PRACTICA DE EXAMEN 2
al bought a $100,000 universal life policy ten years ago. He has paid $8,000 in premiums into the policy. He now decides to surrender the policy for its full $15,000 cash value. What amount is taxable?
$7,000 The difference between what Cal paid into the policy and the cash value he receives is $7,000. This amount is considered taxable income.
Dental plans group their covered treatment and benefits into three classes or categories, and cover all expenses for which category?
1 only: diagnostic and preventive care Explanation: Category 1 treatment includes diagnostic and preventive care, and is usually covered at 100%.
In general, non-contributory plans must cover what percentage of those who are eligible to participate?
100 percent Explanation: In general, non-contributory plans must cover 100 percent of those who are eligible to participate.
The Texas Department of Insurance has found that ABT Insurance has consistently failed to promptly respond to policyholder communications regarding claims. This means that it typically fails to respond within:
15 days Because Insurers must timely acknowledge pertinent communications relating to a claim arising under the insurer's policy within 15 business days. Failing to do so can be considered an unfair claim settlement practice.
Medicare Part A provides benefits for nursing home care without coinsurance for up to:
20 days Explanation: After the first 20 days of care, the patient must pay a coinsurance amount. Beyond 100 days, no Medicare benefits are available for care in a skilled nursing facility.
Residents of skilled nursing facilities receive Medicare Part A benefits for up to how long before they must pay coinsurance?
20 days Explanation: Medicare Part A pays the full cost for care in a skilled nursing facility for the first 20 days of such care. Skilled nursing care continues to be covered beyond the first 20 days, but a daily coinsurance charge applies.
Terry is licensed in Texas as a life and health insurance agent. To maintain his licenses, how many hours of continuing education must he complete during each license period?
24 Because Terry must complete 24 hours of continuing education during each two-year license period. Two of the hours must be on ethics.
In Texas, a producer will avoid charges of engaging in controlled business as long as at least what percentage of the agent's total premiums is derived from persons other than the producer's work associates or family?
25 percent Because A producer will avoid charges of engaging in controlled business as long as at least 25 percent of the agent's total premiums is derived from persons other than the agent or the agent's property, work associates, or family.
In Texas, individual HMO subscribers (enrollees) must pay their premium within how many days following its due date before the HMO may cancel coverage without advance notice?
30 days Explanation: An HMO can cancel an individual subscriber's coverage without advance written notice if a premium is not paid within a 30-day grace period.
In Texas, new enrollees to an HMO who do not choose a primary care physician within an established period of time can have their coverage cancelled how many days following written notice by the HMO?
30 days Explanation: Failure of the subscriber to establish a primary care physician (PCP) relationship within an established period can result in cancellation after 30 days' written notice.
If a producer believes or suspects that a fraudulent insurance act has been or is about to be committed, he or she must report it in writing to the TDI insurance fraud unit within what time period of making this determination?
30 days If a producer believes or suspects that a fraudulent insurance act has been or is about to be committed, he or she must report it in writing to the TDI insurance fraud unit within 30 days of making this determination
Most life insurance guaranteed insurability riders require that death benefit increases be exercised within what time period?
30 days before or after an increase option date Explanation: Use it or lose it! Most policies require that options be exercised within 30 days before or after an increase option date.
What is a typical life insurance policy's grace period?
31 days Although the premium is due on its due date, the policyowner has 31 days after this date to pay the premium before the policy lapses.
The cancelation provision in a health insurance policy permits the insurer to cancel the policy after it gives the insured at least how much notice?
45 days Explanation: The optional cancelation provision enables an insurer to cancel the policy at any time with 45 days' notice. The insurer must still pay any outstanding claim that the insured submitted to the company before the policy was canceled.
In general, contributory plans require what minimum percentage of eligible employees to participate?
75 percent Explanation: Contributory plans generally require at least 75 percent of eligible employees to participate.
Peter is 80 years old, a widower, and living with his employed son who has been fully supporting Peter. In the event of his son's death, what level of Social Security benefit could Peter receive?
82.5 percent of the son's PIA Explanation: Each parent of a deceased worker is eligible for monthly survivor benefits if the parent was at least one-half supported by the worker at death. If only one parent is eligible, he or she receives 82.5 percent of the worker's PIA.
All the following statements about term life insurance are correct EXCEPT:
A small cash value gradually accumulates while the policy is in force. Term life is pure insurance protection, with no cash value associated with it. If the insured dies during the coverage term, then the policy's death benefit is payable. If the insured is alive at the end of the coverage term, then the coverage ends, and the policy terminates without value.
Which of the following statements regarding adjustable life insurance policy cash value withdrawals is correct?
Adjustable life insurance cash values are accessible either through a traditional policy loan or through a partial surrender. Explanation: Because it is a form of whole life insurance with UL features, adjustable life policyowners can access their policy's cash value either through a policy loan or through a partial surrender.
A long-term care insurance policy must cover
Alzheimer's disease. Explanation: A long-term care insurance policy must cover Alzheimer's disease.
Amanda used a basic illustration to help Mark, a potential client, understand how the cash value of his life insurance policy would grow. Mark then agreed to buy the policy. Which of the following best describes Amanda's duties with respect to delivering a copy of the illustration used?
