Practice Exam 3
K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?
$20,000
Conversion Period
- the time period during which a convertible issue can be converted - 1 to 5 years or reach age 65 - If death during this period, you WILL be paid
Generally, how long is a benefit period for a Major Medical Expense Plan?
1 year
Every 12-months after the initial enrollment period, an HMO must hold an open enrollment period of
31 days
Grace Period
31 days
An IRA owner can start making withdrawals and NOT be subjected to a tax penalty beginning at what age?
59.5
Variable Life
Allows Policy owner to have level premiums and choose from a variety of investment options
The amount of monthly disability benefits payable under Social Security is affected by which of the following factors?
Amount of the benefits available form other sources
Rebating
Any inducement offered in the sale of insurance products that is not specified in the policy.
A policy loan is made possible by which of these life insurance policy features
Cash Value provision
Company XYZ offers a group Term Life insurance plan to its employees. What does each employee covered under this plan receive?
Certificate of insurance
Settlement Options
Choices available to the insured/owner for distribution of insurance proceeds.
An employee requested that the balance of her 401(k) account be sent directly to her in one lump sum. Upon receipt of the distribution, she immediately has the funds rolled over into an IRA. What is the tax consequence of the distribution sent to this employee?
Distribution is subject to federal income tax withholding
An insurance applicant MUST be informed of an investigation regarding his/her reputation and character according to the
Fair Credit Reporting Act
What is the name of the law that requires insurers to disclose information gathering practices and where the information was obtained?
Fair Credit Reporting Act
What kind of insurance policy supplies an income stream over a set period of time that starts when the insured dies?
Family Maintenance Policy
No benefits provided for illness
Incontestable
Producer should ____ when submitting application to insurer
Inform insurer of any relevant information not included in the application
Short term medical policy
Interim
What kind of Accidental Death and Dismemberment (AD&D) insurance beneficiary requires his/her consent when a change of beneficiary is made?
Irrevocable
What is the purpose of a conditional receipt?
It is intended to provide coverage on a data earlier than the date of the issuance of the policy.
On January 8, an applicant filled out and application for a life insurance policy but did not include the initial premium. The insurance company approved the application on January 14 and issued the policy January 15. The producer delivered the policy on January 26 and collected the first premium. When did the coverage become effective?
Jan 26
K is insured by a life insurance policy owned by a 3rd party. Which is true
K has no ownership rights
K is looking to purchase Renewable Term insurance. Which of these types of Term insurance may be renewable?
Level
Does not play role in life insurance policy
Marital Status
Large group of disability income policy
No medical underwriting
Premiums
Normally, NOT Tax-Deductible NOR Taxable
Benefits
Normally, NOT Taxable, but interest IS
Which of the following actions is required by an insured who leaves the primary medical coverage and seeks medical care
Obtain prior approval from the insurer for the medical service
When a policy pays dividends to its policyholders, it is said to be
Participating
The provision that defines to WHOM the insurer will pay benefits to is called
Payment of Claims
Individual straight life annuity
Payments are made to an annuitant for life
The stated amount or percent of liquid assets that an insurer must have on hand that will satisfy future obligations to its policyholders is called
Reserves
D is an architect receiving Disability Income benefits who is not able to return to work full time, but can work on a part-time basis. Which of these features would allow D to continue receiving benefits?
Residual Benefit clause (can work and earn some income)
What should an insured do if the insurer does not send claims forms within the time period set forth in a health policy's Claims Forms provision?
Submit the claim in any form
What type of life insurance are credit policies issued as?
Term (Decreasing)
Why is an applicant's signature required on a life insurance application?
To attest the statements on the application are accurate to the best of the applicant's knowledge
When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take?
