RMI3011

10) New employees at Jarvis Company cannot participate in the group term life insurance plan until they have worked at the company for three months. This initial period before a new employee can participate is called a(n) A) probationary period. B) elimination period. C) open enrollment period. D) eligibility period. Answer: A Question Status: New 11) Which of the following statements about Blue Cross Plans is (are) true? I. They provide coverage for physicians' and surgeons' fees. II. They usually provide benefits for hospital charges. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 12) What is the purpose of stop-loss insurance that is used with self-insured group medical expense plans? A) to require employees to buy insurance for losses in excess of some specified amount B) to have a commercial insurer pay claims that exceed a specified limit C) to obtain administrative services from a commercial insurer D) to exempt self-insured plans from state insurance laws that require mandated benefits Answer: B Question Status: Previous Edition 13) All of the following are reasons why employers self-insure medical expense plans EXCEPT A) to reduce certain costs, such as premium taxes and commissions. B) to provide mandated state benefits. C) to retain funds until needed to pay claims. D) to eliminate the need to comply with separate state laws. Answer: B Question Status: Previous Edition 14) A key feature of group medical expense plans is the employee being required to pay a percentage of covered expenses in excess of the deductible. This feature is A) other insurance. B) coinsurance. C) pro-rated insurance. D) reinsurance. Answer: B Question Status: Previous Edition 15) Which of the following statements about recent developments in group medical coverage is (are) true? I. After increasing for many years, the premiums for group medical expense coverage have finally started to decline. II. A growing number of employers are offering plans with higher deductibles for employees. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 16) A deductible under which expenses are accumulated on an annual basis, and once a specified total is reached, the deductible is satisfied for the year is called a A) calendar-year deductible. B) prospective deductible. C) straight deductible. D) waiting period. Answer: A Question Status: Previous Edition 17) Which of the following is (are) characteristics of HMO managed care plans? I. Unlimited choice of physicians and hospitals II. Emphasis on controlling the cost of covered services A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 18) Which of the following statements about HMO managed care plans is (are) true? I. There is an emphasis on controlling costs. II. They provide narrow, limited, medical services to members. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Revised 19) An HMO physician who determines if medical care from a specialist is necessary is called a(n) A) capitator. B) internist. C) network facilitator. D) gatekeeper. Answer: D Question Status: Previous Edition 20) An HMO that contracts with two or more independent group practices to provide medical services to covered members is called a(n) A) group model HMO. B) network model HMO. C) staff model HMO. D) individual practice association HMO. Answer: B Question Status: Previous Edition 21) Which of the following statements about preferred provider organization (PPO) health plans is (are) true? I. A PPO plan contracts with health care providers to provide medical services to members at reduced fees. II. Plan members are given a financial incentive to use PPO providers rather than other providers. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 22) Which of the following statements concerning managed care plans is true? I. Most employees are covered under some form of managed care plan. II. Managed care plans emphasize cost controls and preventative care. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: New 23) All of the following statements about HMOs are true EXCEPT A) They organize and deliver health care services. B) HMOs place a heavy emphasis on controlling the cost of covered services. C) HMO members pay nothing for medical care until care is provided, then they must pay high deductibles and large coinsurance payments. D) The selection of physicians is usually limited to physicians affiliated with the HMO. Answer: C Question Status: Previous Edition 24) Which of the following statements regarding group long-term disability income insurance plans is (are) true? I. These plans are usually limited to occupational disabilities. II. These plans typically use a more restrictive definition of disability after an initial period of disability, such as two years. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 25) Connors Company self-funds the medical expense benefits that it provides to its employees. Connors Company has a contract with a commercial health insurance company providing that the health insurance company will pay all claims in excess of $250,000. The arrangement with the health insurance company is called A) reinsurance. B) managed care. C) stop-loss insurance. D) coinsurance. Answer: C Question Status: Previous Edition 26) Some employers offer employees a choice of health care plans which are designed to make employees more sensitive to health care costs, to provide an incentive to avoid unneeded care, and to seek low-cost health care providers. Such plans are called A) employee assistance plans. B) consumer-directed health plans. C) cafeteria plans. D) preferred provider organization (PPO) plans. Answer: B Question Status: Previous Edition 27) Maria is covered under a group medical expense plan as an employee. She is also covered under her husband's plan as a dependent. If Maria is hospitalized, how will each plan respond to her medical bills if both plans have the typical coordination-of-benefits provision? A) Maria's plan is primary, and her husband's plan is excess. B) Her husband's plan is primary, and Maria's plan is excess. C) The primary plan is determined by which birthday, Maria's or her husband's, occurs first in the year. D) Both plans will pay benefits on a pro rata basis. Answer: A Question Status: Previous Edition 28) Under one type of HMO, the physicians are employees of the HMO and are paid a salary and sometimes an incentive bonus to hold down costs. This type of HMO is called a(n) A) individual practice association (IPA). B) staff model. C) group model. D) network model. Answer: B Question Status: Previous Edition 29) Which of the following statements about the continuation of group health insurance under the COBRA law is true? A) A continuation of coverage must be made available even if an employee voluntarily terminates employment. B) The length of the continuation of coverage is 90 days. C) The option to continue coverage applies to minor children only, not to adults. D) The employer must pay the entire cost of coverage during the continuation period. Answer: A Question Status: Previous Edition 30) All of the following statements about cost controls in dental insurance plans are true EXCEPT A) The coinsurance percentage used may vary by type of dental service. B) Cosmetic dental work is usually excluded. C) The limit on benefits may be expressed as an annual limit or as a lifetime limit for certain types of dental services. D) To eliminate small claims, there is no coverage for routine oral examinations, X-rays, or cleaning teeth. Answer: D Question Status: Previous Edition 31) Which of the following statements about group short-term disability income plans is true? A) Most plans pay benefits for a period of 3 to 5 years. B) Most plans cover occupational disabilities only. C) Most plans provide benefits for total disabilities only. D) Most plans have a 90-day elimination (waiting) period. Answer: C Question Status: Previous Edition 32) Which of the following statements about group short-term disability income plans is true? A) Most plans have a short elimination period for accidents but cover sickness from the first day of disability. B) Disability is usually defined in terms of a worker being unable to work in any substantial, gainful, employment. C) The amount of disability income benefits typically is equal to some percentage of a worker's normal earnings. D) Most short-term plans cover occupational disability only. Answer: C Question Status: Previous Edition 33) Which of the following statements about group long-term disability income plans is true? A) The definition of disability becomes less restrictive after a worker has been disabled for 2 years. B) Coverage is provided for both occupational and nonoccupational disabilities. C) Benefits are increased if a worker is eligible for Social Security or workers compensation benefits. D) Maximum monthly benefits under long-term disability income plans are significantly lower than the benefits paid under short-term disability income plans. Answer: B Question Status: Previous Edition 34) Which of the following statements about cafeteria plans is (are) true? I. Unspent flexible spending account balances are refunded to the employee, tax-free, at year-end. II. Cafeteria plans enable employees to select benefits that meet their specific needs. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 35) Advantages of cafeteria plans include all of the following EXCEPT A) simplicity of benefit administration. B) employees can select benefits that best match their needs. C) reduced taxes for employees. D) greater employer control over increasing benefit costs. Answer: A Question Status: Previous Edition 36) Which of the following statements is (are) true concerning high deductible health plans? I. An employee can withdraw money tax-free from a health savings account or health reimbursement arrangement to pay covered medical costs. II. There is a cap on an employee's out-of-pocket expenses under the plan. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 37) Tracy is covered by a group dental insurance plan at work. At her latest check-up, the dentist notes that she needed crowns on two teeth. Under her plan, if the cost of dental work will exceed $500, the dentist submits the treatment plan to the insurer to calculate what the plan will cover and what the employee will pay. This provision is known as a A) mandatory second opinion. B) underwriting review. C) predetermination of benefits. D) claims audit. Answer: C Question Status: New 38) Most group health insurance plans have adopted the coordination-of-benefits rules developed by the National Association of Insurance Commissioners. Under these rules, if a dependent child is covered by both of the health insurance plans of the child's married parents, which health plan is primary for the child's medical expenses? A) always the mother's plan B) always the father's plan C) the plan of the parent whose birthday occurs first in the calendar year D) the plan of the parent who works for the larger employer, based on number of total employees Answer: C Question Status: Previous Edition 39) Turner Company self-insures its group health insurance plan. Turner entered into an agreement with ABC Insurance through which ABC handles the plan design, claims processing, and record keeping for Turner. The agreement between Turner and ABC is called a(n) A) preferred provider agreement. B) administrative services only contract. C) exclusive provider agreement. D) point-of-service contract. Answer: B Question Status: Previous Edition 40) Med Profs is a group of 18 doctors. These doctors work out of their own offices and treat patients on a fee-for-service basis. In addition, Med Profs doctors also agree to treat HMO members at reduced fees. The type of HMO that uses organizations like Med Profs is called a(n) A) group model plan. B) closed panel plan. C) individual practice association plan. D) network model plan. Answer: C Question Status: Previous Edition 41) Nancy's employer provides an interesting employee benefit plan. Each employee is given 250 employee benefit credits to spend. A wide array of benefits is available, and the employee uses benefit credits to select the benefits that he or she wants. This type of employee benefit plan is called a(n) A) defined benefit plan. B) cafeteria plan. C) employee selection plan. D) contributory plan. Answer: B Question Status: Previous Edition 42) Marv is covered by a group health insurance plan at work. His employer funds the entire cost of the group health insurance. Because of this characteristic, the group health insurance plan can be described as A) defined benefit. B) contributory. C) defined contribution. D) noncontributory. Answer: D Question Status: Previous Edition 43) Doris started a business 2 years ago. The business has been successful, and Doris is thinking about offering some employee benefits for her workers. She plans to offer a group term life insurance benefit. All of the following are usual eligibility requirements for participation in a group life insurance plan EXCEPT A) full-time employment. B) be actively at work when insurance becomes effective. C) apply for insurance during the eligibility period. D) satisfy a 2-year probationary period. Answer: D Question Status: Previous Edition 44) Which of the following statements is (are) true with regard to group life insurance? I. Most group life insurance is whole life coverage. II. Most group life insurance plans allow a modest amount of life insurance on the employee's spouse and dependent children. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 45) HMOs typically pay network physicians or medical groups a fixed annual or monthly payment for each member, regardless of the frequency or type of service provided. This payment is called a A) pro-rata charge. B) persistency bonus. C) capitation fee. D) corridor payment. Answer: C Question Status: Previous Edition 46) The Affordable Care Act requires employers with 100 or more employees to provide health insurance on the employees or pay a penalty if at least one employee receives a tax credit and coverage through the Health Insurance Marketplace. This requirement—providing insurance or paying a fine—is known as the A) single-payer solution. B) employer shared responsibility. C) essential benefit requirement. D) portability requirement. Answer: B Question Status: New 47) Under older group medical expense plans, physicians were paid a fee for each covered service and were reimbursed on the basis of reasonable and customary charges, up to a maximum limit. These older group medical expense plans were called A) service medical plans. B) managed care plans. C) point-of-service plans. D) indemnity plans. Answer: D Question Status: Previous Edition 48) Which of the following is a characteristic of a health maintenance organization (HMO)? A) unlimited choice of health-care providers B) no premiums until care is provided C) narrow, limited, medical services provided D) emphasis on cost containment Answer: D Question Status: Previous Edition 49) Which of the following is a provision of the Affordable Care Act? A) strengthening the use of pre-existing conditions exclusions B) prohibition of harmful practices by insurers. C) introduction of annual and lifetime limits to control costs D) elimination of flexible spending accounts Answer: B Question Status: Previous Edition 50) The Affordable Care Act created program that enables small firms to offer health insurance to their employees. The program provides flexibility, choice, and the convenience of on-line account management. This program is called the A) Medical Advantage plan. B) Medicaid program. C) FAIR plan. D) SHOP Marketplace program. Answer: D Question Status: New 51) An employer-funded plan with favorable tax advantages, which repays employees for medical care not covered by the employer's standard medical plan is a(n) A) 401(k) account. B) individual retirement account (IRA). C) health reimbursement arrangement (HRA). D) flexible spending account (FSA). Answer: C Question Status: Previous Edition 52) Which of the following statements regarding recent developments in employer-sponsored health plans is (are) true? I. Preferred provider organizations (PPOs) continue to dominate group health insurance markets. II. The number of employers offering medical benefits to workers who retire early has increased. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 53) Under many cafeteria plans, employees make premium contributions with pre-tax dollars and a salary reduction that are used to purchase group health insurance or dental insurance. This type of cafeteria plan is called a A) health reimbursement arrangement plan. B) premium conversion plan. C) full-choice plan. D) flexible spending account plan. Answer: B Question Status: Previous Edition 1) Which of the following is a reason that social insurance programs exist? A) to compete with private insurance programs B) to provide a base of economic security C) to provide needs-tested benefits to low-income individuals D) to reduce involvement of the government in insurance markets Answer: B Question Status: Previous Edition 2) Which of the following statements about the characteristics of social insurance programs is true? A) Benefits are loosely related to a worker's earnings. B) Benefits are paid primarily on the basis of individual equity. C) Participation in social insurance programs is voluntary. D) Social insurance programs must be fully funded at all times to pay required benefits. Answer: A Question Status: Previous Edition 3) Which of the following statements about the characteristics of social insurance programs is true? A) They are designed to provide a floor of income with respect to the risks that are covered. B) Social insurance benefits payments are unrelated to income. C) Participants are required to satisfy a means test to receive benefits. D) With few exceptions, participation in social insurance programs is voluntary. Answer: A Question Status: Previous Edition 4) Which of the following statements about participation in the Social Security program is (are) true? I. Most private sector employees are covered under the Social Security program. II. Each employee has the right to "opt out" of the Social Security program if the employee does not wish to participate in the program. