Practice Test

An individual purchased a $100,000 Joint life policy on himself and his wife. The husband dies 8 years later in an accident. How much does his wife receive from the policy?

$100,000 In joint life policies, the death benefit is paid upon the first death only.

What is not true about the Business Overhead Expense policies?

Benefits are usually limited to six months BOE insurance is sold to small business owners for the purpose of reimbursing the policyholder for business overhead expenses during a period of total disability. Premiums are tax-deductible for a business, but any benefits received are taxable as income. Overhead expenses, including equipment and employee salaries, are covered by the plan. Salaries and profits of the employer are not protected.

What is not a legitimate use of annuities by businesses?

Creating a tax shelter Annuities are most often used by businesses to fund employee retirement plans, to provide deferred compensation for employees or as an investment vehicle.

What is provided by an HMO?

Financing and patient care

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?

Indemnity Stipulates that the insured can only collect for the amount of the loss even if the policy is written with greater benefit limits.

A married couple's retirement annuity pays them $250 per month. The husband dies and his wife continues to receive $125.50 per month for as long as she live. When she dies, payments stop. What settlement option did they select?

Joint and survivor Under a joint settlement option, payments would stop at the first death, but under the joint and survivor, payment would continue until both recipients die. Usually, the surviving beneficiary receives 1/2 or 2/3 of the amount received when both beneficiaries were alive.

According to California insurance Code, what can be classified as a insurable event?

Pure Risks

What type of care is Respite Care?

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

If a firm has 80 employees that are actively engaged in business on at least 50% of its working days during the preceding calendar year, what is its classification?

Small employer Classification rules established by the Insurance Code state that "small employer" means any person actively engaged in a business that on at least 50% of its working days during the preceding year employed not more than 100 eligible employees.

What is a share of cost?

The amount an individual has to pay for medical expenses before Medi-Cal will cover the rest

Group underwriting is beneficial in comparison to individual underwriting due to what?

The cost of coverage is generally lower due to the reduction of risk.

What is true regarding the insurance amount in a credit life policy?

The creditor can only insure the debtor for the amount owed. credit life insurance cannot pay out more than the balance of the debt, so that there is no financial incentive for the death of the insured.

What is NOT a feature of a noncancelable policy?

The insurer may terminate the contract only at renewal for certain conditions. The insurance company cannot cancel a noncancelable policy, nor can the premium be increased beyond what is stated in the policy. The insured has the right to renew the policy for the life of the contract; however, the guarantee to renew coverage usually only applies until the insured reaches age 65

What is false regarding Modified Endowment Contracts (MEC)?

Withdrawals are not taxable.

Upon the submission of a death claim under a life insurance policy, when should the insurer pay the policy benefit?

immediately after receiving written proof of loss.

The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive?

$100,000 The triple indemnity accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy's death benefit

An insured's long-term care policy is scheduled to pay a fixed amount of coverage of $120 per day. The long-term care facility only charged a $100 per day. How much will the insurance company pay?

$120 a day Most LTC policies will pay the benefit amount in a specific fixed dollar amount per day, regardless of the actual cost of care.

An employee will be taxed on the cost of group life insurance paid by the employer if the amount of coverage exceeds

$50,000

What would be among the prohibited provisions for long-term care insurance policies delivered to the insured in California?

1) Canceling or failing to renew the policy due to changes in a person's health 2) Having the premium increased in the event of a divorce 3) Limiting benefits to skilled nursing facilities only

First year commission on a Medicare supplement policy may not exceed

200% of the 2nd year commission on the same policy

What is the period of coverage for events such as death or divorce under COBRA?

36 months MAX

The legal definition of "person" would NOT include which of the following?

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

What kind of person would automatically qualify for Medi-Cal benefits?

A person receiving Supplementary Security Income Assistance California residents in a variety of situations may qualify for benefits from Medi-Cal; however, individuals who receive cash assistance from one of the following programs are automatically eligible for Medi-Cal: SSI/SSP, CalWORKS, Refugee Assistance, and Foster Care or Adoption Assistance Program.