Void the policy ONLY if it is discovered during the contestable period AND proven to be material
T cash surrenders a recently-issued whole life policy. He also requests that the proceeds be payable to an unrelated third party. T would likely be red-flagged for violation of
anti-money laundering rules
An applicant's medical information received from the Medical Information Bureau (MIB) may be furnished to the
applicant's physician
applicant's medical info from the MIB may be furnished to
applicant's physician
requirement for insured to be eligible for befnefits under waiver of premium
be under physicnas care
P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take?
beneficiary will be paid the death benefit
which of the following groups may not be insured a group life policy employees supervisors admins blood relatives
blood relatives
pc does not have right to
change grace period
T applies for a life insurance policy and is told by the producer that the insurer is bound to the coverage as of the date of the application or medical examination, whichever is later. Assuming that T is an acceptable risk, what item is given to T?
conditional receipt
the federal income tax treatment group medical expense
employees premiums are TAX DEDUCTIBLE to the EMPLOYER
longtermcare pays for benefits using
expenses incurred
The Medical Information Bureau (MIB) provides what kind of information to an insurance company?
extensive medical history to insurance companies regarding applicants to life insurance.
after not receiving document
file written proof of loss
how long polocyowners health coverage will remain in effect if pc doesnt pay premiums when due
grace period
AD&D would pay additional benefits if the insured:
is blinded in an accident
Credit Life Insurance
issued in an amount not to exceed the amount of the loan
Dental care does not cover
loss of income
the individual health insurance policy that offers the broadest protection is
major medical
An employer that offers a qualified retirement plan to its employees is eligible to
make tax-deductible contributions to the plan
pay premiums more than once a year under which provision
mode of premium
short-term medical expense policy
nonrenewable
In an individual retirement account (IRA), rollover contributions are
not limited to dollar amount
deductibles are used to lower
overuse of medical service
Deductibles are used in health policies to lower
overuse of medical services
The benefits under a disability buy-out period are:
payable to the company or another shareholder
Whole Life
pays face value upon death of insured OR when insured reaches age 100
A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the
policy loan provision
A limited-pay life policy has
premium payments limited to a specified number of years
Which of these is NOT a type of agent authority?
principal
Disability Income
reimburses an insured for loss of earnings if the insured became sick
Optionally Renewable
review the policy annually and determine whether or not to renew it
A contract owner terminates an annuity before the income payment period begins. The owner will then receive
the current contract surrender value
the policy owner must face the possibility of losing money or something of value in the event of loss.
the policy owner must face the possibility of losing money or something of value in the event of loss.
coercion
the practice of persuading someone to do something by using force or threats
The advantage of reinstating an original life policy is
the premiums are based on a younger age
solicit
to ask for; to seek
MIB may disclsoe
use of marijuana
license revoked
wait at least 5 years before applying
A life insurance application may be rejected on the basis on all of these EXCEPT Medical History Hobbies Gender Weight
weight
A Hospital/Surgical Expense policy was purchased for a family of four in March of 2013. The policy was issued with a $500 deductible and a limit of four deductibles per calendar year. Two claims were paid in September 2013, each incurring medical expenses in excess of the deductible. Two additional claims were filed in 2014, each in excess of the deductible amount as well. What would be this family's out-of-pocket medical expenses for 2013?
$1,000
S buys a $50,000 whole life policy with a $50,000 Accidental Death and Dismemberment rider. S dies 1 year later of natural causes. How much will the insurer pay the beneficiary?
$50,000
Which of these is NOT a reason for a business to buy key person life insurance? *The reduction in sales as a direct result from death of the key employee *A void in leadership if the key person were to die *The loss of company revenues while a replacement is being sought *A pension deficiency if the key employee dies
*A pension deficiency if the key employee dies
Presumptive Disability
- A provision that is found in most disability income policies which specifies the conditions that will automatically qualify the insured for full disability benefits. - Due to total loss of sight, hearing, speech or use of 2 + limbs; benefits paid even while continuing to work.
