ALABAMA INSURANCE TEST

Nick has a Major Medical insurance policy with a $1,000 deductible, an 80% coinsurance clause, and a $1,500 stop-loss feature. He is hospitalized and incurs the following covered expenses: $10,000 hospital room and board, $2,500 surgeon's fee. What is Nick responsible for paying?

$1,500

If an insured under a Major Medical insurance policy with a $200 deductible and an 80% coinsurance clause incurred the following covered expenses: Hospital room and board $2,000; Surgeon's fee $1,500. How much would the policy pay?

$2,640 (2,000 + 1,500 = 3,500 - 200 = 3,300 x .8)

A disability policy in Alabama that is paid on a monthly basis is required to have a grace period of:

10

What percentage of eligible employees must be covered by noncontributory group insurance plans?

100%

Julio, the insurance producer, has allowed his license to lapse. He would like to reinstate his license without retaking a prelicense course or passing a written examination. To do this, Julio must reinstate the license within ___ months from the renewal date.

12

What is the minimum age requirement for a minor in Alabama to purchase a life insurance policy?

15

A Long Term Care insured must be unable to perform a minimum of __ Activities of Daily Living (ADLs) to receive benefits.

2

If a Long Term Care (LTC) policy in Alabama has been in effect for more than ___, the insurer CANNOT contest any material representation on the application.

2 years

The Notice of Claim Provision states that the insured notify the insurance company within __ days of a claim.

20

Bert purchased an immediate annuity with quarterly payments. When will this annuity start making payments?

3 months after the annuity is bought

Within how many calendar days must all clean electronic health insurance claims be paid in Alabama?

30

Within how many days of a written demand must the Commissioner of Insurance hold a hearing?

30

Required Provision 3 states that the minimum grace period for all policies (except those with monthly or weekly premium modes) is:

31 days

Under Alabama's annuity disclosure regulation, the disclosures must be mailed to the applicant within __ business days if the application is taken over the telephone.

5

Beginning at what age can an IRA owner start making withdrawals and NOT be subjected to a tax penalty?

59 1/2

Jackie took out a Medicare supplement insurance policy and also has a preexisting condition. In this situation, a preexisting condition is defined as a condition for which medical advice was given or received within _____ of the effective date of coverage.

6 months

Who would most likely own a Medicare Supplement policy?

69-year old female covered by Medicare

Bart is injured and provides notice of a health claim to his insurer. He later receives the required claims forms. Within how many days of the loss must Bart file proof of loss with the insurance company?

90

What is a certificate of insurance?

A certificate issued to each individual covered by the group life insurance

Kim has purchased a straight life annuity. What will this type of annuity provide her with?

A periodic income to the annuitant for life

Which of these is NOT considered a form of advertisement in Alabama?

A producer sending a Christmas card to a client

Which of these statements regarding an insurance application is true?

A representation is valid as long as it is true

Which of the following is an example of a "nonforfeiture value"?

After a policyowner cancels his/her permanent policy, the cash value accumulation must be made available to the policyowner

Which of the following statements is NOT correct?

Agents are allowed to waive certain policy provisions

An insurance producer must have which of the following in order to sell variable life insurance policies?

All of these

Which statement concerning Alabama's life insurance solicitation regulations is true?

All of these

Which of the following is NOT an example of insurable interest?

An airline insuring the lives of its passengers

Which of the following statements concerning a life insurance policy is TRUE?

An issued policy can never be changed by a producer

The Commissioner of Insurance may NOT do which of the following?

Change insurance laws

In regards to insurance applications, which of the following statements is true?

Changes on the application must be consented to in writing

Which type of assignment transfers a portion of the policyowner's right to another party in order to secure a debt to that party?

Collateral assignment

Which of the following is a TRUE statement regarding dental insurance?

Comprehensive dental care policies usually cover a percentage of reasonable and customary charges for non-routine treatment

Which type of term policy allows the policyowner to switch to permanent insurance?

Convertible term

A Cross Purchase Buy-Sell Agreement is in place for ABC Company's four founding partners. What would this agreement require if the agreement is funded with individual life insurance?

Each partner must own a policy on the other partners

Which of the following is NOT a factor typically used by insurers to classify risk?

Education level

Which of these statements accurately portray a whole life policy?

Endows at age 100 and paid up at a stated time

Paula has an insurance policy that has a guaranteed minimum cash value, a guaranteed death benefit, fixed premiums, and grows at a rate reflected by a selected fund index. Which type of life policy fits this description?

