Use of Life Insurance Chapter 8

In Kentucky what is the legal age to contract for insurance or annuities?

.15

If a health insurance policy has lapsed and it is later reinstated, the reinstated policy will cover only sickness that begins

10

What is the fine for violating the law regarding HIV testing?

50 to $100 per violation

With three partners in a business, how many life insurance policies would be required to insure a cross-purchase buy-sell plan?

6

A disability policyowner is injured and becomes totally disabled. The benefits pay for 2 years, starting from the date of the injury. What is this time period called?

Benefit period

Which of the following is NOT an allowable exclusion for long-term care insurance policies?

Care for incurable conditions

The maximum fixed interest rate an insurer can charge for policy loans is

Correct. The maximum fixed interest rate charged by insurers is 8% in Kentucky.

The maximum period for which a group health plan may exclude benefits for preexisting conditions for a participant who is not a late enrollee is:

Correct. The maximum period for which a group health plan may exclude benefits for preexisting conditions for a participant who is not a late enrollee is 12 months.

In which business plan do the partners agree to buy the interest of the deceased partner?

Cross purchase

Which of the following are used by most insurers when determining the premiums for large groups?

Experience rating

Major Medical policies are typically characterized by which of the following?

Flat deductible

All of these are legitimate uses of insurance in a business setting EXCEPT

Funding against general company financial loss

Tom has a qualified retirement plan with his employer that is currently considered to be 80% "vested". How can this be interpreted?

If Tom's employment is terminated, 20% of the funds could be forfeited

Which of these is NOT a reason for purchasing life insurance on the life of a minor?

If both parents were to die, it would provide death benefits to the child

When underwriting group health insurance, all of the following help determine the premium EXCEPT

Income levels of group members

The core policy (Plan A) developed by the NAIC as a standard Medicare supplement policy includes all of the following EXCEPT

Incorrect. The correct answer is "Medicare Part A deductible". Medicare Part A covers all expenses during the first 60 days EXCEPT the $1,100 initial Medicare deductible.

Which plan is intended to be used by a sole proprietor and the employees of that business?

Keogh Plan

Karen is considering replacing her individual accident and health insurance policy with another individual policy. She has had issues in the past with her gall bladder that would be considered a pre-existing condition. How will a pre-existing conditions exclusion affect Karen's new insurance contract?

May reduce her benefits

Which of the following statements pertaining to Medicare is CORRECT?

Medicare Part A is automatically provided when a qualified individual applies for Social Security benefits.

Which of the following is NOT a function of accident and health insurance?

Pays a death benefit as a result of natural causes

Which of the following is not covered under Medicare hospital insurance benefits (Part A)?

Physician's services

Which of the following statements BEST describes an impairment rider for a Medical Expense policy?

Specific health conditions are excluded

Which of the following incidents would NOT be covered by an Accidental Death and Dismemberment policy?

Suicide

What does the term "field underwriting" refer to in the health insurance industry?

The contact of the producer with the applicant

What is taken into consideration when defining "total disability" in a disability income insurance policy?

The insured's education, training and experience

An insurer may take an applicant's marital status into account when determining

Who is eligible for dependent coverage

In regards to health insurance, employees age 65 or older are typically required to

be offered the same group health benefits offered to the younger employees

If a policyowner has a guaranteed renewable health insurance policy, the contract guarantees

continuing coverage only

A Preferred Provider Organization (PPO) has all of the following characteristics EXCEPT that the

contract provides for unlimited services

A Split-dollar plan would most likely be had by a(n)

division manager

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 purchase

All of the following are correct about Medicaid EXCEPT that it

is based on medical history

Which of the following services is NOT covered under a hospitalization expense policy?

surgeon's fees

The free-look period for an individual health insurance policy, during which the insured may return the policy for a full refund of premium, is?

Correct. The free-look period for an individual health insurance policy, during which the insured may return the policy for a full refund of premium, is 10 days.

The maximum amount that the Kentucky Life and Health Insurance Guaranty Association will cover with respect to any one life is

Correct. The maximum amount that the Kentucky Life and Health Insurance Guaranty Association will cover with respect to any one life is $300,000.