Amanda must deliver a signed copy of the illustration to both Mark and the insurer. Because Amanda used a basic illustration when selling a life insurance policy to Mark, she must give a signed copy to Mark. She is also required to give a signed copy to the insurer when she submits his application.
Which of the following statements regarding both term life insurance and permanent life insurance is correct?
Both types are noncancellable by the insurer except for nonpayment of premiums. Explanation: All life insurance policies are noncancellable if premiums are paid on time. Insurers cannot cancel any life insurance policy for any reason other than nonpayment of premiums.
Larry, Brian, Susan, and Jennifer just started working for AllPro Insurance Company in Texas. Based on their job descriptions below, which of them is NOT an agent?
Brian, who is a vice president in AllPro's human resources department and does not receive commissions A regular salaried officer or employee of an insurer who devotes substantially all of his or her time to activities other than soliciting insurance applications and who does not receive a commission based upon the amount of insurance business transacted is not acting as an agent.
Which protects an individual who is no longer covered by an employer's health insurance plan?
COBRA Explanation: The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), protects those who are no longer covered by an employer's health insurance plan or its benefits.
A dental plan that separates covered treatments into three categories will typically include fillings and tooth extractions in:
Category 2 Explanation: Category 2 treatment includes basic procedures such as fillings, extractions, and periodontal treatment.
All of the following statements about health insurance reinstatement provisions are correct,
Claims resulting from sickness are covered immediately upon policy reinstatement Correct: 1-Reinstatement is normally effective when the insurer notifies the insured. 2-If the insurer does not notify the insured within 45 days of the date of application for reinstatement, the policy is automatically reinstated. 3-Under reinstated health insurance policies, accidents are covered immediately. Explanation: Claims resulting from sickness require a ten-day waiting period before being covered.
Which of the following statements about Roth IRAs is correct?
Contributions to a Roth IRA are not deductible. Explanation: Contributions to a Roth IRA cannot be deducted. However, earnings and contributions are entirely tax free when withdrawn.
When received in a lump sum, how are life insurance death benefits commonly taxed to the beneficiary?
Death benefits from a life insurance policy are generally not taxable to the beneficiary. Explanation: When received in a lump sum, the death benefits from a life insurance policy are generally not taxable to the beneficiary.
Which statement is correct about the types of insurance sales systems?
Direct response companies sell insurance to consumers without the use of a licensed producer. Because Insurers sell policies through one of three methods: through the managerial system, the general agency system, or direct response mass marketing. Direct response companies sell insurance directly to consumers through the mail or television advertising, without the use of a licensed producer.
Which statement about life policy riders that cover additional insureds is NOT correct?
Each additional insured is issued his or her own separate policy. Policy riders can provide needed coverage on more than one insured at a lower premium. The policyowner buys an additional insured or other insured rider, which is added to the base policy.
Which of the following statements correctly describes how employer-paid premiums for group life insurance are treated for tax purposes?
Employers can deduct premiums paid on a group life insurance plan. The employer can deduct premiums it pays on a group life insurance plan.
Fran applied for an individual health insurance policy on July 1 and was issued a binding receipt. If she injured her back on July 4 before the policy was issued, what will happen?
Fran's medical claims for her injury will be covered by the policy. Explanation: If Fran received a binding receipt after submitting her application, the insurer is held to all of the policy's terms until it formally rejects the application. If Fran is insurable, she has coverage from the date of application. If she is uninsurable, she still would have coverage during the interim period until she is found uninsurable and the application is formally
Explanation: Plan A provides the basic core benefits. Each of the remaining plans contain the basic core benefits available under Plan A plus additional benefits.
Group HSAs must be entirely employee-funded. Explanation: Health savings accounts are available on either an individual or group basis.
Benefits paid under Ken's qualified long-term care policy up to a daily limit are not taxed. What must happen for Ken to receive these amounts tax free?
He must be diagnosed as chronically ill. Explanation: To receive these amounts tax free, the person must be diagnosed as chronically ill.
With life insurance, for how long must insurable interest exist?
Insurable interest must exist only at the time the applicant enters into a life insurance contract. With life insurance, insurable interest need exist only at the time the applicant enters into the life insurance contract.
Which of the following statements best describes an annuity's accumulation period?
It can be a very long period-up to many years-or it can be as short as one month. Explanation: It can be many years or it can be as short as one month.
Which statement about modified premium whole life insurance is NOT correct?
It does not build cash value. As with other types of permanent life insurance policies, modified premium whole life insurance builds cash values.
Which statement correctly describes the Medicaid program?
It is a medical assistance program funded by federal and state taxes to assist low-income people. Explanation: Medicaid provides health care and health-related services to people with low incomes and other needy individuals. It is jointly funded by the federal and state governments, but it is administered by the states.
To be eligible to set up a SIMPLE plan, a business has to meet which one of the following basic requirements?
It must employ no more than 100 people. Explanation: SIMPLE plans are designed solely for small businesses with no more than 100 employees.
How does a partial disability provision affect coverage under a disability income policy?
It pays benefits for a partial disability, even if the insured continues to earn wages. Explanation: A partial disability rider pays benefits when the insured cannot perform some of the usual work duties or cannot perform them for the same length of time as before the disability.