Equity indexed life

Which of the following is considered the "automatic" Nonforfeiture Option that most insurers will use?

Extended term

Ann is an employee covered by a Group Life plan through her employer. When Ann is terminated, her employer fails to inform her about the plan's conversion option. Two weeks later, Ann dies in an automobile accident. How will this situation be handled?

Full benefits must be paid by the insurer

At certain ages or dates, an insured can increase the stated benefit (within limits) under their disability income policy, regardless of health. Which policy rider BEST describes this?

Future income option

Medicare Advantage (Medicare Part C) allows the utilization of benefits through a(n):

HMO, PPO, or traditional insurer

Which of these will NOT result in an increase in life insurance policy dividends?

Higher reserves

Which of the following does NOT describe a life income settlement option?

Income is paid until the principal amount decreases to zero

A retirement plan that can be started by an employee, even if another plan is in existence, is called a(n):

Individual Retirement Account (IRA)

Jan is named irrevocable beneficiary of Jim's life insurance policy. Which of the following statements is correct?

Jim needs Jan's permission to borrow the policy's loan value

A husband and wife are receiving annuity payments. When the husband dies, the wife still receives annuity payments for life. What kind of annuity is this?

Joint and survivor life annuity

A retirement plan intended for a sole proprietor and his/her employees would be a(n):

Keogh Plan

An individual unable to perform two or more Activities of Daily Living (ADLs) will trigger coverage from a _____ policy.

Long Term Care (LTC)

Don and Marie are married and each have a Major Medical plan provided by their employers. Don was born in August of 1969 and Marie was born in March of 1976. For their two dependent children,

Marie's plan is primary and Don's is secondary

Which of the following limits an insurance company's total exposure under a major medical policy?

Maximum lifetime benefit and a coinsurance provision

Which welfare program provides assistance to the needy?

Medicaid

Which is NOT true regarding Medicare Supplement policies?

Must include a minimum 20-day Free-Look provision

A Preferred Provider Organization (PPO) contract typically uses which payment arrangement?

Negotiated fee-for-service

Which dividend option allows a policyowner to use his/her dividends to buy life insurance on a single premium basis?

Paid-up additions option

Mary and Paul have individual disability income policies that both pay a $5,000/month benefit. Mary's policy has a 30-day elimination period, and Paul's policy has a five month elimination period. Which of the following statements is true?

Paul's premium is probably less than Mary's

What is a disability income policy designed to do?

Pay benefits to maintain the insured's current standard of living

Which of these is a correct statement?

Policy dividends cannot be guaranteed

Which of the following best describes a Health Maintenance Organization (HMO)?

Provides full medical services that stress preventative medicine

Which of the following dividend options allows the continuation of cash value accumulation?

Reduced paid-up insurance

Kris is receiving annuity payments that has not yet paid an amount which is equal to the purchase price of the annuity. If she were to die, her beneficiary would continue receiving annuity payments until this amount has been reached. What type of annuity is this?

Refund life annuity

Which of the following life insurance policies will build up cash value the fastest?

Single premiums

What kind of risk are amateur pilots normally classified as?

Special class risks

Which entity is responsible for the majority of regulations imposed on the insurance industry?

State government

A husband and wife purchases a life insurance policy that covers both of them. The policy paid nothing when the husband died. Two years later, the wife dies and a death benefit is paid to the beneficiary. Which type of policy is this?

Survivorship life policy

How are employer-paid premiums for employee group health insurance normally treated for tax purposes?

Tax deductible to the employer/Nontaxable to the employee

John is an annuitant who has surrendered his annuity at age 55. What will he pay?

Tax on the interest earned

What use does a business have for a key employee disability insurance policy?

Temporarily replace a disabled key employee

In which of the following ways does term life insurance and whole life insurance differ?

Term insurance does not build cash value

The period of time during which a surviving spouse does not qualify for Social Security survivor or retirement benefits is called:

The Blackout Period

Rick owns a $100,000 life insurance policy with a cash value of $10,000. How much can he borrow up to?

The accumulated cash value ($10,000 less interest)

John has recently died and it was discovered that he was actually ten years older than what was listed on his life insurance policy. What will the insurer pay his beneficiary?

The amount of insurance that his premiums would have purchased at his correct age

Amy owns a disability income policy with a noncancellable renewal provision. Which of the following is guaranteed in her policy?

The coverage and premium rate are guaranteed

What is vesting?

The employee's right to the employer's contributions in a retirement plan if employment terminates prior to retirement

Who does the insurance agent legally represent?