"a physical or mental impairment which substantially limits one or more major life activities, or a record of such impairment, or being considered as having such an impairment," is the definition of a disability according to...

ADA Americans with Disabilities Act

The insured's health policy only pays for medical costs related to accidents. What type of policy do they have?

Accident-only medical conditions related to sickness are not covered.

what is NOT an example of third-party ownership of a life insurance policy?

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

In an annuity, the accumulated money is converted into a stream of income during which phase?

Annuitization period

After being hired to deliver newspapers to his neighbors, a man is provided with $10,000 of life insurance by the newspaper. He would be covered under which kind of life insurance?

Blanket Life Available to newspapers hiring persons as "independent contractors" to deliver newspapers.

A group policy used to provide accident and health coverage on a group of persons being transported by a common carrier, without naming the insured persons individually is called

Blanket Policy.

The title page of the policy provides a summary of the benefits and coverages provided by the policy. All of the following information is included in the title page EXCEPT A) The premium amount and modal. B) The effective date and the termination date of the policy. C) The insured's beneficiaries. D) Type of policy, amount of coverage provided.

C) the insured's beneficiaries

An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision?

Common Disaster Under the Uniform Simultaneous Death Law, Common Disaster provision, the law will assume that the primary beneficiary dies first in a common disaster as long as the beneficiary dies within this specified period of time following the death of the insured (usually 30 days). This provides that the proceeds will be paid to either the contingent beneficiary or the insured's estate, if no contingent beneficiary designated.

What is true about credit life insurance?

Creditor is the policyowner.

The types of policies that are covered under the terms of the Association include:

Direct, nongroup life, health, annuity and supplemental policies. The Guarantee Association does NOT provide coverage to employer self-funded groups involving reinsurance nor annuity issued by a charitable organization.

Your client wants to buy a par policy to supplement his retirement savings program. Which of the following does your client need to understand about insurance policy dividends?

Dividends are considered a refund of unused premiums Policy dividends are the underwriting income of mutual insurance companies. They are not income or profit; they are refunds. They are not guaranteed.

What act provides an employee with 12 workweeks of leave to care for a son or daughter born to that employee?

FMLA The Family Medical Leave Act provides an employee with 12 workweeks of leave during a 12-month period to care for a son or daughter born to that employee.

If an insured is not required to pay a deductible, what kind of coverage does he/she have?

First Dollar

Under the Privacy Rule for HIPAA, protected information includes all individually identifiable health information

Held or Transmitted in any form Protected info includes all individually identifiable health info held or transmitted by a covered entity or its business associate in any form or media, whether electronic, paper or oral. this is called protected health information (PHI).

What are the 3 basic coverages for medical expense insurance?

Hospital, Surgical, Medical.

In what case would a credit disability policy be issued?

If an individual is in debt to a specific creditor, payments will be made for him/her until the return to work.

The key factor of representation that allows the injured party to rescind the contract is

If the representation is false in a material point

Who will be affected by the share of cost requirement for Medi-Cal?

Individuals whose income exceed the Medi-Cal limit If an individual's income exceeds the Medi-Cal limit for his/her family size, that individual will have to pay a certain amount, called share of cost (SOC), in the month when medical expenses occurred.

Stranger-originated Life insurance (STOLI) policies are in direct opposition to the principle of

Insurable interest Because the purchaser of a stranger-originated life insurance policy doesn't know the insured, or have any interest in the insured's longevity, STOLI policies violate the principle of insurable interest.

What is NOT true concerning the COBRA Act of 1985?

It requires all employers, regardless of the number or age of employees, to provide extended group health COBRA Act applies to only employers with 20 or more employees.

What is true concerning the Accidental Death Rider

It will pay double or triple the face amount. if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.

A person who does not lock the doors to his or her house shows an indifferent attitude. This person presents what type of hazard?

Morale indifferent attitude

Which renewal provision(s) must be included in a long-term care policy issued to an individual?

Noncancelable and guaranteed renewable No long-term care policy issued to an individual may contain renewal provisions other than guaranteed renewable or noncancelable.