Linda is covered with long-term care insurance and has early-stage Alzheimer's. She is still able to reside in her home while receiving primary care, as opposed to moving into a nursing home. All of the following long-term benefits encourage this EXCEPT for

Custodial care

Which tax would an IRA participant be subjected to on distributions received prior to age 59 1/2?

Income tax and penalty tax

An insured owns an individual Disability Income policy with a 30-day Elimination Period for sickness and accidents and a monthly indemnity benefit of $500. If the insured is disabled for 3 1/2 months, what is the MAXIMUM amount he would receive for an approved claim? *

Incorrect. The correct answer is "$1,250". 3.5 months - 1 month elimination period = 2.5 months. 2.5 months X $500 monthly indemnity = $1,250.

How long must insurers maintain advertisements in their files?

Incorrect. The correct answer is "3 years ". Insurers must maintain advertisements in their files for 3 years.

Which of the following examples pertaining to Social Security benefits is CORRECT?

Mason, who is married with one son, age 16, is a fully insured retired worker receiving Social Security benefits. In addition, his spouse is eligible for benefits at age 62 and his son is eligible for benefits until he is 18 years old.

Which benefit is excluded from Medical Expense policies?

Pain and suffering

What is the purpose of the Time of Payment of Claims provision?

Prevents delayed claim payments made by the insurer

What is the purpose of a Disability Income Benefit?

Provide money for living expenses

In an individual retirement account (IRA), rollover contributions are

not limited by dollar amount

The Notice of Claims provision requires a policyowner to

notify an insurer of a claim within a specified time

Under what system do a group of doctors and hospitals in a designated area contract with an insurer to provide services at a prearranged cost to the insured?

ppo

HIPAA portability rules allow individuals who change from one group medical plan to another to

reduce or eliminate any pre-existing conditions excluded under the new plan

To be eligible for Medicaid benefits, an individual must

satisfy income and asset standards

A life insurance producer's underwriting duties may include

seeking additional information requested by the insurance company

An insurance company can write an Accidental Death and Dismemberment policy as a(n)

stand-alone policy or rider

Under E&O coverages, the licensee's liability for professional errors made constitute all of the following EXCEPT?

$5,000 per claim

What is the maximum Social Security Disability benefit amount an insured can receive?

100% of the insured's Primary Insurance Amount (PIA)

The first year commission for selling a Medicare supplement policy may not be more than what percentage of the commission for servicing the policy in the second year?

200%

Which of the following provisions may properly be contained in a Medicare supplement policy?

A provision indemnifying against losses from a sickness on the same basis than losses from accident

Defamation occurs in which of the following circumstances?

Agent making exaggerated claims that the company is unsound financiallyIncorrect. The correct answer is "Agent making exaggerated claims that the company is unsound financially". Defamation occurs when an agent makes exaggerated claims that the company is unsound financially.

Which of the following statements pertaining to health maintenance organizations is CORRECT?

An insurance company may sponsor an HMO or assist an HMO by providing contractual services.

Which of the following is excluded from coverage by the Kentucky Life and Health Insurance Guaranty Association?

Any portion of a policy not guaranteed by the insurer A claim based on marketing materials A claim based on misrepresentations regarding policy benefits All of the choices are correct

An employer provides a non-contributory disability income group plan to its employees. How would a disability claim be treated for tax purposes?

As taxable income

Which of these is NOT considered to be a cost connected with an individual's death?

Business expenses

In Kentucky what is the term for replacing policies for the sole purpose of making commissions?

Churning

Which of the following organizations would make reimbursement payments directly to the insured individual for covered medical expenditures?

Commercial insure

A Section 303 Redemption would allow the corporation to do which of the following?

Correct. A Section 303 Redemption would allow the corporation to permit the sale of Corporate stock necessary to pay the costs associated with Final Expenses.

An insurance company can be any of the following EXCEPT

Correct. A domestic insurer is an insurance company incorporated in this state. An alien insurer is one that is incorporated outside the United States.

Which of the following is designed to protect against impaired or insolvent insurers?

Correct. Guarantee Associations is designed to protect against impaired or insolvent insurers.