If a variable annuity's monthly payment amount is based on a 3 percent assumed interest rate (AIR), and the current NAV rate rises 4 percent, what impact will this have on the monthly annuity payment amount?
It will increase. If the NAV rises greater than the AIR (meaning actual investment performance exceeds assumed performance), the annuity income amount will increase.
Ted owns a janitorial service business and applies for a life insurance policy on his key employee, Jim. The insurance company will consider all of the following factors when underwriting the policy EXCEPT:
Jim's bank account balance Explanation: Sources of underwriting information include the application, physical examination, physician statements, MIB reports, the producer, credit reports, investigative reports, and others, but not the balance in a bank account which has no impact on his insurability.
Joan owns a variable universal life insurance policy that now has a $100,000 cash value and is beyond its surrender charge period. This year, she plans to withdraw $25,000 from her policy's cash value to buy a new car. Which one of the following statements is most correct?
Joan's death benefit will be reduced by $25,000. VUL policyowners can access their policy's cash value through partial surrenders, not loans. Amounts taken from the cash value reduce the death benefit.
John has a $200,000, 20-year level term policy. Which statement is true?
John's beneficiary will receive a $200,000 death benefit if John dies during the 20-year coverage period. John will receive nothing from the policy if he is alive at the end of the coverage term, and the premium will remain level for the full 20 year term. explanation: Level term insurance provides $200,000 of coverage. The premium stays the same each year. But if John is still alive at the end of the 20-year term, the coverage expires and no benefits are payable because term life insurance does not include a cash value.
Liam owns a life insurance policy on his own life and names his wife, Anne, as the irrevocable beneficiary. If Liam wants to take out a policy loan on this policy, which of the following statements is correct?
Liam can take a loan only with Anne's consent. A policyowner cannot make a policy loan or surrender any part of the cash value of the policy without the consent of the irrevocable beneficiary, and the irrevocable beneficiary can be changed only the beneficiary's signed consent.
The 10 percent penalty tax on early distributions from an annuity will apply to which of the following individuals?
Liam, age 55, who has owned his annuity for three years and took a $5,000 withdrawal to make a down payment on a vacation home If a withdrawal is taken from an annuity before the owner reaches age 59', a 10 percent early distribution penalty tax will be imposed. The penalty will not be imposed, however, if a distribution is taken after the owner becomes disabled or dies or if substantially equal payments are taken over the owner's life expectancy.
Which statement characterizes the role of Medicaid for its recipients?
Medicaid assistance supplements personal savings used to pay the costs of an extended nursing home stay or catastrophic illness. Explanation: For many elderly Medicare recipients, Medicaid assistance is essential. The costs associated with an extended nursing home stay or with catastrophic illness can soon overwhelm personal savings.
All the following statements regarding insurable interest in a life insurance policy are true EXCEPT:
Neighbors have insurable interest in each other. The following types of personal relationships are automatically deemed to represent an insurable interest: individuals in themselves; spouses in each other; parents in their children; and children in their parents or grandparents (or someone else in the case of financial dependency). Beyond these relationships, the burden of proof lies with the applicant to prove there is an insurable interest in the proposed insured
Bob bought a $100,000 ten-year level term insurance policy on March 1, 2008. What would happen if he died on March 15, 2018?
No death benefit would be payable. Explanation: Term life is pure insurance protection, with no cash value associated with it. If the insured dies during the coverage term, then the policy's death benefit is payable. If the insured is alive at the end of the coverage term, then the coverage ends, and the policy terminates without value.
Which type of policy Medicare supplement policy offers the most basic coverage?
Plan A Explanation: Plan A provides the basic core benefits. Each of the remaining plans contain the basic core benefits available under Plan A plus additional benefits.
A female employee who is undergoing post-natal medical treatment is protected from unfair treatment in the workplace under the:
Pregnancy Discrimination Act Explanation: The Pregnancy Discrimination Act of 1978 amended the Civil Rights Act. This act makes unlawful any act that discriminates on the basis of pregnancy, childbirth, or related medical conditions.
Which of the following correctly explains why a waiver of premium rider functions differently with a universal life insurance policy than with a traditional whole life policy?
Premium payments for a universal life policy are flexible, making it difficult to know how much premium to waive. Because universal life premium payments are flexible, they need not be paid consistently. Therefore, a waiver of premium for the disability of a universal life policyowner must operate differently than is common with traditional policies.
Which does not rate the financial strength of insurance companies?
Securities and Exchange Commission Because A.M. Best, Moody's, Duff and Phelps and Standard & Poor's are all well-known insurance company rating organizations. The SEC (Securities and Exchange Commission) is not an independent insurance company rating organization.
Janet is a licensed life insurance agent in Texas and was so busy with her insurance practice that she forgot to complete all of her continuing education credits. How long is the grace period she has to make up the missing credits?
She cannot make up the missing credits. Because Generally, once the expiration date has passed for continuing education credits, a violation exists. Continuing education cannot be made up after the expiration date.
Steve owns, and is the beneficiary of, a life insurance policy. If he selects the straight life income settlement option, which of the following best describes how the policy death benefit would be distributed?
Steve will receive payments until his death, at which point payments will stop. The straight life income settlement policy proceeds are made for the life of the payee. The payments stop upon his or her death.
