Health Insurance Test #1
Under COBRA regulations, group health coverage of terminated employees must be continued up to: A) 18 months. B) 8 months. C) 12 months. D) 6 months.
Answer: A
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? A) Policy benefits will be reduced to an amount the premiums would have purchased if they were based on the more hazardous occupation. B) There is nothing the insurer can do as long as Hubert pays the premiums for the policy. C) A specified percentage of benefits penalty will be charged against any future benefit payments. D) The insurer will cancel the policy unless Hubert pays an additional premium to cover the higher risk.
Answer: A According to the policy's change of occupation provision, policy benefits will be reduced to an amount the premiums would have purchased if they were based on the more hazardous occupation. Had Hubert changed to a less hazardous occupation (i.e., one that calls for a lower premium), the insurer would pay the full benefit for the loss and refund the excess premium to him.
Which of the following must be included in all Medicare supplement policies? A) Coverage for the reasonable cost of the first 3 pints of blood. B) Coverage for daily coinsurance amount for skilled nursing facility care. C) Coverage for emergency care in a foreign country. D) Coverage for "at-home" recovery services.
Answer: A All Medicare supplement policies must include coverage under Medicare Parts A and B for the reasonable cost of the first three pints of blood.
National Association of Insurance Commissioners (NAIC) does all of the following EXCEPT: A) prosecute and punish criminal violators in the insurance industry. B) preserve state rather than federal regulation of the insurance industry. C) promote efficient administration of insurance laws and regulations. D) promote uniformity in state insurance laws and regulations.
Answer: A Although NAIC assists in administering state insurance laws and seeks to protect policyowners' interests, it does not have the legal authority to prosecute and punish criminal violators in the insurance industry.
An agent represents an insurance company in all of the following ways EXCEPT: A) the agent searches for the least expensive insurance for a consumer. B) the agent describes the company's policies to prospects. C) the agent collects premiums from applicants and policyowners. D) the agent solicits applications for insurance.
Answer: A An agent is authorized to solicit applications, describe the insurance company's policies to prospects and potential clients, collect premiums, and render service to both prospects and existing clients.
Which of the following is an "insurer"? A) Insurance company. B) Any person who pays premiums. C) Insurance producer. D) Insurance commissioner.
Answer: A An insurance company is an insurer because it alone underwrites the coverage and assumes the risk.
All of the following statements pertaining to unethical selling are correct EXCEPT: A) an agent knowingly submits an application that contains false information; the agent is guilty of twisting. B) an agent states to a prospect that a competing insurer is charging lower premiums because it is hurting for business; the agent is guilty of defamation. C) an agent tells a prospect that future policy dividends will be as much as or more than those paid currently; the agent is guilty of misrepresentation. D) an agent asserts to an applicant that the incontestable clause in a policy means that the policy can never be contested; the agent is guilty of misrepresentation.
Answer: A If an agent makes any written or oral statement that does not tell the exact and full truth about a policy's terms or benefits or if he defames another company, the agent is guilty of misrepresentation and defamation, which violate ethical sales practices. Twisting occurs when an insured is induced, through misrepresentation, to drop an existing policy to take a similar policy from the agent who is selling it.
Individual health insurance policies specify that the insured must furnish proof of loss to the insurer how long after the date of the loss? A) 90 days. B) Immediately. C) 10 days. D) Proof of loss is not required for most health insurance policies.
Answer: A Individual health insurance policies must contain a proof of loss provision stating that the insured must furnish proof of loss to the insurer within 90 days of the date of loss.
With regard to insurance, the term "consideration" means the: A) price of the contract (the premium). B) insurer's method of evaluating the applicant for coverage. C) side-by-side policy comparison by the applicant. D) screening process all agents undergo prior to licensing.
Answer: A Legally defined, "consideration" is the price requested and given in exchange for a promise or an act. In terms of insurance, it is the price of the contract, or the premium, the insured pays to keep the contract and its promised benefits in force.
Of the following situations, which one involves a loss that would typically NOT be excluded under a health insurance policy? A) The insured is injured while vacationing in a state that is not her state of residence. B) The insured is injured in combat while serving in the military. C) The insured intentionally injures himself in an attempt to collect extra health benefits. D) The insured is injured in a car accident while living overseas.