Adjustable Life Insurance
- Combines features of both term and whole life coverage with the length of coverage and amount of accumulated cash value as the adjustable factors. Premiums may be increased or decreased to fit the specific needs. Such adjustments are not retroactive and apply only to the future. - Need for flexible premiums
Variable Universal Life
- Controls where investment goes - Selects Premium Amount - Adjustable Death Benefit
Commissioner of Insurance Powers
- Issue Cease-and-Desist Order - Regulate business of insurance in the state - Issue insurance licenses - CANNOT activate insurance companies' financial reserves
Medicare supplement policy can be cancelled
- Premiums have not been paid - Ratings, Claims, Credit are NONCANCELLABLE reasons
Equity Indexed Annuity
- The annuity that has a guaranteed minimum interest rate and allows the annuitant to invest money in an index. The investments grow as the index grows. - Typically invested into S&P 500
Benefit Period
- The length of time over which the insurance benefits will be paid for each illness, disability or hospital stay. - period of time for which benefits are available.
Indemnity Plan
- health plan that offers protection from loss - freedom to visit any physician
Interest Sensitive Whole Life
- it has a guaranteed maximum premium and guaranteed minimum cash value based on a guaranteed minimum interest rate. - cash value is determined by interest rate - If the current interest rate (the interest rate being earned at the time of rate adjustment) exceeds the guaranteed minimum rate, the policyowner may have the excess interest added to the cash value or used to reduce premiums.
cease and desist order
- ruling requiring a company to stop an unfair business practice that reduces or limits competition
3rd party ownership
- when the policy owner and insured aren't the same person - It is used extensively in estate-planning as well as business circumstances
Commissioner of Insurance
-Appointed by the Governor for 2 years -Regulates business insurance in this state -Ensures Texas laws are executed -Protects and ensures the fair treatment of consumers - NOT elected
Fair Credit Reporting Act
1970
Insurance Agent license must be renewed every
2 years
USA Patriot Act
2001
According to the Mandatory Uniform Policy Provisions, what is the maximum amount of time after the premium due date during which the policy remains in force even though the premium has not been paid?
31 days
"Top Heavy" Qualified Plan
60%+ Assets are in key employee accounts
What does Medicare Part A and B cover
A - hospitalization B - docters services
Twisting
A form of misrepresentation in which an agent persuades an insured/owner to cancel, lapse, or switch policies, even when it's to the insured's disadvantage.
credit policy
A set of rules that include the firm's credit period, discounts, credit standards, and collection procedures offered.
A provisional coverage also could be called
A temporary restoration or temporary crown
Which of the following is NOT included in an annuity contract?
AD&D Rider
A Disability Income policyowner recently submitted a claim for a chronic neck problem that has now resulted in total disability. The original neck injury occurred before the application was taken 5 years prior. The neck injury was never disclosed to the insurer at the time of application. How will the insurer handle this claim?
Claim will be paid and coverage will remain in force.
As a condition for a loan, a bank requires the borrower to purchase credit insurance from a specific company. What is the bank guilty of?
Coercion
Policy where there is no guarantee that the benefits provided to the policyholder in one year are renewed and provided in the following year.
Conditionally Renewable
Insurance policies are offered on a "take it or leave it" basis, which make them?
Contracts of Adhesion.
Dividends payable to a policyowner are
Declared by the insurance company
The Combination of Whole Life and _____ Term insurance is referred to as a Family Income Policy
Decreasing
the time period between an injury and the receipt of benefit payments. it is the length of time between the beginning of an injury or illness and receiving benefit payments from an insurer.
Elimination Period (Waiting Period)
P owns a $25,000 Life Policy that pays the face amount to him if he lives to age 70, or to his beneficiary if he dies before age 70. What kind of policy does P own?
Endowment at Age 70
D owns a Whole Life policy that was purchased 10 years ago. If the premium payments suddenly stop and D takes no additional action, which Nonforfeiture Option will the insurer likely proceed with?
Extended Term
What action should a producer take if the initial premium is NOT submitted with the application?
Forward the application to the insurer without the initial premium
S, while in the process of converting her group life insurance to an individual policy, dies. What happens to the claim her beneficiary submits?