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 5) One insured status under Social Security requires you to have earned at least six credits during the last 13 calendar quarters ending with the quarter of death, disability, or entitlement to retirement benefits. This insured status is A) disability insured. B) temporarily insured. C) fully insured. D) currently insured. Answer: D Question Status: Previous Edition 6) As of this year, Brad, age 50, has 40 credits under the Social Security program. These credits were all earned in the last 10 years. What is Brad's insured status under the program? A) He is currently and fully insured. B) He is currently insured, but not fully insured. C) He is fully insured, but not currently insured. D) He is neither currently insured nor fully insured. Answer: A Question Status: Previous Edition 7) Which of the following statements about the full retirement age under the Social Security program is true? A) The current retirement age for full benefits is age 62. B) Beginning in the year 2025, the retirement age will be gradually increased to age 75. C) Early retirement with reduced benefits is allowed as early as age 55. D) Delayed retirement beyond the age for full benefits increases the amount of the monthly benefit. Answer: D Question Status: Previous Edition 8) All of the following persons are eligible for a benefit under the retirement portion of the Social Security program EXCEPT A) a divorced spouse, age 55, who was married to the retired worker for 6 years. B) a retired worker's 63 year-old spouse who is no longer caring for children. C) a retired worker's 52 year-old spouse who is caring for a 12 year-old daughter of the retired worker. D) a retired worker's unmarried 20 year-old son who has been severely disabled because of an automobile accident while he was in elementary school. Answer: A Question Status: Previous Edition 9) Which of the following statements about a worker's primary insurance amount is (are) true? I. It is the monthly amount paid to a worker who elects early retirement at age 62. II. It is equal to 50 percent of the worker's final average pay that was subject to Social Security taxes. A) I only B) II only C) both I and II D) neither I nor II Answer: D Question Status: Previous Edition 10) Which of the following statements about the Social Security cost-of-living adjustment is (are) true? I. The amount of the adjustment is limited to a maximum of 2.5 percent annually. II. Increases are based on changes in the consumer price index. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 11) Which of the following statements is (are) true with respect to the Social Security earnings test? I. The earnings test does not apply to dividends, interest, and rental income. II. The earnings test does not apply to work earnings for those individuals who have reached the full retirement age under Social Security. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 12) All of the following persons are eligible for survivor benefits under Social Security EXCEPT A) dependent parents age 62 or older. B) a surviving brother or sister, age 60 or older. C) a surviving spouse age 60 or older. D) a surviving spouse with eligible children younger than age 16. Answer: B Question Status: Previous Edition 13) Which of the following statements about disability benefits under Social Security is true? A) There is a one-year waiting period before benefits are payable. B) Benefits are payable as long as the disabled worker is unable to perform his or her regular occupation. C) Benefits are payable only if the condition causing the disability is expected to result in death prior to age 65. D) In addition to the disabled worker receiving the benefits, benefits can also be paid to eligible dependents. Answer: D Question Status: Previous Edition 14) In addition to most persons over age 65, which of the following persons is (are) eligible for Medicare benefits? I. Persons under age 65 who have been entitled to Social Security disability benefits for at least 24 months II. Persons under 65 who need long-term kidney dialysis treatment or a kidney transplant A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 15) Which of the following statements about the coverage of health care services under Part A of Medicare is (are) true? I. Services in the patient's home are covered if the patient requires skilled care and meets certain conditions. II. Hospice care is available for beneficiaries with a terminal illness. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 16) Which of the following statements about hospice benefits under the hospital insurance (Part A) portion of Medicare is (are) true? I. To become eligible for hospice care, a patient must first receive inpatient care for at least 10 consecutive days. II. Hospice benefits are provided to persons who are terminally ill. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 17) Which of the following expenses is covered under the medical insurance (Part B) portion of the Medicare program? A) long-term care in a skilled nursing facility B) the fee charged by a surgeon for an operation C) the cost of a semi-private room during a hospital stay D) routine prescription drugs outside of the hospital Answer: B Question Status: Previous Edition 18) Which of the following statements about the medical insurance (Part B) portion of Medicare is (are) true? I. Participation in Part B of Medicare is voluntary. II. It is provided at no cost to anyone who is fully insured under Medicare. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 19) Which of the following statements about the role of physicians with respect to Medicare claims is (are) true? I. Physicians who do not accept an assignment of Medicare claims can charge as much as 200 percent of the Medicare-approved fee. II. Physicians who accept assignment agree to accept the Medicare-approved amount as payment in full. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 20) Which of the following statements about Medigap policies is (are) true? I. Insurers are required to have an open enrollment period of 6 months from the date an applicant first enrolls in Medicare Part B and is age 65 or older. II. Most policies are of limited value because they largely duplicate benefits already provided by Medicare. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 21) Which of the following statements about the financing of the Social Security program is (are) true? I. Although the self-employed pay an OASDI tax rate that is twice the employee rate, they are allowed certain deductions that reduce the effective tax rate. II. The earnings base on which OASDI taxes are paid increases annually based on changes in average wages in the national economy. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 22) Objectives of unemployment insurance include which of the following? I. To help unemployed workers find jobs. II. To encourage employers to stabilize employment. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 23) In order to receive unemployment insurance benefits, an unemployed worker must meet all of the following eligibility requirements EXCEPT A) have qualifying wages and employment. B) be able to work. C) be actively seeking work. D) satisfy a 6-month waiting period. Answer: D Question Status: Previous Edition 24) Which of the following statements about unemployment insurance benefits is true? A) Benefits are a flat amount regardless of a worker's previous wages. B) Because of federal legislation, the maximum benefit is the same in all states. C) Most states pay regular benefits for a maximum duration of 26 weeks. D) Under the extended benefits program, the federal government continues benefit payments for up to 3 years for workers who have exhausted their regular benefits. Answer: C Question Status: Previous Edition 25) Which of the following statements about the financing of unemployment insurance benefits is true? A) Each state maintains its own trust fund at the state level, and the state pays qualified beneficiaries from the trust fund the state administers. B) While experience rating is used for other types of insurance, it is not used in unemployment insurance. C) Part of an employer's contribution is used for administrative expenses, to fund extended benefits, and to maintain a loan fund that can be drawn upon if the state's account is depleted. D) Most state programs are financed primarily by payroll taxes paid by employees. Answer: C Question Status: Previous Edition 26) Which of the following statements about the problems and issues of unemployment insurance programs is (are) true? I. Many state programs are inadequately financed. II. Only a small portion of the total unemployed receive benefits at any time. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 27) Prior to the passage of workers compensation laws, all of the following common law defenses could be used by employers to avoid financial responsibility for work-related injuries EXCEPT A) contributory negligence. B) the fellow-servant doctrine. C) assumption of the risk. D) employer liability laws. Answer: D Question Status: Revised 28) Which of the following statements about workers compensation programs is true? A) Injured workers must prove the employer was responsible for their injuries to collect benefits. B) Workers compensation disability income benefits (amount and duration) are uniform from state to state. C) Options available for complying with the law may include one or more of the following: self-insurance, private insurance, or insurance through a state fund. D) Most states have elective laws whereby the employer can choose whether or not to provide workers compensation coverage to employees. Answer: C Question Status: Previous Edition 29) Which of the following statements about benefits provided by workers compensation programs is true? A) Occupational disability and nonoccupational disability are covered. B) Death benefits and benefits to eligible survivors are payable if a worker is killed on the job. C) Medical benefits are usually subject to deductibles, coinsurance, and numerous exclusions. D) Retirement benefits are payable to retired workers through workers compensation. Answer: B Question Status: Previous Edition 30) Which of the following is a current problem with workers compensation programs? A) declining involvement of lawyers in workers compensation claims B) exclusion of deaths and injuries attributable to terrorism C) exclusion of benefits for occupational illness D) overuse of opiate prescription drugs in workers compensation. Answer: D Question Status: Revised 31) Which of the following statements about problems and issues in workers compensation insurance is (are) true? I. Uncertainties created by the increasing use of medical marijuana is a growing problem for employers. II. Enactment of the Affordable Care Act led many employers to stop offering medical benefits as part of the workers compensation coverage on their employees. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Revised 32) Marion owns substantial financial assets. She was surprised that she qualified for Social Security retirement benefits when she retired because of her high investment income. What characteristic of social insurance programs is Marion overlooking with respect to her Social Security retirement benefits? A) Social insurance programs are financially self-supporting. B) Social insurance program benefits are loosely related to earnings. C) Social insurance benefits are not means tested. D) Full funding of social insurance programs is unnecessary. Answer: C Question Status: Previous Edition 33) Tony is 48 years old. He earned the maximum taxable wage base under Social Security annually between the time when he was 26 and when he was 40. At age 40, he dropped out of the workforce to care for children as his wife had a high-paying job. Which statement is true regarding Tony's insured status under Social Security? A) Tony is fully insured and currently insured. B) Tony is fully insured, but not currently insured. C) Tony is currently insured, but not fully insured. D) Tony is neither fully insured nor is he currently insured. Answer: B Question Status: Previous Edition 34) Frank is doing some life insurance planning. A financial advisor said, "be sure to consider Social Security when examining sources of funds available for family support if you die." The financial advisor was referring to which Social Security benefit? A) retirement benefits B) survivor benefits C) disability benefits D) health insurance benefits Answer: B Question Status: Previous Edition 35) Which of the following statements is true with regard to the Medicare program? A) While Social Security old-age benefits are available at age 62, Medicare Part A benefits are not available, in most cases, until age 65. B) If an individual delays collecting Social Security retirement benefits until after the full retirement age, he or she is not eligible for Medicare benefits until he or she begins to collect retirement benefits. C) Part B of Medicare is funded through a payroll tax. D) Beneficiaries must pay a monthly premium for Medicare Part A coverage. Answer: A Question Status: Previous Edition 36) Which of the following statements is (are) true with respect to the Medicare Advantage Plans? I. These plans replace the original Medicare program, Parts A and B, which are no longer available to new retirees. II. These plans provide an opportunity for retirees to receive Medicare coverage through private health care plans. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 37) Dale, age 65, was dismayed to learn about all of the deductibles, co-pays, limits, and exclusions in the Medicare program. Dale bought a type of health insurance specifically designed to supplement Medicare, and selected his coverage from among 10 standard policies that private insurers offer. What type of health insurance did Dale purchase? A) long-term care insurance B) Medigap insurance C) major medical insurance D) viatical insurance Answer: B Question Status: Previous Edition 38) EFG Company experienced a reduced demand for its products during a recession. EFG managers were considering laying off some workers when the personnel director said, "Let's not lay off these workers. If we do, our unemployment insurance premiums will increase. The state considers employment stability when determining our premium." Considering the firm's employment record when determining the rate to charge for unemployment insurance is called A) experience rating. B) class rating. C) schedule rating. D) retrospective rating. Answer: A Question Status: Previous Edition 39) Beth was injured at work and is eligible to receive workers compensation benefits. All of the following benefits are provided under workers compensation EXCEPT A) disability income. B) retirement benefits for dependents. C) rehabilitation benefits. D) medical care. Answer: B Question Status: Previous Edition 40) Marco, a risk manager in California, is interviewing for a new position in the state of Washington. When Marco asked about methods of providing workers compensation, the answer surprised him. In Washington, employers can self-insure the risk or obtain coverage through a state fund. Private insurers do not market workers compensation insurance in Washington. Washington uses a A) competitive state fund. B) guaranty fund. C) reinsurance facility. D) monopoly state fund. Answer: D Question Status: Previous Edition 41) Which of the following statements about the financing of OASDI and Medicare is (are) true? I. There is a maximum taxable wage base for OASDI. II. There is a maximum taxable wage base for Part A of Medicare. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 42) Which of the following statements about taxation of Social Security retirement benefits under federal law is (are) true? I. Social Security retirement benefits are never considered taxable income. II. Up to 85 percent of Social Security retirement benefits may be considered taxable income, depending on the amount of other income received by the beneficiary. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 43) Which of the following would help to reduce the long-range OASDI actuarial deficit? A) increasing the payroll tax rate B) increasing benefits C) reducing the taxable wage base D) increasing the cost of living adjustment Answer: A Question Status: Previous Edition 44) Which of the following statements about the Medicare prescription drug benefit is (are) true? I. Beneficiaries select a prescription drug plan and pay monthly premiums, with the premium reduced or waived for low-income beneficiaries. II. The benefit provides first-dollar coverage of prescription drugs up to a maximum of $10,000 per year, but no coverage after $10,000. