policy with a $40,000 cash value. If she takes a $20,000 loan from the policy's cash value to pay for her daughter's tuition and doesn't repay the loan:
the amount of the loan plus any interest due will be subtracted from the death benefit before it is paid
Which one of the following individuals can access the cash value of his life insurance policy to provide extra retirement income?
Henry, who owns a $100,000 single premium whole life policy
A universal life insurance policy is currently crediting its cash value with 4% interest. Policy loans are presently charged 5% interest. Based on these facts, at what interest rate is this policy's cash value accumulating?
4% on the entire cash value
A significant feature of adjustable life insurance is that the:
premiums may be increased or decreased from time to time by the policyowner
Patrick owns an adjustable life policy. Which of the following statements pertaining to his policy is CORRECT?
Upon showing evidence of insurability, Patrick can increase the face amount of his policy
All of the elements of an adjustable life policy are adjustable EXCEPT:
policy loan rate
Which of the following statements applies to universal life insurance?
Premiums generally may be increased or decreased at the policyowner's option.
Universal life is distinguished from whole life insurance in that:
partial withdrawals can be taken from the cash value account
All of the following statements regarding universal life insurance are correct EXCEPT:
the policyowner has the right to increase or decrease the interest rate credited to his or her cash value account, as his or her needs change
Michelle, age 31, just purchased a $50,000 variable life insurance policy. With regard to her policy, which of the following statements is NOT correct?
At her death, her beneficiary may receive more or less than $50,000 in proceeds
Which of the following types of life insurance requires that the agent be NASD-licensed before selling the policy?
variable life
Which of the following statements pertaining to variable life insurance is CORRECT?
Variable life insurance cannot be proposed in a sales situation unless the proposal is preceded or accompanied by a prospectus.
Limited representatives can sell the following kinds of insurance EXCEPT:
variable life
For which of the following reasons would a domestic insurer set up separate accounts?
To provide for annuities to be payable in fixed or variable amounts or for variable life insurance
In addition to the Insurance Department, who has the authority to regulate variable life insurance?
Securities Exchange Commission
Which of the following statements describes variable life insurance?
It provides insurance benefits that vary according to the investment experience of separate accounts maintained by the insurer
With respect to the regulation of variable contracts and those who sell them, which of the following statements is most accurate?
Variable contracts and their distribution are regulated separately but in a fairly coordinated fashion between the Department of Insurance, the SEC, and the NASD
Which one of the following differentiates a variable life or annuity product from a conventional life or annuity product?
The presence of a separate account, which contains the investment component of the product
Variable life insurance policies are regulated by the Securities Exchange Commission and NASD because:
the cash values are tied to the actual performance of an investment fund or funds
Variable life insurance policies are regulated by the:
SEC, NASD, and the states
In contrast to traditional whole life insurance policies, with variable life insurance products:
contract values are not guaranteed
Variable universal life policies provide all of the following EXCEPT:
fixed premiums
An insured has a variable universal life product. He wants a portfolio composition consisting of 50% S&P 500 stocks and 50% long-term U.S. treasury bonds. In order to maintain the 50/50 balance over time, the insured will have to engage in:
asset rebalancing
Which of the following statements about variable universal life insurance is NOT correct?
It guarantees a minimum cash value in the investment account
Which of the following types of groups purchasing group life insurance are required to maintain a specified number of insureds under the policy?
A credit life group
In most states, credit life insurance is sold in the form of:
decreasing term
What is credit life insurance?
Insurance that covers a debtor's life and will help provide funds to pay off a loan if the debtor dies before the loan is repaid
Which of the following types of life insurance covers the life of a debtor in connection with a specific loan?
Credit Life
When indebtedness is discharged before the scheduled maturity date, credit insurance is:
terminated and a refund paid to the insured
Alan is the insured in a $50,000 endowment at age 60 policy he purchased in 1979 at the age of 40. How long did he pay premiums before the policy endowed?
20 years
At age 35, Bret bought a $25,000 life insurance policy for which the beneficiary will be paid the face amount if Bret dies before age 60. Bret is to pay the premiums until he reaches age 55, but the insurance protection continues to maturity. Which type of policy did Bret purchase?
20-pay endowment at age 60
How long does the insurance protection (amount at risk) last in a 30-year endowment policy?
30 years
Which term would identify a policy in which the premium payments are paid for 20 years before the policy endows, at which time the insured turns age 60?
20-pay endowment at age 60 policy
Gene, age 20, purchased a $50,000 life insurance policy. The premium at issue is lower than normal whole life rates, and increases each year for the first five years of the policy period. After that, the premium levels off. What type of policy does Gene own?
Graded premium whole life
Sean has a young family and needs affordable whole life insurance. He is looking for a policy with lower initial premiums but is not adverse to paying more at a later time. Based only on this information, what type of whole life insurance variation would be suitable for him?
Graded premium
Gene owns a policy in which the premium at the inception of the policy is lower than the continuous premium whole life rate and then increases each year for the first five years of the policy period. After five years, the premium levels off. What type of policy does Gene own?
Graded premium whole life
A form of whole life insurance in which the face amount automatically increases as the Consumer Price Index increases is called:
indexed whole life
Equity index life insurance policy values are determined by a specified participation rate and:
indirect links to a stock market index
An insured has an equity indexed universal life policy with a minimum return of 2% and a maximum return of 12% in any given year. If the policyholder's index performs at 20% increase for a given year, what is the return on the policy for that year?
12%
All of the following statements pertaining to a 20-year family income term insurance policy are correct EXCEPT:
if the insured dies during the 20-year term period, the monthly income is paid to the family for 20 years, starting at the time of death
All of the following statements concerning a family plan policy are correct EXCEPT:
it provides both parents with the same amount of protection
A life insurance policy provides for monthly income payments if the insured dies at any time during the first ten years. The income period begins when the policy is issued and ends ten years later. What kind of policy is this?
Family income
Lisa has three young children and is the breadwinner in her family. She would like to purchase a life insurance policy that will provide protection to her children while they are living at home but that provides fewer benefits once her children grow up. In this case, Lisa should consider purchasing a:
family income policy
Which of the following policy plans provides for payment of an income for a selected, fixed period of years beginning from the date of the insured's death?
Family maintenance
Suppose that two years before he died, an insured bought a policy to maintain his family's income. The policy pays monthly benefits to the family for five years following the date of the insured's death. The face amount of the ordinary insurance portion of the policy is paid at the end of the 5-year period. What kind of policy did the insured buy?
5-year family maintenance plan
Don and Edith purchase a family plan consisting of four units to cover themselves and their two children. A unit provides coverage of $10,000 for Don, $2,500 for Edith and $2,000 for each child. Total coverage for each parent is:
$40,000 for Don and $10,000 for Edith
A family in which both parents work and, therefore, are in need of the same amount of coverage, would be a candidate for which of the following plans?
Joint life
Brian and Jenna both work to support their family. To provide the same amount of life insurance protection in the event either dies, they should consider purchasing which of the following plans?
Joint Life
All of the following statements pertaining to juvenile life insurance are correct EXCEPT:
Juvenile insurance may be purchased as soon as the child being insured can sign his or her name.
All of the following are purposes of juvenile insurance EXCEPT to:
cover the medical expenses of a child
An insurer may issue life insurance on the life of a minor under the age of 14 years and 6 months if all of the following occur EXCEPT:
the insurer obtains the minor's permission before issuing the policy
All of the following statements about a modified whole life policy are correct EXCEPT:
it is basically an endowment policy
Helen has just taken out a modified whole life policy. Which of the following statements pertaining to her policy is CORRECT?
The premium will be lower during the next few years and then be increased to a higher constant level
All of the following statements pertaining to modified whole life and graded premium whole life policies are correct EXCEPT:
the premium for modified whole life increases each year after the first few years of policy issue.
A prospect with a young family needs affordable whole life insurance. As a rising young executive, it is likely that the prospect's current limited resources will increase substantially over the next 15 years. Based only on this information, what type of whole life insurance variation would you recommend?
Modified life
A contract written between one party who will buy the death benefit of a life insurance policy and the policyholder is called a:
viatical settlement
Which of the following individuals could sell a life insurance policy to a viatical settlement provider?
Becky, who was just diagnosed with a terminal illness
Which of the following life insurance policyowners is eligible to enter into a viatical settlement?
An insured who has a terminal illness and is likely to die within six months
All of the following statements about accelerated death benefits and viatical settlements are correct EXCEPT:
an insured who sells an insurance policy to a viatical company must receive 100% of the policy's face value
Roberta is the insured in a $30,000 life insurance policy for which she pays an annual premium of $700. There is an outstanding policy loan of $2,500. Her last premium due has not been paid and she dies during the grace period. How much will her beneficiary receive?
$26,800.00
All of the following are rights of policy ownership EXCEPT:
to determine the method of submitting claims
All of the following are required provisions of group life insurance policies EXCEPT:
individual policy contract
All of the following are required provisions in life insurance policies EXCEPT:
a replacement provision
All of the following are required provisions in an individual life insurance contract EXCEPT:
home health care
Individual life insurance policies must include all of the following provisions EXCEPT:
a conversion provision
All of the following statements about life insurance are correct EXCEPT:
a policyowner must notify the beneficiary before transferring ownership
An individual life insurance policy must include all of the following EXCEPT:
a table showing the annual loan values of the policy for at least 30 years
An individual life insurance policy must contain all of the following provisions EXCEPT:
an accelerated benefit
All of the following statements pertaining to the insuring clause in a life insurance policy are correct EXCEPT:
it explains the conditions under which the policy can be reinstated
Which of the following standard life insurance policy provisions covers the insurer's basic promise to pay a claim in the event of the insured's death?
The insuring clause
When Mary applied for a life insurance policy, she did not disclose that she had just been treated for cancer three months ago. In addition, Mary intentionally misstated her age so that her premiums would be lower. If the insurer issues the policy but discovers the misrepresentations one year later:
the insurer can challenge the validity of the contract
In which of the following circumstances would the incontestable clause of an insurance policy apply?
Concealment of smoking
Suppose a whole life insurance policy was issued on August 3, 1998. On August 31, 2000, the insured committed suicide. What action will the insurer probably take?
Pay the policy's face amount
An individual life insurance policy must become incontestable no later than how long after its effective date?
2 years
In regards to length of time period, the incontestability period is usually
the same for both individual and group life insurance policies
After Joe died, ABC Insurer discovered that he had misrepresented his health status when he applied for a life insurance policy seven years ago. ABC Insurer:
cannot void or revoke the policy
Which of the following statements about the incontestable clause in a life insurance policy is NOT correct?
Insurers can void a contract even after the specified period provided they can prove the policy was purchased fraudulently
In which of the following situations would the life insurance company be justified in delaying payment of a life insurance claim?
Eighteen months after policy issue, the insured died of cancer and the insurer is conducting an investigation to determine whether there was an undisclosed preexisting condition
Which of the following statements pertaining to the suicide clause in a life insurance policy is NOT correct?
The insured with a $75,000 life insurance policy issued December 15, 2005, commits suicide December 24, 2007. The beneficiary of the policy will receive a return of the premiums paid for the policy
Vivian commits suicide four years after taking out a $100,000 life insurance policy on herself. Her beneficiary is concerned that the death claim will be denied. In this case, all of the following are correct statements EXCEPT:
the company has definite proof of the cause of her death, so it can refuse to pay the death benefit
A whole life insurance policy was issued on December 14, 2004. On January 6, 2007, the insured committed suicide. What action will the insurer likely take?
Pay the policy's face amount
All of the following statements pertaining to life policy assignment are correct EXCEPT:
the policyowner must obtain approval from the insurance company before a policy can be assigned
Alexandria assigns one of her $10,000 life insurance policies to a bank as collateral for a loan. The assignee is:
the bank
An assignment in which the assignee receives full control over the policy is called:
an absolute assignment
Which of the following statements pertaining to the misstatement of age provision of a life insurance policy is CORRECT?
The insurer discovers that a deceased policyowner had lied about her age on a $75,000 life insurance policy. The insurer will pay her beneficiary what her premiums would have purchased if she had given her age truthfully
Abner's age was misstated in his application for a $50,000 life policy. What will the company do when it discovers the error?
It will adjust either the premium rate or the amount of protection
What happens if, when paying benefits, the insurer discovers that a person's age had been misstated on his or her individual life insurance application?
Benefits will be paid for the amount of coverage the premium would have purchased at the correct age
If the insured's age or sex is misstated in an application for a life insurance policy and the error is NOT corrected during the person's lifetime
the amount payable is what the premium paid would have purchased if the age and sex had been correctly stated
What action will the insurer take when it learns that a deceased life insurance policyholder was actually older than the insurer had believed?
The face amount will be lowered to reflect the proper amount based on the correct age
The policy provision that permits the insurer to adjust benefits because of an incorrect age is:
the misstatement of age provision
What action will the insurer take when it learns that a participant in a group life plan is actually older than the insurer had believed?
Depending on the plan's provisions, it will either lower the benefit to be paid or require that the group policyowner pay the additional premiums owed
All of the following are rights of policy ownership EXCEPT:
changing a policy provision with the agent's approval
Joshua returns to the agent the new life insurance policy delivered by the agent three days earlier. Joshua had paid the initial premium. Assuming his policy has a "free-look" provision, what is Joshua entitled to receive?
A full refund of the initial premium.
A new life insurance policyowner has just received his policy. How long does he have to review and return it if he is not satisfied with it?