Answer: A Most health insurance policies typically exclude losses due to items such as war and acts of war, self-inflicted injuries, military service, and overseas residence. Being injured while vacationing in a state that is outside of the insured's state of residence is not something that would be excluded.
Concerning the consideration clause for a health insurance policy, all of the following statements are correct EXCEPT: A) a consideration clause may be included in a rider, if requested by the insured. B) two principal elements of the consideration clause are the premium payment and the application. C) the consideration clause may specify the insured's right to renew the policy. D) the amount and frequency of premium payment are stated in the consideration clause.
Answer: A The consideration clause is integral to a health insurance policy. As such, it would never be included in a rider.
The purpose of Medicare supplement insurance is to provide: A) coverage for certain expenses not fully covered by Medicare. B) coverage for certain medical expenses before the insured becomes eligible for Medicare. C) coverage to elderly people who are not covered under a corporate plan for retired employees. D) an alternative insurance plan for people who do not want to use Medicare.
Answer: A The primary purpose of a Medicare supplement insurance policy is to augment Medicare with payment of hospital, medical, or surgical expenses that Medicare does not cover.
When delivering a health insurance policy, it is important for the agent to explain all of the following items to the policyowner EXCEPT: A) that the law requires that all insurance policies be physically delivered into the possession of the policyowner. B) the policy and its provisions. C) any applicable rate ups that apply to the policy. D) any riders that have been attached to the policy.
Answer: A While delivering an insurance policy personally is often recognized as the surest way to be certain the policy is delivered, physically delivering the policy into the possession of the policyowner is not required by law.
A Medicare Select policy is a Medicare supplement policy or certificate that contains: A) provisions limiting benefits for preexisting conditions. B) restricted network provisions. C) unlimited access to health service providers. D) provisions limiting benefits because of the applicant's current health status.
Answer: B A Medicare Select policy contains restricted network provisions (i.e., the payment of benefits is conditioned on the use of network providers who have entered into written agreements with the insurer to provide benefits under a Medicare Select policy).
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) a regional company. B) a foreign company. C) an alien company. D) a domestic company.
Answer: B A foreign insurance company operates within a state where it is not chartered and where its home office is not located.
A mortality table reflects: A) who among a given group of individuals will die within a given year. B) the average number of deaths that will occur during a given year for a given age group of individuals. C) the declining probability of death as the age of a given group of individuals increases. D) the average life span for any given individual.
Answer: B A mortality table reflects the average number of deaths that will occur in a certain year for a given group of people. Mortality is the relative incidence of death within a given group.
If Tony is insured under a life insurance policy, all of the following individuals have an insurable interest in Tony EXCEPT: A) Donald, his business partner. B) Marcie, his ex-wife, who has remarried. C) Susan, his adopted infant daughter. D) Jenny, his sister.
Answer: B A person has an insurable interest in another person if he is related closely by blood or by law with a substantial interest arising from love and affection. An insurable interest also exists between a key employee and a corporation that is a beneficiary under the contract. As a result, Tony's sister, his adopted daughter, and his business partner all have an insurable interest in Tony's life. However, Tony's ex-wife no longer has an insurable interest in his life since they are no longer married.
All of the following statements regarding a disability income rider are correct EXCEPT: A) a disability income rider is a form of health insurance. B) the only way to provide disability benefits in a life insurance policy is through a disability income rider. C) a disability income rider does not provide benefits for partial or temporary disability. D) most disability income riders do not cover disabilities that develop after age 60 or 65.
Answer: B A waiver of premium rider is generally included with guaranteed renewable and noncancelable individual disability income policies. It is a valuable provision because it exempts the policyowner from paying premiums during periods of total disability.
Which of the following statements about HMOs is CORRECT? A) An HMO is not required to provide enrollees with evidence of coverage. B) An HMO may cancel an enrollee's coverage for not paying premiums. C) An HMO may cancel an enrollee's coverage based on her health status. D) An HMO must submit a financial report to the commissioner every 5 years.