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 45) All of the following statements about the Medicare Prescription Drug Plan are true EXCEPT A) Medicare prescription drug coverage is available to all Medicare beneficiaries. B) Medicare prescription drug coverage is funded exclusively through the Part A payroll tax. C) The Medicare prescription drug program provides financial help for beneficiaries with limited income and financial resources. D) In addition to the initial deductible, there is a coverage gap where the beneficiary must pay the entire cost of prescription drugs. Answer: B Question Status: Previous Edition 46) All of the following statements about the Medicare prescription drug benefit are true EXCEPT A) Beneficiaries are required to pay a monthly premium for the benefit. B) The plan provides protection against catastrophic prescription drug expenditures. C) Coverage is limited to when a beneficiary is hospitalized or a resident of rest home. D) The plan has a coverage gap before a beneficiary has coverage for catastrophic costs. Answer: C Question Status: Previous Edition 47) Under one type of Medicare Advantage Plan, members of the plan can see any doctor or health services provider that accepts Medicare patients. If members receive care outside the network of member physicians and care facilities, they must pay higher out-of-pocket costs. This type of Medicare Advantage Plan is a A) Medicare HMO. B) Medicare PPO. C) Medicare Special Needs Plan. D) Medicare Private Fee-for-Service Plan. Answer: B Question Status: Previous Edition 48) Which of the following statements concerning Medicare Prescription Drug Plans is (are) true? I. The monthly premium is based on the health status of the beneficiary and the number of prescriptions the beneficiary needs. II. After the beneficiary has paid an initial deductible, Medicare pays the entire cost of all prescription drugs the beneficiary needs. A) I only B) II only C) both I and II D) neither I nor II Answer: D Question Status: Previous Edition 49) Under Part A of Medicare, how is reimbursement for inpatient hospital care determined? A) The amount billed to Medicare by the hospital is the amount Medicare pays. B) Eighty percent of the hospital's regular charge for care is paid. C) The hospital's usual, reasonable, and customary charge is paid. D) Hospital care is classified into diagnosis-related groups (DRGs) and the amount reimbursed depends on the DRG classification of the care delivered. Answer: D Question Status: Previous Edition 50) Which of the following statements about the financial status of Medicare Part A is (are) true? I. Part A has serious financial problems. II. Reforms instituted by Congress have reduced total Part A expenditures in recent years. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 51) All of the following changes would reduce the long-range deficit for the Social Security program EXCEPT A) increase the OASDI taxable wage base. B) delay scheduled increases in the full retirement age. C) make all OASDI benefits fully taxable. D) use general revenues of the federal government to help pay benefits. Answer: B Question Status: Previous Edition 52) As an alternative to the Original Medicare Plan, beneficiaries can elect to enroll in private health insurance plans that cover all services that the Original Medicare Plan covers except hospice care. These private health insurance plans that are an alternative to the Original Medicare Plan are called A) Medigap Insurance Programs. B) PACE Programs. C) Medicare Advantage Plans. D) Medicare Prescription Drug Plans. Answer: C Question Status: Previous Edition 53) Under the Medicare Prescription Drug Program, a coverage gap (also called a "donut hole") exists after the beneficiary and drug plan pay a certain amount for covered drugs. The coverage gap refers to A) the large, up-front deductible that must be satisfied if the patient has a prescription for a covered brand-name drug. B) the temporary gap in coverage that begins when the beneficiary and drug plan pay a certain amount for covered drugs during the year and ends when the catastrophic limit is reached and coverage resumes. C) the temporary gap in coverage that begins after beneficiaries reach the lifetime limit on catastrophic drug expenses and ends when a new deductible is met and coverage resumes. D) the temporary gap in coverage that begins when prescription benefits terminate for beneficiaries who attain age 68 and resumes when beneficiaries attain age 72. Answer: B Question Status: Previous Edition 54) Which of the following statements regarding the Emergency Unemployment Compensation (EUC) program is true? A) EUC benefits are limited to individuals who have exhausted regular state benefits and have annual incomes below the federal poverty level. B) EUC benefits are funded entirely by the federal government. C) EUC benefits are limited to employees who have lost their job because of a labor dispute. D) EUC benefits are available on a case-by-case based and awarded at the discretion of the Secretary of Labor. Answer: B Question Status: Previous Edition 55) One type of Medicare Advantage Plans provides focused care for a specific group of people, such as diabetics and nursing home residents. This type of Medicare Advantage Plan is a A) Point of Service (POS) plan. B) Private Fee-for-Service plan. C) Health Maintenance Organization (HMO) plan. D) Special Needs plan. Answer: D Question Status: New 56) A serious current concern with the Social Security program is the depletion of the Disability Income Trust Fund. Each of the following contributed to the depletion of the fund EXCEPT A) aging of the workforce and baby boomers B) changing to a less stringent definition of disability C) the increased number of women in the workforce D) growth in the size of the labor force over time Answer: B Question Status: New 57) Which of the following statements about Social Security disability benefits is true? A) Benefits replace ninety percent of a disabled person's work earnings. B) A waiting period is not required for Social Security disability benefits. C) Social Security disability benefits are limited to a maximum duration of 60 months. D) A strict definition of disability is used in the Social Security program. Answer: D Question Status: New 58) An important current issue in state workers compensation programs is the overuse of a certain category of pain-killing drugs. These drugs have been associated with drug overdoses and drug addiction. This category of drugs is called A) hypertension drugs. B) statins. C) opiates. D) beta-blockers. Answer: C Question Status: New 59) Which of the following statements about the impact of the implementation of the Affordable Care Act (ACA) on workers compensation is true? A) Implementation of the ACA will increase fraudulent workers compensation claims. B) Implementation of the ACA will create higher healthcare provider prices. C) Implementation of the ACA will reduce the waiting time to see a physician, to have tests performed, and to begin physical therapy. D) Implementation of the ACA will discourage annual physical check-ups and implementation of workplace wellness programs. Answer: B Question Status: New 1) Which of the following statements about the tax implications of qualified pension plans is true? A) Investment income on plan assets is taxable in the year the investment income is earned. B) Employer contributions are deductible up to certain limits as an ordinary business expense. C) Employer contributions are considered taxable income to employees but are taxed at capital gains rates. D) Distributions from qualified pension plans are received tax-free by the retiree. Answer: B Question Status: Previous Edition 2) Beta Corporation has 1,000 employees eligible to participate in the firm's pension plan, and 100 of these employees are considered highly compensated. All of the highly compensated employees are covered by the plan. What is the minimum number of the 900 non-highly compensated employees who must be covered by the plan in order for the plan to satisfy the ratio percentage test? A) 500 B) 630 C) 667 D) 900 Answer: B Question Status: Previous Edition 3) What are the minimum age and service requirements that can be imposed on employees eligible to participate in a retirement plan? A) age 18 and 6 months of service B) age 21 and 1 year of service C) age 21 and 3 years of service D) age 25 and 4 years of service Answer: B Question Status: Previous Edition 4) Which of the following statements about retirement ages in defined benefit pension plans is (are) true? I. The normal retirement age in most plans is 65. II. For a defined benefit plan, the early retirement age is the earliest age an employee can retire with full, unreduced benefits. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 5) Which of the following statements concerning defined-benefit pension plans is (are) true? I. The contribution rate by the employer varies from year to year. II. The retirement benefit is not known in advance. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 6) Which of the following statements concerning defined contribution pension plans is (are) true? I. The contribution rate is fixed. II. The retirement benefit varies. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 7) All of the following are potential disadvantages to employees covered by a money-purchase pension plan EXCEPT A) The contribution rate by the employer is uncertain. B) The retirement benefit can only be estimated in advance of retirement. C) The benefit formula may produce an inadequate benefit if an employee enters the plan at an older age. D) The investment losses are borne by the employees. Answer: A Question Status: Previous Edition 8) Which of the following statements about retirement benefits under pension plans is true? A) Under a flat percentage of annual earnings defined benefit formula, each employee receives the same dollar benefit. B) A benefit using final pay is usually based on an employee's earnings during the last month of plan participation. C) A unit-benefit formula considers both earnings and years of service. D) Past service benefits are the result of bonuses and overtime pay during the period an employee participated in the plan. Answer: C Question Status: Previous Edition 9) Under a unit-benefit formula, benefits are a function of both A) earnings and years of service. B) age and earnings. C) age and gender. D) years of service and position within a firm. Answer: A Question Status: Previous Edition 10) Vesting refers to A) the employer's right to terminate contributions if a pension plan is adequately funded. B) the employer's right to recapture employee contributions to a pension plan if employment terminates prior to retirement. C) the employee's right to the employer's contributions or benefits attributable to the contributions if employment terminates prior to retirement. D) the employer's right to discriminate against non-highly compensated employees when determining pension benefit levels. Answer: C Question Status: Previous Edition 11) Which of the following statements about the minimum vesting standards for a qualified defined benefit plan is (are) true? I. Under cliff vesting, an employee must be at least 50 percent vested after 5 years of service. II. Under graded vesting, an employee must be at least 20 percent vested after 3 years of service and 100 percent vested after 7 years. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 12) Which of the following statements about the protection provided by the Pension Benefit Guaranty Corporation is (are) true? I. Only defined benefit plans are insured. II. Only benefits that are not yet vested are guaranteed. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 13) Which of the following distributions from a qualified retirement plan would be exempt from the 10 percent penalty tax if the distribution occurred before the covered employee was age 59.5? I. A distribution made to an employee with a qualifying disability. II. A distribution made to a beneficiary or to the employee estate's after the employee's death. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 14) As Social Security slants benefits in favor of lower-paid workers, the Internal Revenue Code permits employers to adjust pension contributions so that the overall contributions (pension plus Social Security) are nondiscriminatory. This adjustment permits employers to increase pension contributions for highly-compensated employees. Adjusting contributions to consider Social Security contributions is called A) prorating. B) indexing. C) offset. D) integration. Answer: D Question Status: Previous Edition 15) For a long-term employee who is covered by a defined benefit plan, the highest retirement income will be obtained if his/her retirement income is based on A) initial average pay. B) random year annual pay. C) career-average pay. D) final average pay. Answer: D Question Status: New 16) A financial institution that provides for the accumulation or administration of the funds that will be used to pay pension benefits is called a A) trust fund. B) mutual fund. C) funding instrument. D) funding agency. Answer: D Question Status: Previous Edition 17) Which of the following statements about pension funding agencies and funding instruments is true? A) Under a trust-fund plan, individual annuities are purchased each year for employees participating in the plan. B) A separate investment account is a group pension account with a life insurance company. C) If the funding instrument is a commercial bank, the plan is called an insured plan. D) Under a guaranteed investment contract, the insurer guarantees the principal of a lump sum deposit but does not guarantee the interest rate. Answer: B Question Status: Previous Edition 18) Which of the following statements about trust fund plans is (are) true? I. The trustee typically purchases annuities for retiring employees. II. The trustee guarantees the adequacy of the fund to pay the promised benefits. A) I only B) II only C) both I and II D) neither I nor II Answer: D Question Status: Previous Edition 19) Which of the following statements about Section 401(k) plans is true? A) Elective salary deferrals to these plans are free of federal income taxation until the funds are actually withdrawn. B) These plans are exempt from rules that prevent discrimination in favor of highly compensated employees. C) There is no limit on the actual percentage of salary that can be deferred by highly compensated employees under a qualified plan. D) If an employee takes the funds made available to him or her in cash, the money received is not taxable. Answer: A Question Status: Previous Edition 20) Which of the following statements about withdrawals from Section 401(k) plans is (are) true? I. The penalty tax does not apply to hardship withdrawals. II. Withdrawals may be made without penalty at age 59.5 or older. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 21) Which of the following statements concerning retirement plans for the self-employed is true? I. They can be used by owners of incorporated businesses only. II. With certain exceptions, the same rules that apply to qualified corporate plans apply to retirement plans for the self-employed. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: New 22) Which of the following statements about SIMPLE retirement plans is true? A) They are limited to employers with 100 or fewer eligible employees and who do not maintain another qualified plan. B) Employees are not permitted to make SIMPLE plan contributions. C) Employers are subject to more stringent nondiscrimination rules than those that apply to most qualified plans. D) Employer contributions are fully taxable in the year of the contribution, but qualified distributions are received tax-free. Answer: A Question Status: Previous Edition 23) Which of the following statements is (are) true with respect to SIMPLE retirement plans? I. Only large employers can start a SIMPLE plan, provided the employer does not maintain another qualified plan. II. SIMPLE plans are exempt from most nondiscrimination and administrative rules that apply to qualified plans. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 24) Rita went to work for a manufacturing company. The company offers a defined-benefit pension plan. The retirement benefit is equal to 1.5 percent multiplied by years of service with the company, and the result is multiplied by average salary in the three highest consecutive years of paid employment with the company. The benefit formula used at Rita's company is a A) flat dollar amount for all employees. B) flat percentage of annual earnings. C) flat dollar amount for each year of service. D) unit-benefit formula. Answer: D Question Status: Previous Edition 25) Which of the following statements is (are) true with respect to vesting under a qualified retirement plan? I. Vesting helps to reduce labor turnover. II. An employee who terminates employment after four years of service has no vested retirement benefit under cliff vesting. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Revised 26) Early distributions from qualified retirement plans are assessed a 10 percent penalty. However, there are some exceptions to this rule. All of the following distributions are exempt from the penalty tax EXCEPT A) lump-sum distributions made after age 59.5. B) lump-sum distributions made directly to the employee at any age when he or she changes employers. C) lump-sum distributions made after the death or permanent disability of the employee. D) distributions that are part of a series of substantially equal payments over the worker's life expectancy. Answer: B Question Status: Previous Edition 27) ACME Company is considering starting a retirement plan for its employees. One option ACME is considering is a profit-sharing plan. All of the following are advantages of this type of retirement plan EXCEPT A) The employer's cost is not affected by the age and the number of employees. B) Profit sharing plans provide an incentive for employees to work harder and more efficiently. C) The 10 percent penalty tax does not apply to distributions prior to age 59.5. D) ACME enjoys greater flexibility in employer contributions. Answer: C Question Status: Previous Edition 28) ABC Company offers a qualified retirement plan. ABC selected a funding instrument with an insurer in which the insurer promised to pay a specified interest rate for a number of years on a lump sum deposit. This funding instrument is called a A) trust-fund plan. B) group deferred annuity. C) separate investment account. D) guaranteed investment contract. Answer: D Question Status: Revised 29) RST Company offers a qualified retirement plan. Each employee contributes 4 percent of his or her pretax income to the plan, and RST matches the employee's contribution. An employee's benefit at retirement is determined by his or her account balance at the time of retirement. What type of retirement plan does RST offer? A) defined benefit, flat percentage of annual earnings B) defined benefit, flat dollar amount for all employees C) defined benefit, unit-credit formula D) defined contribution money purchase plan Answer: D Question Status: Previous Edition 30) Which of the following statements is true with regard to defined benefit and defined contribution pension plans? A) It's easier for an employer to determine its annual pension contribution under a defined benefit plan than under a defined contribution plan. B) When a new pension plan is installed, it's more beneficial for older workers if it's a defined contribution plan rather than a defined benefit plan. C) The employer bears the investment risk under a defined contribution plan, and the employee bears the investment risk under a defined benefit plan. D) With a defined benefit plan, the retirement benefit is known is advance but the contributions vary; with a defined contribution plan, the contribution rate is fixed but the retirement benefit varies. Answer: D Question Status: New 31) JKL Company just converted its traditional defined-benefit plan to another type of plan. Under the plan, benefits are defined in terms of a hypothetical account balance, with retirement benefits dependent upon the value of the participant's account at retirement. Each year, employees receive an interest rate credit and a pay credit which is a specified percentage of compensation. This type of plan is called a A) section 401(k) plan. B) deposit-administration plan. C) cash-balance plan. D) trust fund plan. Answer: C Question Status: Previous Edition 32) All the following statements concerning a Roth 401(k) plan are true EXCEPT A) After-tax dollars are used to fund the plan. B) Investment earnings accumulate on a tax-free basis. C) Employees at all income levels may contribute to the plan, but annual contributions are limited. D) Qualified distributions at retirement are fully taxable. Answer: D Question Status: Previous Edition 33) Special vesting rules apply to qualified defined contribution plans with voluntary employee contributions and matching employer contributions. Which of the following statements is (are) true with respect to these vesting rules? I. Employer contributions must vest immediately. II. Graded vesting is permitted, and employer contributions must be 20 percent vested after 2 years, with an additional 20 percent vested in each of the next 4 years. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 34) Small business owners have a number of retirement plans available to them. One type of plan is limited to employers with 100 or fewer eligible employees. Under this type of plan, small employers are exempt from most of the nondiscrimination and administrative rules that apply to qualified plans. Such plans are called A) Keogh plans. B) SIMPLE retirement plans. C) cash balance plans. D) profit sharing plans. Answer: B Question Status: Previous Edition 35) Which of the following statements is (are) true with respect to profit-sharing plans? I. There is no limit on the amount that an employer can contribute annually to an employee's account under a profit sharing plan. II. Profit sharing plans offer greater funding flexibility for employers than under other qualified plans. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 36) Lynn works for a state university. In addition to the university's regular retirement plan, Lynn participates in another retirement savings plan. She elected to have $5,000 of her salary withheld and contributed to a tax-sheltered annuity with an insurer. The type of plan that Lynn established is called a A) SIMPLE plan. B) 403(b) plan. C) defined benefit plan. D) Keogh plan. Answer: B Question Status: Previous Edition 37) All of the following statements about 403(b) plans are true EXCEPT A) Contributions to a 403(b) reduce an employee's taxable income. B) 403(b) plans are designed for employees of public school systems and tax-exempt organizations. C) The law limits the amount of income that an employee can elect to defer under a 403(b) plan. D) Matching employer contributions are not permitted under a 403(b) plan. Answer: D Question Status: Previous Edition 38) Which of the following statements is (are) true regarding cash-balance pension plans? I. Cash balance plans are defined contribution plans. II. Under a cash balance plan, the employer creates an investment account for each employee into which the employer makes actual contributions and allocates investment gains and losses. A) I only B) II only C) both I and II D) neither I nor II Answer: D Question Status: Previous Edition 39) Which of the following statements concerning defined benefit and defined contribution pension plans is (are) true? I. The employer bears the investment risk with a defined contribution plan. II. Defined benefit plans favor workers who enter the plan at older ages. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 40) Under a 401(k) plan, what is compared to determine if the plan unfairly discriminates in favor of highly compensated employees? A) the average percentage of salary made available to the highly compensated to defer is compared to the average percentage of salary made available to other eligible employees to defer B) the ratio of eligible highly compensated employees is compared to the ratio of eligible other employees C) the average percentage of salary deferred by the highly compensated is compared to the average percentage of salary deferred by other eligible employees D) the percentage of highly compensated employees over age 50 who participate is compared to the percentage of all other employees who participate Answer: C Question Status: Previous Edition 41) Under one type of retirement plan for small businesses, the employer contributes to an IRA established for each eligible employee. Under this type of plan, the contribution limits are significantly higher than they are for traditional IRAs and Roth IRAs. This type of plan, which requires little paperwork, is called a A) simplified employee pension (SEP) plan. B) defined benefit plan. C) Keogh plan. D) 403(b) plan. Answer: A Question Status: Previous Edition 42) In the context of employee benefits, the term "discrimination" refers to benefit comparisons between A) male and female employees. B) current employees and retirees. C) highly compensated employees and non-highly compensated employees. D) members of an under-represented group (by religious preference, race, or national origin) and the majority of employees. Answer: C Question Status: Previous Edition 43) Which of the following statements regarding minimum vesting standards for qualified defined benefit plans is (are) true? I. The vesting standards apply to both employer and employee retirement contributions. II. Employers may vest benefits more quickly than the minimum standards . A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 44) Which of the following statements about tax-deferred retirement plans in the U.S. is true? I. Women, on average, receive lower employment-based retirement income than men. II. One way to hedge against inflation is to invest lump-sum pension distributions in fixed-income investments. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 45) Which of the following is a common investment mistake that many retirement plan participants make? A) not investing heavily enough in common stock issued by the employer B) investing too heavily in common stock when close to retirement C) participating in an employer-sponsored retirement plan to obtain matching employer contributions D) participating in an employer-sponsored retirement plan and contributing the maximum amount allowed Answer: B Question Status: Previous Edition 46) Winslow Corporation has many long-term employees. The company has never had a pension plan. Recently, a new management team was hired. The new president said he would like to start a pension plan through which he could reward the long-term service provided by many employees. Which of the following types of plans should Winslow Corporation adopt? A) section 403(b) plan B) section 401(k) plan C) money-purchase plan D) defined benefit plan Answer: D Question Status: Previous Edition 47) Which of the following statements about Roth 401(k) plans is true? I. Contributions to a Roth 401(k) plan are made with before-tax dollars. II. Qualified distributions from a Roth 401(k) are received income-tax free. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition

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25) Rita is 66 years old. She earned $20,000 this year working part-time at a store and her modified adjusted gross income was $28,000. Rita is considering making a $3,000 contribution to her traditional IRA. Which of the following statements is true regarding this contribution? A) Rita cannot contribute to her traditional IRA because she is over age 65. B) Rita can make a $3,000 contribution to her traditional IRA, but it is not tax deductible. C) Rita can make a $3,000 contribution to her traditional IRA, but it is only partially tax deductible. D) Rita can make a $3,000 contribution to her traditional IRA, and it is fully tax deductible. Answer: D Question Status: Previous Edition 26) Daryl, age 42, quit his job. His employer offered a defined contribution pension plan, and the balance in the account was $30,000 when Daryl quit. He can avoid immediate taxation of these funds by A) taking a lump-sum distribution. B) using an IRA rollover account. C) receiving the money through four equal installments. D) using the funds to purchase common stock issued by the former employer. Answer: B Question Status: Previous Edition 27) Which of the following statements is (are) true with regard to Roth IRAs? I. The portion of a Roth IRA distribution that is attributable to investment income is taxable. II. There is a maximum income level above which Roth IRA contributions are not allowed. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 28) All of the following statements about traditional and Roth IRAs are true EXCEPT A) Traditional IRA contributions may be fully, partially, or not income tax deductible. B) Qualified distributions from Roth IRAs are received income tax free. C) Contributions to Roth IRAs are made with after-tax dollars. D) Traditional IRAs are exempt from the penalty tax on premature distributions. Answer: D Question Status: Previous Edition 29) Which of the following persons can establish a traditional IRA? I. A person whose only income received is from investments. II. A 75 year-old man who has earned taxable income. A) I only B) II only C) both I and II D) neither I nor II Answer: D Question Status: Previous Edition 30) Donna, age 50, is single and earns $40,000 annually. She is covered under her employer's retirement plan. Donna would like to start a traditional IRA and contribute $4,000 this year. Which of the following describes her ability to establish a traditional IRA and the tax treatment of her contribution? A) Her contribution is fully tax deductible. B) Her contribution is partially tax deductible. C) No portion of the contribution is tax deductible. D) Donna is not eligible to establish a traditional IRA, so no contribution can be made. Answer: A Question Status: Previous Edition 31) Which of the following statements about the withdrawal of funds from a traditional IRA is true? A) Withdrawals of deductible contributions between the ages of 59.5 and 65 are subject to a tax penalty unless they are withdrawn because of specified circumstances such as death or long-term disability. B) Amounts attributable to nondeductible contributions are fully taxable as ordinary income when received. C) Withdrawals must begin no later than April 1 of the year following the calendar year in which an individual attains age 70.5. D) Withdrawals must be taken in the form of an annuity. Answer: C Question Status: Previous Edition 32) All of the following are circumstances under which withdrawals from a traditional IRA may be made prior to age 59.5 without incurring a substantial penalty EXCEPT A) The withdrawal is in substantially equal installments paid over the individual's life expectancy. B) The withdrawal is used to pay living expenses after unemployment insurance benefits cease. C) The distribution is to the beneficiary of a deceased IRA owner. D) The withdrawal is because of income needed due to the individual's disability. Answer: B Question Status: Previous Edition 33) Which of the following statements regarding individual retirement accounts (IRAs) is (are) true? I. If an individual's only income during the year is from investments, he or she cannot make an IRA contribution. II. The funds in the IRA can be used to purchase life insurance on the owner. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 34) Which of the following statements is (are) true with regard to IRAs? I. Contribution limits are higher for workers aged 50 and older. II. The minimum distribution rules after attainment of age 70.5 do not apply to Roth IRAs. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 35) The fundamental purpose of a variable annuity is to A) provide funding flexibility to the purchaser. B) provide a hedge against inflation. C) fund the purchase of cash value life insurance. D) guarantee a fixed-dollar benefit throughout retirement. Answer: B Question Status: Previous Edition 36) An immediate life annuity offers all of the following benefits EXCEPT A) Immediate annuity payments are entirely exempt from federal income tax. B) Simplicity for the purchaser as he or she does not have to manage investment funds. C) Security for the purchaser as stable lifetime income that cannot be outlived is provided. D) The principal is safe as the funds are guaranteed by the assets of the insurer. Answer: A Question Status: Previous Edition 37) Which of the following statements is (are) true with regard to the inflation annuity option? I. The initial monthly payment is lower than the initial payment a fixed annuity would have provided if purchased at the same age. II. Periodic payments to the annuitant are adjusted for inflation. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 38) Which of the following statements about converting a traditional IRA to a Roth IRA is (are) true? I. Such conversions can be done with no income tax consequences. II. Qualified distributions from a Roth IRA after a conversion are received tax-free. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 39) Which of the following statements is (are) true concerning the joint and survivor annuity settlement option? I. Under this option, payments begin after the first annuitant dies. II. This settlement option is often selected by married couples. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 40) Which of the following statements is true concerning traditional and Roth IRAs? A) The investment income portion of Roth IRA distributions must be reported as taxable income. B) Roth IRA contributions are tax deductible. C) There are minimum distribution requirements for traditional IRAs. D) There are no limits on the tax deductibility of traditional IRA contributions once the account owner has reached age 50. Answer: C Question Status: Previous Edition 41) Which of the following statements is (are) true with regard to the adequacy of IRA funds during retirement? I. To assure lifetime income, the IRA funds can be used to purchase a life annuity. II. The duration of IRA benefit payments depends on the rate of return earned on the invested assets after retirement and the withdrawal rate. A) I only B) II only C) both I and II D) Neither I nor II Answer: C Question Status: Previous Edition 42) Some insurers offer a single-premium deferred annuity that does not begin paying benefits until an advanced age, such as 85. This product is called A) endowment insurance. B) equity-indexed annuity. C) life income with guaranteed payments annuity. D) longevity insurance. Answer: D Question Status: Previous Edition 43) Which of the following is a characteristic of a longevity annuity (longevity insurance)? A) payment of the face value of the policy at age 100 B) forfeiture of the purchase price if the annuitant dies during the deferral period C) cash value can be borrowed or recouped through a nonforfeiture option D) high-cost annuity compared to other life annuities Answer: B Question Status: Previous Edition 44) Which of the following is an advantage of a longevity annuity (longevity insurance)? A) Death benefits are paid to a beneficiary if death occurs during the deferral period. B) The interest rate credited to the cash value is higher than what is earned on traditional life insurance. C) Monthly benefits begin at an advanced age when other assets are likely to have been depleted. D) The policyowner has unrestricted access to the funds during the deferral period through loans and cash withdrawals. Answer: C Question Status: Previous Edition 45) Which of the following statements is (are) true about a longevity annuity (longevity insurance)? I. If the annuitant dies during the deferral period, the purchase price of the annuity is forfeited. II. Longevity insurance is an example of an immediate annuity. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 46) Traditionally, tables have been prepared showing how long IRA funds will last based on rates of return and annual withdrawal rates. These tables, however, assume constant returns over the projection period. Many financial planners are now using a technique that allows for fluctuations in market returns. A computer is programmed to estimate how long funds will last under many different return scenarios and to determine the probability that funds will last until a specified age. This technique is called A) decision-tree analysis. B) sensitivity analysis. C) computer simulation. D) cost-benefit analysis. Answer: C Question Status: Previous Edition 47) Agnes and Mary Clare, two elderly sisters, own an annuity covering both of their lives. The annuity pays benefits to them until the first sister dies, then the annuity terminates. Agnes and Mary Clare own a(n) A) flexible premium annuity. B) joint life annuity. C) longevity annuity. D) joint-and-survivor annuity. Answer: B Question Status: New 48) James is concerned that if he purchases a fixed immediate annuity his funds will be tied-up and not accessible if an emergency arises. His insurance agent said that a rider could be attached to his annuity to address this concern. The rider is a(n) A) partial cash withdrawal rider. B) return of premium rider. C) guaranteed purchase option rider. D) waiver-of-premium rider. Answer: A Question Status: New 49) Carl is concerned that if he purchases an equity indexed annuity, he will lose money long-term if the stock index declines. Which equity indexed annuity provision assures Carl that he will not lose money if he holds the equity indexed annuity to term? A) the indexing method B) the participation rate C) the guaranteed minimum value D) the maximum rate cap Answer: C Question Status: New 50) Which statement is true regarding IRA distributions? A) The minimum distribution rules apply to Roth IRAs, but not to traditional IRAs. B) Distributions from a Roth IRA are taxed at the individual's marginal tax rate. C) The IRA penalty tax applies to all traditional IRA distributions before age 59.5 with no exceptions. D) Unless a life annuity is issued, a retiree may still be alive when the IRA account is exhausted. Answer: D Question Status: New 1) Problems with the health care system in the United States that led to implementation of the Affordable Care Act included I. Rising healthcare expenditures II. Considerable waste and inefficiency in the healthcare system A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Revised 2) All of the following are historical reasons for the increase in health care expenditures in the U.S. EXCEPT A) cost insulation because of third-party payers. B) employer-sponsored health insurance. C) universal health insurance coverage. D) technological advances in health care. Answer: C Question Status: Previous Edition 3) The Affordable Care Act requires that most U.S. citizens and legal residents have qualifying health insurance or pay a financial penalty. This provision of the Affordable Care Act is known as the A) Health Insurance Marketplace option. B) public option. C) individual mandate. D) premium subsidy option. Answer: C Question Status: Previous Edition 4) Under the Affordable Care Act, which of the following statements are true? I. Health insurers cannot use pre-existing conditions exclusions. II. Health insurers cannot impose annual benefit limits and lifetime benefit limits. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Revised 5) One provision of the Affordable Care Act is designed to benefit young adults up to age 26. This provision allows these young adults to A) remain covered under their parents' health insurance policies. B) receive a tax credit for their health insurance premium if they are unemployed. C) receive low-interest government loans to finance their health insurance. D) receive coverage under Medicare if they are not covered by a private health insurance plan. Answer: A Question Status: Previous Edition 6) Which of the following statements regarding health care expenditures in the United States is (are) true? I. As a nation, the U.S. spends significantly more per-person on health care than most other industrialized nations. II. Health care expenditures in the U.S. are high because everyone is covered by a health insurance plan. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 7) Individual medical expense insurance sold in the Health Insurance Marketplace is characterized by which of the following? A) narrow range of benefits B) no lifetime benefit limits C) no exclusions D) first-dollar coverage Answer: B Question Status: Previous Edition 8) Prior to passage of the Affordable Care Act, insurers could go back to the date a health insurance policy became effective and render the policy void due to a clerical error. This practice, which is prohibited under the Affordable Care Act except in cases of fraud or intentional misrepresentation of a material fact, is called A) estoppel. B) retention. C) rescission. D) reformation. Answer: C Question Status: Previous Edition 9) Under the Affordable Care Act, if a health insurer does not meet the minimum loss ratio requirement, the insurer must A) pay a fine to the federal government. B) issue rebates to the people the insurer covered. C) not sell any health insurance for a period of one year. D) reduce the premium on the policies it sells the following year. Answer: B Question Status: Previous Edition 10) Purposes of the coinsurance provision in medical expense insurance policies include which of the following? I. to reduce premiums II. to prevent overutilization of policy benefits A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 11) The effect of an annual out-of-pocket limit in an individual medical expense policy is to A) limit the lifetime benefits payable under the policy. B) put a cap on annual benefits the insurer will pay. C) prevent the insured from receiving duplicate benefits if medical expenses are also covered under workers compensation insurance. D) cover 100 percent of eligible medical expenses after an insured has incurred a specified amount of annual out-of-pocket expenses. Answer: D Question Status: Previous Edition 12) All the following are common exclusions in a medical expense insurance policy EXCEPT A) dental care. B) surgeons' fees. C) long-term care. D) routine eye care. Answer: B Question Status: Revised 13) Kristen has an individual medical expense policy with a $1,000 calendar-year deductible, a $5,000 annual out-of-pocket limit, and a 20 percent coinsurance requirement. Kristen was hospitalized for a surgical procedure in March, her first health care treatment received during the year. The total bill was $20,000. Considering the deductible and coinsurance, how much of this amount must Kristen pay? A) $4,400 B) $4,800 C) $5,000 D) $5,100 Answer: B Question Status: Previous Edition 14) Dirk required surgery for a kidney impairment. His total bill for medical services was $50,000. Dirk has a medical expense policy with a $1,000 calendar-year deductible and a $5,000 annual out-of-pocket limit. His coinsurance percentage is 20 percent. The out-of-pocket limit applies to coinsurance only. Assuming this surgery and hospitalization were the first medical care that Dirk received during the year and that all of the hospital services were eligible for coverage under the policy, how much of the $50,000 bill will the insurer pay? A) $39,000 B) $39,200 C) $40,000 D) $44,000 Answer: D Question Status: Previous Edition 15) Which of the following statements about long-term care insurance is (are) true? I. Long-term care insurance is inexpensive, especially if purchased at older ages. II. Purchasers have a choice of daily benefits and benefit periods. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 16) Which of the following statements is (are) true concerning benefit payments under long-term care insurance? I. Expense-incurred policies pay for actual charges up to a specified daily limit. II. Per diem policies pay a specified daily benefit regardless of the charges incurred. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 17) All of the following statements about long-term care insurance are true EXCEPT A) Premiums can be reduced by electing shorter elimination periods. B) A common benefits trigger is the inability to perform a certain number of activities of daily living. C) Protection against inflation is usually made available as an optional benefit. D) Policies currently sold are guaranteed renewable. Answer: A Question Status: Previous Edition 18) Which of the following statements about disability and disability income insurance is (are) true? I. Most disability income policies replace 100 percent of gross earnings. II. The probability of being disabled before age 65 is much higher than commonly believed. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 19) Which of the following statements about individual disability income policies is true? A) Benefits are typically paid only for disabilities resulting from sickness. B) Benefits paid for partial disabilities are usually greater than benefits paid by the same policy for total disabilities. C) Most policies pay a benefit equal to 100 percent of the disabled person's lost income. D) Many policies provide or make available a residual disability benefit for persons who are able to work but at a reduced income. Answer: D Question Status: Previous Edition 20) All of the following statements about individual disability income policies are true EXCEPT A) Premiums are often waived while a person is disabled but must be resumed if the insured recovers. B) At the time of purchase, the insured can choose the length of the benefit period from among several available options. C) In order to encourage rehabilitation, benefits may be continued during periods of vocational training. D) Most disability income insurance policies contain an elimination period of 10 or fewer days. Answer: D Question Status: Previous Edition 21) Which of the following statements about individual disability income policies that use a two-part definition of total disability is (are) true? I. During the initial period of disability, the insured must be unable to perform the duties of any gainful occupation. II. After the initial period of disability, the insured must be unable to perform the duties of any occupation for which he or she is reasonably fitted by education, training, and experience. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 22) Which of the following statements concerning individual medical expense insurance is (are) correct? I. Once the deductible is satisfied, no additional deductible is payable during the calendar year. II. Family deductibles are substantially higher than individual deductibles. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Revised 23) All of the following statements about optional disability income benefits are true EXCEPT A) Under a cost-of-living rider, benefits are periodically adjusted for inflation. B) A Social Security rider pays additional benefits if the insured is turned down for Social Security disability benefits. C) Adding a return of premium rider results in a lower initial premium. D) Under an option to purchase additional insurance, the insured has the right to buy additional insurance at specified times without evidence of insurability. Answer: C Question Status: Revised 24) Kevin has an individual disability income policy that his insurer agrees to keep in force until age 60. However, the company has the right to increase the premium each year for the underwriting class in which Kevin has been placed. Which renewal provision is found in Kevin's policy? A) noncancellable B) guaranteed renewable C) conditionally renewable D) nonrenewable. Answer: B Question Status: Revised 25) Which of the following statements about mandatory provisions in individual health insurance policies is true? A) Insurers are not permitted to place time limits on filing claims or providing proof of loss. B) The time limit on certain defenses provision prohibits the insurance company from denying a claim based on a fraudulent misstatement by the applicant after the policy has been in force three months. C) The usual length of the grace period is 180 days. D) Under the reinstatement provision, a health insurance policy that has lapsed can be put back in force. Answer: D Question Status: Previous Edition 26) One provision of the Affordable Care Act provides creates in each state a transparent and competitive insurance marketplace where individuals and small firms can purchase affordable and qualified health coverage. This marketplace is called a A) Medicaid plan. B) Medicare plan. C) Health Maintenance Organization (HMO). D) Health Insurance Marketplace. Answer: D Question Status: Revised 27) Because of the Affordable Care Act, all new medical expense plans that offer individual and group coverage must accept all individuals and employers in the state who apply for coverage. These insurers are required to continue to renew the coverage at the option of the individual or plan sponsor. Thus, under the Affordable Care Act, the renewal provision is A) conditionally renewable. B) guaranteed issue. C) nonrenewable. D) renewable at the insurer's option. Answer: B Question Status: Previous Edition 28) Greta purchased a long-term care policy. Under a typical policy, Greta's eligibility for benefits may be triggered by A) how long premiums have been paid. B) inability to perform activities of daily living. C) continuous hospitalization for at least 60 days. D) eligibility for Medicare benefits. Answer: B Question Status: Revised 29) The inability of the insured to perform some but not all of the important duties of his or her occupation is called A) residual disability. B) total disability. C) recurrent disability. D) partial disability. Answer: D Question Status: Previous Edition 30) Ellen purchased a health insurance policy. Under the provisions of the Affordable Care Act, which of the following renewal provisions must the insurer use in the policy? A) cancellable B) guaranteed issue C) renewable at the insurer's option D) conditionally renewable Answer: B Question Status: Previous Edition 31) The Affordable Care Act includes a provision designed to help small employers make health insurance coverage available to their employees. This provision allows small employers to reduce their federal income tax by a percentage of the employer's contribution to health insurance for employees. This subsidy, in the form of reduction of income taxes, is called a A) marginal tax rate. B) tax credit. C) tax bracket. D) tax deduction. Answer: B Question Status: Previous Edition 32) All of the following are typical characteristics of individual medical expense coverage EXCEPT A) annual benefit limits. B) essential health benefits. C) deductibles. D) coinsurance. Answer: A Question Status: Previous Edition 33) Barb was injured in an auto accident. She was totally disabled and collected disability income benefits for 8 months. She would like to return to work on a part-time basis to see if her recovery is complete. During this period, her insurer will pay reduced disability income benefits. This type of disability is called A) recurrent disability. B) presumptive disability. C) permanent disability. D) partial disability. Answer: D Question Status: Previous Edition 34) Prior to passage of the Affordable Care Act, insurance policies typically contained a provision excluding coverage for impairments that were present or were treated