Sky Corporation pays 80 percent of the premium for its group medical plan each year while the employees pay the remaining 20 percent. Which statement is correct about the deductibility of the premium payments from taxable income?
The employees can deduct the amount of premiums they pay that exceed 10 percent of adjusted gross income. Explanation: Any contribution that a person pays toward the premium for a group health insurance plan is not tax deductible unless, when combined with other qualified unreimbursed medical expenses, the total exceeds ten percent of adjusted gross income.
In noncancelable health insurance policies, which of the following is guaranteed?
The insurer cannot cancel the policy or increase the premium. Explanation: The insurer of a noncancellable health insurance policy cannot cancel the policy or increase the premium.
Lisa has an individual health insurance policy and is injured while attempting to rob a bank. The policy has an illegal occupation provision, which means that:
The insurer is not liable for the loss. Explanation: The illegal occupation provision protects the insurer. It allows the insurer to deny liability when the insured's claim arises from an illegal activity he or she participated in.
What options does an insurer have when asked by an annuity owner for a full withdrawal of an annuity contract's accumulated value?
The insurer must comply with the request. The insurer cannot withhold these funds or refuse to honor the owner's request.
Jason bought a disability income policy with a cost of living adjustment (COLA) rider. What happens if he becomes disabled during a time of inflation?
The policy will automatically increase his disability benefit payments to help keep pace with inflation. Explanation: A COLA rider adjusts disability benefit payments according to changes in the Consumer Price Index (CPI). If Jason becomes disabled during times of high inflation, the adjustment increases his payments.
Andrea bought a $300,000 term-to-55 policy. Which of the following statements about the policy is NOT correct?
The policy will pay the entire death benefit only if Andrea lives beyond age 55. Explanation: Term life is pure insurance protection, with no cash value associated with it. If the insured dies during the coverage term, then the policy's death benefit is payable. If the insured is alive at the end of the coverage term, then the coverage ends, and the policy terminates without value.
Jason wants to buy life insurance and is considering two policies: a $250,000 modified premium whole life insurance policy and a $250,000 ordinary life policy. All other factors being equal, which of the following statements is NOT correct?
The premium for the modified premium policy will be higher at first than the premium for the ordinary life policy but will then decrease for the remainder of the policy. A modified premium policy will not have a higher premium than an ordinary life policy during the early policy years.
Question 17 of 67 If a policyowner partially surrenders an adjustable life insurance policy, which of the following happens?
The premium goes down. Adjustable life insurance partial surrenders are a surrendering of a portion of the policy, with a proportionate reduction of the policy's death benefit and a reduction in the future premium.
What guarantee does COBRA provide an individual who voluntarily leaves a job or who is terminated for reasons other than gross misconduct?
The right to continue the former employer's group insurance coverage at the individual's own expense for up to 18 months. Explanation: COBRA guarantees the right to continue a former employer's group insurance coverage at the individual's own expense for up to 18 months.
All the following statements about standard policy exclusions are correct EXCEPT:
The war and commission of a felony exclusions are required by law. The war and commission of a felony exclusions are not required by law. However, insurance companies commonly include them.
Which statement about the right to continue group health insurance under COBRA is NOT
The younger spouse of a participant who becomes eligible for Medicare benefits is not eligible for continued group coverage. Explanation: The right to continue coverage extends to covered dependents (spouses and children) who, because of divorce or the death of a participant, would otherwise lose coverage.
What does underwriting a health insurance policy mean?
Underwriting means assessing risk based upon a person's health and medical history. Explanation: Underwriting means that the level of coverage, premium, and willingness of an insurer to issue the policy depends on the applicant's health and medical history.
What is NOT characteristic of an employer's prepaid dental plan?
What is NOT characteristic of an employer's prepaid dental plan? Explanation: Under a prepaid dental plan, the plan sponsor (typically an employer) provides or arranges for dental care services for its members through prepayment. These plans commonly contain reasonable limitations, co-payments, deductibles, and exclusions.
Which of the following jobs presents the highest life insurance underwriting risk?
a coal miner Vocation is an underwriting consideration. A coal miner presents a higher risk than a bank teller, gift shop owner, or real estate agent.
HMOs must provide their subscribers (enrollees) with evidence of coverage, which must include all the following EXCEPT
a list of all approved medical care providers in the HMO's network Explanation: While the evidence of coverage is intended to provide enrollees with important information about the HMO, it is not intended to list every approved network provider. Those lists are generally available through the HMO's website.
Under a Section 1035 exchange, a nonqualified deferred annuity can be exchanged tax-free for which of the following products:
a nonqualified annuity only IRS Section 1035 exchange rules permit nonqualified annuities to be exchanged only for another nonqualified annuity (but not for a qualified annuity, which can only be exchanged with another qualified annuity).
Jim is a member of an HMO with a point-of-service plan. If he chooses a doctor outside of the provider network, he can expect to pay:
a percentage of the cost Explanation: A POS plan reimburses the member for a percentage of the cost of health care services obtained outside of the HMO's provider network.
When Matthew met with a potential client, he used a life insurance illustration to show how the policy's cash value would grow over the client's lifetime. Matthew could include all of the following in the illustration without violating Texas regulations EXCEPT
a statement that the policy is a type of investment and savings plan. Explanation: When using an illustration to sell a life insurance policy, the agent cannot represent the policy as anything other than a life insurance policy.