Answer: B An HMO may cancel or refuse to renew an enrollee's coverage for failing to pay premiums but may not cancel coverage because of an enrollee's health status. An HMO must provide all enrollees with evidence of coverage that includes a description of the services and benefits, any limitations of services, the amount of fees to be paid, and a clear explanation of the grievance resolution process. An HMO also must submit to the commissioner and the state health officer an annual report that describes its complaint system, the total number of complaints handled for the year, and the number of malpractice claims and other claims made by enrollees that were settled during the year.
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? A) Advisor. B) Consultant. C) Adjuster. D) Limited insurance representative.
Answer: B An insurance consultant advises others about their insurance needs and coverages. Consultants are compensated by the people advised rather than by agents or insurers. Their compensation is not related directly to the amount of insurance sold.
health insurance plan may pay benefits for all the following EXCEPT: A) a disabling injury or sickness. B) over-the-counter drugs. C) dental work. D) nursing home care.
Answer: B Generally, nonprescription medicines are not covered by health insurance.
Which of the following organizations reimburses its insureds for covered medical expenses? A) Preferred provider organizations. B) Commercial insurers. C) Blue Cross/Blue Shield. D) Health maintenance organizations.
Answer: B Health insurance may be written by a number of commercial insurers, including life insurance companies, casualty insurance companies, or monoline companies that specialize in one or more types of medical expense and disability income insurance. Commercial insurance companies function on the reimbursement approach. Policyowners obtain medical treatment from whatever source they feel is most appropriate and, per the terms of their policy, submit their charges to their insurer for reimbursement.
All of the following statements characterize long-term care insurance EXCEPT: A) it may be issued as a group policy or as individual policies. B) it must provide for an automatic adjustment to correspond to changes in Medicare's long-term care coverage. C) it provides coverage for at least 12 consecutive months. D) it provides coverage for care provided in a setting other than an acute care unit of a hospital.
Answer: B Long-term care insurance provides coverage for care provided in a setting other than a hospital acute care unit for at least 12 consecutive months. It may be issued as a group policy or as individual policies.
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? A) Two credits. B) Four credits. C) Three credits. D) Five credits.
Answer: B Mary will earn one credit for each $1,000 of her annual earnings on which FICA taxes are paid. Up to 4 credits can be earned in any year. Mary has therefore earned the maximum of four credits in 2007
Which of the following activities is NOT an example of misrepresentation? A) An agent participates in twisting. B) An agent tells a prospect that the policy has achieved a certain level of dividends for the past 5 years. C) An insurer advertises a life insurance policy as a retirement savings plan. D) An agent tells a prospect that the insurer has a higher A.M. Best rating than is actually true.
Answer: B Misrepresentation includes using titles for a policy that misrepresent the true nature of the product, making false statements about an insurer's financial condition, and twisting, which involves making misleading statements to induce a policyowner to lapse, forfeit, exchange, convert, or surrender an existing policy. Nothing prohibits an agent from disclosing the level of dividends a policy has achieved if the information provided is true.
If a producer states that policy dividends are guaranteed when in fact they are not, this is an example of: A) defamation. B) misrepresentation. C) twisting. D) illegal inducement.
Answer: B Misrepresentation occurs when an agent tells a prospect that benefits, conditions or advantages exist in a product when in fact they do not.
Jennifer's dental plan covers routine dental care at 80% (after the deductible), but major dental care is covered at 50%. Which of the following types of dental treatment would most likely have a 50% coinsurance requirement? A) Repair of dentures. B) Creation of a fixed bridge. C) A stainless steel crown. D) Scaling of the gums to treat a gum infection.
Answer: B While minor post-orthodontic treatment, such as the adjustment of bridges and repair of dentures, is generally covered as routine care, the creation of a bridge or dentures is generally covered as a major expense and subject to a higher coinsurance requirement.
Which of the following statements regarding a cost of living rider on a life insurance policy is not correct? A) A cost of living rider seeks to protect against inflation's erosion of life insurance policy values. B) The cost of living rider provides increases in insurance without requiring the insured to provide evidence of insurability. C) All insurance companies offer cost of living riders. D) An inflation index determines the amount of inflation adjustment that must be made to the policy up to a maximum percentage increase.
Answer: C A cost of living (COL) or cost of living adjustment (COLA) rider is tied to an increase in an inflation index, most commonly the Consumer Price Index (CPI). The COL rider provides for automatic increases in the policy death benefit in proportion to increases in the CPI.