10 days
The significance of a free look provision is that it:
provides life insurance policyholders with the right to return their policies, within ten days of issue, for a full refund of premiums
An applicant purchased a universal life insurance policy on March 3. On March 16, the insurer approved and issued the policy, which the producer delivered on March 22. On April 1, the policyowner called and explained to the producer that she in fact did not want the policy. The producer must pick up the policy and:
refund all premiums paid
When an insured dies, who stands first to receive the policy's proceeds?
Primary beneficiary
If a beneficiary has been so designated that she acquires a vested right in the policy immediately upon its issuance, the designation is termed:
irrevocable
Which of the following terms indicates the insured's right to change beneficiaries in a life insurance policy?
revocable
When a life insurance beneficiary is revocable
the beneficiary has no vested claims in the policy or its proceeds while the insured is living
Which of the following statements regarding the facility of payment clause in a life insurance policy is NOT correct?
It is a mandatory part of group life insurance plans
Which of the following best describes the basic purpose for the facility-of-payment clause found in some life insurance policies?
It authorizes the insurer to designate the payee of life insurance death benefits if the designated beneficiary cannot be located.
Roland purchases a life insurance policy and names his wife, Carol, as beneficiary. Roland's children, Sue and Bob, are to share the benefits equally if she dies before him. His church is to receive the proceeds if his wife and children all predecease him. The primary beneficiary is:
Carol
Roland buys a life insurance policy and names his wife, Carol, as beneficiary. Roland's children, Bob and Sue, are to share the benefits equally if Carol dies before him. His church is to receive the proceeds if his wife and children predecease him. How would the proceeds of Roland's policy be distributed if both his children predecease him?
Carol would receive 100% of the proceeds
Henry owns a variable life insurance policy in which his wife, Carol, is the primary beneficiary. His son and daughter, Jacob and Charlotte, are equal secondary beneficiaries. The American Red Cross and his alma mater are listed as equal tertiary beneficiaries. If both Carol and Jacob predeceased Henry, how would the policy's death benefit be distributed at Henry's death?
Charlotte will receive 100% of the death benefit.
Which of the following statements regarding the naming of a minor as life insurance beneficiary is NOT correct?
The youngest age at which an individual may be regarded as an adult for beneficiary purposes is age 18.
Assume Clarence, the insured, designated his estate as the beneficiary of his life insurance policy. Based on that, which of the following statements is CORRECT?
Clarence's creditors can attach the proceeds more readily than if the proceeds were paid to named beneficiaries
The beneficiary on Susan's life insurance policy reads, "Children of the Insured." Which of the following terms best describes this type of beneficiary designation?
Class beneficiaries
With respect to life insurance policy beneficiaries, all the following are examples of a class designation EXCEPT:
my sister Alice and my nephew Ronald
Peggy takes out a $50,000 10-year policy on herself and names her two children, aged 11 and 12, as primary beneficiaries to share equally in the proceeds. How much would each child receive if Peggy should die when the children are aged 19 and 20?
$25,000.00
Which of the following statements pertaining to beneficiaries of life insurance policies is NOT correct?
Named beneficiaries must be individuals, not organizations or businesses
Ted, the insured in a $75,000 life policy, and his sole beneficiary, Maxine, are killed instantly when their car is struck by a train. Under the Uniform Simultaneous Death Act, to whose estate will the policy proceeds be payable?
Ted's estate.
When the insured and the beneficiary in a life insurance policy die simultaneously, how must the proceeds of the policy be distributed?
As if the insured had survived the beneficiary.
Under a common disaster clause in a life insurance policy, it is assumed that the:
insured died last, unless the primary beneficiary lives beyond a stipulated period
Winston, the insured, and his wife, Irene, his sole beneficiary, both died in a hotel fire. Hospital physicians witnessed that Irene lived at least two hours longer than Winston. The life policy had no common disaster clause. Which of the following will likely receive the policy proceeds?
Irene's estate
Kevin, the insured in a $200,000 life insurance policy, and his sole beneficiary, Lynda, are killed instantly in a car accident. Under the Uniform Simultaneous Death Act, to whose estate will the policy proceeds be paid?
Kevin's estate.
If the insured and the beneficiary of the insured's life insurance policy both die simultaneously, the policy proceeds will be distributed:
as if the insured had survived the beneficiary
The purpose of the common disaster provision is to:
protect the interests of the contingent beneficiary
Which of the following statements pertaining to the spendthrift clause in a life insurance policy is NOT correct?
A beneficiary receives $125 per month from a life policy under the fixed-amount settlement option and a spendthrift clause. The beneficiary may have the company send the payments to a creditor to pay off a debt.
If a life insurance policy specifically names a beneficiary other than the insured's estate, what recourse may the creditors of the deceased insured take to attach the policy proceeds?
Nothing, because life insurance proceeds are exempt from the claims of the deceased insured's creditors as long as there is a named beneficiary other than the insured's estate.
If an individual life insurance policy contains a spendthrift provision, the policy can prohibit the beneficiary from taking all of the following actions EXCEPT:
receiving equal installment payments under the policy
Which of the following statements about the spendthrift clause is NOT correct?
It gives the beneficiary the right to leave the death proceeds with the insurance company to accumulate interest tax free.
Which type of provision in a life insurance policy ensures that a beneficiary will not spend all of the insurance proceeds at once?
Spendthrift provision
Which of the following causes of death is generally NOT covered by a life insurance policy?
war
Jerry has just purchased a life insurance policy and is taking time to review the policy's provisions. He will find that his policy excludes death by all of the following means EXCEPT:
accident
Individual life insurance policies can exclude benefits if death occurs as a result of all of the following EXCEPT:
suicide, if within 5 years from the date of policy issue
In which of the following cases would the insurance company most likely cover the loss under a life insurance policy?
During a cross-country flight to a shareholders' meeting, Johnson's commercial airliner suffers engine failure and crashes with no survivors
Common exclusions that were included with life insurance policies for many years typically excluded coverage for death caused by all of the following circumstances EXCEPT:
A fare-paying passenger is killed in a commercial airplane crash while flying to visit a relative.
In general, annuity benefits that are paid periodically are deemed safe from which of the following?
Creditors
Which provision of a life insurance policy declares that the application is part of the contract?
Entire contract clause
Which of the following statements is CORRECT?
After a policy is delivered to and accepted by the policyowner, it cannot be changed in any way, except in accordance with terms stated in the contract.
Which of the following phrases best describes a life insurance policy under the entire contract clause?
Policy document plus riders and a copy of the signed application.
The contract provision that states that the policy, a copy of the application, and any attached papers constitute the complete insurance contract is the:
entire contract provision
Which of the following is stated in the consideration clause of a life insurance policy?
Amount and frequency of premium payments
All of the following are life insurance policyowner's rights EXCEPT:
the right to change the grace period
Which of the following policyowner rights relates directly to the cash value of permanent insurance?
Right to take a policy loan
All of the following policyowner rights contribute to the flexibility of a life insurance policy EXCEPT:
classification of the applicant
Who designates the beneficiary of a life insurance policy?
Policyowner
Which of the following provisions of a life insurance contract generally helps to keep policies in force if policyowners neglect to pay their premiums?
Grace period
What is the usual grace period for a semiannual premium policy?
31 days
What happens if a claim arises during the grace period of an individual life insurance policy?
Benefits will be paid, but unpaid premiums can be deducted from the policy proceeds
Ron, the insured, dies during the grace period for his $100,000 life insurance policy. Considering that the premium on the policy has not been paid, what happens?
The amount of the premium is deducted from the policy proceeds paid to the beneficiary
Randy's premium payment was due on June 1, but the company did not receive it until June 28. Which policy provision kept Randy's policy from lapsing?
Grace period
Which of the following statements regarding the grace period for life insurance is NOT correct?
It is usually shorter than 30 days
Lisa exercised her automatic premium loan provision to pay her annual premium on her $50,000 life insurance policy. She died four months after the loan was taken, never having a chance to repay it. Given these facts, which of the following is CORRECT?
The amount paid to Lisa's beneficiary as the death proceeds was reduced by the amount of the loan
Which of the following options is designed to protect the policyowner should the policy be in danger of lapsing for nonpayment of premium?
automatic premium loan
Edna stopped paying premiums on her permanent life insurance policy seven years ago though she never surrendered it. She is still insurable and has no outstanding loan against the policy. The company probably will decline to reinstate the policy because the time limit for reinstatement has expired. The limit usually is:
3 to 5 years
All of the following statements pertaining to reinstating a life insurance policy are correct EXCEPT
the cash surrender value must be forfeited to the insurer
All of the following statements pertaining to reinstatement of a life insurance policy are correct EXCEPT:
a suicide exclusion period is renewed with a reinstated policy
All individual life insurance policies must include a reinstatement provision providing that the policy can be reinstated at any time within how many years from the date of premium default?
3 years
To have an individual life insurance policy reinstated, a person must comply with all of the following EXCEPT:
agree to a new policy without another reinstatement provision
Which of the following is a required provision in all individual life insurance policies?
Reinstatement
Which one of the following statements about reinstating an individual life insurance policy is CORRECT?
The insured must pay all back premiums with interest before the policy can be reinstated
An insured may apply for reinstatement of a life policy after terminating premium payment if this action is taken how long after the lapse of the policy?
Within 3 years
All of the following statements about the reinstatement of individual life insurance policies are correct EXCEPT:
to reinstate a policy, the insured need not show evidence of insurability
To reinstate a lapsed policy, the insured must do all of the following EXCEPT:
sign a Notice to the Applicant Regarding Replacement
A lapsed life insurance policy may be reinstated if all of the following requirements are met EXCEPT:
its paid-up term insurance has expired
Which one of the following statements about reinstating an individual life insurance policy is CORRECT?
The insured must pay all back premiums with interest before the policy can be reinstated
How can the cash value accumulation in a straight whole life insurance policy be accessed while the insured is living and while keeping the coverage in force?
Through a policy loan
Which of the following statements BEST describes the nature of a cash value loan?
It is a financial transaction in which the insurer loans the money and attaches a comparable portion of the cash value as collateral
Cash value life insurance must permit policyowners to take a policy loan up to the full loan value of the policy after the policy has been in force for:
3 years
All of the following are conditions which must be met in order for an insured to borrow money on a life insurance policy EXCEPT:
the preexisting condition restriction has not yet been satisfied
Which one of the following is NOT a condition under which a loan may be made against a life insurance policy?
The insured will use the money for education or the purchase of a first home
An insured must meet all of the following conditions in order to borrow money on an individual life insurance policy EXCEPT
the policy has a nonforfeiture provision
Ken owns a participating whole life insurance policy that was issued with a $100,000 face amount and now has total death benefit protection of $120,000 because he uses the paid-up additions dividend option. If Ken were to borrow $10,000 from the policy, what would be the value of the policy's face amounts (including paid-up additions)?
$100,000.00
Betty owns a universal life insurance policy that was issued with a $100,000 face amount and now has total death benefit protection of $110,000. Several months ago she borrowed $15,000 from the policy. The outstanding loan balance (including interest) is $15,200. If Betty dies today, what will be the amount of the death benefit?
$94,800.00
Kelly, age 48, owns a universal life insurance policy (non-MEC) with a current death benefit of $270,000 and a cash value of $20,000. Her basis in the policy is $12,000. Kelly is interested in either borrowing or withdrawing $15,000 from this policy. What would be the tax consequences if she were to borrow the $15,000 through a policy loan?
There would be no income taxation on any portion of the amount borrowed, whether or not she repaid the policy loan
While a policy loan is generally an available option with any form of permanent life insurance, a partial withdrawal of cash value from the policy is available only with which of the following types of life insurance?
Universal life insurance policy
A beneficiary receives the proceeds from a life insurance policy in a lump sum payment. Which of the following statements best explains how the proceeds will be treated in relation to the debts of the beneficiary?
It can be subject to the beneficiary's debts and creditors
The death benefit proceeds of a life insurance policy are protected from the beneficiary's creditors unless
they are paid out in a lump sum.
The payor benefit typically waives premiums on a juvenile policy if the:
person who pays the premium dies or becomes disabled before the insured child reaches a certain age
Jay has a $50,000 life insurance policy with an accidental death benefit that pays triple the face amount. If Jay commits suicide three years after purchasing the policy, how much will his beneficiary receive?
$50,000.00
For a beneficiary to receive accidental death benefits, death of the insured generally must occur within how many days following the accident?
90 days
The insured in a $25,000 life insurance policy died of a heart attack. Since the policy had a "double indemnity" provision, the policy beneficiary received
$25,000.00
An accidental death and dismemberment (AD&D) policy paying twice the principal sum is known as:
double indemnity
Theodore received a $15,000 cash benefit from his $50,000 accidental death and dismemberment policy for the accidental loss of one eye. The amount he received could be identified as the policy's:
capital sum
What are accelerated benefits?
Life insurance death benefits paid before the death of an insured with a terminal illness
All of the following statements about accelerated benefits provisions are correct EXCEPT:
the money received as an accelerated benefit must be used to pay medical expenses
A life insurance policy may pay death benefits before the insured dies for all of the following reasons EXCEPT:
financial difficulties
How can an insured access all or a portion of a life insurance benefit to pay for a long-term illness or life threatening disease?
Purchase an accelerated benefits rider
Steve is diagnosed with inoperable cancer and learns that he has only a few months to live. He wants to take an extended vacation with his wife and needs some immediate funds. He has held a whole life insurance policy for many years. Which of the following options would be the BEST source of funds, if Steve wants a lump sum payment?