Full benefits are payable under the Master contract
Medicare is intended for all of the following groups EXCEPT - Full-Time Students - Individuals receiving Social Security for at least 24 months - Individuals aged 65+ - Those afflicted with chronic kidney failure
Full-Time Students
With Disability Income insurance, an insurance company may limit the monthly benefit amount a prospective policy holder may obtain because of the insured's
Gross Income at the time of the purchase
K has a health policy that must be renewed by the insurer and the premiums can only be increased if applied to the entire class of insureds. This type of policy is considered
Guaranteed Renewable
X is insured with a disability income policy that provides coverage until age 65. This policy allows the insurer to change the premium rate for the overall risk class assigned. Which of these renewability features does this policy contain?
Guaranteed Renewable
HMO vs PPO
HMO - low monthly premimum and PCP coordinates care PPO - Higher premium -Don't need referral and works with in and out of network providers - More physicians to choose from
K is an annuitant currently receiving payments. If she were to die before receiving payments equal to the correct value, a beneficiary will continue receiving payments until an amount equal to the contract value has been paid. This is called a(n)
Installment Refund Annuity
All of these statements about the Waiver of Premium provision are correct EXCEPT *A waiting period must pass before becoming eligible for benefits *Waiver of Premium is available on both permanent and term insurance policies *Insured must be eligible for Social Security disability for claim to be accepted *Insured must be totally disabled to qualify
Insured must be eligible for Social Security disability for claim to be accepted
Benefit amounts insurer will pay
Insuring Clause
Which of the following types of health coverage frequently uses a deductible?
Major Medical Policy
On May 8, a prospect filled out an application for a life insurance policy but paid no premium. The insurance company approved the application on May 14 and issued the policy on May 15. The agent delivered the policy on May 26 and collected the first premium. The coverage became effective on:
May 26
An applicant MUST receive an Outline of Coverage when an application is taken for a(n)
Medicare Supplement policy
Variable Whole Life
Minimum guaranteed Death benefit is provided
Which Unfair Trade Practice involves an agent telling a prospective client that a policy's dividends are guaranteed?
Misrepresentation
All of these insurance products require an agent to have proper FINRA securities registration in order to sell them EXCEPT for
Modified Whole Life
K buys a policy where the premium stays fixed for the first 5 years. The premium then increases in year 6 and stays level thereafter, all the while the death benefit remains the same. What kind of policy is this?
Modified Whole Life
Which of the following actions is required by an insurer who leaves the primary medical coverage and seeks medical care
Obtain prior approval from the insurer for the medical service
P is insured under a basic cancer plan. Which of the following conditions would be covered under this plan?
Operation of a malignant tumor
the policyholder possesses all contractual rights in the policy while the insured is living
Ownership Clause
K owns a Whole Life policy. If K wants an increasing Death Benefit to protect against inflation, which Dividend Option should she chose?
Paid-Up Additional Insurance
underwting process EXCEPT credit report annual report application
Policy Loan
Q applied for life insurance and submitted the initial premium on January 1. The policy was issued February 1, but it was not delivered by the agent until February 7. Q is dissatisfied and returns the policy February 13. How will the insurer handle this situation?
Policy was returned within the free-look period, premium will be fully refunded.
Which of the following information is not required to be included in a Whole Life policy?
Policy's guaranteed dividend table
Who elects the governing body of a mutual insurance company?
Policyholders
Which of these describe a participating insurance policy?
Policyowners are entitled to receive dividends
Under federal tax laws, what is the tax treatment for an employer providing $50,000 of a contributory group Term Life plan to all its eligible employees?
Portion of the premiums paid by the employer may be a tax deduction
A policyowner is able to choose the frequency of premium payments through what policy feature?
Premium Mode
Guaranteed Renewable Health Insurance
Premiums normally increase at time of renewal
Time of Payment of Claims
Prevents delayed claim payments by insurer. - 45 days
K is the insured and P is the sole beneficiary on a life insurance policy. Both are involved in a fatal accident where K dies before P. Under the Common Disaster provision, which of these statements is true?