All of the following are optional provisions in an individual health insurance policy EXCEPT: A) change of occupation provision. B) unpaid premiums provision. C) legal actions provision. D) misstatement of age provision.
Answer: C A legal actions provision stating that no legal action will be entered into to recover on the policy earlier than 60 days or later than 3 years after written proof of loss has been furnished is mandatory in an individual health insurance policy. A misstatement of age provision, which states that if an insured's age has been misstated, any benefits will be paid based on the coverage the premium would have purchased at the correct age, is optional. Another optional provision is the change of occupation provision, which provides that if the insured is injured or becomes sick after changing to a more hazardous occupation, the insurer will pay only the portion of indemnity that the premium would have purchased at the rates for the more hazardous occupation. An unpaid premiums provision, which states that any unpaid premium or premium covered by a note or written order may be deducted from a claim payment, is also optional.
Alcoholism is an example of a: A) morale hazard. B) physical hazard. C) moral hazard. D) peril.
Answer: C A peril is the specific event causing loss. A hazard is any factor that gives rise to a peril. A moral hazard is a subjective characteristic of the insured that increases the chance of loss. Reference: 1.4.2 in the License Exam Manual.
All of the following have an insurable interest in the person insured EXCEPT: A) a spouse. B) an employer. C) a neighbor. D) a child.
Answer: C A person cannot contract for life insurance on another individual unless the benefits are payable to the individual insured, the insured's personal representative, or to a person having an insurable interest in the insured at the time the contract is made. The following individuals are deemed to have an insurable interest in an insured: individuals related closely by blood or by law, as well as a substantial interest engendered by love and affection, and persons with a lawful and substantial economic interest in having the life, health, or bodily safety of the insured individual continue. A spouse, child, and employer would therefore have an insurable interest in an insured. However, a neighbor does not have an insurable interest in a person merely because they are neighbors.
All of the following provisions in an individual health insurance policy are optional EXCEPT: A) change of occupation. B) misstatement of age. C) proof of loss. D) unpaid premium.
Answer: C All health insurance policies must include a proof of loss provision. According to this provision, the insured must furnish a completed claim form to the insurer within 90 days of the date of loss.
Applicants for which of the following types of policies normally would require the MOST comprehensive underwriting? A) Limited accident insurance. B) Basic medical expense insurance. C) Guaranteed renewable disability income insurance. D) Industrial health insurance.
Answer: C Applicants for noncancelable and guaranteed renewable disability income insurance would require the most comprehensive underwriting because they allow an insured's guaranteed renewal of the policy up to a certain age, without evidence of insurability.
Blanket health insurance refers to a type of: A) group health and life insurance. B) individual accident insurance. C) group accident insurance. D) individual health and life insurance.
Answer: C Blanket health insurance refers to a form of group accident insurance that covers accidents only under very specific conditions. Generally, these insurance policies are limited to cover passengers on a common carrier such as an airplane or train, employees at a social function such as a company picnic, members of a school's athletic team, summer camp attendees, and volunteer firefighters while on duty.
All of the following statements pertaining to health insurance policy notice of claim and claim forms provisions are correct EXCEPT: A) Furnishing claim forms is the responsibility of the insurance company. B) Rex, the insured in a disability income policy, has been totally disabled and receiving benefits for 25 months. The notice of claims provision in his policy requires that he submit proof of loss every 6 months. C) 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. D) Gail submits notice of claim to her insurance company after she becomes totally disabled. The company is to supply a claim form to her within 15 days.
Answer: C Generally, a claimant must notify the insurance company within 20 days of an accident under a health insurance policy. Proof of loss must be submitted within 90 days of the loss, but if it is not reasonably possible for the insured to do so, the deadline will be extended to one year. The company must supply its claim forms to the insured within 15 days of notice of a claim.
When completing the application, a producer should do all the following EXCEPT: A) provide an opinion regarding the applicant in the agent's statement. B) take the application back to his office if it is missing information and call the applicant later to complete the application. C) if the applicant is married, always obtain the spouse's signature on the application. D) always record the information on the application as provided, even if there is reason to believe it may be inaccurate.