Accelerated benefit
All of the following statements about accelerated living benefits are correct EXCEPT:
the proceeds must be spent on the insured's medical expenses
Jason has been totally disabled for two years. During that time, the insurance company has paid all premiums (a total of $1,200) on his $25,000 life policy, which has a waiver of premium clause. If Jason dies now, the insurance company will pay a death benefit of:
$25,000.00
All of the following statements pertaining to the waiver of premium provision in a life insurance policy are correct EXCEPT:
a waiver of premium provision may be continued indefinitely with a policy so long as premiums are paid and the policy remains in force.
All of the following statements pertaining to waiver of premium in health insurance policies are correct EXCEPT:
it applies to both medical expense and disability income policies
For a waiver of premium rider to become operative, the insured must be
totally disabled
Which of the following types of life insurance riders is NOT based on term life insurance?
Waiver of premium
All of the following statements regarding a disability income rider are correct EXCEPT:
the only way to provide disability benefits in a life insurance policy is through a disability income rider
The payor benefit option or rider is used with:
juvenile policies
Which of the following life insurance policy options will allow insureds to purchase additional insurance at future dates, regardless of their health?
Guaranteed insurability option
At the age of 34, Ben purchased a whole life policy with a guaranteed insurability option. How many opportunities will he have to purchase additional life insurance in the future?
Two
If an insured does not exercise the option to increase coverage under a guaranteed insurability rider, what is the result?
The coverage will not change and the option automatically expires
An option whereby additional insurance may be purchased at various times without evidence of insurability is known as:
guaranteed insurability
Upon the insured's death, which of the following policies will pay the face amount of the policy plus a sum equal to all or a portion of the premiums paid?
Return of premium policy
Richard owns a whole life insurance policy with a $100,000 face amount and a return-of-premium rider that lasts ten years from the date of issue. If he were to die eight years after purchasing the policy and having paid $9,000 in premiums, which of the following statements most correctly describes the total amount and form of the benefit that would be payable through this policy?
The return-of-premium rider applies in this case and the total benefit would be $109,000, consisting of $100,000 in permanent life insurance coverage and $9,000 in term life insurance coverage.
Sarah owns a life insurance policy with a $50,000 face amount and a 10-year return-of-premium rider. She pays an annual premium of $700. If she were to die six years after purchasing the policy, what would be the total amount payable to the beneficiary?
$54,200.00
Which of the following statements regarding a cost of living rider on a life insurance policy is not correct?
All insurance companies offer cost of living riders
Which of the following riders provides for changes in the benefit payable based on changes in the Consumer Price Index?
Cost of living adjustment rider
Which of the following statements regarding the cost of living rider is NOT correct?
A drawback of the rider is that a drop in the consumer price index (CPI) can result in a decrease in the coverage previously added.
Which of the following statements regarding the standard cost-of-living rider used with life insurance policies is NOT correct?
There is no additional premium required to pay for increases in the death benefit resulting from the cost-of-living rider.
Frank owns a graded premium whole life insurance policy that includes a spousal rider. Which of the following is the most likely type of insurance underlying the spousal rider?
Level premium term
Which of the following statements regarding family term riders is NOT correct?
It is a rider that is attached to a base policy and provides permanent insurance coverage for the spouse and term insurance coverage for one or more children.
Which of the following statements regarding a spousal rider to a life insurance policy is NOT correct?
This rider usually provides coverage that lasts as long as the coverage that is provided through the base policy.
A rider on a whole life policy that adds temporary coverage for a spouse and children is:
a family term rider
Once a life insurance settlement option has been put into effect, the relationship between a beneficiary and the insurance company is that of:
creditor/debtor
Which of the following statements pertaining to life insurance policy settlement options is NOT correct?
Under a life income option, income payments will continue as long as the primary beneficiary lives or until the principal is depleted.
Which of the following descriptions of life insurance policy settlement options is CORRECT?
Under an installment refund option, if the primary beneficiary dies, payments of the same amount continue to the secondary beneficiary until all installments to both beneficiaries equal the original amount of proceeds.
All of the following are acceptable life insurance death benefit settlement options EXCEPT:
transfer to a rollover IRA on the beneficiary's behalf.
Horace wants his $85,000 life insurance policy arranged to pay his wife a monthly income if he dies first, but most or all of the proceeds to go to their two children after her death. Which of the following settlement options could Horace select to provide income for his wife and conserve the proceeds for the children?
Interest-only option
Hector's wife was the primary beneficiary of his $250,000 life insurance policy. She received payments of approximately $700 a month as long as she lived and, at her death, their two children received lump-sum payments of $125,000 each. What settlement option was in effect on Hector's policy?
Interest-only option
Under a fixed-period life insurance settlement option, excess interest will:
increase the size of the payments
Norris is the primary beneficiary of a life insurance policy. He dies after receiving $275 per month for six years, under a 10-year period certain income option. His son, Neil, is the secondary beneficiary. Which of the following statements pertaining to this situation is CORRECT?
Neil will receive income checks in the same amount as his father for 4 years
Which of the following period certain income options would call for the highest payment rate per $1,000 of life policy proceeds?5-year period certain
5-year period certain
Which of the following statements about life insurance policy settlement options is NOT correct?
Under the fixed-period option, the payment of excess interest will lengthen the payment period.
What settlement option is designed to pay out a specified amount of income at regular intervals, over an unspecified period of time?
Fixed amount option
As beneficiary, Kathryn receives $800 monthly from her deceased husband's life insurance under a fixed amount option. Each payment consists partly of principal (proceeds) and partly of interest. How is this income taxed?
The portion of each payment consisting of interest is taxed; the remainder is tax free
Which of the following statements pertaining to life insurance policy settlement options is CORRECT?
Selection of a smaller payment will increase the payment period under a fixed-amount option
Suppose Max wants to arrange the distribution of his life insurance proceeds so that his wife, as beneficiary, will receive monthly payments for as long as she lives. Which of the following settlement options will meet this need?
Life income option
Beth is secondary beneficiary of a life policy, receiving monthly income benefits under an installment refund option. Her mother, the primary beneficiary, received a total of $4,200 in benefits before she died. The original proceeds totaled $22,000. Assuming Beth lives long enough, she will be paid monthly benefits until she has received a total of:
$17,800.00
Under an installment refund settlement option, if the primary beneficiary dies, the secondary beneficiary will receive:
the same income payments until the total amount paid out to both beneficiaries equals the original amount of proceeds
Doris and Arnold receive $450 per month under a joint and one-half survivor life insurance option. What happens if Arnold should die first after payments are started?
Monthly payments of $225 would be made to Doris as long as she lived.
Carl and Laura receive $270 per month under a joint and two-thirds survivor life policy settlement option. What would happen if Carl died within a year after payment started?
Laura would receive $180 per month for as long as she lived
Paul, age 62, is applying for a universal life insurance policy and wants to arrange the beneficiary designation in such a way as to use the proceeds to provide lifetime income to his wife, Marsha. Which of the following settlement options is best suited for this purpose?
Use the proceeds to purchase an immediate annuity with Marsha as the annuitant
Death benefits paid out to a beneficiary may NOT be protected from the insured's creditors:
if the premiums that paid for the insurance were from embezzled funds
The privilege of accessing the cash value of an insurance policy if it is surrendered is known as the:
nonforfeiture provision
Which of the following is NOT a standard life insurance policy nonforfeiture option?
one-year term insurance option
An insurer received a request on March 1, 2007, for payment of a policy's full cash surrender value. Under the laws of most states, the insurer could delay payment until:
September 1, 2007
The delayed payment provision in a whole life policy provides that the:
insurance company may delay payment of the cash surrender value for 6 months after the policyowner's request for payment
As primary beneficiary under a cash refund option in a life insurance policy, Jeffrey received $355 per month for five years before suffering a fatal heart attack. The policy's original proceeds amounted to $50,000. Jeffrey's daughter, the secondary beneficiary, will now receive:
a lump-sum payment of $28,700
When a policyowner surrenders a life insurance policy, the insurance company may withhold payment of the policy's cash values for up to
6 months
Lynn elects to surrender her whole life policy for a reduced paid-up policy. The cash value of her new policy will:
continue to increase
Basil has a combination policy consisting of $25,000 whole life and a $20,000 term rider. He stops paying premiums and elects to take a paid-up policy, which will be a reduced amount of insurance based on an original face amount of:
$25,000.00
John, age 52, has a straight whole life policy and decides to stop paying premiums and take a paid-up policy for a reduced amount. His paid-up policy will be:
whole life
Leland elects to surrender his whole life policy for a reduced paid-up policy. The cash value of his new policy will:
continue to increase
A policyowner stops paying premiums on a whole life policy with an accidental death benefit and exchanges the policy for extended term insurance. All of the following statements pertaining to this situation are correct EXCEPT
the term policy will have a reduced face value
At age 60, Bob decides to stop paying premiums on his $60,000 whole life policy and exchanges it for extended term insurance. What face value will the term insurance have?
$60,000.00
In the sale of life insurance, all references to policy dividends:
must include a statement that dividends are not guaranteed
All of the following statements about participating policies are correct EXCEPT:
they are issued only by stock companies
Which of the following statements pertaining to life insurance premiums is CORRECT?
Harold and Billy, both age 25, each buy a whole life policy from the same company. However, Harold has a participating policy, whereas Billy's policy is nonparticipating. Harold will pay a higher premium
Insurance policies that pay dividends are referred to as:
participating policies
Which of the following statements about participating and nonparticipating life insurance policies is NOT correct?
Policy dividends are considered taxable income.
Which of the following statements is CORRECT with regard to policy dividends?
They are a result of favorable operating or investment income.
All of the following are dividend options EXCEPT:
assigning dividends to pay off a mortgage
Unlike corporate dividends, insurance policy dividends:
are not considered taxable income
With a participating life insurance policy, a policyowner may do all of the following with dividends received EXCEPT:
use the dividends to pay overdue premiums from previous years.
All the following are standard life insurance dividend options EXCEPT:
using the dividend to increase the base whole life policy's face amount
Most participating whole life insurance policies allow the following uses of standard life insurance dividends EXCEPT:
to increase the policy's face amount
Which of the following dividend options produces a result similar to taking dividends in cash and depositing them in a bank savings account?
Leaving dividends to accumulate at interest
Arnold buys a $25,000 participating whole life policy. He has a definite need for more life insurance, but believes he cannot afford it. Which of the following dividend options would help to solve this problem automatically?
Using dividends to buy paid-up additions
Jerry owns a participating whole life insurance policy with a $200,000 face amount. If he has elected to receive policy dividends under the paid-up additions option, which of the following statements is NOT correct?
Each dividend will be used to purchase paid-up term life insurance
Tammy owns a participating whole life insurance policy for which she has elected the paid-up additions option. If the insurer declares a dividend of $500 in the current year, how will this amount be used with this dividend option?
The insured uses the $500 as if it were a single premium to purchase a unit of paid-up whole life insurance based on Tammy's attained age
Which of the following statements regarding the paid-up additions life insurance policy dividend option is NOT correct?
The paid-up additions dividend option is only available to insureds that remain insurable
Wendy has a $100,000 whole life participating policy. She recently married and is planning to have a family. She wants to increase her life insurance coverage but at minimal additional cost. Which of the following dividend options would be most suitable for her needs?
Use dividends to buy paid-up additions
All of the following statements regarding annuities are correct EXCEPT:
ike life insurance, an annuity is used primarily to provide income at death
A principal function of annuities is to:
liquidate an estate
Which of the following individuals has made the best use of an annuity?
Tony wants to be sure that he has enough income after he retires. To adequately provide for himself and his wife after he stops working, he buys an annuity now.
Which of the following statements best describes the primary reason annuities are commonly used in distributing large lump-sum structured settlements?
Lump-sum settlements can be distributed over a guaranteed period in a way that best serves the income recipient's needs.
Which of the following statements about annuities is NOT correct?
The 10% penalty tax on early distributions does not apply to distributions made to pay for higher education.
Annuities are classified by all of the following EXCEPT:
who issues them
All of the following are factors that determine the annuity benefit amount EXCEPT:
annuitant's tax bracket
The time during which funds are being paid into an annuity is called the:
accumulation period
If both an older and younger person had annuity funds of the same amount and simultaneously began to receive monthly life payments, which individual would receive the LARGER payments?
Older person
The loading factor in annuities takes into consideration all of the following EXCEPT:
annuitant's age
The annuitant of an annuity can be compared to which of the following with respect to a life insurance policy?
Insured
An annuitant can control all of the following factors in creating an annuity EXCEPT:
interest rate
All the following statements regarding deferred annuities are correct EXCEPT:
they generally permit contract owners to withdraw a specified percentage annually, tax free, and without a surrender charge
Lisa, age 60, owns a deferred annuity that she purchased 16 years ago with a single premium of $50,000. Today its surrender cash value is $110,000. She is thinking of withdrawing $60,000 to pay off some personal debt. On the basis of this information only, which of the following statements best describes the tax treatment this transaction will receive?
The full $60,000 withdrawal is subject to income taxation
Nonqualified annuity benefits are a combination of principal and interest. As such, what is the tax status of the portion of the benefit payments that represents a return of principal?
Not taxable
The amount of an annuity payment depends on all of the following factors EXCEPT:
insurer's reserves
What annuity payout option provides for lifetime payments to the annuitant but guarantees a certain minimum term of payments, whether or not the annuitant is living?
Life with period certain
The owner of an annuity contract possesses all the following rights EXCEPT:
cancel a deferred annuity at any time and receive its full cash value
At age 60, Susan bought a deferred annuity with a 7-year surrender charge period. Now age 65, her contract value is $75,000. If her contract uses standard surrender charge terms, all the following could be regarded as nonforfeiture options available to Susan at age 65 EXCEPT:
a Section 1035 exchange of the full contract value for another deferred annuity offered by a different insurer
Which of the following statements regarding annuities is NOT correct?