The coverage provided by a disability income policy that does not pay benefits for losses occurring as the result of the insured's employment is called

Nonoccupational coverage most group disability income is this, covering insureds only off the job. The employer carriers workers compensation for on the job injurers or sickness.

Which level of care in long-term care policies specifically includes assistance with activities of daily living?

Personal Care includes hands-on services to assist an individual with activities of daily living, and can be provided by a skilled or unskilled person.

In what instance would the premium be tax deductible?

Premiums paid by an employer on a $30,000 group term life insurance plan for employees As a general rule, premiums paid for life insurance are not tax deductible. The exception to this rule is when an employer buys group term life insurance for his employees since it is considered a business expense.

What is not a goal of Medicare supplement application?

Presuming the applicant is eligible for Medicaid, based on the nature of the policy.

Under the Accidental Death and Dismemberment (AD&D) coverage, what type of benefit will be paid to the beneficiary in the event of the insured's accidental death?

Principal Sum AD&D coverage only pays for accidental losses and is thus considered pure form of accident insurance. The principal sum is paid for accidental death. In case of loss of sight or accidental dismemberment, a percentage of that principal sum will be paid by the policy, often referred to as the capital sum.

What is the most common way to transfer risk?

Purchase insurance The most effective way to handle risk is to transfer it so that the loss is borne by another party. Insurance is the most common method of transferring risk from an individual or group to an insurance company.

What insurance option would be considered a risk-sharing arrangement?

Reciprocal When insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.

The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?

Reduction of premium The reduction of premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

What is NOT provided by HMO?

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

In the event of a loss, business overhead insurance will pay for...

Rent

What dental insurance category would cover the filling of cavities?

Routine and Major restorative care this care covers the costs of dental work, such as oral surgery, bridges, dentures, and cavity treatment. Routine and preventative maintenance covers routine dental check-ups only.

HICAP offers services in the following areas EXCEPT

Sales of LTC policies They provide legal assistance, consumer counseling, consumer advocacy.

If an agent wishes to sell variable life policies, what license must the agent obtain?

Securities Variable products are governed in part by the Securities and Exchange Commission; therefore, agents selling variable life policies must also secure a securities license.

A formal arrangement of providing health care benefits without providing any financial protection to the principal is referred to as what type of plan?

Self-insurance although not really insurance at all, is used to describe a formal plan of risk retention whereby the self-insurer provides the funds necessary to pay the claims, defined in the arrangement as covered losses, without the use of an insurance company.

Every long-term care insurer in California must submit to the Commissioner a list of all agents or other insurer representatives authorized to solicit individual consumers for the sale of long-term care insurance. These submitted agent lists must be updated at least

Semiannually

If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a

Settlement option

What type of risk will result in the highest premium?

Substandard risk indicates that an individual represents an under average insurance risk because of physical condition, personal or family history of disease, occupation, habits or hobbies. This rating incurs the highest premium if policy is issued.

Restoration of Benefits is most beneficial to the insured when they

Suffer a large loss. Restoration of Benefits allows the insured to regain their full life-time benefit level over a period of time after a large or catastrophic loss.

What kind of employee cannot use 403(b) plan for their retirement?

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

What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident?

The Common Disaster Clause Under the Uniform Simultaneous Death Law, Common Disaster provision, the law will assume that the primary beneficiary dies first in a common disaster as long as the beneficiary dies within this specified period of time following the death of the insured (usually 30 days). This provides that the proceeds will be paid to either the contingent beneficiary or the insured's estate, if no contingent beneficiary designated.

What is the name of a federal regulation designed to accomplish pension equality, and to protect group insurance plan participants?

The Employee Retirement and Income Security Act of 1974 (ERISA)

In comparison to consumer reports, what is a unique characteristic of investigative consumer reports?

The customer's associates, friends, and neighbors provide the report's data/

An insured had $500 left in his Health Reimbursement Account when he quit his job. What happens to that money?

The insured can have access to the money at his previous employer's discretion.

A licensee is NOT required to comply with continuing education requirements in the state of California if which conditions are met?

The licensee has been in good standing for 30 continuous years, and is at least 70 years old.

What is true regarding elimination periods and the cost of coverage?

The longer the elimination period, the lower the cost of coverage.