Answer: C In most instances, it is unnecessary for a producer to obtain the spouse's signature. While it is important to obtain the most accurate information possible, ultimately, a producer should record the information as provided. A producer may provide his own observations in the agent's statement. If the client needs to obtain additional information, it is acceptable to take the application back to an office. However, a producer should return to the client to obtain signatures before submitting the application.
All of the following individuals would be eligible to have a Medical Savings Account EXCEPT: A) Jessica, who works for a 20-person law firm and is covered by a health insurance plan with a $1,500 deductible for her individual policy. B) Anne, who is single and covered by a group medical expense plan with a $2,000 deductible. C) Jeremy, who works for the federal government and is covered by a health insurance plan with a $500 deductible. D) Peter, who is self-employed and is covered by a health insurance plan with a $4,000 family deductible.
Answer: C Medical Savings Accounts are designed for self-employed individuals or companies that have 50 or fewer employees. In addition, participation in an MSA is conditioned on being covered by a high-deductible contribution plan. The minimum and maximum deductibles for these plans must be $1,500 and $2,250 for individual coverage and $3,000 and $4,500 for family coverage. As a result, Jeremy would not be eligible to participate in an MSA.
Medical cost management is designed to: A) encourage people to seek medical help when other options are no longer available. B) influence hospital charges and doctors' fees. C) control health claims expenses. D) discourage people from using health care services.
Answer: C Medical cost management is designed to control health claims expenses. It does so in four ways: mandatory second opinions, precertification review, ambulatory surgery, and case management.
Which of the following statements about Medicare Part D is CORRECT? A) Benefits are available only through Medicare Advantage plans. B) Some plans offer basic drug coverage. C) It is available to anyone enrolled in Medicare Part A or B. D) It helps cover the costs of hospitalization.
Answer: C Medicare Part D helps cover the cost of prescription drugs. It is available to anyone enrolled in Medicare Part A or B. Benefits are available through private prescription drugs plans or Medicare Advantage plans. All plans must offer basic drug coverage.
Health policies classified as "nonoccupational" normally provide coverage for: A) sickness but not for accidental injuries. B) losses both on and off the job. C) losses due to sickness or accidents that are not work-related. D) persons in nonhazardous jobs.
Answer: C Policies classified as nonoccupational normally provide coverage for losses due to sickness or accidents that are not work related.
All of the following acts are unfair and deceptive trade practices EXCEPT: A) favoring applicants without physical disabilities for insurance. B) rebating premiums. C) offering lower premiums for younger life insurance policyholders. D) issuing advisory board contracts, with the promise of returns, as an incentive to purchase insurance.
Answer: C Rebating, offering inducements not included in the policy, and unfair discrimination are considered unfair and deceptive trade practices. Determining premiums, policy fees, or rates on the basis of such objective factors as differing hazards or risks among different classes does not constitute unfair discrimination and is legal.
The Medicare Advantage Program offers all of the following to Medicare beneficiaries EXCEPT: A) provider-sponsored organizations (PSOs). B) preferred provider organizations (PPOs). C) Medicaid. D) health maintenance organizations (HMOs).
Answer: C The Medicare Advantage Program (Medicare Part C) gives Medicare beneficiaries a variety of alternatives from which to obtain Medicare-covered services. Medicare participants are also able to take advantage of tax-free health savings accounts (HSAs) for routine medical bills and a government-funded, high-deductible health plan (HSA plan) for catastrophic expenses. The program also offers a combination of private fee-for-service health plans, self-funding, and private contracts with doctors for particular services. Medicaid offers assistance with medical costs to low-income individuals.
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? A) Roger's coverage began the day the insurance company received the application and premium from the agent. B) Roger's coverage will begin when he receives the policy from the agent. C) Roger's coverage began when he received the insurability receipt. D) Roger's coverage began the day the agent sent the application and premium to the insurance company.
Answer: C The insurability type of conditional receipt provides that when an applicant pays the initial premium, coverage is effective---on the condition that the applicant proves to be insurable---either on the date the application was signed or the date of the medical examination, if one is required.
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: A) Jake could not legally accept the contract. B) the contract lacks consideration. C) the contract lacks a legal purpose. D) Jake and Sue are not considered competent parties.