If a life insurance policy replaces an existing policy, the insured has the right to surrender a new policy for a full refund of all premiums within

Correct. If a life insurance policy replaces an existing policy, the insured has the right to surrender a new policy for a full refund of all premiums within 30 days after delivery.

In the South-Eastern Underwriters' case, the Supreme Court held that insurance

Correct. In the South-Eastern Underwriters' case, the Supreme Court held that insurance transacted across state lines was interstate commerce.

Insurers issuing long-term care policies must give purchasers the option to buy an inflation protection feature that increases benefits at an annual rate of at least

Correct. Insurers must offer the option to buy a policy with the benefit level increasing annually in a manner so that the increases are compounded annually at a rate not less than 5%.

Making, issuing or circulating any estimate, illustration, circular, or statement that distorts the terms of any policy is prohibited, and defined as

Correct. Making, issuing or circulating any estimate, illustration, circular, or statement that distorts the terms of any policy is prohibited, and defined as misrepresentation.

The Insurance Commissioner may

Correct. The Insurance Commissioner may adopt, issue & promulgate rules & regulations authorized by law.

Making, publishing, disseminating or circulating, directly or indirectly, or aiding, abetting, or encouraging any oral or written statement which is false or derogatory to the financial condition of an insurer, is defined as

Defamation

When using the needs approach for life insurance planning, lump sums may be created for all of the following reasons EXCEPT

Employee benefits

Replacement notices are required for all of the following EXCEPT?

Group Conversion

In Kentucky, which of the following is true for committing a fraudulent act when the amount of the claim, benefit or money received is $300 or less in the insurance industry?

Imprisonment for up to one year A fine of up to $1,000 for individuals and $5,000 for corporations or twice the gain received by violating the law It is a misdemeanor All of these are true regarding fraudulent acts of less than $300

Beth is a surgeon who has an own-occupation disability income policy. She was injured six months ago and has been unable to return to her practice. Her monthly benefit from the policy is $15,000. During this time, Beth has been working part-time at a local boutique and receives $2,000 monthly. What is her ongoing monthly benefit while she is unable to perform her surgical duties?

Incorrect. The correct answer is "$15,000". In an own-occupation disability policy, the insurance company will consider your occupation to be the occupation you are engaged in at the time you become disabled. They will pay the claim even if you begin working in another career field, as long as you continue to be disabled in your original occupation.

When a husband and wife are insured jointly under a credit life insurance policy, the premium may NOT exceed?

Incorrect. The correct answer is "150% of the rate permissible for a single life". When a husband and wife are insured jointly under a credit life insurance policy, the premium may NOT exceed 150% of the rate permissible for a single life.

A temporary license as an apprentice adjuster may be issued for a period of up to

Incorrect. The correct answer is "365 days." A temporary license as an apprentice adjuster may be issued for a period of up to 365 days.

If a Disability Income policy includes a 30-day elimination period, how long will the insurance company pay benefits if the insured is injured and unable to work for 90 days?

Incorrect. The correct answer is "60 days". In this situation, the insured will receive 60 days of Disability Income payments.

How often must the Commissioner examine insurers?

Incorrect. The correct answer is "At least every 3 years". The Commissioner examines insurers at least every 3 years.

Which of the following exclusions may NOT be contained in a long-term care policy in Kentucky?

Incorrect. The correct answer is "Exclusion for certain types of dementia". A long-term care policy cannot be delivered or issued for delivery if it excludes coverage for certain types of dementia (such as Alzheimer's disease).

Medicare Supplement insurance requires an individual to be at least how old for open enrollment?

No minimum age

When funds are transferred directly from one IRA to another IRA, what percentage of the tax is withheld?

None

Which statement is true regarding hospital preadmission certification for emergency situations?

Notification is required to be given after insured is admitted to the hospital

Which tax would an IRA participant be subjected to on distributions received prior to age 59 1/2?

Ordinary income tax and a 10% tax penalty for early withdrawal

Which of the following statements regarding key person insurance is NOT correct?

Premiums for a key person life insurance policy are a tax-deductible expense to the business.

Blue Cross and Blue Shield are

Prepaid health care service organizations

Which of the following statements BEST describes the HIPAA portability rules for an individual who changes from one group medical plan to another?

