Exam 1

A tax-sheltered annuity is a special tax-favored retirement plan available to 1. Certain groups depending on factors such as race, gender, and age. 2. Certain age groups only. 3. Certain groups of employees only. 4. Anyone.

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

Following hospitalization because of an accident, Bill was confined in a skilled nursing facility. Medicare will pay full benefits in this facility for how many days? A. 20 B. 3 C. 100 D. 80

A. 20 (Following hospitalization for at least three days, if medically necessary, Medicare pays for all covered services during the first 20 days in a skilled nursing facility. Days 21 through 100 require a daily copayment.)

At age 30, an applicant wants to start an insurance program, but realizing that his insurance needs will likely change, he wants a policy that can be modified to accommodate those changes as they occur. Which of the following policies would most likely fit his needs? A. Adjustable Life B. Interest-sensitive Whole Life C. Single Premium Whole Life D. Decreasing Term

A. Adjustable Life (Adjustable life policies allow for increases or decreases in the face amount or premium, so long as the premium is sufficient to pay for the mortality. Any increase in face amount requires proof of insurability.)

Who can make a fully deductible contribution to a traditional IRA? A. An individual who has earned income B. Anybody: all IRA contributions are fully deductible regardless of income level C. Someone making contributions to an educational IRA D. A person whose contributions are funded by a return on investment

A. An individual who has earned income (Individuals who are not covered by an employer-sponsored plan may deduct the full amount of their IRA contributions regardless of their income level.)

A small business owner is the insured under a disability policy that funds a buy-sell agreement. If the owner dies or becomes disabled, the policy would provide which of the following? A. Cash to the owner's business partner to accomplish a buyout B. Disability insurance for the owner C. The business manager's salary D. The rent money for the building

A. Cash to the owner's business partner to accomplish a buyout (If an owner dies or becomes disabled, the disability policy under the buy-sell agreement would provide enough cash to accomplish a buyout of the company.)

What does "liquidity" refer to in a life insurance policy? A. Cash values can be borrowed at any time. B. The policyowner receives dividend checks each year. C. The death benefit replaces the assets that would have accumulated if the insured had not died. D. The insured receives payments each month in retirement.

A. Cash values can be borrowed at any time. (Liquidity in life insurance refers to availability of cash to the insured through cash values.)

What is the difference between the Medicare approved amount for a service or supply and the actual charge? A. Excess charge B. Coinsurance C. Limiting charge D. Actual charge

A. Excess charge (Excess Charge is the difference between the Medicare approved amount for a service or supply and the actual charge.)

Which of the following types of insurance covers the whole family in a single contract? A. Family Policy B. Survivorship Policy C. Family Income Policy D. Whole Life Policy

A. Family Policy (A family policy provides permanent life insurance for the breadwinner and term riders for other family members. With a family income policy, the principal wage earner is the only family member insured.)

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy? A. Guaranteed insurability option B. Nonforfeiture options C. Dividend options D. Guaranteed renewable option

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

A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits? A. Immediate annuity B. Variable annuity C. Flexible payment annuity D. Deferred interest annuity

A. Immediate annuity (An annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution will be most suitable for this arrangement.)

Insurance is a contract by which one seeks to protect another from A. Loss. B. Uncertainty. C. Hazards. D. Exposure.

A. Loss. (Insurance will protect a person, business or entity from loss.)

Doug decided to retire at age 62. When he applied for Social Security Retirement Benefits, he discovered A. Medicare coverage was not available until the month of his 65th birthday. B. Medicare Part A and Part B were provided automatically without charge. C. Medicare coverage varies from state to state. D. Medicare Part A was provided without charge, but Part B required a premium.

A. Medicare coverage was not available until the month of his 65th birthday. (Those who qualify for Medicare through Social Security are not eligible until age 65, unless they are totally disabled or suffer from kidney failure.)

Which of the following documents must be provided to the policyowner or applicant during policy replacement? A. Notice Regarding Replacement B. Disclosure Authorization Form C. Policy illustrations D. Buyer's Guide and Policy Summary

A. Notice Regarding Replacement (During policy replacement, the replacing producer must present to the applicant a Notice Regarding Replacement that is signed by both the applicant and the producer.)