An installment refund annuity guarantees a specific amount of benefits, payable to the annuitant only; if death occurs before total payout, a portion of the premium is refunded to the annuitant's estate or beneficiary
Which of the following statements regarding an immediate annuity is NOT correct?
An immediate annuity has a long accumulation period
Rick purchased an annuity, making a single lump-sum payment on September 1, 2007. His benefits began on October 1, 2007. What kind of annuity did Rick buy?
Immediate
All of the following statements about immediate annuities are correct EXCEPT:
the income flow must be fixed rather than variable
All of the following statements regarding immediate and deferred annuities are correct EXCEPT:
an immediate annuity may be purchased with either a single premium or through a series of premium payments
Larry owns a deferred annuity for which his wife Karen is the designated annuitant and his son Chris is the designated beneficiary. If Larry were to die before the contract is annuitized, to whom would the contract's death benefit be payable?
Chris
Which of the following statements regarding the tax treatment of distributions from an individually owned, nonqualified, deferred annuity is NOT correct?
If the distribution is the result of the annuity contract owner's death, the cash value payable to the beneficiary is income tax free.
Sidney, age 58, owns a deferred variable annuity that he purchased 15 years ago and into which he has paid $25,000 in the form of periodic premiums. Today its cash value is $37,000. If he dies today, which of the following statements best describes the tax treatment this transaction will receive?
Of the cash value, $25,000 is payable to the beneficiary income tax free and $12,000 is subject to income taxation
Which of the following statements regarding the tax treatment of distributions from a nonqualified, deferred, variable annuity at the owner's death is NOT correct?
The distribution is subject to either capital gains or ordinary income taxation, depending on the type of subaccount used in funding the annuity
All of the following are annuity premium factors EXCEPT:
medical history
Annuities may be purchased with all of the following EXCEPT:
a single payment that may be deferred for 5 years
Fred, age 60, has three years until he retires. He decides to surrender his whole life insurance policy and use the cash value to fund a single premium annuity. How many payments will he make to fund the annuity?
One
A fixed annuity would be appropriate for customers looking for all the following characteristics in their annuity EXCEPT:
it will produce income benefits that are adjusted to keep pace with inflation
Annuity buyers who want their product to be supported by the insurers' general accounts would most likely be looking for interest returns that:
are guaranteed never to be less than the rate specified in the contract
John owns a deferred fixed annuity in which the contractually guaranteed rate is 3%. The contract also has a standard "current rate" interest provision. If current rates are 5%, what rate of interest will be credited to John's annuity?
5%
A variable annuity is based on which of the following?
Equity investments
For which of the following types of policies would premiums be invested in an insurer's separate account?
Variable annuities
A variable annuity guarantees which of the following?
The investment involves a risk
To sell variable contracts, a person must:
be licensed by NASD
The primary purpose of the Securities Exchange Act of 1934 was to:
create the Securities and Exchange Commission
Which federal regulation requires full disclosure from companies that sell securities to the public?
Securities Act of 1933
Who besides the state regulates the sale of variable life insurance and variable annuities?
Securities and Exchange Commission (SEC).
Contracts which provide payments based on investment return of a segregated asset account are called:
variable life insurance and annuities
All of the following statements regarding variable annuities are correct EXCEPT:
if the net contribution to a variable annuity account is $350 and the cost of one accumulation unit is $87.50, 3 units would be assigned to that account.
During the accumulation period of a deferred variable annuity, the value of the individual account rises or falls based on the:
investment results
Premiums paid into a variable annuity, after deduction for expenses, are applied regularly to purchase:
accumulation units
What type of annuity settlement arrangement stops making payments when the annuitant dies?
Pure life annuity
Tony, age 65 and in excellent health, wants to buy an annuity with $100,000 he recently gained on the sale of his home. He wants to select an income option that will provide him the highest monthly income possible. Which annuity income option best meets Tony's objective?
A straight life annuity income option
What type of annuity payment option provides a guaranteed income to the annuitant for life and, if the annuitant dies before the annuity is depleted, a lump-sum cash payment to the annuitant's beneficiary?
Cash refund option
If an annuitant has a refund annuity and dies after the annuity income begins, his or her beneficiary will receive:
a lump-sum cash payment equal to the starting annuity fund, less the amount of income already paid the deceased.
James died after receiving $180 monthly for 6 years from a $25,000 installment refund annuity. His wife Lucy, as beneficiary, now will receive the same monthly income until her payments total:
$12,040.00
Which annuity settlement arrangement guarantees to pay at least a minimum amount equal to the original investment?
Installment refund annuity
Which of the following types of annuity payout options guarantees as a minimum the payout of the entire annuity principal amount?
Cash refund
Which of the following statements pertaining to annuity settlement arrangements is CORRECT?
The survivor under a joint and full survivor annuity receives 100% of the original joint income
Joanna and her husband Bill have a $40,000 annuity that pays them $200 a month. Bill dies, and Joanna continues receiving the $200 monthly check as long as she lives. When Joanna dies, the payments cease. This is an example of:
a joint and full survivor annuity
For which of the following situations would a life income settlement using the joint-and-survivor option be suitable?
The insured wants to use the proceeds to provide his son and daughter-in-law with income that will last as long as either is alive.
To supplement their income in their senior years, Harold purchased a fixed immediate annuity at age 65, naming his wife Lucy as the joint annuitant under a joint and 50% survivor annuity payout option that pays the couple $1,000 per month. If Harold were to die today, which of the following statements would be CORRECT?
Lucy would continue receiving monthly benefits of $500 for the remainder of her life.
Bill owns a nonqualified deferred annuity that has a current value of $50,000. He has 2 children, ages 11 and 17. If he decides to devote this annuity solely to help pay for their college education, which of the following is the best option if the goal is to maximize the annuity income payments?
Convert to an immediate annuity using a 10-year period certain annuity option.
Employees of which of the following generally may participate in a tax-sheltered annuity (TSA) plan?
Public school systems
Which of the following statements pertaining to tax-sheltered annuities (TSAs) is CORRECT?
TSAs are available to employees of certain nonprofit organizations
Annuity payments are taxable to the extent that they represent interest earned rather than capital returned. What method is used to determine the taxable portion of each payment?
Exclusion ratio
An equity indexed annuity:
has its interest tied to a stock market-related index
All of the following statements regarding market value-adjusted annuities (MVAAs) are correct EXCEPT:
it is necessary for agents and brokers to hold either the NASD Series 6 or 7 registrations to market and sell MVAAs
All of the following groups would be eligible for group insurance EXCEPT:
family of ten
Under a group life insurance plan, each insured person receives:
a certificate of insurance.
What is the method used for establishing a premium for group insurance?
Experience rating
How many members must be eligible for insurance under an association group life policy?
All members
Which of the following statements about group life insurance issued to employee groups is NOT correct?
Employees may not include retired employees
If the employer pays the entire premium on a group policy, the plan is called
noncontributory
Group life insurance plans in which employees contribute to the overall premium are called
contributory.
A company employs 150 workers, 50 who are part-time. A group insurance plan is designed to cover all full-time employees. Each covered employee will pay part of the premium for the coverage. The mandatory participation requirement is:
75 employees
If a group life insurance plan is contributory, what MINIMUM percentage of eligible employees must participate?
75%
What minimum percentage of eligible employees must be insured under a noncontributory group health policy?
100%
Which of the following statements is CORRECT about a group life insurance plan that is contributory?
The employees must pay for part of the cost of the insurance program.
If an employer pays all the premiums for a group life insurance policy, the policy must insure:
all eligible employees
Employees may be classified for group life insurance in all of the following ways EXCEPT
sex
Individual certificates issued to all individuals insured under an insurance policy must include the following information EXCEPT:
the premium amount
In a group life insurance policy, the insurer can usually exclude or limit coverage for:
insureds who do not show satisfactory evidence of individual insurability
What is the appropriate action for an insurer to take when it learns that a deceased participant in a group life plan was actually older than the insurer had believed?
The face amount will be paid to the beneficiary and the employer will be required to pay the additional premiums owed
All of the following are required provisions in a group life insurance contract EXCEPT:
replacement
Group life insurance policies must include a provision entitling insureds to a grace period for payment of premium, during which time the death benefit coverage continues in force. How long is this grace period?
31 days
All of the following provisions are required in a group life insurance contract EXCEPT:
defamation
Television station KTKT has a group life policy covering its 90 employees, each of whom received
a certificate of insurance
The individuals who are insured under the group life contract are given what as evidence of their coverage?
Certificates of insurance
Which of the following kinds of life insurance is most widely used for group plans?
Term
Under a group life plan, eligible dependents of an insured employee could include all of the following EXCEPT:
The insured employee's parents
All of the following statements pertaining to the conversion privilege of group term life insurance are correct EXCEPT:
when a group plan is terminated, group coverage of the insureds generally is extended for 60 days
Which of the following statements with regard to group term life insurance is CORRECT?
Most group term policies contain a conversion privilege, allowing insureds to convert the coverage to an individual plan if they leave the group.
A group life insurance plan participant who has been covered under the plan for four years terminates employment on October 1. On October 22 she dies without having made a decision whether to convert her group coverage to an individual policy. What action will the insurer likely take?
Assume that the deceased employee would have elected the conversion option and pay the death benefit without regard for the deceased employee's insurability prior to death.
With portable group term life insurance:
the premium rates are lower than those for individually sold coverage
Susan, while in the process of converting her group life insurance to an individual policy, dies. What happens to the claim her beneficiary submits?
it is paid under the old group plan.
Which one of the following individuals would be covered by Social Security?
Marta, a self-employed business owner
All of the following benefits are available through Social Security EXCEPT:
medical expense benefits
All of the following benefits are available under Social Security EXCEPT:
welfare benefits
All of the following statements correctly describe the purposes of Social Security EXCEPT
provide a source of income for a meaningful standard of living
An eligible applicant for Social Security disability benefits must meet all of the following qualifications EXCEPT:
have had surgery within 30 days before applying for benefits.
To qualify for Social Security disability benefits, the disability must be the result of a medically determinable physical or mental impairment that can result in blindness, death or last at least:
12 months
Mary earned $6,744 working part time in 2007. For Social Security purposes, how many credits did she earn this year based on her earnings?
Four credits
Under Social Security, a fully insured worker is eligible for
retirement, death, and survivor benefits
Ron is eligible for full death, retirement, and disability benefits under Social Security. His work status is:
fully insured
Sally, age 66, has accumulated 50 credits from working during the past 15 years. For Social Security purposes, this means that Sally is:
fully insured.
Under Social Security, a worker's primary insurance amount (PIA) is:
an amount equal to the worker's full retirement benefit at the full retirement age or disability benefit
For Social Security purposes, the Average Indexed Monthly Earnings (AIME) is based on an individual's Primary Insurance Amount (PIA), which, in turn, is based on an individual's:
lifetime earnings history
At age 65, a fully insured retired worker is entitled to full Social Security benefits. This equals 100 percent of which of the following?
PIA
All of the following statements about Social Security retirement benefits are correct EXCEPT:
Fully insured workers are eligible for full retirement income benefits beginning at age 62.
If a worker decides to retire at age 62 and begin receiving Social Security benefits, the worker will receive:
a reduced retirement benefit that will stay in effect for the remainder of his life.
Gina, age 66, has worked for the past 35 years as a dermatologist. If she decides to delay receiving Social Security benefits until her retirement three years later
Gina will receive slightly higher Social Security benefits
Lee has a Social Security PIA of $800 at the time of his death. How much is payable to his surviving spouse as a lump-sum death benefit under Social Security?
$255
The period during which no Social Security benefit is payable to the surviving spouse of a deceased, fully insured worker is known as the:
blackout period
Mark has worked for the past 20 years as a construction worker. However, seven months ago he injured his back and has not been able to work since. Which of the following statements is CORRECT?
Mark will be eligible for Social Security disability benefits if he unable to engage in any substantial gainful work, and his disability is expected to last at least 12 months.
A disabled worker's unmarried dependent child who is younger than 18 years is eligible for monthly benefits equal to how much of the worker's primary insurance amount (PIA)?
50%
Social Security defines disability as the inability to engage in:
Any substantial, gainful work
Jill, age 67, started receiving her Social Security retirement benefits in January last year. What will be the affect on her benefits if she works at her local church and earns $25,000 this year?
Jill's Social Security benefits will not be reduced.
Which of the following statements regarding Social Security benefits is CORRECT?
Both employees and employers are taxed to pay for Social Security
Which of the following statements is CORRECT?
The Social Security program is funded by a payroll tax.
Jake has been a self-employed businessowner for the past 15 years. Which of the following statements is CORRECT?
Jake will pay a higher amount of FICA taxes because he is self-employed than if he were an employee.
Which of the following statements BEST describes the general tax treatment of life insurance pre- and post-death distributions?
Most distributions from a life insurance policy at the insured's death are income tax free but pre-death distributions are subject to income taxation to the extent there is gain in the policy.
A life insurance policy under which the amount a policyowner pays during the first years exceeds the sum of net level premiums that would have been payable to provide paid-up future benefits in seven years is called:
a modified endowment contract
Cal, age 57, owns a whole life insurance with a $750,000 face amount that was paid for in 2002 with a single premium of $100,000. The current cash value is $125,000. If he were to borrow $30,000 from this policy today, which of the following choices best describes the tax treatment this transaction will receive?