Which one of the following best describes what an agent's goals should be in completing an application for insurance?
accuracy, thoroughness, and clarity When completing an application for insurance, the agent must aim for accuracy, thoroughness, and clarity. From a legal point of view, the application must be completely clear, thorough, and accurate. However, the agent has an additional vested interest in being thorough and accurate when completing the application because the applied-for policy has a better chance of being promptly issued.
Andrew's life insurance policy pays an accelerated benefit that is a separate benefit with a separately identifiable additional premium. Andrew's policy uses the
additional premium or cost of insurance charge method. Explanation: In a policy with the additional premium or cost of insurance charge method, the accelerated benefit is a separate benefit with a separately identifiable additional premium or cost-of-insurance charge.
Question 16 of 18 An innocent misstatement of age or sex on an insurance application would most likely result in:
adjustment of policy benefits Because Misstatement of age or sex is not grounds for voiding a policy. However, if such a misstatement occurs, the insurer does have the right to adjust the policy's benefits.
GENERAL INSURANCE Jeremy has had an individual health insurance policy for many years because of his family's history of cancer. The tendency of someone like Jeremy to buy and maintain insurance is known as:
adverse selection Because Adverse selection is the tendency of persons more likely to have a claim to buy and keep insurance. For example, individuals with a family history of cancer may be more likely to buy health insurance and to keep it in force than individuals without such family history.
Disability products that are marketed to blue-collar workers and manual laborers typically contain which definition of total disability?
any occupation Explanation: Disability products marketed to blue-collar workers generally have an any occupation definition of total disability. This definition reflects the greater degree of hazards these workers face and the longer time period before they are usually able to resume their job duties.
If Ken becomes eligible (by a medical reason) for payments under his life insurance long-term care rider, he must be certified as unable to perform which of the following?
at least two activities of daily living for at least 90 days Explanation: To become eligible for payments under a long-term care rider for a medical reason, the insured must be certified as unable to perform at least two activities of daily living for at least 90 days.
LIFE INSURANCE If the owner of a lapsed whole life insurance policy that was issued on a standard basis does not choose a nonforfeiture option, which of the following will the insurer do?
automatically apply the extended term option because If an owner of a lapsed policy issued on a standard basis does not choose a nonforfeiture option, then the insurer automatically applies the extended term insurance option.
Dave owns a small business. He wants disability coverage that would pay routine business expenses if he is unable to work. What kind of insurance would suit this need?
business overhead expense insurance Explanation: Business overhead expense insurance reimburses the company for certain business expenses if the business owner is disabled. Covered expenses may include utilities, leased equipment, office supplies, nonowner salaries, and rent.
Don is a small business owner. Which of the following types of business health insurance would serve his needs if he wants coverage that will pay the bills if he becomes disabled and unable to work?
business overhead expense insurance Explanation: Business overhead insurance keeps a business operating by covering the business's operating expenses if the insured owner or partner is disabled.
What must an insurer give to its group policyholders for delivery to each insured person, as proof that the person is insured?
certificates of coverage Explanation: The insurer will issue to the policyholder individual certificates of insurability, which the policyholder delivers to the individual insureds under the policy. These certificates set forth the policy benefits and exceptions and refer to the master policy under which the coverage is provided.
What can an employee expect to pay under an employer's prepaid dental plan?
co-payment for each service received Explanation: Under a prepaid dental plan, the plan sponsor provides or arranges for dental care services for its members through prepayment. These plans commonly contain reasonable limitations, co-payments, deductibles, and exclusions.
Variable universal life (VUL) policies have the same two death benefit options as those in fixed interest UL policies. As a third death benefit option, what do some VUL polices offer?
death benefit equal to the sum of the policy's specified amount plus the greater of total premiums paid or actual cash value Death benefit option 3 under a variable universal life insurance policy pays a death benefit equal to the policy's specified amount plus the greater of total premiums paid or actual cash value. This appeals to consumers who are concerned that a drop in market values could mean the cash value is less than the sum of premiums paid.
If the primary purpose for buying life insurance is to pay off a mortgage upon the mortgage payor's death at the lowest premium, which of the following products would be most suitable?
decreasing term insurance Decreasing term insurance ideally suited for insuring a decrease risk, such as a mortgage or other long-term loan.
Steven was having lunch with a group of agents when he made some false statements about a competitor's financial condition in order to hurt their reputation. In this case, Steven has committed:
defamation Because Defamation is making false statements regarding an insurer or person engaged in the insurance business that are derogatory and intended to injure that person. Steven has defamed the competing insurer by spreading false information regarding its integrity and financial condition.
John is thinking about buying major medical expense coverage for himself and his family. He has determined that his family will require all of the services listed below. Which of the following will NOT be covered by his policy?
dental check-ups for his teenage son Explanation: A major medical expense policy is not required by law to cover dental services such as exams and check-ups.
Which of the following arrangements best suits a life insurance applicant's goal of keeping the policy out of his or her estate?
designate an irrevocable trust to be the owner of the policy Explanation: A common reason for third-party ownership of a life insurance policy is to prevent the policy's death benefit from being included in the insured's estate. Designating an irrevocable life insurance trust (ILIT) to be the owner is a common way to achieve this.