Answer: C To be legally enforceable, a contract must have a legal purpose. This means that the goal of the contract and the reason the parties enter into the agreement must be legal. A contract wherein Jake agrees to kill Sue's husband in exchange for half of the insurance proceeds would be unenforceable in court because the contract does not have a legal purpose.
After working 2 years with a competitor, Bob immediately goes to work for ABC Company. Having been fully covered under his employer's group disability income plan, Bob enrolls in his new employer's plan at his first opportunity to do so. As a new employee with ABC, when does the exclusion period for preexisting conditions end? A) It ends after no more than 18 months. B) It ends only after he has provided proof of insurability. C) There is no exclusion period. D) It ends after no more than 12 months.
Answer: C Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), exclusion periods for preexisting conditions must be reduced by one month for every month an employee had creditable coverage at a previous job. Since Bob enrolled as soon as possible in the new employer's plan, the maximum preexisting condition exclusion period under HIPAA would be 12 months. However, since Bob's break in coverage was less than 63 days, he has 24 months (2 years) of creditable coverage from his previous employer that would be credited, so he would not have a preexisting condition exclusion period with his new plan.
When a new policy is sold, agents must do all of the following EXCEPT: A) provide all applicants who are purchasing replacement policies with an Important Notice to Applicant for Life Insurance. B) send the insurer a statement, signed by the applicant, disclosing whether or not the new insurance will replace existing insurance. C) contact the agent who sold the existing policy 90 days before it is to be replaced. D) send the insurer a statement disclosing whether or not the agent knows replacement will be involved in the transaction.
Answer: C When a new policy is sold, agents must send the insurer a statement, signed by the applicant, disclosing whether or not the new insurance will replace existing insurance. The agent must also send a statement disclosing whether or not the agent knows that replacement will be involved in the transaction. If the policy involves replacement, the agent must provide an "Important Notice to Applicant for Life Insurance" to the applicant no later than when the application is taken. After the applicant signs the notice, the agent must send the notice to the replacing insurer. There is no requirement that the agent must contact the agent who sold the existing policy before the policy is to be replaced.
Regarding replacement, which of the following is NOT required by insurers? A) Sales proposals used during the sales presentation to be left with the applicant. B) A statement, signed by the agent, certifying that he knows that replacement may be involved. C) A statement, signed by the existing insurer, allowing the replacement. D) A statement, signed by the applicant, reporting whether or not the transaction will involve replacement.
Answer: C With each life insurance application, agents must submit to the insurer a statement signed by the applicant reporting whether or not the transaction involves replacement. An agent must also submit a signed statement regarding whether or not he knows replacement is involved. If an agent uses sales proposals in the presentation, the agent must give the applicant copies of such materials. Neither the agent nor the insured is required to obtain a statement, signed by the existing insurer, allowing the replacement.
A Medical Savings Account consists of a(n): A) PPO and a separate account. B) private fee-for-service plan and a savings account. C) HMO and a separate account. D) high deductible insurance policy and a savings account.
Answer: D A Medical Savings Account consists of two parts: a high deductible insurance policy and a savings account. The policy pays for at least all Medicare-covered items and services after an enrollee meets the annual deductible. Medicare pays the premium for the policy and deposits the difference between the premium and the fixed amount Medicare allots for each enrollee in the individual's savings account.
All of the following provisions are optional in an individual health insurance policy EXCEPT: A) misstatement of age provision. B) unpaid premium provision. C) illegal occupation provision. D) change of beneficiary provision.
Answer: D A change of beneficiary provision, stating that the insured has the right to change the beneficiary unless an irrevocable beneficiary designation has been made, is mandatory in individual health insurance policies. Optional provisions include an illegal occupation provision, which states that the insurer is not obligated to pay a benefit when the injury is due to the insured's involvement in a felony or illegal occupation, and a misstatement of age provision. An unpaid premium provision is also optional, and provides that if any unpaid premiums or notes exist when a claim is paid, they will be deducted from the amount due to the insured.
A patient insured under a dental plan receives treatment and pays the dentist the full amount of the bill. The insured's employer then pays the insured a predetermined percentage of the cost. This payment plan is referred to as a: A) usual, customary, and reasonable payment schedule plan. B) capitation fee schedule plan. C) schedule of allowances plan. D) direct reimbursement plan through a self-funded plan.