$25,000 of the loan is subject to income taxation plus an additional 10% penalty tax
Betty, age 61, purchased a universal life insurance policy in 2000. In 2005, upon receiving a sizeable inheritance, she paid an exceptionally large annual premium and, in doing so, violated the 7-pay test. The following year, hoping to correct the situation, she made no premium payment so that the average premiums paid were less than the 7-pay test average. Today the policy's cash value stands at $45,000, and her basis in the contract is $28,000. If she were to withdraw $30,000 from the policy's cash value, which of the following best describes the tax treatment this transaction would receive?
$13,000 of the distribution is tax free, but $17,000 is subject to income taxation.
In which of the following situations would premium payments be tax deductible?
The ABC Company provides $25,000 of life insurance coverage to each of its 15 employees and pays the full premium.
Which of the following settlement options produces benefits that are fully tax exempt to life insurance beneficiaries?
Lump-sum payments
Bill names his church as the beneficiary of his $300,000 life insurance policy. When Bill dies, who is responsible for the income taxes payable on the lump-sum proceeds received by the church?
No income tax is payable on the death proceeds
For which of the following life insurance settlement options is there no income tax liability?
A lump-sum cash payment.
Which of the following statements regarding the life insurance lump-sum cash payment settlement option is NOT correct?
The death proceeds under the lump-sum settlement include only the death benefit from the base life insurance policy.
Maureen, age 62, owns a non-MEC whole life insurance policy with a death benefit of $200,000 and a cash value of $40,000. Her basis in the policy is $25,000. If she were to borrow $30,000 from this policy and then die immediately thereafter (without having repaid any portion of the loan), which of the following best describes the resulting tax treatment that of the policy's death benefit?
$170,000 would be paid to the beneficiary, all of which is income tax free
Archibald surrenders a life insurance policy and receives a lump-sum cash payment of $32,000. His premium payments up to the time of surrender amounted to $26,000. How is the surrender treated for tax purposes?
Archibald will receive his $26,000 cost basis tax free and will be taxed on $6,000
Ralph owns a $50,000 nonpar whole life policy. Its cash value has accumulated to $15,000, and he has paid a total of $9,500 in premiums. If he surrenders the policy for its cash value, how will it be taxed?
Ralph will receive $9,500 tax free; the $5,500 balance is taxable as income
Mary, age 70, recently purchased a nonqualified immediate annuity to supplement her retirement income and through it will receive a lifetime income of $800 per month. Which of the following statements most correctly describes how this income will be taxed?
Mary will pay income tax each year on just a portion of the payments received, and when she has fully recovered her basis, all future payments are taxable
All the following statements regarding annuities owned by a corporation that cover key employees are correct EXCEPT:
annuity benefits payable to the corporation with the key employee as annuitant are income tax free to the corporation
With regard to the taxation of life insurance policies, which of the following statements is CORRECT?
As long as a whole life policy is not surrendered, the cash value accumulates tax free
Assume Silo, Inc., provides each of its 20 employees with $50,000 in group term life insurance coverage. Which of the following statements is CORRECT?
Silo, Inc. can deduct the cost of the premiums as a business expense
Frank owns and is insured by a participating whole life insurance policy with a death benefit of $85,000, including $35,000 of paid-up additions to the face amount. His basis in the policy is $30,000. The beneficiaries are his daughter and son, equally. If he dies today, what amount of this policy would be valued in Frank's estate?
$85,000.00
Sheila purchased, and is insured by, a life insurance policy with a $100,000 face amount 10 years ago with a single premium payment of $20,000. Five years ago, on the advice of her insurance adviser, she transferred full ownership of the policy to an irrevocable trust. The trust beneficiaries are her daughter and son, equally. If she were to die today, what amount of this policy would be valued in Sheila's estate?
$0.00
Which of the following statements regarding the estate tax treatment of life insurance owned by the insured at the insured's death is NOT correct?
Life insurance that is owned by the insured will avoid estate tax inclusion as long as ownership is transferred to another party at least one year before the insured's death.
All the following items are included in an individual's estate at death EXCEPT:
the undistributed value of an IRA that had been converted to a straight life annuity with the owner as annuitant
In which of the following situations would the premium payor of a life insurance policy be able to deduct the premium payments for tax purposes?
Leland, a local board member of the United Way, assigns his $25,000 whole life policy to that organization, but continues to make the premium payments.
Renee is the owner and insured of a $100,000 policy. She sells the policy to her business partner, Jill, for $35,000 and for the next ten years, Jill pays the $1,200 annual premium. Assuming Renee dies ten years after the transfer and the $100,000 is paid to Jill, how are the proceeds taxed under the transfer-for-value rule?
Jill receives the $100,000 tax free.
Under which of the following circumstances would the payment of a life insurance death benefit as a lump-sum cash payment be subject to income taxation on some or all of the proceeds?
The policy is acquired under the transfer-for-value rules
When a cash value life insurance policy is converted into an annuity in a nontaxable transaction, the event is generally known as a:
1035 exchange
Jennifer, age 61, owns a deferred annuity that has a current surrender cash value of $50,000 in which her basis is $30,000. She would like to exchange this annuity contract for a universal life insurance policy. Which of the following statements best describes the tax treatment this transaction will receive?
The exchange will result in income taxation on $20,000 of the annuity cash value.
Which of the following statements regarding 1035 exchanges is NOT correct?
A life insurance policy that is a modified endowment contract (MEC) may be exchanged for a new life insurance and, provided premiums are paid for at least seven years thereafter, no longer be considered a MEC.
All of the following statements pertaining to qualified pension plans are correct EXCEPT:
the interest on the employer's contributions is included in the employee's gross income and is currently taxable.
For tax purposes, retirement plans can be divided into which of the following 2 categories?
Qualified and nonqualified
What entity qualifies retirement plans?
Federal Government
All of the following statements concerning qualified retirement plans are correct EXCEPT:
employer contributions to a qualified plan on behalf of its employees are taxable income to the employees when they are made.
The combination of current tax deduction for the employer plus tax deferral for the employee is possible with all of the following types of plans EXCEPT:
Savings account
The advantages of qualified retirement plans to employers include all of the following EXCEPT:
rewarding a few employees rather than many.
Acme Corporation has established a deferred compensation plan with life insurance as the funding vehicle. Acme currently has 100 employees, 90 of whom work full-time. Which of the following individuals must be covered by the plan?
Any employee, officer, or executive that Acme selects
All of the following statements are true about the tax advantages of a qualified retirement plan, EXCEPT:
Employees' contributions to retirement plans are included in ordinary income.
To enroll in an employer's qualified retirement plan, employees must:
be at least 21 years old and complete 1 year of service
At a certain point in time, an employee will have a nonforfeitable right to the money contributed to a pension plan by the employer. This right is known as:
a vested interest
Which of the following statements about contributions to a qualified plan is CORRECT?
Employees have a 100% vested interest in benefits made from their own contributions.
Which of the following best describes the concept of vesting, with respect to qualified retirement plans?
An employee's right to funds or benefits contributed by an employer.
Which of the following statements pertaining to qualified corporate retirement plans is NOT correct?
Ron participates in his company's qualified retirement plan, which will provide a benefit of 2% of his salary for each year he participates in the plan. This is an example of a defined contribution plan
Which of the following statements regarding traditional IRAs is NOT correct?
Peter inherits $15,000 in traditional IRA benefits from his father, who died in 2007. Peter can set up a tax-favored rollover traditional IRA with the money.
Which of the following plans allows employees to elect to take a reduction in their current salaries by deferring amounts into a retirement plan?
401(k).
Susan, age 52, withdrew $5,000 from her traditional individual retirement account, which consisted entirely of pretax contributions, to purchase her first home. What are the tax consequences?
Susan will not be assessed the 10% penalty on her early withdrawal.
All of the following statements regarding a traditional individual retirement account (IRA) are correct EXCEPT:
a 10% penalty is assessed on any distribution from an IRA before age 59½
Sara purchased an IRA in 1989 and over the years has paid a total of $70,000 into the contract, of which $20,000 were nondeducted, after-tax contributions. Now age 65, Sarah is retiring and plans to begin receiving systematic distributions from the IRA over her 20-year life expectancy. She expects to receive $600 per month under this distribution plan. Of the $7,200 she will receive annually from this annuity, how much will represent tax-free income?
$1,000.00
Larry purchased a traditional IRA in 1985. Over the years he has contributed (and deducted from his taxes) $50,000 into the contract. Now age 62, Jack is retiring and plans to annuitize the contract. His life expectancy is 20 years, and he will receive $450 per month under a straight life annuity income option. Of the $5,400 he will receive annually from this annuity, how much will represent taxable income?
$5,400.00
Which of the following scenarios regarding individual retirement accounts (IRAs) is NOT correct?
Peter inherits $15,000 in IRA benefits from his father, who died last year. Peter can set up a tax-favored rollover IRA with the money and defer current income tax on benefits received.
David is age 40 and single. He earned $45,000 in 2007 as an engineer with a company that has a group health plan but no employer-sponsored retirement plan. David set up a traditional IRA in 2007. What is the maximum contribution he can deduct from taxes that year?
$4,000.00
Oliver, age 48, and Mary, age 46, are married and file a joint tax return. Both are covered by their companies' pension plans. Based upon this information, which of the following statements regarding contributions they could make to a traditional IRA is INCORRECT?
Both can take advantage of the "catch-up" provision and contribute the "catch-up" amount in addition to the base amount.
Lee, age 66, is not covered by an employer retirement plan. In 2007, he will have a gross income of $22,000 from investments, $1,500 from working part-time for a former employer, and $7,200 from Social Security. The maximum deductible contribution he can make to a traditional IRA in 2007 is
$1,500.00
Max, age 32, is employed as an architect and earns an annual salary of $55,000. He is covered by his company's corporate retirement plan. What is the maximum amount he can contribute to an IRA in 2010?
$5,000.00
Herbert, age 41, and Olga, age 38, have been married for ten years. They have no children and each has a well-paying job. However, neither is covered by an employer retirement plan. What is the maximum amount they may set aside in tax-deductible IRA funds during 2007 for retirement?
$8,000.00
All of the following statements regarding spousal IRAs are correct EXCEPT:
the maximum annual combined deductible contribution permitted is $4,000 for 2007.
Rodney, who earned $40,000 in 2007 and did not participate in an employer retirement plan, has a nonworking spouse. They filed a joint income tax return. Which of the following statements is TRUE?
Rodney could establish a separate IRA for himself and another for his wife and could deduct a contribution of up to $8,000 for 2007.
All the following individuals are eligible to contribute up to the maximum allowable limit to a traditional individual retirement account EXCEPT:
Joe, age 71 and married, who has an earned income and is not covered under an employer-sponsored retirement plan
Which of the following statements about a Roth IRA is CORRECT?
Contributions are not deductible
Which of the following distributions from a Roth IRA would be qualified and, therefore, NOT taxable, assuming the account was established at least five years ago?
A distribution of $10,000 used to buy a first house
A fundamental difference between traditional IRAs and Roth IRAs is that:
contributions to Roth IRAs are never deductible.
All of the following statements pertaining to SIMPLE plans are correct EXCEPT:
these plans are reserved for employers with 500 or more employees.
A primary difference between a SEP and an IRA is that:
the limit of money an employer is permitted to contribute to a SEP each year is higher than the limit for an IRA.
An employer's maximum annual contribution for an employee to a simplified employee pension (SEP) in 2007 is:
the lesser of 100% of compensation or $45,000.
Which of the following statements best describes a Keogh (HR-10) plan?
It is a qualified retirement plan for self-employed individuals and their eligible employees.
All of the following individuals should be eligible to establish a Keogh (HR-10) retirement plan EXCEPT:
a major stockholder-employee in a family corporation.
To be eligible to participate in a Keogh plan an employee must meet all of the following requirements EXCEPT:
be at least 18 years of age.
Under a Keogh (HR-10) plan, an employer:
must contribute the same percentage to their eligible employees as they contribute to their own plan.
Which of the following statements regarding Section 529 plans is CORRECT?
Section 529 plans are also referred to as Qualified Tuition Programs.
The purpose of a Section 529 Plan is to save for:
future college costs.
Which of the following statements about Section 529 Plans is NOT correct?
The beneficiary of a 529 Plan may not be changed.
Which of the following statements regarding Section 529 plans is NOT correct?
An individual who opens a Section 529 account may designate any qualifying individual as a beneficiary, but once selected the beneficiary designation cannot be changed until the beneficiary dies.
Brenda is entering college as a freshman. Her parents helped save money for Brenda's college education by placing funds in a Section 529 plan. Assuming a distribution is taken from the plan, for which of the following college-related expenses would a distribution likely be taxable?
Space-saving flat screen TV monitor for a small dorm room.
Wendell, age 57, last year withdrew $1,500 from his IRA which consists entirely of pre-tax contributions. In addition to including that amount in his taxable income, he has to pay a penalty of:
$150.00
The penalty for premature withdrawal of funds from a traditional IRA is:
10% of the taxable amount withdrawn.
All of the following employed persons who have no employer retirement plan would be eligible to set up a traditional IRA EXCEPT:
Edna, age 72, a nurse
All of the following events are allowable reasons to take an early withdrawal from an IRA and not pay a tax penalty EXCEPT:
purchase of a vacation home.
Taxpayers are able to withdraw IRA funds without penalty for the following reasons EXCEPT:
for travel necessitated by medical reasons
Cynthia is scheduled to receive a $36,000 lump-sum distribution from her former employer's qualified pension plan and wishes to establish a rollover IRA to avoid paying taxes on the money that year. Within how many days must the rollover be completed to avoid paying taxes?
60 days.
What are the tax consequences if Bob makes a partial rollover of his 401(k) plan assets?
Bob must pay a 10% penalty plus income tax on the amount retained.