An insured pays her Major Medical Insurance premium annually on March 1. Last March she forgot to mail her premium to the company. On March 19, she had an accident and broke her leg. The insurance company would A. Pay the claim. B. Hold the claim as pending until the end of the grace period. C. Deny the claim. D. Pay half of her claim because the insured had an outstanding premium.

A. Pay the claim. (Because the accident occurred during the grace period, the insurance company will pay the claim.)

An underwriter may reject an application for health insurance if the rejection is based upon which of the following? A. Prescription usage B. Blindness C. Genetic characteristics (such as sickle cell) D. Sexual preference

A. Prescription usage (The selection criteria used in the underwriting process for health insurance policies must be based only on the considerations of age, gender, occupation, physical condition (except blindness or deafness), avocation, and moral and morale hazards, and not on genetic characteristics, marital status or sexual orientation.)

What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? A. Pure life B. Life with guaranteed minimum C. Installment refund D. Joint and survivor

A. Pure life (A Pure Life Annuity has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before the total benefit has been paid out, payments cease and there is no refund of payments to survivors.)

What type of care is Respite care? A. Relief for a major care giver B. Institutional care C. Daily medical care, given by medical personnel D. 24-hour care

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

All of the following are types of term policies based on what happens to the face amount during the policy term EXCEPT A. Renewable. B. Increasing. C. Decreasing. D. Level.

A. Renewable. (There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term: Level, Increasing, and Decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy. Only the amount of the death benefit may fluctuate.)

In case of a loss, the indemnity provision in insurance policies A. Restores an insured person to the same financial state as before the loss. B. Pays the insured as much as 95% of the loss. C. Pays the insured a percentage of the loss above and beyond the loss. D. Allows the insured to collect 20% more than the actual loss.

A. Restores an insured person to the same financial state as before the loss. (Indemnity (sometimes referred to as reimbursement) is a provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract.)

If a licensee would like to terminate his license and has it in his possession, what would he have to do? A. Send the license to the Commissioner for termination B. Wait until the license expiration date and allow his license to expire C. Write the Commissioner and request a hearing for license termination D. Request that his employer terminate his appointment and notify the Commissioner

A. Send the license to the Commissioner for termination (Licensees can terminate their licenses at any time, either by sending the license to the Commissioner or, if the license is in their employer's possession, by sending a written request to the Commissioner.)

If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a A. Settlement option. B. Nontaxable exchange. C. Nonforfeiture option. D. Rollover.

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

Hazard is best defined as A. Something that increases the risk of loss. B. Neglect to communicate a material fact. C. The uncertainty of loss. D. A deliberate attempt to deceive.

A. Something that increases the risk of loss. (Hazards are conditions or situations that increase the probability of an insured loss occurring.)

Which of the following life insurance policies is designed to cover two people and pay benefits after both insureds have died? A. Survivorship Universal Life B. Guaranteed Universal Life C. Indexed Universal Life D. Variable Universal Life

A. Survivorship Universal Life (Survivor Universal Life (SUL) insurance covers two people under the same policy and only pays out death benefits after both individuals have died. This policy provides a larger nest egg, payable to beneficiaries, business transition planning, or even charitable causes.)

Which of the following would be a qualifying event as it relates to COBRA? A. Termination of employment due to downsizing B. Eligibility for Medicare C. Eligibility for coverage under another group plan D. Termination of employment for stealing

A. Termination of employment due to downsizing (Employee qualifying events include the termination of employment for reasons other than for misconduct; dependents' qualifying events include the death of the employee, divorce or legal separation.)

All of the following statements about Medicare supplement insurance policies are correct EXCEPT A. They cover the cost of extended nursing home care. B. They are issued by private insurers. C. They supplement Medicare benefits. D. They cover Medicare deductibles and copayments.

A. They cover the cost of extended nursing home care. (Medicare supplement policies (Medigap) do not cover the cost of extended nursing home care. Medigap plans are designed to fill the gap in coverage attributable to Medicare's deductibles, copayment requirements, and benefit periods. These plans are issued by private insurance companies.)

Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated? A. Those who have been insured under the plan for at least 5 years B. Those who have dependents C. Those who have no history of claims D. Those who have worked in the company for at least 3 years

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

What is the purpose of a fixed-period settlement option? A. To provide a guaranteed income for a certain amount of time B. To settle the insurance company's liability C. To provide a guaranteed income for life D. To provide a guaranteed amount of money each month

A. To provide a guaranteed income for a certain amount of time (When the fixed-period installments option is selected, the insurer agrees to pay the proceeds in equal installments over a specified period of time.)

The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as A. Utmost good faith. B. A warranty. C. Implied warranty. D. Reasonable expectations.

A. Utmost good faith. (The insurer must be able to rely on the statements given by the insured in the application. The insured must be able to rely on the insurer's promise to pay covered losses.)

In underwriting a substandard risk, which of the following is INCORRECT? A. The policy could be modified in the coverage or amount of coverage requested. B. A discounted premium would be charged. C. The applicant could be rejected for coverage. D. Additional exclusions could be included to modify the underlying policy coverage.

B. A discounted premium would be charged. (A substandard risk is one below the insurer's standard or average risk guidelines. An individual can be rated as substandard for any number of reasons-- poor health, dangerous occupation, or dangerous avocations. Some substandard risks are rejected outright, while others will be accepted for coverage at a higher premium.)

Assume that a policy allows the insurer to terminate coverage for a "class" of clients under stated circumstances. Which of the following classes would it be illegal for the insurer to terminate? A. All insureds over age 65 B. All insureds with a sexual preference which increases the risk of HIV infection C. All truck drivers D. All insureds living in ZIP code 90210

B. All insureds with a sexual preference which increases the risk of HIV infection (A, B and D are legally acceptable "classes." Sexual preference is not a legal classification.)

In reference to the standard Medicare Supplement benefits plans, what does the term standard mean? A. Coverage options and conditions are developed for average individuals. B. All providers will have the same coverage options and conditions for each plan. C. All plans must include basic benefits A-N. D. Coverage options and conditions comply with the law, but will vary from provider to provider.

B. All providers will have the same coverage options and conditions for each plan. (In reference to the standard Medicare Supplement benefits plans, the term "standard" implies that all providers will have the same coverage options and conditions for each plan.)

All of the following are examples of third-party ownership of a life insurance policy EXCEPT A. An insured couple purchases a life insurance policy insuring the life of their grandson. B. An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. C. When an insured purchased a new home, the insured made an absolute assignment of a life insurance policy to the mortgage company. D. A company purchases a life insurance policy on their manager, who is an important part of the operation.

B. An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. (A collateral assignment is the transfer of some or all of the death benefits of the policy to a creditor as security for a loan, but does not give the creditor the rights of ownership. In the event of the insured's death, the creditor would only be able to recover that portion of the policy's proceeds equal to the creditor's remaining interest in the loan.)

The LEAST expensive first-year premium is found in which of the following policies? A. Level Term B. Annually Renewable Term C. Decreasing Term D. Increasing Term

B. Annually Renewable Term (Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.)

Which of the following components must a life insurance policy have to allow policy loans? A. Face amount B. Cash value C. Flexible premiums D. Dividends

B. Cash value (The policy loan option is found only in policies that contain cash value.)

The types of perils which are usually excluded from coverage and which do not allow for an accurate pattern of predictability and will adversely slant the law of large numbers is known as A. Moral Hazards. B. Catastrophic Losses. C. Morale Hazards. D. Insurable Interests.

B. Catastrophic Losses. (A peril is the immediate specific event or danger causing the loss, which ultimately created the risk. Catastrophic losses are unusually large numbers of losses in a very short period of time (i.e. earthquakes, floods, fires, etc.).)

If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select? A. Interest only B. Fixed period C. Life with period certain D. Fixed amount

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

What kind of policy does NOT typically require proof of insurability? A. Variable universal life B. Group insurance C. Individual insurance D. Term insurance

B. Group insurance (Individual life insurance is written on a single life. The rate and coverage is based upon the underwriting of that individual. Group life insurance is written as a master policy, issued to the sponsoring organization, covering the lives of more than one individual member of that group. In group insurance, individual participants typically do not need to provide proof of insurability.)