Reduces or eliminates any pre-existing conditions excluded under the new plan

Non-resident licensees must do which of the following?

Remain currently licensed in his/her home state for comparable authority

Which of the following is NOT a basic underwriting action for accident and health insurance?

Removing uniform policy provisions

The intentionally self-inflicted injury exclusion

Restricts coverage to unexpected events

MEW A (Multiple Employer Welfare Arrangement) permits?

Small non-affiliated employers to insure their members

Which of the following statements describing an insurer's obligation to determine whether the applicant for a life insurance policy has an insurable interest is correct?

The insurer is entitled to rely on the statements and representations made by the applicant.

In order for a company to run smoothly all of the following are true except?

The producer will be regulated and fined for violations

An incorporated insurer with its capital divided into shares and owned by its shareholders is

a stock insurer

What is the term that is used when agents share the proceeds from the sale of policies?

commission-splitting

The difference between a doctor's actual charges and the amount approved by Medicare is called a(n)

excess charge

Trade association groups that are eligible for group medical benefits normally are

in the same industry

The first portion of a covered Major Medical insurance expense that the insured is required to pay is called the

initial deductible

All of the following are limited benefit plans EXCEPT *

life insurance policies

A partnership owns, pays for, and is the beneficiary of life insurance policies on the lives of its individual partners. This is known as

n entity buy-sell plan

Upon receipt of proof of loss from a claimant, a life or health insurer must begin any necessary investigation within

ncorrect. The correct answer is "15 days ". Upon receipt of proof of loss from a claimant, a life or health insurer must begin any necessary investigation within 15 days.

A Health insurance plan pays benefits directly to the hospital for services provided, can do so through the use of which of the following?

ncorrect. The correct answer is "Collateral assignment". A Health insurance plan pays benefits directly to the hospital for services provided through collateral assignment.

Fee-for-service is a method of administering health insurance benefit payments in which

the cost of each service is scheduled

Robert and his employer agree on the purchase of a split-dollar life insurance policy and the usual split-dollar approach to premium payments. Each year, the employer will contribute to the premium an amount equal to

the increase in the policy's cash value

In addition to the suspension or revocation of a license and any other penalties, if a producer violated any provision of the law, for which no specific fine is listed, the Commissioner may impose a fine up to:

$5,000 for the first violation and $10,000 for each subsequent violation

Which of the following scenarios would an insurance company NOT require an applicant to undergo a medical examination to qualify for health insurance?

Applicant's family members have a history of heart problems

Any person failing to comply with a subpoena issued by the Commissioner of Insurance

Correct. Any person failing to comply with a subpoena issued by the Commissioner of Insurance may be punished by the Superior Court for contempt.

What of the following is not true of a viatical settlement broker?

Correct. Continuing education is required of a viatical settlement broker.

The Armstrong Investigation helped to set patterns for many states to follow as regards to which of the following?

Correct. The Armstrong Investigation helped to set patterns for many states to follow as regards to insurance regulation.

The regulatory climate for the insurance business has been affected by a number of court cases and acts of Congress. What was established by passage of the McCarran-Ferguson Act?

Correct. The McCarran-Ferguson Act established that the extent state laws apply, insurance is exempt from antitrust laws.

ABC Life Insurance company's home office is located in Massachusetts and is incorporated in Massachusetts. In Kentucky they are considered to be

Incorrect. The correct answer is "Foreign". A foreign insurer is an insurance company that is incorporated in another state.

In the Paul Vs. Virginia case of 1868, it was determined that

Incorrect. The correct answer is "Insurance is not a transaction of commerce. ". In the Paul Vs. Virginia case of 1868, it was determined that insurance is not a transaction of commerce.

Which policy has benefits that are considered taxable?.

Incorrect. The correct answer is "Noncontributory Group Disability Income policy". The benefits from an employer-paid (noncontributory) Group Disability Income policy are taxable.

All of the following statements correctly describe the purpose of Social Security EXCEPT

It provides a source of income for a meaningful standard of living during retirement

Specialty care is provided by which of these health maintenance organization (HMO) providers?

Neurologist