Which of the following types of business health insurance would serve the needs of two business owners who want to fund their buy-sell plan in the event one of them becomes totally disabled?
disability buy-out insurance Explanation: Business overhead insurance keeps a business operating by covering the business's operating expenses if the insured owner or partner is disabled.
Because of the risk assumed by the insurer, noncancelable provisions are only included in which type of policy?
disability income insurance policies issued to insureds in white-collar (such as clerical) and professional occupations Explanation: Noncancelable renewability provisions usually appear only in disability income insurance policies issued to insureds in white-collar and professional occupations.
The formal term used to describe the funds used in providing life insurance policy dividends is:
divisible surplus Mutual insurance companies, owned by their policyowners through participating policies, distribute their divisible surplus to policyowners in the form of policy dividends.
When underwriting an individual disability income policy, an insurer will NOT typically consider:
education level Explanation: An insurer will consider an applicant's age, sex, occupation, and income, among other factors, when underwriting an individual disability income policy.
What is a non-qualified deferred compensation plan funded by?
employee deferrals of current compensation Under a non-qualified deferred compensation plan, an employee agrees to defer part of his or her salary or some element of compensation until a future time. Typically, compensation is delayed until the employee retires. In contrast, with a salary continuation plan, the employer funds or pays for the future benefit.
Elizabeth just became eligible for Medicare on January 1 this year and wants to make sure that she receives outpatient prescription drug coverage. When she asks her agent for advice, he correctly informs her that she must
enroll in Medicare Part D. Explanation: After December 31, 2005, no Medigap policies can be sold that offer prescription drug benefits. Instead, Elizabeth must enroll in Medicare Part D.
When underwriting an individual health insurance policy, the insurer will NOT consider the applicant's:
estimated future earnings Explanation: With each applicant for an individual health insurance policy, the underwriter considers the applicant's age and sex, occupation and activities outside of work, current physical condition and past medical history, and habits or lifestyle.
The nontaxable portion of fixed annuitized income payments is based on which of the following calculations?
exclusion ratio Explanation: The exclusion ratio is used to determine the amount of each annuity payment that is taxable and nontaxable.
The Texas Consumer Information Privacy Regulation was enacted to protect consumers' personal health and financial information from unwanted disclosure. Which of the following is NOT required of insurers under this regulation?
explain the penalties that apply if the applicants and policyholders do not return a signed copy of the privacy notice to the insurer Because Applicants and policyholders are not required to sign the notice provided by insurers about their privacy practices, and no penalties will be assessed.
Dana bought a $100,000 whole life insurance policy at the age of 30. Twenty years later, Dana decides to use her policy's $20,000 cash value to buy $100,000 of term life insurance based on her current age of 50. This provides her with life insurance for about 14 years. What policy feature is Dana using?
extended term option Under the extended term insurance option, the insurer applies the cash value of the lapsed policy to buy a term insurance policy in an amount equal to the face amount of the lapsed policy. The term coverage lasts for whatever period the cash value buys.
Under Harry's medical expense plan, he pays his doctor for each medical service he receives, and the insurer reimburses Harry. Which type of payment system is this?
fee-for-service Explanation: Under a pre-paid plan, the health-care provider negotiates with the insurer the fees for a given service before it is rendered.
A person must be totally disabled to qualify for Social Security disability benefits. In addition, a person must satisfy a waiting period of how long before benefits are paid?
five months Explanation: In addition to meeting the definition of totally disabled, a person is subject to a five-month waiting period before Social Security disability benefits are paid. During the waiting period, benefits are not paid and the person must remain totally disabled.
An indexed annuity is a type of:
fixed annuity Indexed annuities and market-value-adjusted annuities are each a form of fixed deferred annuity.
What are common benefit limits in long-term care insurance policies?
flat daily amounts Benefit amounts are usually specified as flat daily amounts, such as $50, $100, or $200.
In Texas, even if the policyholder hasn't yet paid any required additional premium, a newborn child is automatically covered under a parent's accident and health insurance policy
from birth through day 31 Explanation: Newborns are covered from birth and continue to be covered for 31 days even if the policyholder has not yet paid any required additional premium.
Medicare Part A does NOT cover which home health care services?
full-time skilled care Explanation: Medicare Part A covers part-time or intermittent skilled care but not full-time care. It also covers home health aide services and durable medical equipment and supplies.
An agent is using the needs approach to calculate the amount of life insurance that a person should have. What is the agent's first step?
gather and analyze personal information about the prospective customer Explanation: Determining life insurance needs begins with collecting and analyzing the facts of the customer's personal situation. Important information includes current income, accumulated assets and liabilities, financial goals and objectives, and current expenses.
Certain safeguards keep the policyowner from losing benefits because of nonpayment or late payment. One of these safeguards, available with every life insurance policy, is which of the following?
grace period The grace period is one of the safeguards that keeps the policyowner from losing benefits in case of nonpayment or late payment.
Which of the following types of healthcare reimbursement programs is currently available, used with high-deductible health insurance plans, and features tax deductible contributions that accumulate on a tax-free basis?
health savings accounts (HSAs) Explanation: Health savings accounts (HSAs) are tax-exempt accounts that are set up with high deductible, high-cost insurance policies. Contributions to these accounts are tax deductible and accumulate on a tax-free basis. Distributions to pay for qualified medical expenses are tax free.