A contract which one party undertakes to indemnify another against loss is called A. Risk. B. Insurance. C. Adverse Selection. D. Indemnity.

B. Insurance. (Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.)

Which of the following is NOT true regarding a flexible spending account? A. It operates on "use-or-lose" basis. B. It does not have limits on contributions. C. It provides an opportunity to receive benefits on a pretax basis. D. It is a cafeteria plan.

B. It does not have limits on contributions. (A Flexible Spending Account (FSA) is a form of cafeteria plan benefit funded by salary reduction. The employees are allowed to deposit a certain amount of their paycheck into an account before paying income taxes. FSA benefits are subject to annual maximum and "use-or-lose" rule.)

Issuance of health policies to insureds with chronic or ongoing conditions could result in all of the following EXCEPT: A. A very high claim within a short period of time. B. Lower overall costs and premiums. C. Adverse selection and consequently higher overall costs and premiums. D. An immediate claim.

B. Lower overall costs and premiums. (Chronic or ongoing is defined as prolonged, continuing, or lingering illness or disability. Issuance of health policies to insureds with chronic or ongoing conditions could result in immediate or very high claims within a short period of time. This results in adverse selection and, consequently, higher overall costs and premiums.)

Which of the following information about the applicant is NOT included in the General Information section of the application for insurance? A. Marital status B. Medical background C. Occupation D. Gender

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

Qualified long-term care policies covering home care must provide benefits if the insured is impaired in at least two of the six activities of daily living (ADL). The term "impaired" means A. Needs occasional help with the ADLs. B. Needs substantial hands on or standby assistance with ADLs. C. Has Parkinson's disease. D. Cannot perform any of the ADLs.

B. Needs substantial hands on or standby assistance with ADLs. (To qualify for benefits, the requirement is for "human assistance" (hands on) or "continual substantial supervision" (standby) when performing the ADLs. (CIC 10232.8)

Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum. A. All four parts of Medicare B. Parts A and B of Medicare C. Only Part A of Medicare D. Any private insurance policy

B. Parts A and B of Medicare (To buy a Medigap policy, the applicant must generally have both Medicare Part A and Part B.)

When a discontinued policy contained a death benefit, what term is used in the CIC to describe the length of the applicable extension of benefits? A. Client's discretion B. Reasonable C. Until death or cancellation D. Insurer's discretion

B. Reasonable (Section 10128.2 of the CIC uses the word "reasonable" to refer to the length of such an extension.)

All of the following employees may use a 403(b) plan for their retirement EXCEPT A. A part-time classroom aide. B. The CEO of a private corporation. C. A school bus driver. D. The vice president of a charitable organization.

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

Who is protected by a Temporary Insuring Agreement? A. The policy beneficiary B. The applicant and the insurer C. Only the applicant D. Only the insurer

B. The applicant and the insurer (Temporary Insuring Agreement protects the applicant by giving him/her immediate coverage, and protects the insurer by giving time for the underwriting process.)

An insured purchased a noncancellable health insurance policy 1 year ago. Which of the following circumstances would NOT be a reason for the insurance company to cancel the policy? A. The insured reaches the maximum age limit specified in the policy. B. The insured is in an accident and incurs a large claim. C. Within two years of the application, the insurer discovers a misrepresentation. D. The insured does not pay the premium.

B. The insured is in an accident and incurs a large claim. (The company may not cancel coverage due to covered claims. All the rest are allowable reasons for an insurer to terminate the contract.)

Bob applies for an insurance policy and, because of his medical history, is required to submit an attending physician's statement. He receives the evaluation, and the report is submitted. The underwriting department still has further questions but is unable to get further information from the physician. What will the insurer most likely do? A. The insurer can require the insured to visit a different physician at the applicant's expense. B. The insurer can require the insured to visit a different physician at the insurer's expense. C. The insurer is out of options. It must do its best to make a decision based on the information that it currently has. D. The insurer can take the attending physician to court for his or her lack of willingness to conduct further examinations.

B. The insurer can require the insured to visit a different physician at the insurer's expense. (When attending physician statements do not provide all of the information that an insurer needs, the insurer can require the applicant to be examined by a different physician. The insurance company must pay for this evaluation.)