Many of the basic concepts associated with qualified employer plans can be traced to the
Employee Retirement Income Security Act.
ERISA encourages employers to provide health benefits for their employees by:
allowing them to self-insure their own plans.
Which of the following federal acts governs the funding, vesting, administration, and termination of private pension plans?
ERISA
All of the following are classified as types of accident and sickness insurance coverage EXCEPT:
variable annuity
Which of the following statements is CORRECT?
Accidental death insurance provides a stated lump-sum benefit in the event of accidental death.
All of the following types of health insurance coverage can be written on an individual basis EXCEPT:
Social Security.
A health insurance plan may pay benefits for all the following EXCEPT:
over-the-counter drugs.
Which of the following is NOT a basic form of health insurance coverage?
Limited pay health
Which of the following phrases best describes the primary purpose of disability income insurance?
To replace a portion of the insured's income if he is disabled in an accident.
The beneficiary of an accidental death and dismemberment (AD&D) policy receives $25,000 after the insured is killed in an auto accident. The $25,000 death benefit otherwise could be identified as the policy's:
principal sum.
The amount paid for the accidental loss of sight or dismemberment under an accidental death and dismemberment policy is known as the policy's:
capital sum.
Stan intentionally jumped out a tree after retrieving a kite instead of using a ladder. He severely injured his arm, which later had to be amputated. His accidental death and dismemberment policy paid no benefits. Stan's policy bases its benefit payments on:
accidental means
All the following are types of accidental death and dismemberment (AD&D) policies, EXCEPT:
umbrella policies
With an accidental death and dismemberment (AD&D) policy, the capital sum would most likely be paid as the result of:
loss of sight caused by an accident
In which of the following situations would an accidental death and dismemberment (AD&D) policy most likely NOT pay a benefit?
The insured loses a finger while using a chain saw in his workshop
The purpose of medical expense insurance is to:
reimburse the insured for expenses incurred for medical care, hospital care, and related services.
Lisa's private dental expense plan might deny a portion of her claim for all the following reasons EXCEPT:
her care was diagnostic.
The typical coinsurance ratio for dental insurance plans is which of the following?
80/20
Which of the following policies pay a fixed hospital benefit directly to the insured, regardless of the actual hospital expenses incurred?
Hospital indemnity.
Agnes purchases a round-trip travel accident policy at the airport before leaving on a business trip. Her policy would be which type of insurance?
Limited risk
An actress might insure her legs for a million dollars under what type of health policy?
Special risk
What kind of policy provides coverage only for death, dismemberment, disability, or hospital and medical care caused by accidents?
Accident-only policy
Carson is a driller on an oil rig. While coverage through his group plan is adequate, he wants an inexpensive way to continue at least some of his income and possibly pick up some of the expenses his group plan may not cover in the event he is injured. Which of the following policies would best meet his objectives?
Accident-only insurance
In health insurance underwriting, major risk factors include all of the following EXCEPT:
type of residence of the proposed insured
All of the following are considered service providers EXCEPT:
commercial insurance company
Which of the following is a goal of managed care plans?
To apply financial incentives that reduce the quantity and cost of services.
Which of the following organizations reimburses its insureds for covered medical expenses?
Commercial insurers
All of the following are examples of social insurance EXCEPT:
Blue Cross and Blue Shield coverage.
All of the following statements apply to Blue Cross or Blue Shield EXCEPT:
under a Blue Cross hospital plan, the insured is billed directly for covered services received in a member hospital.
What kinds of health care provider organizations are represented by Blue Cross and Blue Shield?
Health care service contractors
The Blue Cross organization is an example of:
a health care service corporation
Blue Cross/Shield bases its rates on which of the following?
Actual medical costs and loss experience in the region.
All of the following organizations may be classified as service organizations EXCEPT:
a health insurance company
Which of the following accurately describes the service approach used by Blue Cross and Blue Shield?
Both Blue Cross and Blue Shield plans do not reimburse for covered expenses, but pay health care providers directly.
A health maintenance organization may cancel an HMO contract for any of the following reasons EXCEPT:
the enrollee files a grievance with the HMO.
An organization that provides health care services on a group practice per capita prepayment basis or prepaid individual practice plan is called:
a health maintenance organization.
Health maintenance organizations are known for stressing the provision of:
preventive care
Which of the following statements accurately describes a health maintenance organization (HMO)?
It arranges for health care services for their members on a prepaid basis.
A managed health care system that finances and delivers health care services through contract providers is called a(n):
health maintenance organization.
Which of the following statements about HMOs is CORRECT?
An HMO may cancel an enrollee's coverage for not paying premiums
HMOs can be a key factor in reducing
health care costs
All of the following statements are correct about health maintenance organizations (HMOs) EXCEPT:
federal law requires employers with 5 or more employees to implement an HMO plan for health care coverage.
Health maintenance organizations are known for stressing:
preventive medicine and early treatment
Which of the following statements pertaining to health maintenance organizations (HMOs) is CORRECT?
An HMO offers comprehensive services on a prepaid basis to its subscribing members.
Which of the following statements regarding persons participating in an HMO is CORRECT?
They pay a fixed periodic fee whether or not health care services are used.
Which of the following statements concerning HMOs is CORRECT?
They place special emphasis on preventive health care.
he U.S. Congress passed the Health Maintenance Organization Act in what year?
1973
What did the federal HMO law do to encourage the formation of HMOs?
Provided federal assistance for federally qualified HMOs.
Which of the following organizations contracts with select doctors and hospitals to be a health care provider for its members?
HMO
Which of the following statements about a health maintenance organization (HMO) is CORRECT?
It provides or arranges for health care services for the benefit of its subscribers
According to federal law, HMO basic health care services include all of the following EXCEPT:
vision care services
What type of HMO contracts with a large number of individual doctors who work out of their own offices or clinics?
Individual Practice Model.
The type of HMO that employs its own physicians and that requires its members to use these physicians is known as:
a closed-panel HMO
All of the following are considered basic health care services offered by HMOs EXCEPT:
rehabilitative and home health services
In a health maintenance organization, the role of the gatekeeper is performed by the insured's:
primary physician
Under what system do a group of doctors and hospitals in a designated area contract with an insurer to provide medical services at a prearranged cost to the insured?
PPO.
All of the following statements about preferred provider organizations are correct EXCEPT:
they offer health care coverage to low-income individuals
All of the following groups may contract with PPOs EXCEPT
government programs
All of the following statements with respect to preferred provider arrangements are correct EXCEPT:
no difference is permitted with respect to the deductible assessed for care received by preferred providers and nonpreferred providers.
Which of the following statements about preferred provider organizations (PPOs) is NOT correct?
PPOs operate on a prepaid basis.
All of the following statements regarding dental benefits offered by a preferred provider organization are correct EXCEPT:
if an insured chooses to obtain treatment from a dentist who does not participate in the panel, he usually can receive the same care for the same costs
To control costs, medical insurance plans available from commercial insurers and fraternal organizations are likely to provide care through:
an open network PPO
Which of the following is NOT an example of a managed care health plan?
PCP
Harold joins his company's exclusive provider organization (EPO). If he chooses to go to a physician who is not an EPO provider, which of the following will happen?
The EPO will not pay any benefits
The primary difference between a preferred provider organization (PPO) and a point-of-service plan (POS) plan is that a:
POS utilizes a gatekeeper while a PPO does not
A point-of-service (POS) plan is most like a health maintenance organization (HMO) in which of the following ways?
Both use a primary care physician.
Which of the following managed care concepts was developed most recently?
Exclusive provider organizations
Claire's employer is self-insured and establishes an exclusive provider organization (EPO) in town. When Claire goes to the doctor, which of the following is most likely to happen?
She will have a deductible and will need to pay coinsurance.
Which of the following group health plans allows employers to reduce business costs by paying for employees' medical expenses instead of paying premiums for insurance coverage?
Fully self-administered plan
In which of the following group health plans can an employer retain the administrative services of a third party without incurring the costs of insurance coverage?
Partially self-funded plan.
Which of the following is NOT a component of a consumer-directed health plan?
POS
All of the following statements regarding multiple-employer trusts (METs) are correct EXCEPT:
METs provide coverage only on a self-funded basis
A group of employers from a similar industry assembled to qualify for group health insurance is a(n):
multiple employer trust.
A group in which a number of employers pool their risks and self-insure is called a:
multiple employer welfare arrangement (MEWA)
Which of the following statements regarding MEWAs is NOT correct?
MEWAs can be considered a single-employer plan
Which of the following activities performed by a health benefit plan require that a state insurance department regulate the plan?
Paying insurance claims
A health care plan designed to combine small employers together into a group to purchase medical expense coverage for their employees is called:
multiple employer welfare arrangement (MEWA)
All of the following are acceptable characteristics that an insurer can consider when rating a small employer group plan EXCEPT:`
10-year medical histories
Which of the following employers is NOT eligible for small employer group health insurance?
Carol, who owns a hardware business that employs 55 full-time employees and 12 part-timers.
Which of the following statements regarding the renew-ability of small employer group health insurance is NOT correct?
If an insurer is not renewing a health plan for a small employer, it must provide 30 days' notice.
A Medical Savings Account consists of a(n):
high deductible insurance policy and a savings account
A health insurance plan would require the naming of a beneficiary in order to:
reallocate unused funds in a medical savings account (MSA) or health savings account (HSA)
Which of the following is the best definition of a medical savings account (MSA)?
Combination of high-deductible health insurance with a savings plan
Which of the following are eligible to establish a medical savings account (MSA)?
These plans are no longer available
Medical Savings Accounts are designed to:
help employees of small businesses and self-employed individuals pay for unreimbursed health care expenses on a tax-favored basis.
All of the following individuals would be eligible to have a Medical Savings Account EXCEPT:
Jeremy, who works for the federal government and is covered by a health insurance plan with a $500 deductible.
Bernice has Medicare and is interested in the Medicare Advantage Program as a means of obtaining Medicare-covered services. She is particularly interested in the tax- qualified features of a Medical Savings Account. Which of the following would comprise her MSA?
High deductible insurance policy and savings account.
All of the following statements about Medicare medical savings accounts (MSAs) are true EXCEPT:
the insured pays the premium for the insurance policy.
All of the following statements about flexible spending accounts are correct EXCEPT:
they may not reimburse participants for non-prescription drugs.
The purpose of a health savings account is to:
serve as a tax-favored way to accumulate funds to cover medical expenses.
All of the following statements regarding health savings accounts are correct EXCEPT:
qualified health care expenses include Medicare supplement premiums
Nonqualified withdrawals from a health savings account are subject to income taxes and a penalty of:
10%.
Which of the following is a characteristic of a health savings account?
Participants can be small businesses or individuals.
All of the following are eligible to establish a health savings account (HSA) EXCEPT:
a group of unassociated individuals.
Mick wants to establish a health savings account (HSA) for his family. How much can he contribute each year to the account?
100% of the deductible, up to $5,800.
Which of the following statements regarding contributions to a health savings account is CORRECT?
Contribution limits are indexed annually for inflation
Which of the following individuals can establish a health savings account?
Any individual or employer with a high-deductible health plan.
If an employer makes a contribution to an employee's Health Savings Account:
the contribution is excluded from the employee's gross income.
Which of the following qualifies as a high-deductible health plan?
HSA
Which of the following descriptions characterize a health reimbursement account (HRA)?
An employer-funded account that pays employees for qualified medical expenses they incur.
Which of the following statements regarding blanket health insurance is CORRECT?
It covers a group who may be exposed to the same risks.
Which of the following statements regarding blanket health insurance is CORRECT?
New members of a group must be added when they become eligible.
Which of the following entities will NOT be offered a blanket health insurance policy?
Employees of a factory
Blanket health insurance refers to a type of:
group accident insurance.
All of the following statements regarding blanket insurance are correct EXCEPT:
benefits are payable to a common carrier, school, volunteer fire department, or other approved type of policyholder.
Blanket health insurance refers to a type of:
group health insurance.
All of the following statements about blanket accident and sickness insurance policies are correct EXCEPT:
they can be issued on a group and individual basis.
Blanket health insurance policies can be issued to all of the following groups EXCEPT:
families
The term "blanket health insurance" refers to what type of insurance?
Group accident and health.
Health and accident insurance that covers special groups of persons is called what type of insurance?
Blanket insurance
Andrea, a volunteer emergency medical technician, was injured on an emergency call. Which of the following plans paid $5,000 of her medical bills?
Blanket insurance
Jane, an attorney, is eligible for medical expense coverage by virtue of her membership in the American Bar Association. She would be issued an individual policy at discounted rates. What kind of coverage is this?
Franchise medical expense coverage.
A master policy is issued with each of the following forms of insurance EXCEPT:
franchise insurance
Unless written in connection with a professional association, an indebtedness, a contract of sale, or a pension plan, a franchise plan may NOT insure an individual for more than:
$25,000.00
Health coverage issued to members of an association or professional society is known as:
franchise health plans.
Which of the following is NOT a purpose of a state comprehensive health insurance plan?
To provide unlimited major medical coverage to eligible persons.
When does a surviving family have the greatest need for income?
While the children are growing up.
Ted is disabled and is eligible to receive $1,200 in benefits through his disability policy. He is also covered for benefits under Social Security, with a primary insurance amount (PIA) of $750. Under which circumstances will he receive a total of $1,950 a month?
He is unable to do work of any kind.
Social Security disability benefits are characterized by which of the following?
The recipient must be unable to engage in any gainful employment.
Which of the following types of health insurance policies is NOT written on an individual basis?
Social Security.
An example of a state-administered disability program is:
workers' compensation.