When is a health insurance policy considered to have lapsed?
if the premium is not paid by the end of the grace period The insurer cannot lapse the coverage because the insured files for bankruptcy.
Bob submits a claim and proof of loss for medical expenses covered by his individual health insurance policy. Under the time of payment of claims provision in his policy, the insurer must pay the claim
immediately. Explanation: According to the time of payment of claims provision, claims are not payable within 15 days after receiving proof of loss.
HMOs are considered pre-paid managed care plans because they:
impose no deductibles Explanation: HMOs normally impose no deductibles for any health care provided in their network and only require a small co-payment from the insured. For this reason, HMOs are deemed to be pre-paid.
Who is the primary care physician (PCP) in a managed care plan?
insured's physician who controls access to specialists Explanation: HMO members must use their plan's network of doctors and hospitals to obtain covered services. Access to that network is controlled by a primary care physician.
Which of the following types of life insurance beneficiary designation can be changed only with the beneficiary's consent?
irrevocable beneficiary Once a person has been designated as an irrevocable beneficiary, the life insurance policyowner cannot change the beneficiary without that beneficiary's consent.
All of the following are acceptable reasons for a producer to deliver a new life insurance policy in person to a client, EXCEPT:
it is an opportunity to sell the client some additional life insurance. Explanation: While delivery by mail is permitted in most states, it is recommended that producers deliver new policies in person because it is the producer's responsibility to fully explain the policy. It is also an opportunity to reaffirm the customer's reasons for purchasing the policy, and it is an opportunity to strengthen the client relationship.
A life insurance settlement option that pays a monthly benefit with no reduction until the second of two people dies is the:
joint and 100 percent survivor option Under the joint and survivor settlement option, payments are made to two payees until the second payee dies, with no reduction upon the first payee's death.
Which of the following usually offers credit life insurance in connection with a transaction?
lender Typically, the creditor in a given situation, such as a mortgage bank, would offer credit life insurance.
Felix buys an insurance policy that will pay benefits if he needs long-term care and also protects some assets from the spend-down requirement if he applies for Medicaid assistance. Which type of policy does Felix own?
long-term care partnership policy Explanation: Felix owns a long-term care partnership policy, which lets him exempt a larger portion of assets should he applies for Medicaid for long-term care assistance.
HEALTH INSURANCE Which type of medical expense coverage pays the benefit directly to the insured?
major medical Explanation: Major medical coverage pays benefits directly to the insured unless payment is assigned to the provider, in which case the provider is paid directly.
A producer who intentionally does not tell an applicant for long-term care insurance that the policy has a cap on the amount of benefits that it will pay so that the applicant will buy the policy thinking it will cover all of her long-term care expenses has committed:
misrepresentation Because Misrepresentation involves making a statement regarding the terms of a policy, its benefits, or its dividends, which is untrue, deceptive or misleading. By omitting material facts about the policy's benefits, Brian has committed misrepresentation
The amount of the benefit paid under an indemnity policy can never be:
more than the loss or the policy's face amount, whichever is less A contract of indemnity is one under which the benefit cannot be more than the actual loss the contract owner incurs or more than the face amount of the policy, whichever is less.
A plan whereby a group of two or more employers from the same trade or industry join to sponsor a group insurance plan is called a(n):
multiple employer welfare arrangement A plan whereby a group of two or more employers from the same trade or industry join to sponsor a group insurance plan is called a multiple employer welfare arrangement (MEWA).
Group short-term disability income plans generally cover:
non-occupational disabilities only Explanation: Non-occupational plans provide disability income coverage only for disabilities not occurring on the job. Group short-term disability plans are non-occupational.
Marcie is insured under her employer's health plan and wants to get additional benefits. When she asks about the additional coverage, she is told that she must wait until January to access these benefits. What is Marcie waiting for?
open enrollment period Explanation: Open enrollment is the period during which members of a group health insurance plan may enroll in certain benefit programs. During an open enrollment period, insurance companies must accept all applicants of the group without underwriting or evidence of insurability.
If the insured dies during a life insurance policy's grace period without having paid the premium, what will be the insurance company's response?
pay the death benefit after deducting the unpaid premium Explanation: If the insured dies during the grace period without having paid the premium, the insurer deducts the unpaid premium from the death benefit.
Which of the following is NOT a method used for providing accelerated benefits?
percentage of death benefit method While several alternative methods for providing accelerated benefits exist, the percentage of death benefit method is not a recognized method.
Which type of payment arrangement do HMOs and PPOs typically use?
pre-payment Explanation: HMOs and PPOs typically use pre-payment.
An agent assures an insurance applicant that she will be insured for a certain amount. If the coverage is denied and the applicant relied on the agent's assurance to her detriment, the insurer could be liable to the applicant on the basis of:
reasonable expectations Because the applicant had a reasonable expectation that he or she had insurance coverage, this or her future claim for a loss may be upheld.
Which is NOT an optional provision in health insurance policies?
reinstatement Individual health insurance policies may include certain optional provisions, including a change of occupation, misstatement of age, and illegal occupation provision. A reinstatement provision is mandatory in health insurance policies.