Not all losses are insurable, and there are certain requirements that must be met before a risk is a proper subject for insurance. These requirements include all of the following EXCEPT A. The loss produced by the risk must be definite. B. The loss may be intentional. C. The loss must not be catastrophic D. There must be a sufficient number of homogeneous exposure units to make losses reasonably predictable.

B. The loss may be intentional. (To insure intentional losses would be against public policy.)

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? A. The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. B. The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. C. The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time. D. One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies.

B. The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. (When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.)

When may an insured deduct unreimbursed medical expenses paid under a long-term care policy? A. Only if the insured is age 65 or older B. When the expenses exceed a certain percentage of the insured's adjusted gross income C. Only if the insured does not itemize the expenses D. All LTC expenses are tax deductible.

B. When the expenses exceed a certain percentage of the insured's adjusted gross income (In either medical expense insurance policies or long-term care insurance policies, unreimbursed medical expenses paid for the insured, the insured's spouse and dependents may be claimed as deductions if the expenses exceed a certain percentage of the insured's adjusted gross income.)

How many eligible employees must be included in a contributory plan? A. 50% B. 90% C. 75% D. 100%

C. 75% (At least 75% percent of eligible employees can be included in a contributory plan. Both the employees and the employer contribute to premium payments.)

A group blanket health policy is best suited for which of the following? A. A manufacturer B. A small employer C. A summer camp D. A large family

C. A summer camp (Group blanket health insurance policies are meant to cover members of a group or association without evidence of insurability. Coverage is usually limited to loss from specific causes.)

The goals of HICAP are to provide A. Counseling and advocacy to assist individuals with long-term care planning and insurance policies, billing, or claims. B. Information through community forums about the myths and realities of Medicare and private health insurance. C. All of the above. D. Legal representation and advice when necessary and appropriate.

C. All of the above. (This is the stated mission of the Health Insurance Counseling and Advocacy Program (HICAP).)

The underwriting unit, when considering risk factors for individual and group disability insurance, will review the "carrier history" of the group. Which factors might the underwriters consider? A. Longevity B. Price Shopping C. All the above D. Stability

C. All the above (These factors would deal with how many different carriers have been used by this group in the past. Are they loyal to the insurer and agent? Is price an issue? Typically, the shorter the time with a particular carrier, the higher the rate.

In comparison to a policy that uses the accidental means definition, a policy that uses the accidental bodily injury definition would provide a coverage that is A. Broader in duration. B. More limited in duration. C. Broader in general. D. More limited in general.

C. Broader in general. (A policy that uses the accidental bodily injury definition will provide broader coverage than a policy that uses the accidental means definition.)

Which of the following is NOT a required element of an insurance contract? A. Acceptance B. Consideration C. Counteroffer D. Competent parties

C. Counteroffer (Each contract must have the following 4 elements: agreement (offer and acceptance), legal purpose, competent parties, and consideration. Counteroffer, while sometimes used as part of the agreement, is not a required element.)

Which of the following would be considered refund of unearned premium? A. Cash value B. Commissions C. Dividends D. Nonforfeiture values

C. Dividends (Policy dividends are the underwriting income of mutual insurance companies. They are not income or profit; they are refunds.)

What qualifies an individual to contribute to an IRA? A. Retirement income B. Investment income C. Earned income D. Any income

C. Earned income (Anyone with earned income can have an IRA. An individual can contribute 100% of earned income up to a specified amount. A married couple could contribute up to a specified amount, even if only one had earned income, but each must have an account. The excess contribution penalty for traditional IRAs is 6%.)

In life insurance policies, cash value increases A. Are only taxed when the owner reaches age 65. B. Are income taxable immediately. C. Grow tax deferred. D. Are taxed annually.

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

Which of the following is available to employers of all sizes? A. MSAs B. LPAs C. HRAs D. HSAs

C. HRAs (Health Reimbursement Accounts (HRAs) consist of funds set aside by employers to reimburse employees for qualified medical expenses; they are available to all sizes of employers.)

Which of the following is NOT true regarding the Life with Guaranteed Minimum annuity settlement option? A. The beneficiary receives the remainder of the principal amount upon the annuitant's death. B. Payments can be made in installments and as a single cash refund. C. It does not guarantee that the entire principal amount will be paid out. D. It is a life contingency option.