Workers' compensation covers income loss resulting from:
work-related disabilities.
To provide compensation to individuals who have sustained job-related injuries is the primary purpose of:
workers' compensation insurance.
An individual is injured at a construction site. Which of the following statements best explains why he will be eligible for workers' compensation benefits?
He was performing work that is required for his job.
All of the following statements are correct of workers' compensation insurance EXCEPT:
benefits are uniform throughout the states.
A state's workers' compensation program is designed to provide benefits to employees for all of the following EXCEPT:
Employment-related compensation packages.
Under the laws of most states, how often may a disabled employee receive workers' compensation benefits?
Monthly.
If a worker is killed in an industrial accident, workers' compensation insurance will cover all of the following EXCEPT:
Compensation to the employer for loss of the employee's services.
With regard to medical benefits available through the federal government, Medicaid provides:
funds to states to assist their medical public assistance programs.
A federal and state program designed to help needy persons, regardless of age, with medical coverage is called:
Medicaid
All of the following types of insurers underwrite health insurance EXCEPT:
annuity companies
Why are premium computations more complex for health insurance than for life insurance?
Health insurance involves more than one type of benefit and claims are filed more frequently.
Which of the following statements regarding health insurance benefits is CORRECT?
the greater a policy's benefits, the costlier the premium.
After a health insurance policy is in force, the initial period that often must pass before a loss due to sickness can be covered is known as:
the probationary period.
The purpose of the probationary period is to:
) help the insurer to avoid paying benefits for losses due to illness contracted before the policy was issued.
Which of the following statements about a Medicare supplement policy is CORRECT?
The insurer may cancel it because the insured has not paid the premiums
Of the following payment modes, which is generally the least expensive?
Annual
An applicant for health insurance completes the application and satisfies all of the conditions of the conditional receipt. If the policy is eventually issued as applied for, coverage takes effect:
just as if the policy had already been issued.
Coverage for a health insurance policy will take effect just as if the policy had already been issued if all of the following conditions have been met EXCEPT:
the policy has been legally delivered to the applicant.
If an impairment rider has to be attached to a health policy, the policy will not be considered delivered until
the impairment rider has been explained and the applicant's signature has been obtained.
When delivering a health insurance policy, it is important for the agent to explain all of the following items to the policyowner EXCEPT:
that the law requires that all insurance policies be physically delivered into the possession of the policyowner.
For situations where no initial premium was paid when the application was taken, when delivering that policy the agent is generally required to do all of the following EXCEPT:
present the insured with a conditional receipt
When another policy replaces an existing health insurance policy, the replacement policy:
must continue to cover all continuing claims that began under existing coverage.
Which of the following statements about health insurance policy replacement is NOT correct?
Preexisting conditions may not be excluded under policy replacement regulations.
Tom is talking to his client about replacing an existing health insurance policy. Which of the following statements about the planned replacement is NOT correct?
The new policy should put the insured in a position of financial gain.
All of the following are required provisions for accident and health policies EXCEPT:
misstatement of age.
All of the following are required provisions in health insurance policies EXCEPT:
change of occupation
All of the following provisions of an individual health and accident policy are required EXCEPT:
an insurance with other insurers provision.
All of the following are required provisions of accident and health insurance policies EXCEPT:
inflation protection.
Individual accident and health insurance policies must contain all of the following provisions EXCEPT:
change of occupation provision
Which of the following statements about the grace period and reinstatement provisions in a health insurance policy is NOT correct?
Under a health policy's reinstatement terms, insured losses from accidental injuries and sickness are covered immediately after reinstatement.
An insurer may change the wording of a uniform policy provision in its health insurance policies only if the:
modified provision is not less favorable to the insured or beneficiaries.
The entire contract in health insurance includes all of the following EXCEPT:
buyer's guide
An individual accident and health insurance policy must include which of the following provisions?
A provision that the policy, including any endorsements or riders, constitutes the entire contract.
The insurance company has totally revised its individual health insurance policy. Mary likes the coverage she already has and is concerned about the changes. She contacts the producer who sold her the policy, who tells her that:
her policy will not be affected by the changes
The entire contract of an individual health insurance policy includes all the following EXCEPT:
the buyer's guide and any riders
Which of the following statements pertaining to provisions in health insurance policies is CORRECT?
The misstatement of age provision allows the insurer to adjust the benefits payable under the policy if the age of the insured was misstated when the policy was applied for.
After proof of loss is submitted, legal action may be taken to recover on an individual health insurance policy only during what time period?
Between 60 days and 3 years.
An individual may take legal action to recover on an accident and health insurance policy no sooner than how many days after written proof of loss is provided?
60 days
An individual health insurance policyholder can change the beneficiary of the policy under what circumstances?
The change can be made without the beneficiary's consent, unless the original designation is irrevocable.
Joanie was injured in an automobile accident. She is now in a coma and expected to die. Under the terms of her individual accidental death and dismemberment (AD&D) policy, which of the following is CORRECT?
The beneficiary cannot be changed.
When it is used, the time limit on the certain defenses provision in a health insurance policy provides that the policy cannot be contested and claims cannot be denied after two (or three) years EXCEPT:
for fraudulent statements in the application
An accident and health insurance policy may not be rescinded, except for fraud, after it has been in effect for:
two years
At the time the policy was applied for, to the best of her knowledge Mary answered all of the questions on her individual health insurance application truthfully. Two and one-half years later she is diagnosed with cancer. Is her insurer obligated to cover her expenses?
Yes, as long as Mary did not make any fraudulent misstatements and this condition was not excluded from coverage.
Which of the following provisions must be included in an individual accident and health insurance policy?
2-year time limit on certain defenses.
An accident and health policy whose premiums are paid on a quarterly basis must contain a grace period of at least:
31 days
Disability insurance policies must include a provision entitling policyholders to a grace period for premium payment. At least how long must the grace period be for monthly premium policies?
10 days.
The required grace period for weekly premium health insurance policies is:
7 days
An individual accident and health insurance policy must contain all of the following EXCEPT:
a 21-day grace period
An accident and health insurance policy that provides for monthly payments has a grace period of:
10 days
Patricia has a health insurance policy for which she pays a semiannual premium. If the premium is due on July 1, her grace period will end in:
31 days.
With what provision of a standard health insurance policy would the following clause be associated: "The insured and the insurer shall have the same rights thereunder as they had under the policy immediately before the due date of the defaulted premium."
Reinstatement provision.
All of the following statements are correct regarding reinstatement of a sickness and accident insurance policy EXCEPT:
a reinstated policy only covers loss due to sickness for the first ten days.
What kinds of risks does a health insurance policy cover during the ten day waiting period after it has been reinstated?
Accidents
Which of the following statements about reinstated health insurance policies is CORRECT?
They only cover sicknesses that begin more than 10 days after the policy is reinstated.
All of the following statements pertaining to health insurance policy notice of claim and claim forms provisions are correct EXCEPT:
Charlotte is injured January 5. Later, she wishes to file a policy claim for expenses incurred in connection with the injury. Generally, she would be required to submit a notice of claim to the company by February 5.
A required provision of individual health insurance policies is that written notice of a claim must be given to the insurer within
20 days after loss occurs or commences, or as soon as is reasonably possible.
All individual health insurance policies must include a notice of claim provision requiring that a written notice of claim must be given to the insurer within how long after the occurrence of the loss?
20 days
Under the required claim forms provision of a health insurance policy, an insurer must furnish the claim form to the insured within how many days after receiving a notice of claim?
15 days
Jane submits written notice of a health insurance claim to her insurance company. After a month has passed, the insurer still has not provided her with a claim form. Which of the following statements is CORRECT?
The insurer should have furnished Jane with a claim form no later than 15 days after receiving notice of the claim.
How many days from the date of loss does the insured have to submit a completed claim form to the insurer?
90 days
If an insurer receives a notice of claim, it must supply a claim form to the insured within:
15 days
Claimants must give written proofs of loss to the insurer within how many days of the loss?
90 days
All of the following provisions in an individual health insurance policy are optional EXCEPT:
proof of loss.
Which one of the following statements regarding proof of loss is CORRECT?
The insured must file proof of loss within 90 days of receipt of claims forms or as soon as is reasonably possible.
Thomas, an insured, submits a claim and proof of loss for medical expenses covered by his major medical policy. According to the time of payment of claims provision, how soon must the company pay the claim?
Immediately.
Under the time of payment of claims provision, policies that provide for periodic payment of benefits (such as disability income policies) must pay such benefits at least:
monthly.
The time of payment of claims provision requires that:
claims must be paid after the insurer is notified and receives proof of loss.
The time of payment of claims provision in an accident and health insurance policy requires that:
claims will be paid immediately after the insurer receives written proof of the loss.
According to the disability insurance time limit on certain defenses provision, how long after the date of a policy's issue can innocent misstatements on an application be used to void a claim?
Two years.
Insured losses are covered immediately after a health policy is reinstated when:
the losses result from accidental injuries
In most states, all of the following are optional provisions in an accident and health insurance contract EXCEPT:
reinstatement provision
All of the following provisions are optional in individual health insurance policies EXCEPT:
an incontestability provision
All of the following are optional provisions in an individual accident and health insurance policy EXCEPT:
change of beneficiary
All of the following are optional provisions in an individual health insurance policy EXCEPT:
legal actions provision.
Hubert, the insured, changes to a more hazardous job than the one he had when he applied for his disability income policy. According to the policy's change of occupation provision, what will happen when the insurer learns of his job change?
Policy benefits will be reduced to an amount the premiums would have purchased if they were based on the more hazardous occupation.
The insurer under a health policy is liable for which of the following losses?
Those sustained while under the influence of a prescribed medication.
Under the misstatement of age provision in a health insurance policy, what can an insurer do if it discovers that an insured gave a wrong age at the time of application?
Adjust the benefits.
According to the optional misstatement of age provision, all of the following statements are correct EXCEPT:
if the insured actually was older at the time of application than shown in the policy, the excess premiums paid would be refunded.
All of the following are mandatory provisions in health insurance policies EXCEPT:
misstatement of age
The optional provision Other Insurance in This Insurer is specifically designed to:
limit the risk with any one individual insured by the insurance company.
How does an insurer treat benefits that are payable for expenses incurred when the company accepted the risk without being notified of other existing coverage for the same risk?
It prorates them
Accident and health policies that provide coverage on an expense-incurred basis for a family member of the insured:
must cover a newborn child from the moment of birth.
ABC Health Insurance Company insures a risk without being notified that the insured already has existing coverage for the same risk. The policy that ABC issued contains the Insurance with Other Insurers provision. When a loss occurs, the total coverage that the insured had purchased (including the coverage that ABC was unaware of at the time of application) would pay $5,000. Had ABC been the only insurer, it would have paid $2,500. What amount is ABC liable to pay?
$1,250.00
Louis has 3 individual health insurance policies and is concerned that the benefits may overlap. What is likely to happen in the event he makes a claim for coverage under all three policies?
If one insurer covers the risk, it will pay the claim and any premiums that apply to any excess will be returned to Louis.
Which of the following is the best example of overinsurance?
The client's hospital bill comes to $1,300 a day. His major medical plan pays $1,000, whereas his hospital indemnity plan pays $400.
If total disability (loss-of-time) benefits from all disability income coverage for the same loss exceed the insured's monthly earnings at the time of disability, what is the insurer's liability to the insured?
The insurer must pay the proportionate amount of benefits that the insured's earnings bear to the total benefits.
Maynard earns $125,000 a year. Under most disability income policies, the maximum amount of monthly benefit he will receive is:
$6,250.00
Insurers generally pay a maximum benefit of 60% of predisability income for disability income benefits for all the following reasons EXCEPT:
because benefits are based on net, after-tax earnings.
Naomi is killed in an auto accident before she is able to pay the semiannual $80 premium on her $30,000 accident policy. Under the policy's unpaid premium provision, her beneficiary will receive a check for:
$29,920.00
All of the following specify owners' rights in a health insurance policy EXCEPT:
unpaid premium provision.
Which of the following provisions is optional in an individual health insurance policy?
Unpaid premium provision.
Under the standard cancellation provision, an insurance company has the right to cancel a policy at any time with how many days' written notice to the insured?
5 days.
An insurer can cancel a health insurance policy by delivering written notice to the insured at least how many days before the effective date of cancellation?
5 days.
Any standard health insurance policy provision that is in conflict with a state statute:
is automatically amended to conform to the state statute.
Under the optional illegal occupation provision, which of the following applies if a loss occurs while the insured is participating in a felony or an illegal occupation?
The insurer is not liable for that specific loss.
Exclusions for preexisting conditions help to avoid:
adverse selection against an insurer
A formal technique designed to evaluate the clinical necessity, appropriateness, or efficiency of health care services, procedures, or settings is known as:
utilization review.
All of the following are examples of medical cost management EXCEPT:
denying claims
All of the following are considered to be viable medical plan cost-saving options EXCEPT:
emergency room preadmission testing.
Which of the following is the best reason why a medical plan would require a concurrent review for hospital patients?
Quality care is assured at the most reasonable expense.
As a cost-containment method in medical plans, all of the following are examples of case management provisions EXCEPT:
reduction provision.
Lisa is in the hospital awaiting surgery. The doctors meet in the morning to discuss the best way to proceed as a routine procedure in their PPO. This is an example of:
concurrent review.
Medical cost management is designed to:
control health claims expenses
Which of the following is NOT a means by which insurers control how policyholders use their health insurance coverage?
Indemnification of medical expenses
Regarding the waiver of premium provision, all of the following statements are correct EXCEPT:
it is frequently included with both individual and group policies.