The insurance company

Which of the following provisions may NOT be adjusted in an adjustable life policy?

The insured

What does renewable term guarantee?

The insured's insurability

All of these statements concerning a Key Employee Life policy is true, EXCEPT:

The key employee names the beneficiary

In Alabama, when are newborns covered under a health policy?

The moment of birth

An insurance company may cancel a life insurance policy under which of the following conditions?

The outstanding policy loan exceeds the cash value of the policy

What describes a level term policy?

The premium and the protection remain constant for the term of the policy

Which of the following statements about a noncancellable policy is FALSE?

The premium rate CAN be increased over time

All of these statements concerning the coordination of benefits are true, EXCEPT:

The secondary insurer does NOT pay benefits

Which of the following is a true statement?

The withholding of information that should have been provided to an insurer is called concealment

Which of these statements concerning COBRA is correct?

Under COBRA, dependents of employees covered by group plans have the same extension and conversion privileges available to them as the employee

Susan owns a life insurance policy that has accumulated $10,000 in cash value in which she can no longer pay its premiums. If she elects to take the extended term option, which of these actions would she take?

Uses the $10,000 to buy term insurance of the same face amount as her original policy

What do Major Medical policies typically cover?

Usual, customary, and necessary expenses

Carol is a life insurance policyowner who has transferred her ownership to a third party in exchange for a percentage of the death benefit. What is this called?

Viatical settlement agreement

Who does a disability income policy normally cover?

Wage earners

Which provision allows a disability income policy to remain in force without further payments when the insured has become totally and permanently disabled?

Waiver of premium

Which of these is NOT a reason the insurance application is important?

When attached to the policy, the application becomes part of the insurance clause

When does "adverse selection" exist?

When the risks accepted for insurance has a HIGHER likelihood of experiencing loss than an average group

All of these are correct concerning group life insurance, EXCEPT:

Whole life insurance is the form of insurance typically used in group life insurance

A written agreement that involves two or more parties and consideration is:

a contract

An insurance company licensed to do business in Alabama, but incorporated in another state, is called:

a foreign company

Benefits under a health insurance policy may (with the insured's written request) be payable to:

a hospital, physician, or surgeon

A substandard or special class risk typically results in:

a premium that is higher than for a normal risk

Individual disability income policies normally have a premium that:

adjusts annually

John purchases insurance because he expects to experience a loss. This is known as:

adverse selection

Medicare eligibility is typically based on:

age

According to Alabama law, a minor:

age 18 can begin receiving life insurance death benefits of up to $3,000 per year

An example of a life insurance beneficiary is a(n):

all of these

Ron turned over all rights in his policy over to an assignee. This is called:

an absolute assignment

An insurance company licensed to solicit insurance in a specific state is called:

an admitted company

A licensed Alabama insurance producer would NOT be disciplined by the Commissioner of Insurance for:

being convicted of a misdemeanor

Under a Health Maintenance Organization (HMO), service providers are paid a fixed monthly fee for each member. This concept is called:

capitation

The withholding of facts in an insurance application is called:

concealment

Ed has an insurance policy with an insurance company. Before Ed's policy will pay a claim, certain events must occur. Because of this, an insurance policy is considered to be:

conditional

Pat applies for insurance, pays the initial premium, and receives a document from the agent. This document indicates that if the policy is issued, coverage begins on the date of the document. This document is called a(n):

conditional receipt

Rodney applies for an insurance policy and pays the first premium. The receipt given for the first premium is called a(n):

conditional receipt

An insurance contract is said to be a(n) _____ because there is a mutual reliance of truthfulness on both parties.

contract of utmost good faith

Which type of life insurance rider allows a policyowner to increase the level of coverage to keep up with inflation?

cost of living rider

An accidental death rider claim is usually paid if the insured:

dies within 90 days of the accident

When an estate is named beneficiary to a life insurance policy, the policy proceeds are:

distributed according to state law

The exclusions and conditions in an insurance contract are required to be conspicuous, plain, and clearly stated. There should be no surprise when an insurance company denies a claim for a hidden clause. This is called the:

doctrine of reasonable expectations

The maximum amount of coverage placed on a disability income policy is based on the insured's:

earned income from the previous year

A policyowner can collect the face amount on what type of policy?

