ExamFX readiness exam #5

What is the minimum number of members required for group life insurance in this state? a) 10 b) 15 c) 25 d) 100

a) 10 Explanation: Per CIC, a group life insurance policy, when issued, must cover at least 10 eligible group members.

Which of the following employee benefits essentially provides the employee with an wage increase and directs that wage increased to be spent on a life insurance policy? a) Executive Bonus b) 401(k) c) Keogh Plan d) Split Dollar

a) Executive Bonus Explanation: With Executive Bonus the employer directs that the employee's wage increase be spent on a life insurance policy.

The annual open enrollment period for state insurance exchanges runs from November through a) January b) February c) March d) December

a) January Explanation Annual open enrollment period is currently scheduled from November 1 through January 31.

An insurance agent visits a potential client and explains various types of policies. The customer displays a lack of interest, so the agent guarantees higher dividends than he knows would be possible. Which term describes what the agent has done? a) Misrepresentation b) Rebating c) Twisting d) Defamation

a) Misrepresentation Explanation: Misrepresentation is the act of portraying sales material that is false, misleading, or deceptive as to policy benefits or terms, the payment of dividends, etc. This refers to all forms of communication.

A college student will graduate next year. His studies have limited his ability to work, so he has borrowed funds to pay for his education. He would like to start a permanent life insurance program that would cover his debt and still be affordable during the period he is establishing his earning potential. An appropriate policy would be a) Modified Whole Life b) Current Assumption Whole Life c) Level Term to age 65 d) Single Premium Whole Life

a) Modified Whole Life Explanation: Modified life requires low premiums at the beginning of the policy. The premiums are increased at a later date, usually three to five years after the issue.

In addition to participation requirements, how does an insurer guard against adverse selection when underwriting group health? a) By obtaining MIB reports on each enrollee b) By imposing case management provisions c) By requiring that the insurance be incidental to the group d) By having each enrollee undergo a paramedical examination

c) By requiring that the insurance be incidental to the group Explanation: The group must form for a reason other than buying group insurance. Insurance must be secondary.

All of the following are ways to handle risk EXCEPT a) Reduction b) Transfer c) Elimination d) Avoidance

c) Elimination Explanation: Risk cannot be eliminated.

HMO members pay a small fee when they see their primary care physician. This fee is called a a) Stop-loss b) Copay c) Coinsurance d) Deductible

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

An employee is covered under COBRA. His previous premium payment was $100 per month. His new employer now collects $102 each month. Why does the employer collect and extra $2? a) Premiums go up every year regardless of health conditions b) To cover other employees who qualify to bypass premium payment c) To cover the employer's administration costs d) Penalty for termination

c) To cover the employer's administration costs Explanation: 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. The 2% charge is to cover the employer's administrative costs.

Which of the following riders pays a beneficiary a death benefit that is double or triple the face amount if the insured's death was caused by an accident as defined in the policy? a) A Double Indemnity Rider b) A Guaranteed insurability Rider c) A Covered Peril Rider d) An Accidental Death Rider

d) An Accidental Death Rider Explanation: The Accidental Death Rider pays some multiple of the face amount if death is the result of an accident as defined in the policy.

What advantage does the "recurrent disability" provision provide to the insured under a disability income policy? a) It provides the insured with lifetime disability benefits b) It eliminates the imposition of an elimination period for a separate disability c) It imposes an elimination period for the disability d) It eliminates the imposition of a second elimination period for the same disability

d) It eliminates the imposition of a second elimination period for the same disability Explanation: If the insured is re-hospitalized for the same injury, it will be treated as a continuation of the first injury.

The Human Life Value approach to determining Life Insurance needs is based upon which of the following ideas? a) Replacement of assets b) Specific needs for college education c) Retirement needs d) Loss of the breadwinner's income

d) Loss of the breadwinner's income Explanation: The Human Life Value approach is based upon loss of income.

Which of the following best describes a presumptive disability? a) One that is severe enough that the insured automatically qualifies for full disability benefits b) One that requires the insured to submit to physical exams periodically c) One that a doctor predicts may reoccur in the future d) One that the insured will fully recover from in the future

a) One that is severe enough that the insured automatically qualifies for full disability benefits Explanation: A presumptive disability is a continuing total disability that is presumed in cases involving loss of sight, hearing, speech, or the loss of any two limbs. Under these circumstances, the insurance company does not require the insured to submit periodic examinations to prove continuing disability.

When the owner of a participating whole life policy uses the dividend to provide more life insurance coverage, which of the following dividend options is being used? a) Paid-up additions b) Reduce the premium c) Fixed amount d) Reduced paid up

a) Paid-up additions Explanation: The paid-up addition dividend option is used to purchase more paid-up insurance each year, thereby increasing the death benefit.