Concerning the free look provision, all of the following statements are correct EXCEPT:
most states require a 30-day free-look provision in health insurance policies.
A broad statement that generally appears on the first page of a health insurance policy and specifies conditions under which benefits will be paid is known as the
insuring clause
All of the following statements apply to the insuring clause EXCEPT:
the clause defines losses not covered by the policy.
Which of the following terms relates directly to the consideration clause?
Premium.
Concerning the consideration clause for a health insurance policy, all of the following statements are correct EXCEPT:
a consideration clause may be included in a rider, if requested by the insured.
Generally, the consideration clause does all of the following EXCEPT:
lists the insured's beneficiaries.
If an individual health policy is renewable until the insured reaches age 65, when would the policy actually terminate?
The first policy anniversary date which occurs on or after the insured's 65th birthday.
With an optionally renewable policy, the insurance company reserves the right to:
terminate coverage at any policy anniversary date or premium due date.
Beth's health insurance policy contains a provision that allows her to renew coverage up to age 65. However, the policy also states that should Beth lose her job, the insurance company will cancel the policy, regardless of Beth's age. In terms of renewability, what type of policy does Beth have?
Conditionally renewable.
Which renewability provision allows an insurer to terminate a health insurance policy on any date specified in the policy and to increase the premium for any class of insureds?
Optionally renewable
Which of the following statements regarding a conditionally renewable policy is NOT correct?
The insurer may refuse to renew the contract as the result of the insured's deteriorating health.
Which of the following statements characterizes a cancelable policy?
The insurer may cancel the policy at any time.
Applicants for which of the following types of policies normally would require the MOST comprehensive underwriting?
Guaranteed renewable disability income insurance
Which kind of health insurance policy ensures renewability up to a specific age of the insured, although the insurer reserves the right to change the premium rate on a class basis?
Guaranteed renewable.
What accident and health insurance renewability clause means the insurer cannot unilaterally change any provision while the policy is in force but can change premium rates by class?
Guaranteed renewable
Which of the following types of health insurance policies prevents the insurer from changing the premium rate or modifying the coverage in any way?
Noncancelable
Assured Insurance Company issues a health insurance policy it describes as noncancellable. This means that:
the insured can continue the policy by paying premiums until at least age 65.
Which of the following is a CORRECT statement concerning individual accident and health insurance policies?
They may limit or exclude coverage for preexisting conditions or diseases
Of the following situations, which one involves a loss that would typically NOT be excluded under a health insurance policy?
The insured is injured while vacationing in a state that is not her state of residence.
Which of the following would most likely be reduced due to the presence of other available disability benefits?
Disability income benefits under a group policy
Under what circumstances can a claim associated with a preexisting condition be denied, assuming the policy's contestable period has expired?
The condition has been specifically excluded from the policy, by name or description.
Which statement most accurately describes the purpose of disability income insurance?
It replaces a portion of the insured's income if he or she is unable to work due to a disability.
Disability income benefits can be provided by all of the following EXCEPT:
long-term care insurance
With disability income insurance, an elimination (or waiting) period may NOT apply when the insured is disabled:
by accidental injury
Which of the following statements is CORRECT?
Disability income insurance does not provide a death benefit.
The entire contract provision of a disability income policy defines the contract to include all the following EXCEPT:
any riders the insurer may unilaterally add to the policy in the future
What is the initial period of time specified in a disability income policy that must pass, after a policy is in force, before a loss due to sickness can be covered?
Probationary period.
Which of the following statements pertaining to disability income insurance is NOT correct?
The probationary period is an initial time specified to elapse after the policy is in force before the insured qualifies for sickness and accident benefits.
The probationary period in disability income policies usually lasts:
two weeks to one month.
Elimination (waiting) periods in disability income policies are designed to:
specify a limited period of time at the start of disability when benefits are not payable.
In disability income insurance, an elimination period is a:
period of days following the start of disability during which benefits are not payable.
All of the following statements apply to an elimination period EXCEPT:
the shorter the elimination period, the lower the premium for comparable disability benefits.
Durwood is hospitalized with leukemia and, upon checking his disability income policy, learns that he will not be eligible for benefits for at least 60 days. That would indicate his policy probably has a 60-day:
elimination period.
Which of the following terms BEST describes the maximum length of time that disability income benefits will be paid to the disabled insured?
Benefit period.
Paul is hospitalized with a back injury and, upon checking his disability income policy, learns that he will not be eligible for benefits for at least 60 days. This would indicate that his policy probably has a 60-day:
elimination period.
An individual disability income policy is characterized by all of the following EXCEPT:
benefits begin when the insured's claim is accepted.
Benefit periods for short-term disability income policies typically vary from:
six months to two years.
Disability income insurance policies cover disabilities resulting from:
accidents and sickness.
From the insured's perspective, which of the following types of disability coverage would be the LEAST restrictive as to qualifying for benefit payments?
Own occupation.
A 45-year-old eye surgeon who earns $300,000 a year has contracted a neurological disease that causes tremors, preventing him from continuing his work. Under the any occupation provision of his disability income insurance policy, when may his benefits be terminated?
Not until he is able to find employment in a position suitable for a person with his education and experience.
Health policies classified as "nonoccupational" normally provide coverage for:
losses due to sickness or accidents that are not work-related.
Ned recently injured his back. The insurance company might legitimately deny his claim for disability income benefits for which of the following reasons?
He is not under a doctor's care.
Under many disability income insurance policies, which of the following is generally NOT considered a presumptive disability?
Loss of a leg
Mary has lost both legs as the result of complications caused by diabetes. Previously a horse trainer, she has taken a position as a computer programmer. Nonetheless, her insurance company pays her benefits under her disability income insurance policy under which of the following provisions?
The presumptive disability provision.
Disability income benefits for partial disability typically are payable to eligible insureds for a MAXIMUM of:
three to six months
By most insurers' definitions, partial disability is the:
inability of the insured to perform certain important duties of her job.
Sidney makes $3,000 a month as a machine shop supervisor. His disability income policy provides for a monthly payment of $2,500 in the event of total disability. If Sidney were to become partially disabled, but continued to work at 60% of his pay, what would the policy pay, assuming it had a residual disability provision?
$1,000 a month.
Which of the following terms relates to disability income insurance?
Residual basis.
Which of the following statements pertaining to recurrent disabilities for disability income insurance is NOT correct?
A recurrent disability policy provision would have no effect on the payment of benefits.
John is on the job two weeks when he becomes sick and is no longer able to work. He is likely to receive benefits immediately for which of the following reasons?
He is covered under his disability income insurance policy's recurrent disability provision.
The amount of the benefit payable under a disability income contract is generally dependent on the applicant's
income
Randy, an employee at a bank, earns $2,800 a month. He owns a disability policy that will pay him $400 a month. Believing he needs additional coverage, Randy applies for another disability policy from a company that has set a 70% of salary limit on the amount of disability coverage they will write. What is the monthly benefit that the company will issue on Randy?
$1,560.00
Insurance companies control the benefits payable in their disability income policies by doing all of the following EXCEPT:
paying benefits in excess of the insured's income.
An insured's benefits may be reduced under a disability income insurance policy by all the following EXCEPT:
spouse's income.
Will earns $4,000 a month and would be eligible for disability insurance to replace up to 60% of his income under a disability income policy he is interested in buying. He already has a disability income policy through his employer that will pay a fixed $200 monthly benefit. The new policy he is considering uses the percentage-of-earnings method to determine benefits. What is the maximum monthly benefit that Will will receive under the new policy?
$2,200.00
Sandy earns $2,000 each month as a reporter for a small-town newspaper. She is covered by two disability income insurance policies, one from Assured Insurance and the other from Ensurance Insurance. Assured Insurance limits her monthly benefit to 60% of income. Ensurance Insurance limits the monthly benefit to $400. If Sandy makes a claim on both policies, how much will she receive in benefits each month?
$1,200.00
All of the following are common exclusions under a disability contract EXCEPT:
disabilities resulting from accidents
All of the following statements pertaining to disability income policies are correct EXCEPT:
benefits may be payable for disabilities resulting from either accidental injury or sickness, and there are no exclusions.
A third-grade teacher with a congenital hip dislocation wishes to purchase a disability income policy, but fears she will not be insurable. What option does she have to get coverage?
She may purchase a policy with an extra premium to cover any disability that would involve her hip.
An individual was issued an alternative to a disability income policy in the form of an exclusion rider. The rider will not provide any income that results from disabilities related to his diabetes. The policy will provide benefits under all of the following conditions EXCEPT:
he loses his leg as a result of the diabetes.
A guaranteed insurability rider may be attached to which of the following policies?
Disability income
The only type of health insurance policy to which a guaranteed insurability rider may be attached is:
a disability income policy.
Which of the following statements regarding an individual disability income policy's rehabilitation benefit is CORRECT?
The rider helps pay the cost of therapy and retraining.
Which of the following statements regarding the medical reimbursement benefit available in some individual disability income policies is CORRECT?
The benefit is a percentage of the monthly income benefit.
A waiver of premium provision may be included with which kind of health insurance policy?
Disability income
Steve has an individual disability income policy that pays $600 a month if he becomes disabled. After he became disabled, he received a lump-sum payment of $10,000 in addition to his base benefit. Which of the following disabilities would result in this additional benefit?
His disability, which resulted in blindness, occurred in a car accident and is covered under the accidental death and dismemberment rider attached to his disability policy.
Jim has just received a lump-sum payment from his individual disability income policy provider. Which of the following is the best explanation for this payment?
His policy includes a return-of-premium provision.
Dan is a young man with a bright future, and he expects his income to increase over the next ten years. Under the disability income insurance policy he is considering, why might he add a guaranteed insurability rider?
The rider will allow him to increase his benefit amount periodically without being required to show evidence of insurability.
Under Barbara's individual disability income policy, she has been receiving $700 a month for the last three years. This year, her benefit increased to $728. Which of the following is the most likely reason her benefit amount has gone up?
She has a cost-of-living (COLA) rider on her policy.
Monthly or weekly benefits payable under a disability income policy can be tied to changes in the Consumer Price Index through what type of rider?
Cost of living adjustment rider.
If a disabled worker who has collected Social Security disability benefits recovers and is then disabled again, must he or she incur another 5-month waiting period?
No, if the second disability occurs within five years.
Rachel added a Social Security rider to her individual disability income plan. This rider provides an additional monthly benefit for what purpose?
To assure that a projected level of benefit is received.
Which of the following terms best describes the policy provision for the payment of additional income when the insured is eligible for social insurance benefits but those benefits have not yet begun?
Social Security rider.
Which of the following riders allows an insurer to issue a health insurance policy to an individual that covers everything but a certain injury or illness?
Waiver for impairments
The effect of an impairment rider attached to a health insurance policy is to:
exclude losses resulting from specified conditions.
Persons who are otherwise considered unacceptable health insurance risks can obtain coverage if an insurer issues a policy with a(n)
Waiver for impairments rider.
All of the following statements pertaining to business key-person disability insurance are correct EXCEPT:
these policies are used to indemnify a business in the case of a merger with another company.
Assume a dentist is insured with a business overhead expense policy that pays maximum monthly benefits of $3,000. The dentist became disabled and had covered expenses for the month totaling $1,500. Benefits payable would be:
$1,500.00
What disability policy indemnifies the business for certain expenses incurred when the business owner is disabled?
Business overhead expense policy.
Harry, the owner of a convenience store, is the insured under a business overhead policy. Were Harry to become disabled, the policy would cover all of the following EXCEPT:
Harry's salary.
Which of the following statements best describes the purpose of key-person or key-executive disability insurance?
It indemnifies the business to cover expenses and losses incurred when a key person is disabled.
What disability policy can be used to fund buy-sell agreements between partners or stockholders in a closely held corporation?
Disability buy-out policy.
Many disability buy-out plans are characterized by all of the following EXCEPT:
relatively short elimination periods
A business disability buy-out insurance plan may include an "elective indemnity." This feature can be used to:
postpone payment of the benefit to the insured
Which kind of deductible is entirely or partially absorbed by a basic medical expense policy?
Integrated.
Basic hospital expense insurance provides coverage for all of the following EXCEPT:
physician services
Kevin is hospitalized for ten days and incurs covered medical expenses of $1,000 each day. If he has a reimbursement medical expense policy, to what extent will his policy reimburse him?
$10,000.00
The miscellaneous medical expense benefit in a medical expense policy normally will cover:
drugs and medicine administered in the hospital.
Wilbur's basic medical expense policy limits the miscellaneous expense benefit to 20 times the $90 daily room-and-board benefit. During his recent hospital stay, miscellaneous expenses totaled $2,100. How much of that amount will Wilbur have to pay?
$300.00
Which of the following methods of determining benefits under a surgical expense policy assigns a set of points to surgical procedures?
Relative value.
All of the following approaches are used by insurers to determine benefits payable under basic surgical expense insurance EXCEPT:
traditional net cost method.
Which of the following types of health insurance coverage is always available on a group basis?
Maternity care.
Which of the following is usually included in an individual health insurance contract?
injuries due to an accident.
All of the following home health care services will be covered by group plans EXCEPT:
emergency surgery
What is another name for services provided to insureds at their residences?
Home health care
All of the following medical expenses generally are excluded from coverage under individual medical expense policies EXCEPT
nursing care in a hospital
Fees for all of the following items typically are covered under a medical expense policy's miscellaneous expense benefit EXCEPT:
surgeon's fees.
Prescription drug coverage can be offered as an optional benefit under which of the following arrangements?
Group medical expense plans.
Benefits paid for customary charges incurred during examination by an ophthalmologist or optometrist are included in:
vision care insurance