C. It does not guarantee that the entire principal amount will be paid out. (With the Life with Guaranteed Minimum annuity settlement option, if the annuitant dies before the principal amount (the amount paid for the annuity) has been paid out, the remainder of the principal amount will be refunded to the beneficiary. Pure life provides the highest monthly benefits for an individual annuitant.)

How is the amount of Social Security disability benefits calculated? A. It is based upon the worker's Primary Insurance Amount (PIA), which is calculated from their Average Indexed Monthly Earnings over their highest 30 years. B. It is based on age, number of quarters worked in the last 25 years (minimum of 80) and the number of health claims made during that period of time. C. It is based upon the worker's Primary Insurance Amount (PIA), which is calculated from their Average Indexed Monthly Earnings over their highest 35 years. D. It is based on age, number of quarters worked in the last 20 years (minimum of 60) and the number of health claims made during that period of time.

C. It is based upon the worker's Primary Insurance Amount (PIA), which is calculated from their Average Indexed Monthly Earnings over their highest 35 years. (The amount of Social Security disability benefits is based upon the worker's Primary Insurance Amount (PIA), which is calculated from their Average Indexed Monthly Earnings over their highest 35 years. The lowest 5 years of income may be deleted from calculation.)

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

C. It is intended to provide coverage on a date prior to the policy issue. (Coverage commences on the date of the application or the date of a medical examination, whichever is later, on the condition that the applicant is determined to be insurable at the rate applied for.)

Which of the following does NOT describe hospice care? A. It provides continuous care. B. It provides care in a home-like setting. C. It provides care to people with life expectancies of 1 to 2 years. D. It provides care to terminally-ill people.

C. It provides care to people with life expectancies of 1 to 2 years. (Hospice provides short-term, continuous care in a home-like setting to terminally-ill people with life expectancies of 6 months or less.)

Which of the following statements is correct? A. Care needed because of aging is covered by Medicare but not by Medicare supplements. B. Medicare does not pay for nursing home care in any case. C. Medicare will cover nursing home care if it is part of the treatment for a covered illness. D. Care needed because of aging is covered by Medicare.

C. Medicare will cover nursing home care if it is part of the treatment for a covered illness. (Medicare will cover nursing home care if it is part of the treatment for a covered injury or illness, but care needed because of aging is not covered by Medicare or Medicare supplements. Medicare and Medicare supplements pay for skilled nursing care, but the coverage is limited. Medicaid does pay for nursing home care, but it provides coverage only for those that qualify with low income and low assets.)

A person applying for an insurance license in California was previously found guilty in a trial in which he entered a plea of "nolo contedere." What does "nolo contendere" mean? A. Guilty, but with justification B. Not guilty by reason of circumstances C. No contest D. Without reason

C. No contest (In California, even if a person pleads no contest, or "nolo contedere," to charges, if the person is found guilty, they will be considered convicted.)

Can a group that is formed for the sole purpose of obtaining group insurance qualify for group coverage? A. Yes, any group can apply for group coverage. B. Yes, but only if the group is over 35 people. C. No, the group must be formed for a purpose other than obtaining group insurance. D. No, a group of individuals cannot apply for group coverage unless represented by an association or trust.

C. No, the group must be formed for a purpose other than obtaining group insurance. (In order to qualify for group coverage, the group must be formed for a purpose other than obtaining group insurance; the coverage must be incidental to the group.)

An applicant for health insurance has not had a medical claim in 5 years. He exercises daily and does not smoke or drink. What classification do you assume the applicant would receive from his insurer? A. Low-risk B. Standard C. Preferred D. Superior

C. Preferred (The "preferred" status indicates that an insured is in excellent physical condition and employs healthy lifestyles and habits. These individuals qualify for lower premiums than those who are in the lower categories.)

In the event of a loss, business overhead insurance will pay for A. Salary of the business owner. B. Loss of profits. C. Rent. D. Medical bills of the business owner.

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

Methods used to pay the death benefits to a beneficiary upon the insured's death are called A. Designation options. B. Beneficiary provisions. C. Settlement options. D. Death benefit options.