All of the following are features of catastrophic plans EXCEPT a) Essential benefits b) High premiums c) Out-of-pocket costs d) High deductible

b) High premiums Explanation: Catastrophic plans usually have lower monthly premiums and high deductibles.

Which of the following time periods is the general enrollment period for Medicare Part B? a) March 1 through March 31 each year b) January 1 through March 31 each year c) March 1 through May 31 each year d) January 1 through January 31 each year

b) January 1 through March 31 each year

In group insurance, the primary purpose of the Coordination of Benefits provision is to a) Encourage hospitals to keep their charges reasonable b) Prevent over-insurance c) Prevent lawsuits between insurance companies involved in the claim d) Ensure the payment of claims by all policies that are in effect at the time of the claim

b) Prevent over-insurance Explanation: Coordination of Benefits provision is used to prevent or minimize over-insurance. Usually, under Coordination of Benefits provisions, one insurance policy is primary and the other is secondary. The primary policy pays first. Expenses not covered by the primary, but covered under the secondary may be collected, but only after the primary has paid its limit.

If a basic medical insurance plan's benefits are exhausted, what type of plan will then begin covering those losses? a) Social security b) Supplementary major medical c) Supplementary basic medical d) None. Once benefits are exhausted for a given benefit period, the insurer is responsible for covering the remainder of the expenses.

b) Supplementary major medical Explanation: Supplementary Major Medical Policies are used to supplement the coverage payable under a basic medical expense policy. After the basic policy pays, the supplemental major medical will provide coverage for expenses that were not covered by the basic policy, and expenses that exceed the maximum. If the time limitation is used up in the basic policy, the supplemental coverage will provide coverage thereafter.

Because of an injury, an insured has been unable to work for 9 months. He paid the policy premium for his life insurance for the first 6 months of disability, but didn't have to pay anything for the remaining 3 months, yet the policy remained in force. The policy includes a) Nonforfeiture options b) Waiver of premium rider c) Guaranteed insurability benefits d) Facility of payment clause

b) Waiver of premium rider Explanation: The Waiver of Premium rider causes the insurer to waive future premiums if the premium payor is disabled for a period of 6 months or more.

Which of the following is NOT true regarding a noncancellable policy? a) The guarantee to renew usually only applies until the insured reaches age 65 b) Insured has the unilateral right to renew the policy for the life of the contract, and may discontinue paying premiums to cancel it c) Insurer can increase the premium above what is stated in the policy if claims experience greater than expected d) Insurer cannot cancel the policy

c) Insurer can increase the premium above what is stated in the policy if claims experience greater than expected Explanation: The insurance company cannot cancel a noncancellable policy, not can the premium be increased beyond what is stated in the policy. The insured has the unilateral right to renew the policy for the life of the contract, but, in effect, may cancel the policy at any time by discontinuing payments.

Which of the following Medicare parts provides prescription drugs benefit? a) Part B b) Part C c) Part D d) Part A

c) Part D Explanation: Medicare Part D is for prescription drug coverage.

An insured purchased a health insurance policy with a renewability clause that states the policy is "Guaranteed Renewable." This means that as long as the required premiums are paid, the policy will continue until the insured a) Reaches age 100 b) Becomes disabled c) Reaches age 65 d) Dies

c) Reaches age 65 Explanation: A guaranteed renewable policy will be renewed, at the policyholder's option, until age 65 (when most insured become eligible for Medicare). The insurer may adjust the premium rate by class during the time the policy is in force.

All of the following are characteristics of group health insurance plans EXCEPT a) Employers may require the employees to contribute to the premium payments b) The benefits under a group plan are more extensive than those under individual plans c) The parties that hold a group health insurance contract are the employees and the employer d) The cost of insuring an individual is less than what would be charged for comparable benefits under an individual plan

c) The parties that hold a group health insurance contract are the employees and the employer Explanation: The contract for coverage is between the employer and the insurance company. Only one policy is issued (master policy) to the employer; covered employees receive a certificate of insurance.

Guaranteeing future dividends is considered to be an unfair or deceptive act known as a) Twisting b) False financial statements c) Rebating d) Misrepresentation

d) Misrepresentation Explanation: It is considered to be misrepresentation to make any false or misleading statements regarding the dividends to be received on any insurance policy.

On an Accidental Death and Dismemberment (AD&D) policy, the death benefits payable is known as the a) Face amount b) Capital sum c) Policy limit d) Principal sum

d) Principal sum Explanation: In Accidental Death and Dismemberment coverage, the principal sum is paid for accidental death.