Proceeds will be paid to P's estate
occupational disability
Provides an INCOME if the insured person is unable to perform the job he/she trained for
All of these are considered resources of underwriting info EXCEPT
Rating Services
Nonforfeiture Options
Reduced Paid-up Extended Term Cash Surrender NOT LIFE INCOME
R had received full disability income benefits for 6 months. When he returns to work, he is only able to resume half his normal daily workload. Which provision pays reduced benefits to R while he is not working at full capacity?
Residual Disability
Tax treatment of a lump-sum payment paid to a life primary beneficiary
Tax Free in the year they were received
Which statement regarding a Key Employee Life policy is NOT true?
The beneficiary is named by the key employee
Upon policy delivery, a signed good health statement is requested from the applicant, why would this be necessary?
The initial premium was not submitted with the application
What is the basic function of an annuity?
The systematic liquidation of accumulated funds
Residual Disability
Type of disability income policy that provides benefits for loss of income when a person returns to work after a total disability, but is still not able to perform at the same level as before becoming disabled.
A Variable Annuity has which of the following characteristics
Underlying equity investments
At what point must a life insurance applicant be informed of their rights that fall under the Fair Credit Reporting Act?
Upon completion of the application
A(n) _____ Life policy offers the owner investment In products such as money market funds, long term bonds and equities.
Variable
Interest Sensitive Examples
Variable Universal Life Interest Sensitive Whole Life Variable Life
What type of rider would be added to an Accident and Health policy if the policyowner wants to ensure the policy will continue if he/she ever becomes totally disabled?
Waiver of Premium rider
ERISA (Employee Retirement Income Security Act)
Welfare Plans Covers: Major Medical, Corporate, Qualified,
A life insurance policy that provides the insured with a cash value as well as a level face amount.
Whole life
Major Medical policies typically contain
a deductible and coinsurance
indemnity
a payment for damage or loss
interim coverage
a short-term policy purchased on an interim basis typically when in between jobs or waiting for a new policy to start.
the applicant is the offeror who makes an offer to buy insurance through
a signed application plus the initial premium
commisioner does not
activate insurance companies financial reserves
When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?
at future dates specified in the contract with no evidence of insurability required
When does a Probationary Period provision become effective in a health insurance contract?
at the policys inception
Insurable interest must exist between the policy owner and the insured
at the time of application
At what time must pc have insurable interest on the insured in order for the life policy to be valid
at the time of the application
switch to hazardous occupation, disablity polocy provision
change of occupation provision
conduct business in HMO
closed panel
"transacting business"
collecting premiums
Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families whose employment has been terminated the right to:
continue group health benefits
Business Overhead Expense
covers fixed business expenses such as rent and utilities
An agent takes an individual Disability Income application, collects the appropriate premium, and issues the prospective insured a conditional receipt. The next step the insurance company will take is to
determine if the applicant is an acceptable risk by completing standard underwriting procedures
Basic Medical Expense Insurance
has lower benefit limits than Major Medical insurance
Variable life products require a producer to
hold a Life Insurance license and a Securities license.
Under a Basic Medical Expense policy, what does the hospitalization expense portion cover?
hospital room and board
Need approach in life insurance is used for:
how much life insurance a client should apply for
T sends proof of loss to her insurer for an acceptable medical expense claim under her individual Health Insurance policy. Upon receipt, the insurer must pay the benefits
immediately
insurable interest exists must be valid when
inception of the contract
Medicare Part B does NOT cover
inpatient hospital services
A policy of adhesion can only be modified by whom?
insurance company
credit life insurance
insurance issued on a debtor to cover outstanding loan balances
Major Medical Insurance
insurance that includes treatment for long-term, high-cost illnesses or injuries and inpatient and outpatient expenses.
Variable annuities may invest premiums in each of the following, EXCEPT: common stock money market securities junk bonds insurers corporate business account
insurers corporate business account
At what point does an informal agreement become a binding contract?
when one party makes an offer and the other party accepts that offer