C. Settlement options. (Settlement options are methods used to pay death benefits to a beneficiary upon the insured's death.)

Which of the following statements about a suicide clause in a life insurance policy is TRUE? A. Suicide is covered as long as the policy is in force. B. Suicide is excluded as long as the policy is in force. C. Suicide is excluded for a specific period of years and covered thereafter. D. Suicide is covered for a specific period of years and excluded thereafter.

C. Suicide is excluded for a specific period of years and covered thereafter. (In most states, if death results from suicide within a certain period, the insurer is not obligated to pay the death benefit.)

The following are factors in determining premiums charged for group disability income insurance, EXCEPT A. The zip code where the business is located. B. The city where the business is located. C. The addresses of the employees. D. The country where the business is located.

C. The addresses of the employees. (In determining the group's eligibility for medical expense insurance, insurers will take into consideration the location of the business (city, country, and specific zip code). These factors help the insurer assess risks and possible losses based on demographic and health care costs in a particular area.)

What is the purpose of annuity riders? A. To increase the cost of an annuity B. To allow an annuity to build cash value C. To allow investors to obtain additional benefit D. To provide more annuity products to consumers

C. To allow investors to obtain additional benefit (Annuity riders are features that allow annuity investors to obtain additional benefit not offered with the original annuity product.Annuity riders are features that allow annuity investors to obtain additional benefit not offered with the original annuity product.)

If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about A. Which individual will pay the premium. B. The type of policy requested. C. Whether an insurable interest exists between the individuals. D. The gender of the applicant.

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

An employee insured under a group health plan has been paying $25 monthly premium for his group health coverage. The employer has been contributing $75, for the total monthly cost of $100. If the employee leaves the company, what would be his maximum monthly premium for COBRA coverage? A. $100 B. $25.50 C. $25 D. $102

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

In addition to penalties, fines, and possible imprisonment for violating the provision relating to misrepresentation, the Commissioner may suspend the license of such person for a period up to A. 5 years. B. 6 months. C. 1 year. D. 3 years.

D. 3 years. (According to CIC 783, after a hearing, the Commissioner may suspend the license of any such person for violating provision relating to misrepresentation for a period not to exceed 3 years.)

The legal definition of "person" would NOT include which of the following? A. A corporation B. A business entity C. An individual human being D. A family

D. A family (A person is a legal entity which acts on behalf of itself, accepting legal and civil responsibility for the actions it performs and making contracts in its own name. Persons include individual human beings, associations, organizations, corporations, partnerships, and trusts.)

Which of the following is NOT an allowable 1035 exchange? A. A whole life insurance policy is exchanged for a Universal life insurance policy. B. An annuity is exchanged for another annuity. C. A life insurance policy is exchanged for an annuity. D. A whole life insurance policy is exchanged for a term insurance policy.

D. A whole life insurance policy is exchanged for a term insurance policy. (The key is that the exchange may not be from a less tax-advantaged contract to a more tax-advantaged contract. "Same to same" is acceptable.)

The two types of assignments are A. Absolute and partial. B. Complete and proportionate. C. Complete and partial. D. Absolute and collateral.

D. Absolute and collateral. (Absolute assigns the entire policy. Collateral assigns a part or all of the benefits.)

A 63-year-old man is planning to be employed until age 68. When will he be eligible for Medicare? A. Age 70, if still employed B. Age 69 ½ if no longer employed C. As soon as he retires at age 68 D. Age 65, regardless of his employment status

D. Age 65, regardless of his employment status (The individual will still be eligible for Medicare at age 65, but if he is still insured under his employer's group health plan, the group plan will be his primary coverage and Medicare will be secondary coverage.)

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company? A. Subrogation B. Warranty C. Adhesion D. Aleatory

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

If an insured is unhappy regarding his or her Medicare services, what may he or she do? A. Refuse all but Medicare supplement coverage B. Change Medicare carriers C. Refuse to pay the annual deductible D. Appeal the decision

D. Appeal the decision (The insured has the right to appeal any decision about his/her Medicare services. If Medicare does not pay for an item or service an insured has been given the insured may appeal that decision. The insured may also appeal if he/she does not receive an item or service he/she thinks should be given to him/her.)