Beth is a senior vice president at Acme Insurers. While reviewing some health insurance claims, she discovers that one of the company's agents has been filing illegal claims for financial gain. After discovering the fraudulent insurance act, Beth must
report the information in writing to the Texas Department of Insurance within 30 days Because Beth must report her findings in writing to the Texas Department of Insurance or an authorized governmental agency within 30 days.
Emily postpones buying a life insurance policy, believing that her family will use its savings to pay her final expenses if she dies prematurely. Which method is she using to deal with risk?
retention Because Rather than taking measures to reduce the risk to her family, such as buying life insurance, Emily has chosen to accept the exposure to the risk. This method of handling risk is known as risk retention.
For what purpose are annuities used most often?
retirement planning Explanation: People use annuities most often for retirement planning purposes: to accumulate retirement savings and/or to pay out retirement funds on a periodic basis for a period that can be guaranteed to last as long as they do.
When using illustrations to sell a life insurance policy, an agent must:
show the policy's guaranteed death benefits before non-guaranteed values Explanation: Guaranteed death benefits, surrender values, and other benefits must be clearly labeled as guaranteed and must be shown before non-guaranteed values.
Amy just retired at age 72 and now wants to annuitize her deferred annuity, which is valued at $250,000. She has no surviving family members and wants to find a payout option that will provide her with the largest possible monthly payment. Which annuity settlement option should she select?
straight life option Explanation: Under a straight or pure life income option, the annuitant is paid an income for his or her lifetime, regardless of how long the owner lives. At the owner's death, no further payments are made to anyone. Of the various life contingency income options, the straight life income option provides the largest monthly income payment for a given amount of annuitized funds.
A return of premium rider is generally available only with:
term life insurance policies Explanation: Available with some term life insurance policies, the return of premium rider pays the policyowner a sum equal to all or a portion of the premiums paid if the insured is alive at the end of the policy term.
As part of the field underwriting process for health insurance, producers must provide the following types of information to applicants EXCEPT:
the applicant's MIB report Explanation: During the underwriting process, the underwriter may request information from the MIB. However, neither the insurer nor the producer is not required to provide applicants with information obtained from the MIB.
In underwriting an applicant for life insurance, an insurance company may consider all of the following factors EXCEPT:
the applicant's religion Explanation: Sources of underwriting information include the application, physical examination, physician statements, MIB reports, the producer, credit reports, investigative reports, and others, but factors such as race and religion may never be considered in determining an applicant's eligibility for coverage.
If a group health insurance plan is experience-rated, which of the following factors will the insurer NOT examine when issuing the policy?
the community or region in which the group operates Explanation: A group health insurance policy that is community-rated rather than experience-rated will examine the community or region in which the group operates. It then bases the group's premiums on the overall characteristics of a much broader risk pool (that is, the community).
Pamela owns a fixed deferred annuity that she will annuitize next year when she retires. Which of the following is a key factor in determining the percentage of her monthly annuity payment that will be subject to tax?
the expected return Explanation: To determine the amount of the annuity income that will be taxable as ordinary income, Pamela must know the amount of her investment in the contract as well as the expected return, which is the total amount that she can expect to receive as income payments under the contract.
In modern disability income insurance policies with a noncancelable renewability provision, the policy is noncancelable until:
the insured's Social Security full retirement age Explanation: In modern disability income insurance policies with a noncancelable renewability provision, the policy is noncancelable only until the insured reaches age 65 or, more commonly today, his or her Social Security full retirement age.
Medical expense insurance is categorized as either fee-for-service or pre-paid, which differentiates them by:
the manner of payment for health-care services Explanation: Insurance plans are categorized by how the health-care services are paid. Medical expense insurance plans pay on either a fee-for-service or pre-paid basis.
What does the employer own under a group insurance plan?
the master policy Explanation: The employer does own the master policy under a group plan.
George purchased an annuity in which his wife will receive income for as long as she lives. In this scenario, what is George most correctly called?
the owner The annuity owner is the person (or entity) who buys the contract.
Which of the following is the basis of a permanent life insurance policy's 'living benefit'?
the policy's cash value Always accessible to the policyowner, the cash value represents a 'living benefit' that makes permanent life insurance an especially valuable asset.
What is the normal reinstatement period for health insurance policies?
three years from the date of lapse Explanation: The normal reinstatement period is three years from the date of lapse.
Which one of the following is the primary goal of the insurer's premium rate calculation process?
to make sure the company collects enough money from each group of insureds to pay all of the benefits promised under the contract The goal of insurance premium rate-making is to make sure the company collects enough money from each group of insureds to pay all of the benefits promised under the contract.
Producers must inform consumers about the practices that insurance companies will use in their review and underwriting processes. Typically, these processes include all of the following, EXCEPT:
using phone taps For information about their applicants, insurance companies look to such sources as an attending physician's statement (APS), investigative agencies, credit agencies, and the MIB ' but not phone taps.
Under a joint life insurance policy, when does the insurer pay the death benefit?
when the first insured dies Explanation: Under a joint (first-to-die) life insurance policy, the insurer pays the death benefit when the first insured dies. The surviving insured has a conversion right, which allows him or her to buy an individual policy with the same or lesser face amount.
When does an insurance policy take effect?
when the first premium is paid Because The effective coverage date depends on when the applicant pays the first premium.