What are general requirements of a qualified plan?

The plan must be communicated to all employees the plan must be for the exclusive benefit of the employees and their beneficiaries. the plan must be permanent, written, and legally binding. Plans must meet the general requirements established by IRS

If an insured continually uses the automatic premium loan option to pay the policy premium,

The policy will terminate when the cash value is reduced to nothing! This option, usually elected at the time of application, provides that in case of a possible policy lapse, the premium will be automatically paid from the contract's guaranteed cash value. However, once the cash value is exhausted, the policy will terminate.

An individual purchased a Medicare supplement policy in March and decided to replace it 2 months later. His history of coronary artery disease is considered a pre-existing condition. What is true?

The pre-existing condition waiting period fulfilled in the old policy will be transferred to the new policy, the new one picking up where the old one left off.

What are the features and requirements of the Living Needs Rider?

The remainder of the policy proceeds is payable to the beneficiary at the insured's death It provides funds for medial and nursing home expenses to a terminally ill insured It is usually available at no additional charge.

What is true regarding deferred compensation funds?

They are NOT usually qualified plans. Deferred compensation Funding refers to any employer retirement, savings, or other deferred compensation plan that is not a qualified retirement plan. Funding involves a contractual commitment between the employer and employee to pay compensation in future years. These plans are typically made with selected employees to provide additional retirement benefits.

How are contributions to a tax-sheltered annuity treated with regards to taxation?

They are not included as income for the employee, but are taxable upon distribution.

What is true regarding commissions for Medicare supplement policies?

They are permitted up to a certain amount for each policy. An agent or other representative that is involved in the sale of Medicare supplement policies may receive commissions as long as the first year commission does not exceed 200% of the commissions paid for selling or servicing the policy in the second year. Commission regulation rules apply to both monetary and non-monetary compensation.

What is the best reason to purchase life insurance rather than annuities?

To create an estate With insurance, the death benefit creates an immediate estate should the insured die.

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe?

Unilateral

During the free-look period, the premium for a variable annuity may be invested in all of the following EXCEPT

Value Funds During the 30-day cancellation (free-look) period, the premium for a variable annuity may only be invested in fixed-income investments and money-market funds, unless the investor specifically requests that the premiums be invested in the mutual funds.

What do you need to be eligible for a health Savings Account (HSA)?

an individual must be covered by a High Deductible Health Plan (HDHP), must not be covered by other health insurance except for specific injury, accident, disability, dental care, vision care, or long-term care insurance, must not be eligible for Medicare (usually age 65) , and can't be claimed as a dependent on someone else's tax return.

An insured is hospitalized with a back injury. Upon checking his disability income policy, he learns that he will not be eligible for benefits for at least 30 days. This indicates that his policy is written with a 30-day

elimination period it's the time immediately following the start of a disability when benefits are not payable. This is used to reduce the cost of providing coverage and elimai9nates the filing of many claims.

The factor added to the net premium to cover the costs of the insurer in obtaining and maintaining the business is called...

expenses Loading is another term for expenses. Net premium (mortality minus interest earned) plus expenses (or loading) equal the gross premium.

How many pints of blood will be paid for by Medicare Supplement core benefits?

first 3 Medicare supplemental policies cover the costs of deductibles and coinsurance for parts A and B. Since Medicare will not pay for the first 3 pints of blood, a Medicare Supplement plan will cover that. This is considered to be a core benefit.

Mortality - Interest + Expense =

gross premium If "mortality" represents the cost of insured mortality, "interest" represents the interest earned by an insurer, and "expense" (or "loading") represents company operating costs, then the interest is substracted from the cost of mortality, yielding the net premium, and the loading is added to the net premium to yield the gross premium.

The insurer may suspect that a moral hazard exists if the policyholder...

is not honest about his health on an application for insurance Moral hazards refer to those applicants that may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer.

The paid-up addition option uses the dividend to....

purchase a smaller amount of the same type of insurance as the original policy The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.

A situation in which a person can only lose or have no change represents...

pure risk only type insurance companies are willing to accept.

What is called a "second-to-die" policy?

survivorship life