endowment policy

The aviation exclusion:

excludes coverage when the insured is riding in certain kinds of air travel

The agreement between a producer and the insurance company specifies the authority given to a producer to act on behalf of the insurer. This is called:

expressed authority

An insured owns a policy which includes a disability income rider. The disability benefit amount paid to the insured is based on the:

face amount of the policy

The life and health insurance marketing system utilizing non-employee agents that represent just one insurance company and are often paid an allowance to cover office expense and staffing is the:

general agency system

A Long Term Care (LTC) policy has a minimum renewability level of:

guaranteed renewable

In Alabama, all Health Maintenance Organizations must:

have a complaint system to resolve written complaints from enrollees

Pat the producer just sold an insurance policy to a client, explaining that he has authority to issue the policy. Pat was not specifically granted this power from the insurance company. Pat is exercising:

implied authority

A life insurance beneficiary has chosen a settlement option in which the principal never decreases unless the beneficiary makes a withdrawal. This settlement option is called the:

interest only option

Tim has a Universal Life policy. The cash value growth in his policy is:

interest sensitive

A life insurance policy owned by a third party:

is used largely in estate-planning as well as business situations

Extended residence in a nursing home is covered by a(n):

long-term care policy

What does Disability Buy-Sell insurance provide?

lump-sum benefits

An insurance premium can be defined as:

money paid to an insurance company for benefits provided in the policy

How frequently does a disability income policy typically pay benefits?

monthly

The number of an insurance company's health insureds that is expected to become sick or injured is called:

morbidity experience

According to Alabama law, agents of a Health Maintenance Organization (HMO):

must be licensed as insurance producers

A disability policy that must be renewed, cannot be cancelled until age 65, and may not have an increase in premium for any reason is called a(n):

noncancellable policy

Policy dividends for life insurance are:

not guaranteed

Insurance policies issued by companies which allow their policyowners to participate in the favorable experience of the company through payment of dividends are known as:

participating policies

A policy owner with an automatic premium loan provision must:

pay back the loan amount to keep the policy's cash value at its maximum

Which type of life insurance policy combines insurance protection with an accumulation of cash value?

permanent insurance

An insured should be restored to the approximate financial condition occupied before the loss occurred. This is called the:

principle of indemnity

An insurance producer who offers a potential client something of value as an incentive to purchase insurance is engaging in:

rebating

An insurance company that cedes a portion of an insured's coverage to another insurer is said to be engaged in:

reinsurance

XYZ Insurance Company issued a new life policy to an insured that replaced an existing policy. XYZ Insurance Company is considered to be the:

replacing insurer

In regards to a life insurance policy or an annuity contract, all statements made on the application are considered to be:

representations

Alabama's annuity disclosure regulation:

requires the delivery of a buyer's guide and a disclosure document to an annuity applicant

Shawn has a waiver of premium rider on his life insurance policy. He becomes disabled for 3 years, during which the insurance company waives $3,000 in premiums. When Shawn recovers, he must:

resume paying premiums again

Barbara has the right to change the beneficiary designation on her life insurance policy. Barbara's beneficiary is a(n):

revocable beneficiary

The proceeds of a life insurance policy can be paid in a form other than a lump-sum payment. These forms of payment are called:

settlement options

When medical expenses reach a certain dollar amount, the insured is no longer responsible for sharing the cost of expenses. The insurance company then pays 100% of the covered expenses. This major medical policy provision is called a(n):

stop-loss limit

Total disability can be defined as "the insured's inability to perform the occupation for which he/she is reasonably qualified by education, training, or experience." For disability income insurance purposes, this definition is known as:

the "own occupation" definition

The monthly benefit of an Annuity Certain is determined by:

the annuitant's payout period selection

With key employee life insurance,

the company is the owner of the policy

An insurance producer represents the:

the insurance company

The objective of insurance is:

the transfer of risk

Wayne is covered under a nonoccupational group health policy. He is hurt while traveling for business and requires a lengthy hospital stay. His group health policy refuses to pay for hospital expenses because

this is considered a job-related accident

Any individual who has failed two Alabama insurance licensing examinations must wait how long before retaking it a third time?

three months

In Alabama, an insurer who violates state laws for the payment of insurance commissions may be fined up to:

three times the amount of the commissions paid

If an insured commits suicide, a life insurance policy's face amount will be paid only after the policy has been in force for at least:

two years

Risk is best defined as the:

uncertainty of loss

A waiver of premium:

waives the premiums when the policyowner becomes totally disabled

According to Required Provision 4, when an insured applies for reinstatement of a health policy and receives a conditional receipt, how long does the insurer have to approve or deny?

within 45 days of the date of application

The option to convert term life insurance to a permanent form of coverage can normally be executed:

without proof of insurability