Answer: D A direct reimbursement plan is a self-funded plan in which the patient pays the dentist for services rendered. The plan sponsor (usually the insured patient's employer) then reimburses the patient (usually an employee) for a predetermined percentage of the cost. The patient bears the burden of covering the cost for services.
During the underwriting process, an insurer may do all of the following EXCEPT: A) order a credit report. B) contact the Medical Information Bureau to check on the applicant's medical history. C) order a consumer report to provide details on the applicant's reputation, character, and habits. D) order a criminal background check.
Answer: D An agent must explain to his client that, during the underwriting process, the insurer may contact the Medical Information Bureau to check on the applicant's medical history. In addition, an insurer may order a credit report to determine whether the client is a good credit risk and may order a consumer report to provide details on the applicant's reputation, character, and habits.
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? A) Indemnification. B) Conversion. C) Warranty. D) Concealment.
Answer: D Angela's action is a concealment since she failed to disclose pertinent, material information on the application. The test of materiality of a concealed fact is whether the insurer, had it known the fact, would have been influenced in accepting or rejecting the risk.
If convicted of violating the Fraud and False Statement Act, an agent may be imprisoned for a maximum jail term of: A) 10 years. B) 5 years. C) 1 year. D) 15 years.
Answer: D Anyone who commits an act of fraud, material misrepresentation, embezzlement, misappropriation of funds, premiums, or other property, or makes false statements involving the interstate commerce of insurance contributing to the insolvency of an insurer, may be imprisoned for up to 15 years.
A master policy is issued with each of the following forms of insurance EXCEPT: A) group disability income insurance. B) blanket health insurance. C) group major medical insurance. D) franchise insurance.
Answer: D Franchise insurance, although an alternative to group insurance, is not issued under a master policy. Rather, each insured person is issued an individual policy. The group policyowners are issued the actual policy, and the enrollees or members are given individual certificates of insurance.
What is another name for medical and nonmedical services provided to ill, disabled, or infirm persons in their residences? A) Acute care. B) Long-term care. C) Adult day care. D) Home health care.
Answer: D Home health care includes medical and nonmedical services provided to persons in their residences. The services can include homemaker services, assistance with activities of daily living, and respite care services.
All the following actions are considered unfair trade practices EXCEPT: A) criticizing a competing insurance company's policy on the basis of its surrender charge without noting that the proposed policy also has a surrender charge. B) refusing to meet with a person who is seeking to buy insurance because of the neighborhood in which he lives, if the neighborhood appears to make the individual an unacceptable insurance risk. C) offering a prospective applicant a pair of tickets to an upcoming concert in exchange for the purchase of a life insurance policy being considered. D) presenting a sales illustration and stating that some values shown are guaranteed under the contract.
Answer: D Inducements to buy insurance, unfair discrimination, and misrepresentation are considered unfair trade practices. Presenting a sales illustration and stating that some values are guaranteed under the contract is not an unfair trade practice if the contract actually guarantees those values
Which of the following situations constitutes an insurable interest? A) The policyowner must expect to benefit from the insured's death. B) The beneficiary, by definition, has an insurable interest in the insured. C) The insured must have a personal or business relationship with the beneficiary. D) The policyowner must expect to suffer a loss when the insured dies or becomes disabled
Answer: D Insurable interest requires that the policyowner be expected to benefit from the insured's continuing to live or enjoying good health or to suffer a loss when the insured dies or is disabled. An insurable interest must exist between the applicant and the insured. It does not need to exist between the applicant and the beneficiary. For life and health insurance policies, insurable interest must exist at the inception of the policy but does not need to be maintained for the term of the policy.
Which of the following groups is least likely to be eligible for coverage through a group health plan? A) A college alumni association that offers coverage for member alumni. B) An automobile manufacturer that will offer coverage to its customers. C) A professional association that wishes to provide coverage for members nationally. D) A group of neighbors who wish to insure themselves and their families.
Answer: D To qualify, the members must be a natural group formed for a purpose other than to obtain insurance. As a result, families in a neighborhood will likely not qualify.