In health underwriting, it would be inappropriate to decline a risk using any of the following factors EXCEPT A. Marital status. B. Mental illness. C. Genetic characteristics. D. Blindness.

D. Blindness. (Insurers cannot decline a risk based on blindness or deafness, genetic characteristics, marital status, or sexual orientation. Mental illness is part of the prospective insured's physical condition and can be used in determining the underwriting decision.)

Which of the following is true regarding inpatient hospital care for HMO members? A. Inpatient hospital care is not part of HMO services. B. Services for treatment of mental disorders are unlimited. C. Care can only be provided in the service area. D. Care can be provided outside of the service area.

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

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe? A. Unilateral B. Contingent C. Aleatory D. Conditional

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

What is the goal of the HMO? A. Limiting the deductibles and coinsurance to reduce costs B. Providing health services close to home C. Providing free health services D. Early detection through regular checkups

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

In a group health policy, a probationary period is intended for people who A. Have additional coverage through a spouse. B. Want lower premiums. C. Have a pre-existing condition at the time they join the group. D. Join the group after the effective date.

D. Join the group after the effective date. (The probationary period is the waiting period new employees must satisfy before becoming eligible for benefits.)

What is the other term for the cash payment settlement option? A. Proceeds B. Face amount C. Principal amount D. Lump sum

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

An individual's tendency to be dishonest would be indicative of a A. Pure hazard. B. Morale hazard. C. Physical hazard. D. Moral hazard.

D. Moral hazard. (An applicant that is dishonest in completing an application for insurance or submitting fraudulent claims would be deemed a moral hazard and could be uninsurable from an underwriting standpoint.)

Which of the following riders would NOT cause the Death Benefit to increase? A. Cost of Living Rider B. Guaranteed Insurability Rider C. Accidental Death Rider D. Payor Benefit Rider

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

All of the following are examples of risk retention EXCEPT A. Self-insurance. B. Copayments. C. Deductibles. D. Premiums.

D. Premiums. (Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments, or self-insurance.)

Which of the following is NOT provided by an HMO? A. Services B. Financing C. Patient care D. Reimbursement

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

Under the Fair Credit Reporting Act, if a consumer challenges the accuracy of the information contained in a consumer or investigative report, the reporting agency must A. Defend the report if the agency feels it is accurate. B. Change the report. C. Send an actual certified copy of the entire report to the consumer. D. Respond to the consumer's complaint.

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

Insurance is the transfer of A. Peril. B. Hazard. C. Loss. D. Risk.

D. Risk. (Insurance is a transfer of risk of loss from an individual or a business entity to an insurance company. Hazards are conditions that increase the probability of an insured loss occurring, and perils are causes of loss. Losses cannot be transferred.)

Which of the following information will be stated in the consideration clause of a life insurance policy? A. The time period allowed for the payment of premium B. The parties to the contract C. The conditions for insurability D. The amount of premium payment

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

An individual purchased a Medicare supplement policy in March and decided to replace it 2 months later. His history of coronary artery disease is considered a pre-existing condition. Which of the following is true? A. Coronary artery disease coverage will be permanently excluded from the new policy. B. In replacement, pre-existing conditions must be waived, so sickness relating to coronary artery disease will be covered upon the policy's effective date. C. Because this is a new policy, the pre-existing condition waiting period starts over. D. The pre-existing condition waiting period fulfilled in the old policy will be transferred to the new policy.

D. The pre-existing condition waiting period fulfilled in the old policy will be transferred to the new policy. (When an insured replaces one Medicare supplement policy with another, the pre-existing conditions waiting period does not start over. All types of waiting and elimination periods are carried over, not restarted, since that time was served with the original policy.)

Which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on a child where the parent is the policyowner? A. Family term rider B. An irrevocable beneficiary C. A buy-sell agreement D. Third-party ownership

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

Insurers usually do not reimburse claimants for 100% of income lost due to disability. What is the reason for insurer limitations on coverage amounts? A. To reimburse only for the premiums paid into the policy B. To make sure there is enough money to reimburse all the claims C. To pay no more than 50% of the pre-disability income D. To provide an incentive for the insured to return to work

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

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe? A. Aleatory B. Unidirectional C. Conditional D. Unilateral

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