during a specified period prior to the effective date of the policy. This provision is a(n) A) time limit on certain defenses. B) preexisting-conditions clause. C) benefit period provision. D) incontestable clause. Answer: B Question Status: Previous Edition 35) One long-term care insurance benefit trigger considers whether the insured needs supervision to protect against threats to health or safety due to memory loss or disorientation. This benefit trigger is referred to as a(n) A) activities of daily living trigger. B) medical necessity trigger. C) needs test trigger. D) severe cognitive impairment trigger. Answer: D Question Status: Previous Edition 36) Beth's disability income insurance policy provides benefits for accidental death, dismemberment, and loss of sight. The maximum amount payable under this benefit is known as the A) face value. B) cash value. C) principal sum. D) monthly benefit. Answer: C Question Status: Previous Edition 37) Which statement is true regarding the advanced premium tax credits for individuals and families under the Affordable Care Act? A) The tax credit is the same flat amount for individuals and families. B) The tax credit is based on income and is designed to limit the amount spent on health insurance premiums to make the insurance affordable. C) The tax credit is only available to high-income individuals and families. D) The tax credit is an expenses that lowers taxable income. Answer: B Question Status: New 38) The Affordable Care Act has provisions that improve the quality of health care and lower costs. All of the following are examples of these provisions EXCEPT A) reducing paperwork and administrative expenses. B) increasing the number of medical specialists and reducing the number of primary care physicians. C) compensating physicians based on value rather than on the volume of services. D) cracking down on healthcare fraud. Answer: B Question Status: Revised 39) Some managed care plans use physicians, hospitals, and health care organizations that agree to make medical services available to insureds at discounted fees. Insureds are not required to use these entities, but if they do, health care costs are less than if these entities are not used. Such health care entities are called A) Preferred Provider Organizations (PPOs). B) Health Maintenance Organizations (HMOs). C) Blue Cross/Blue Shield Plans. D) Health savings accounts (HSAs). Answer: A Question Status: Previous Edition 40) Which of the following statements about eligibility requirements for qualified Health Savings Accounts (HSAs) is (are) true? I. Only individuals who are eligible for Medicare benefits can establish a qualified HSA. II. Applicants must be covered by a high deductible health plan and not be covered by any other comprehensive health plan to establish a qualified HSA. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 41) All of the following statements about the tax treatment of Health Savings Accounts (HSAs) are true EXCEPT A) Contributions to a qualified HSA are tax deductible. B) Distributions from a qualified HSA used to fund medical expenses are taxable income. C) Investment income in a qualified HSA accumulates income tax free. D) Distributions from a qualified HSA prior to age 65 for nonmedical purposes are subject to a 10 percent penalty tax. Answer: B Question Status: Previous Edition 42) Which of the following statements about high deductible health insurance plans is (are) true? I. Coverage under a high deductible health plan is necessary to establish a qualified health savings account (HSA). II. High deductible health plans provide a maximum limit on annual out-of-pocket expenses. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 43) Which of the following statements about health savings accounts (HSAs) is true? A) There are no limits to annual contributions that an individual may make to his or her HSA. B) Once an individual has reached age 65 or is covered by Medicare, no additional contributions to the HSA may be made. C) The health insurance plan covering the HSA account beneficiary is not permitted to use a deductible. D) HSAs offer no tax benefits for the individual who establishes the account. Answer: B Question Status: Previous Edition 44) The Affordable Care Act requires all new medical expense plans to provide a comprehensive set of coverages and services. This comprehensive set of coverages and services that must be provided are called A) essential health benefits. B) dread disease benefits. C) long-term care benefits. D) respite care benefits. Answer: A Question Status: Previous Edition 45) The Affordable Care Act has a provision that expands a public assistance program designed to make health coverage available to low-income individuals by increasing the maximum amount of income that can be earned and still qualify for benefits. As a result, millions of individuals are eligible for coverage under this program. This public assistance program is called A) Medicare. B) Health Maintenance Organization. C) Health Insurance Marketplace Exchange. D) Medicaid. Answer: D Question Status: Previous Edition 46) All of the following are methods used to fund the Affordable Care Act EXCEPT A) an excise tax on the sale of medical devices. B) reduced payments to Medicare Advantage plans. C) tort reform measures that reduce medical malpractice claims. D) savings in the Medicare and Medicaid programs from reduced fraud and abuse. Answer: C Question Status: New 47) Which of the following statements is true regarding disability income insurance? A) The purchase of disability income insurance is not necessary if you are covered under workers compensation. B) Increasing the elimination period reduces the premium for disability income insurance. C) Disability income insurance usually replaces 100 percent of lost income. D) A uniform definition of disability appears in all disability income policies. Answer: B Question Status: New 1) Which of the following statements about group insurance is true? A) Individual contracts are issued to each person covered under a group insurance plan. B) The cost of group insurance is usually higher on a per-person basis than the cost of individual insurance. C) The actual experience of a large group is a factor in determining the premium that is charged. D) Individual evidence of insurability is usually required. Answer: C Question Status: Previous Edition 2) Which of the following statements about group insurance underwriting principles is (are) true? I. If a plan is contributory, 100 percent of the eligible employees must be covered. II. Ideally, there should be a flow of older people into the group and younger people out of the group. A) I only B) II only C) both I and II D) neither I nor II Answer: D Question Status: Previous Edition 3) Which of the following statements about group insurance underwriting principles is true? A) Employees should be required to remit premiums directly to the insurance company. B) The average age of the group should ideally increase over time. C) A group should be formed for the specific purpose of obtaining insurance. D) A flow of people through the group is desirable. Answer: D Question Status: Revised 4) Reasons for having a minimum participation requirement before a group is eligible for insurance include which of the following? I. To lower the expense rate per unit of insurance II. To minimize the possibility of insuring a group which consists largely of unhealthy individuals A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 5) Which of the following statements about the eligibility requirements for group insurance is true? A) Most plans cover both full-time and part-time employees. B) An employee must be actively at work on the day the employee's group insurance becomes effective. C) An employee who signs-up for insurance during an eligibility period must furnish evidence of insurability. D) One purpose of a probationary period is to determine whether the employee is healthy enough to be covered under the group health insurance plan. Answer: B Question Status: Previous Edition 6) The period of time during which an employee can sign up for group insurance coverage without furnishing evidence of insurability is called a(n) A) probationary period. B) noninsurability window. C) waiting period. D) eligibility period. Answer: D Question Status: Previous Edition 7) Which of the following statements about group term life insurance is true? A) It usually is written in the form of 5-year level term insurance. B) An employee who leaves the group is usually not permitted to convert to individual coverage. C) Experience rating is used in group term life insurance plans. D) It represents only a small percentage of the group life insurance in force. Answer: C Question Status: Revised 8) High deductible group health insurance plans have all of the following characteristics EXCEPT A) health savings accounts or health reimbursement arrangements. B) high dollar deductibles. C) low coverage limits. D) coinsurance. Answer: C Question Status: Revised 9) Which of the following statements about group accidental death and dismemberment (AD&D) insurance is (are) true? I. The principal sum is paid if the employee dies in an accident. II. A percentage of the principal sum is paid for certain types of dismemberments. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition

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54) Which of the following statements about life insurance policy loans is (are) true? I. Interest is not required on a life insurance policy loan, as the policyholder is borrowing his or her own money. II. If there is an outstanding loan when the insured dies, payment to the beneficiary is reduced by the amount of the loan. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 55) If a life insurance policy lapses for nonpayment of premiums, and the policyholder has not elected another option, which nonforfeiture option usually goes into effect in most policies? A) reduced paid-up insurance B) one-year term insurance C) extended term insurance D) payment of cash value Answer: C Question Status: Previous Edition 56) Which of the following statements regarding the accidental death benefit rider (also known as double indemnity) is true? A) Adding the accidental death benefit rider doubles the premium for the policy. B) Financial planners agree that adding the accidental death benefit rider is a wise purchase. C) The economic value of a human life is doubled or tripled if death is caused by an accident, justifying the purchase of the rider. D) The death benefit is doubled only if an accidental injury is the direct cause of death and death occurs prior to a specified age. Answer: D Question Status: Previous Edition 57) Easy Pay Life Insurance Company allows a term insurance rider to be added to its whole life policies. The result is a policy that offers an increased death benefit with an affordable premium. The general name for such a policy is a(n) A) blended policy. B) indexed policy. C) joint life policy. D) endowment policy. Answer: A Question Status: New 58) Which statement about the incontestable clause is true? I. It protects the beneficiary if the insurer tries to deny a claim years after the policy is issued. II. If protects the insurer from having to pay a claim during the first two years if the insured made a material misrepresentation or concealed material information in the application. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: New 59) Marcus is concerned that inflation will erode the purchasing power of the face value of his life insurance policy. His agent suggested that Marcus add a provision that allows him to purchase one-year term insurance equal to the percentage change in the consumer price index without having to demonstrate insurability. This provision is called a(n) A) cost-of-living rider. B) guaranteed purchase option. C) accelerated death benefit rider. D) waiver-of-premium rider. Answer: A Question Status: New 60) Janet is the beneficiary of her uncle's $200,000 life insurance policy. When her uncle died, Janet selected a settlement option that pays monthly benefits for as long as she lives. If Janet dies before receiving $200,000, payments will continue to a contingent beneficiary until a total of $200,000 has been paid. What settlement option did Janet select? A) joint-and-survivor annuity B) life income with guaranteed total amount C) life income with guaranteed period D) fixed amount option Answer: B Question Status: New 1) A factor that can be ignored when determining the cost of life insurance is A) time value of money. B) premiums paid. C) settlement options. D) dividends. Answer: C Question Status: Previous Edition 2) Under the traditional net cost method, the net cost of life insurance for a given period (e.g., 20 years) is determined by which of the following formulas? A) the total premiums for the period less the policy reserve at the end of the period B) the total premiums for the period less the sum of the total dividends received during the period and the cash value at the end of the period C) the sum of the total premiums and dividends for the period less the cash value at the end of the period D) the sum of the total dividends received during the period and the cash value at the beginning of the period less the total premiums paid for the period Answer: B Question Status: Previous Edition 3) Which of the following statements about the traditional net cost method of measuring the cost of life insurance is (are) true? I. The traditional net cost method does not consider the time value of money. II. The traditional net cost method can show that life insurance has a negative cost. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 4) Which of the following statements about the surrender cost index for measuring the cost of life insurance is true? A) It is based on the assumption that the policy will be in force indefinitely. B) It takes into account the settlement options available in the policy. C) It does not consider the cash value in the policy. D) It takes the amount and timing of each dividend into consideration. Answer: D Question Status: Previous Edition 5) Which of the following statements describes how the net payment cost index differs from the surrender cost index? A) Dividends are ignored. B) The cash value is ignored. C) Premiums are not accumulated at a specified interest rate. D) Dividends are not accumulated at a specified interest rate. Answer: B Question Status: Previous Edition 6) David purchased a $100,000 participating whole life policy. The annual premium is $2,280. Projected dividends for the first 20 years are $15,624. The cash value after 20 years will be $35,260. If the premiums were invested at 5 percent interest for 20 years, the premiums would grow to $79,156. If the dividends were accumulated at 5 percent interest for 20 years, they would grow to be $24,400. The amount to which $1 deposited annually will accumulate in 20 years at 5 percent interest is $34.719. Based on this information, what is the traditional net cost per thousand per year of David's policy over the 20-year period? A) -$1.52 B) -$2.64 C) $5.17 D) $9.75 Answer: B Question Status: Previous Edition 7) David purchased a $100,000 participating whole life policy. The annual premium is $2,280. Projected dividends for the first 20 years are $15,624. The cash value after 20 years will be $35,260. If the premiums were invested at 5 percent interest for 20 years, the premiums would grow to $79,156. If the dividends were accumulated at 5 percent interest for 20 years, they would grow to be $24,400. The amount to which $1 deposited annually will accumulate in 20 years at 5 percent interest is $34.719. Based on this information, what is the surrender cost per thousand per year of David's policy over the 20-year period? A) $5.62 B) $13.75 C) $15.77 D) $27.38 Answer: A Question Status: Previous Edition 8) David purchased a $100,000 participating whole life policy. The annual premium is $2,280. Projected dividends for the first 20 years are $15,624. The cash value after 20 years will be $35,260. If the premiums were invested at 5 percent interest for 20 years, the premiums would grow to $79,156. If the dividends were accumulated at 5 percent interest for 20 years, they would grow to be $24,400. The amount to which $1 deposited annually will accumulate in 20 years at 5 percent interest is $34.719. Based on this information, what is the net payment cost per thousand per year of David's policy over the 20-year period? A) $5.62 B) $13.75 C) $15.77 D) $27.38 Answer: C Question Status: Previous Edition 9) Which of the following statements about the use of interest-adjusted cost data for comparing life insurance policies is (are) true? I. Using interest-adjusted cost data provides a more accurate measure of the cost of life insurance than is provided if the time value of money is ignored. II. Its use is most appropriate in deciding between policies when the cost variation is very small. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 10) Which of the following statements about the Linton yield is (are) true? I. It is based on the assumption that a cash-value policy can be viewed as a combination of insurance protection and a savings fund. II. It is the average compound annual rate of return required to make the savings deposits in a life insurance policy equal to the policy's guaranteed cash value at the end of a specified period. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 11) Which of the following statements about the yearly-rate-of-return method (also known as the Belth method) of calculating the yearly rate of return for a life insurance policy is (are) true? I. The formula requires the use of benchmark prices per $1,000 of protection. II. The main drawback of the formula is its complexity, necessitating the use of a computer to calculate the rate of return. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 12) Consumer experts typically recommend all of the following rules when buying life insurance EXCEPT A) Consider the financial strength of the insurer. B) Deal with a competent agent. C) Ignore all factors other than cost. D) Shop around for a low-cost policy. Answer: C Question Status: Previous Edition 13) Consumer experts typically recommend which of the following rules when purchasing life insurance? I. Avoid policies which pay dividends. II. Purchase life insurance equal to ten times your annual salary. A) I only B) II only C) both I and II D) neither I nor II Answer: D Question Status: Previous Edition 14) Why might the use of "grades" assigned by a life insurance company rating organization not be a reliable guide for consumers? I. There may be variations in grades given by different rating organizations. II. They ignore factors such as profitability and quality of investments. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 15) Marshall is interested in determining the cost per thousand of his life insurance policy. Which of the following will provide Marshall the most meaningful measure of the cost per thousand dollars per year of his life insurance? A) the needs approach B) the traditional net cost method C) the human life value approach D) the surrender cost index Answer: D Question Status: Previous Edition 16) Lynn calculated the future value of the first twenty premiums she will pay under her nonparticipating whole life insurance policy. Then she subtracted the cash value after 20 years. Next, she divided this value by the future value annuity due factor for 20 years to arrive at an annual cost of insurance. Finally, she divided the annual cost by the number of thousands of dollars of life insurance purchased to arrive at the cost per thousand per year. Lynn calculated the A) traditional net cost per thousand per year. B) the Linton Yield. C) the surrender cost per thousand per year. D) the net payment cost per thousand per year. Answer: C Question Status: Previous Edition 17) Which method of analyzing the cost of life insurance does not consider the cash value of the policy in the analysis? A) traditional net cost method B) net payment cost index C) the Linton Yield D) the surrender cost index Answer: B Question Status: Previous Edition 18) Mary is interested in comparing life insurance policies. Rather than looking at the cost per thousand, she would like to compare the rate of return earned on the savings portion of the policy. Which of the following would be of the most interest to Mary? A) the policy's Linton Yield B) the policy's surrender cost C) the policy's traditional net cost D) the policy's net payment cost Answer: A Question Status: Previous Edition 19) Which of the following statements is (are) true regarding taxation of life insurance? I. Life insurance proceeds paid in a lump-sum to a designated beneficiary are received free of federal income taxes. II. The policyowner must pay taxes annually on the amount by which the cash value of his or her life insurance policy has increased. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 20) The first step in "shopping for life insurance" is to A) estimate the amount of life insurance to purchase. B) decide whether you want a policy which pays dividends. C) determine if you need life insurance. D) decide on the best type of life insurance for you. Answer: C Question Status: Previous Edition 21) Lisa does not want her life insurance policy included in her gross estate when she dies. Lisa can remove the life insurance policy from her estate if she does which of the following more than 3 years before she dies? A) borrow the cash value of the policy B) make an absolute assignment of the policy to someone else C) change the beneficiary to someone who does not have insurable interest D) select a lump sum settlement option and name her estate the beneficiary Answer: B Question Status: Previous Edition 22) Brad owns a cash value life insurance policy. Last year, the cash value increased by $300. Brad received $100 in policyowner dividends on the policy last year. Brad was the beneficiary named in his grandmother's $50,000 life insurance policy. When she died this past year, Brad received $50,000. How much taxable income relating to life insurance must Brad report for federal income tax purposes? A) $0 B) $100 C) $400 D) $50,400 Answer: A Question Status: Previous Edition 23) Carl and Carol Williams, a married couple, are doing some estate planning. Upon his death, Carl plans to leave $1,000,000 in property to his wife. This amount will reduce the value of Carl's gross estate and will be taxed later when Carol dies. This reduction of the gross estate is called the A) unified tax credit. B) taxable estate. C) capital gains deduction. D) marital deduction. Answer: D Question Status: Previous Edition 24) Paul is shopping for a life insurance policy. An agent asked Paul if he would like to purchase a participating policy. What is a "participating" policy? A) a policy which has a cash value B) a policy which pays dividends C) a policy which invests in common stock D) a policy which provides for an increasing death benefit Answer: B Question Status: Previous Edition 25) Each of the following helps to reduce federal estate taxes EXCEPT A) the marital deduction. B) the applicable unified tax credit amount. C) life insurance policies in which the deceased had an incidents of ownership at the time of death. D) expenses such as the cost of the funeral, estate settlement costs, and probate costs. Answer: C Question Status: Previous Edition 26) Which of the following statements is (are) true with regard to using interest-adjusted cost data when shopping for life insurance? I. Cost indexes apply to new policies and should not be used to determine whether to replace a policy. II. Cost indexes should only be used to compare similar plans of insurance. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 27) All of the following statements about the income tax treatment of individually-purchased life insurance are true EXCEPT A) policyowner dividends are received tax-free. B) the annual increase in cash value is not taxable while the policy remains in force. C) premiums paid for individual life insurance are a tax deductible expense. D) life insurance proceeds paid to a beneficiary in a lump-sum are received tax-free. Answer: C Question Status: Previous Edition 28) Which of the following statements is (are) true about the federal estate tax? I. The gross estate can be reduced by a number of deductions. II. If the person who died had any ownership interest in a life insurance policy at the time of death, the proceeds are included in the gross estate for federal estate tax purposes. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 29) Life insurance policy reserves A) are always equal to the policy's cash surrender value. B) are a major asset of life insurance companies. C) are paid to the beneficiary when the insured dies. D) are a major liability of life insurance companies. Answer: D Question Status: Previous Edition 30) Purposes of life insurance policy reserves include which of the following? I. Legal test of the insurer's solvency II. Formal recognition of the obligation to pay future claims A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 31) The difference between the present value of future benefits payable under a life insurance policy and the present value of net premiums for the policy is the policy's A) retrospective reserve. B) policyholders surplus. C) prospective reserve. D) admitted assets. Answer: C Question Status: Previous Edition 32) The policy reserve at the end of any given policy year is called the A) terminal reserve. B) unearned premium reserve. C) mean reserve. D) initial reserve. Answer: A Question Status: Previous Edition 33) To level a net single premium (NSP), the NSP is divided by A) the maximum number of years the premium could be paid. B) the ordinary life annuity factor for the premium payment period. C) the present value of a life annuity due of $1 for the premium payment period. D) the deferred life annuity factor for the premium payment period. Answer: C Question Status: Previous Edition 34) The gross premium is defined as A) the net premium plus the loading allowance. B) the terminal reserve plus the commission. C) the net premium minus expenses. D) the sum of all acquisition expenses. Answer: A Question Status: Previous Edition 35) The National Association of Insurance Commissioners (NAIC) has drafted a "Life Insurance Policy Illustration" model law that most states have adopted. Which of the following statements concerning this model law is (are) true? I. The policy illustration must include a narrative summary describing the basic characteristics of the policy. II. The policy illustration must include a numeric summary showing the premium outlay, the value of the accumulation account, the cash surrender value, and the death benefit. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 36) Beth purchased a $50,000 nonparticipating whole life insurance policy. The annual premium was $1,278. The cash value of the policy after 10 years will be $13,740. The future value of $1 deposited at the start of the year for 10 years, assuming 5 percent interest, is $13.207. What is the traditional net cost of this policy, per thousand per year, over the first 10 years the policy is in force? A) -$2.86 B) -$2.14 C) -$1.92 D) -$0.88 Answer: C Question Status: Previous Edition 37) Beth purchased a $50,000 nonparticipating whole life insurance policy. The annual premium was $1,278. The cash value of the policy after 10 years will be $13,740. The future value of $1 deposited at the start of the year for 10 years, assuming 5 percent interest, is $13.207. If the premiums were invested at 5 percent interest for 10 years, the premiums would grow to $16,878.55. Assuming 5 percent interest, what is the surrender cost of this policy, per thousand per year, over the first 10 years the policy is in force? A) $4.48 B) $4.75 C) $4.92 D) $5.16 Answer: B Question Status: Previous Edition 38) Beth purchased a $50,000 nonparticipating whole life insurance policy. The annual premium was $1,278. The cash value of the policy after 10 years will be $13,740. The future value of $1 deposited at the start of the year for 10 years, assuming 5 percent interest, is $13.207. If the premiums were invested at 5 percent interest for 10 years, the premiums would grow to $16,878.55. Assuming 5 percent interest, what is the net payment cost of this policy, per thousand per year, over the first 10 years the policy is in force? A) $12.71 B) $14.82 C) $17.24 D) $25.56 Answer: D Question Status: Previous Edition 39) Actuaries at Term Life Insurance Company calculated the net single premium per thousand for a five-year term policy for a man age 32 to be $5.04. To calculate the net level premium for this policy, the net single premium should be A) divided by 5. B) divided by the future value life annuity due factor for $1 for five years. C) divided by the present value life annuity due factor for $1 for five years. D) divided by the present value ordinary life annuity factor for $1 for five years. Answer: C Question Status: Previous Edition 40) Which statement is true regarding using interest-adjusted cost data and purchasing life insurance? A) Cost indices can help to determine whether a policy should be replaced. B) The type of policy you purchase should he based solely on a cost index. C) Small variations in cost indices should be ignored. D) Cost indices should be used to select an insurer, not an individual policy. Answer: C Question Status: New 41) The net single premium for a life insurance policy is A) the premium the insurer charges to cover the death benefit and the insurer's expenses. B) the future value of the future death benefit. C) the present value of the future death benefit. D) the face value of the policy discounted back for the number of year the policy will be in force. Answer: C Question Status: Previous Edition 42) According the 2001 CSO mortality table, the yearly probability of dying for a 40 year-old man is .00165. The present value of $1 one year from today, assuming a 5.5 percent interest rate, is .9479. What is the net single premium per $1,000 for a one-year term insurance policy sold to a man at age 40 assuming a 5.5 percent interest rate? Assume the premium is paid at the start of the year and the death benefit is paid at the end of the year. A) $1.56 B) $2.45 C) $7.18 D) $952.81 Answer: A Question Status: Previous Edition 43) ABC Life Insurance Company is offering a new product. The product is a two-year term insurance policy funded by a single premium at the start of the first year. Death claims are paid at the end of the year in which death occurs. A portion of the appropriate mortality table is shown below. The first number is age, the second is the number alive at the start of the year, and the last number is the number dying during the year. 39 9,693,539 14,928 40 9,678,611 15,970 Using a 5.5 percent interest rate, the present value of $1 one year from today is .9479, and the present value of $1 two years from today is .8985. Assuming a 5.5 percent interest rate, what is the net single premium for a $1,000 two-year term policy issued at age 39? A) $1.49 B) $2.94 C) $5.67 D) $12.83 Answer: B Question Status: Previous Edition 44) Charles, age 65, owns a paid-up $250,000 whole life policy on his own life. Charles is doing some estate planning and would not like this policy to be included in his gross estate for federal estate tax purposes. Which of the following statements is (are) true regarding the tax treatment of this policy? I. Charles can avoid having the policy proceeds included in his gross estate by naming his estate the beneficiary. II. If Charles makes an absolute assignment of the policy and dies more than three years later, the policy is not counted as part of his gross estate. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 45) The gross premium for life insurance is equal to A) the present value of the future death claim plus an expense loading. B) the present value of the future death claim less the sum of the premiums paid when death occurs. C) the present value of the future death claim less the present value of the expected dividends. D) the net premium less the expense loading. Answer: A Question Status: Previous Edition 46) The average annual rate of return on a cash-value policy if it is held a specified number of years is called the policy's A) net present value. B) interest-adjusted cost. C) benchmark cost. D) Linton yield. Answer: D Question Status: New 47) All of the following statements about the tax treatment of life insurance purchased by an individual are true EXCEPT A) The annual increase in the cash value is currently taxable. B) Premium payments are not tax deductible. C) Death benefits received in a lump sum are not taxable income. D) Policyowner dividends are not considered taxable income. Answer: A Question Status: New 48) The net premiums collected by a life insurer for a particular block of policies, plus interest income at an assumed rate, less assumed death benefits paid is called the A) cash value. B) retrospective reserve. C) net amount at risk. D) prospective reserve. Answer: B Question Status: New 1) Which of the following statements is (are) true with respect to annuities? I. Annuities are the opposite of life insurance. II. The fundamental purpose of annuities is to replace lost income in case of premature death. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 2) When selling life annuities, what risk is the insurer pooling? A) bad investment performance B) premature death C) bad expense experience D) excessive longevity Answer: D Question Status: Previous Edition 3) Life annuity payments are made up of all of the following EXCEPT A) return of premiums. B) interest earnings. C) unliquidated principal of annuitants who live too long. D) unliquidated principal of annuitants who die early. Answer: C Question Status: Previous Edition 4) Stan paid an insurance company $50,000 for a fixed annuity when he was 50 years old. At age 62, Stan plans to begin to receive payments from the insurer. There are no guarantees on the number of payments he will receive. Based on the description provided, this annuity can be described as a(n) A) deferred annuity. B) life annuity with guaranteed payments. C) immediate annuity. D) variable annuity. Answer: A Question Status: Previous Edition 5) Cassie, age 62, paid a life insurer $100,000 in exchange for a life annuity. If Cassie dies before receiving 120 monthly payments from the insurer, the remaining payments will be made to a beneficiary. If Cassie dies after receiving 120 payments, no additional payments are made by the insurer. The annuity option Cassie selected it A) life annuity, no refund. B) life annuity with period certain. C) installment refund annuity. D) cash refund annuity. Answer: B Question Status: Previous Edition 6) Which of the following statements is (are) true with respect to a joint-and-survivor annuity? I. Some joint-and-survivor annuities reduce the income payment after the first annuitant dies. II. No payments are made after the first annuitant dies. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 7) During the funding period, the premiums paid for a variable annuity are used to purchase A) annuity units. B) immediate participation shares. C) mutual fund shares. D) accumulation units. Answer: D Question Status: Previous Edition 8) Brad funded a life annuity through installment payments. At age 60, he decided to elect an annuity settlement option and to begin to receive payments. Which of the following annuity payout options will provide Brad with the highest monthly income? A) life annuity (no refund) B) life income with payments guaranteed for 5 years C) life income with payments guaranteed for 10 years D) installment refund annuity Answer: A Question Status: Previous Edition 9) Which of the following statements is (are) true with respect to the cash annuity settlement option? I. The taxable portion of the distribution is subject to federal and state income taxes. II. The option results in adverse selection against the insurer as those in poor health are more likely to take cash than to annuitize the funds. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 10) Which of the following statements is (are) true with respect to variable annuities? I. The price at which accumulation units can be purchased fluctuates during the funding period. II. The value of annuity units fluctuates over time. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 11) Bridget started to fund a variable annuity. Three years later, she experienced financial difficulty. She called her agent and cancelled the contract. The insurer returned all but 4 percent of the account balance. The 4 percent kept by the insurer is a(n) A) account administration fee. B) investment management fee. C) front-end load. D) surrender charge. Answer: D Question Status: Previous Edition 12) Insurers offering variable annuities charge a number of expenses. One category of expenses is to pay the fund manager and to pay brokerage fees. This expense is the A) investment management charge. B) administrative charge. C) surrender charge. D) front-end load. Answer: A Question Status: Previous Edition 13) Insurers offering variable annuities charge a number of fees and expenses. One category of fees and expenses is charged to cover the cost of record keeping, paperwork, and periodic reports to annuity owners. This expense is the A) investment management charge. B) surrender charge. C) administrative charge. D) front-end load. Answer: C Question Status: Previous Edition 14) Which of the following statements about variable annuities is true? A) The periodic payments received by the annuitant are fixed. B) Variable annuities typically provide a guaranteed death benefit payable to a beneficiary if the annuitant dies prior to retirement. C) Insurers offering variable annuities are not permitted to charge administrative fees. D) Although the value of annuity units fluctuates, accumulation units have a fixed value. Answer: B Question Status: Previous Edition 15) Which of the following statements is (are) true with respect to an equity-indexed annuity? I. The maximum percentage gain is usually capped. II. There is no downside protection against loss of principal if the annuity is held to term. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 16) With an equity-indexed annuity, what name is given to the method of crediting excess interest to the annuity? A) the capitation method B) the indexing method C) the distribution method D) the earnings method Answer: B Question Status: Previous Edition 17) Under an equity-indexed annuity, what name is given to the percentage increase in the stock index that is credited to the contract? A) the expense rate B) the exclusion ratio C) the indexing method D) the participation rate Answer: D Question Status: Previous Edition 18) Which of the following statements regarding the taxation of individual annuities is (are) true? I. The exclusion ratio is the percentage of the annuity income that is taxable. II. After the net cost of the annuity has been paid to the annuitant, the total annuity payment is taxable. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 19) Juanita paid a life insurer $45,000 in exchange for an immediate life annuity. Juanita will receive $500 per month from the insurer, and her life expectancy is 15 years (180 months). What is the exclusion ratio in this case? A) 33.33 percent B) 40.00 percent C) 50.00 percent D) 66.67 percent Answer: C Question Status: Previous Edition 20) Juanita paid a life insurer $45,000 in exchange for an immediate life annuity. Juanita will receive $500 per month from the insurer, and her life expectancy is 15 years (180 months). Assume that Juanita receives 12 monthly payments of $500 the first year. How much taxable income must she report? A) $3,000 B) $4,000 C) $4,500 D) $6,000 Answer: A Question Status: Previous Edition 21) Juanita paid a life insurer $45,000 in exchange for an immediate life annuity. Juanita will receive $500 per month from the insurer, and her life expectancy is 15 years (180 months). If Juanita is alive 20 years later, how much of the $6,000 received during the year is taxable? A) nothing B) $3,000 C) $4,500 D) $6,000 Answer: D Question Status: Previous Edition 22) Which of the following statements is (are) true regarding the taxation of distributions from individual annuities? I. Individual annuity distributions are never taxable. II. Once the annuitant has recovered the premiums he or she paid for the annuity, the entire annuity distribution is taxable. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 23) Which of the following is a permissible IRA investment alternative? A) mutual funds B) fine art C) antiques D) life insurance Answer: A Question Status: Previous Edition 24) Which of the following statements is (are) true regarding the Roth IRA? I. Roth IRA contributions are tax deductible. II. Roth IRA investment income accumulates income-tax free. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition

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55) Which of the following statements is true regarding return of premium term insurance? A) The insurance is free because premiums are refunded at the end of the coverage period. B) Life insurers charge less for this coverage than for regular term insurance that does not include a refund provision. C) The return of premium is only offered on one-year term insurance policies. D) The coverage is expensive and is not free when time value of money is considered. Answer: D Question Status: Previous Edition 56) The difference between the legal reserve of a whole life policy and the face amount of insurance is the A) cash value. B) net amount at risk. C) premium. D) dividend accumulations. Answer: B Question Status: Previous Edition 57) Gwen purchased an interesting life insurance policy. A minimum interest rate is guaranteed on the cash value, but additional interest may be credited based on the investment performance of a group of common stocks. There is also a cap on the additional interest credited to the policy. Based on this information, what type of life insurance did Gwen purchase? A) variable life insurance B) indexed universal life insurance C) current assumption whole life insurance D) variable universal life insurance Answer: B Question Status: Previous Edition 58) A common use of second-to-die life insurance is A) insuring children. B) insuring "double income with kids" families. C) estate planning. D) insuring key employees of a business. Answer: C Question Status: Previous Edition 59) Which of the following statements about indexed universal life insurance is true? A) It is another name for variable life insurance. B) Although a minimum interest rate is guaranteed, the rate credited can be higher if a specified stock index performs well. C) The cash value is usually credited with 100 percent of the return on the equity index, including dividends paid on the stocks in the index. D) The formula used to determine the additional interest credited to the policy places no limit on the additional interest that can be credited. Answer: B Question Status: Previous Edition 60) All of the following statements about employer-provided group life insurance are true EXCEPT A) Individual evidence of insurability, through a medical exam, is usually required. B) Group life insurance is a common employee benefit. C) A single contact between the employer and the insurer is issued. D) Employees are given certificates of insurance as evidence of the coverage. Answer: A Question Status: Previous Edition 1) Which of the following statements about the ownership of a life insurance policy is (are) true? I. Under the ownership clause, the policyholder and beneficiary equally share all contractual rights in the policy while the insured is living. II. The policyholder can designate a new owner by filing an appropriate form with the insurance company. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 2) Which of the following statements about the entire contract clause is true? A) It allows the insurer to change the policy terms without the insured's consent. B) It specifies that all statements in the application are considered warranties. C) It specifies that the life insurance policy and the attached application constitute the complete agreement between the parties. D) It prevents the insurance company from contesting a policy after it has been in force for two years during the lifetime of the insured. Answer: C Question Status: Previous Edition 3) Which of the following would be a valid reason for an insurer to contest a policy after the contestable period has ended? A) The policyholder made a material misrepresentation in the application process. B) The insurer's loss ratio is running higher than the insurer anticipated. C) The applicant had someone else take the medical examination required for policy approval for her. D) The policyholder concealed a material fact at the time of application. Answer: C Question Status: Previous Edition 4) Amy purchased a life insurance policy with the intent of committing suicide to pay all the debts that were burdening her family. If she commits suicide 9 months after the policy is purchased, and the insurer is able to prove that her death was a suicide, how much will be paid by the insurance company? A) nothing, because the policy is void B) the premiums paid for the policy C) the policy's cash value D) the face value of the policy Answer: B Question Status: Previous Edition 5) Which of the following statements about the grace period in a whole life insurance contract is (are) true? I. The purpose of the grace period is to prevent the policy from lapsing by giving the policyowner additional time to pay an overdue premium. II. If the insured dies during the grace period, the death benefit is reduced by 50 percent. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 6) All of the following statements about the requirements to reinstate a lapsed life insurance policy are true EXCEPT A) Evidence of insurability is required. B) The lapse must have resulted from other than the surrender of the policy for its cash value. C) All overdue premiums must be paid along with interest from the premium due dates. D) There is no time limit on when the policy may be reinstated. Answer: D Question Status: Previous Edition 7) Bert purchased a life insurance policy 4 years ago. He inadvertently stated that he was 1 year younger than his actual age. If Bert dies today, how much will the insurance company pay? A) nothing B) less than the policy face value C) the policy face value D) more than the policy face value Answer: B Question Status: Previous Edition 8) Which of the following statements about beneficiary designations is (are) true? I. The primary beneficiary is entitled to the death proceeds of a life insurance policy only if the contingent beneficiary dies before the insured. II. If a revocable beneficiary designation is used, the insured must obtain the beneficiary's permission of exercise most policy rights. A) I only B) II only C) both I and II D) neither I nor II Answer: D Question Status: Previous Edition 9) A contingent beneficiary in a life insurance policy has the right to A) receive the policy proceeds if the primary beneficiary dies before the insured. B) share the policy proceeds with the primary beneficiary. C) change the beneficiary designation under specified circumstances. D) exercise policy rights if the insured is incapacitated. Answer: A Question Status: Previous Edition 10) Which of the following statements about the change of plan provision in a life insurance contract is (are) true? I. A change to a lower premium policy results in a refund of the difference in the cash values of the two policies. II. A change to a higher premium policy requires evidence of insurability. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 11) Which of the following statements about the assignment of a life insurance policy is true? A) The insurer must be notified of any assignment or the death proceeds will be paid to the named beneficiary. B) Under an absolute assignment, the only right transferred to a new owner is the right to change the beneficiary designation. C) As long as a collateral assignment exists, a creditor will receive the entire death benefit even if the loan has been repaid. D) Assignment may be made only with the permission of the insurer and the beneficiary. Answer: A Question Status: Previous Edition 12) Which of the following statements about the assignment of a life insurance policy is (are) true? I. Under a collateral assignment, the policyowner assigns a life insurance policy to secure a loan. II. Under an absolute assignment, only limited ownership rights in a policy are transferred. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 13) The transfer of all ownership rights in a life insurance policy can be accomplished through a(n) A) absolute assignment. B) irrevocable beneficiary designation. C) incontestable clause. D) participating-policy provision. Answer: A Question Status: Previous Edition 14) Which of the following statements about life insurance policy loans is true? A) Loans are only permitted for specific reasons listed in the policy. B) They are forgiven if the insured dies before the loans are repaid. C) The policyholder must pay interest on a life insurance policy loan. D) They must be repaid on the basis of a schedule determined at the time of the loan. Answer: C Question Status: Previous Edition 15) Which of the following statements is true regarding an automatic premium loan provision? A) Its purpose is to prevent a policy from lapsing because of nonpayment of premium. B) Interest does not have to be paid on an automatic premium loan. C) If the provision is used, the insured must show evidence of insurability to resume regular premium payments. D) An automatic premium loan, unlike a regular policy loan, is forgiven if the insured dies before the loan is repaid. Answer: A Question Status: Previous Edition 16) What major feature distinguishes a participating policy from a nonparticipating policy? A) the availability of a waiver-of-premium provision B) the existence of settlement options C) the payment of dividends D) the method by which beneficiaries can be named Answer: C Question Status: Previous Edition 17) Sources of life insurance dividends include which of the following? I. Excess interest earned on the assets necessary to maintain legal reserves II. Favorable mortality experience A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 18) Which of the following is a common dividend option found in a participating life insurance policy? A) reduced paid-up insurance B) fixed period C) paid-up additions D) life income Answer: C Question Status: Previous Edition 19) Which of the following statements about dividend options is (are) true? I. The interest on dividends left to accumulate with the insurer is not considered to be taxable income. II. Paid-up additions are additional units of whole life insurance. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 20) Advantages of selecting the paid-up additions dividend option in a life insurance policy include which of the following? I. Evidence of insurability is not required to purchase additional insurance. II. The additions are purchased at net rates without a loading for expenses. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 21) Which of the following dividend options, sometimes called the "fifth dividend option," is not offered by all insurers that sell participating life insurance coverage? A) paid-up additions B) reduction of premiums C) accumulation of dividends at interest D) term insurance Answer: D Question Status: New 22) All of the following are nonforfeiture options found in cash value life insurance policies EXCEPT A) cash value. B) reduction of premiums. C) reduced paid-up insurance. D) extended term insurance. Answer: B Question Status: Previous Edition 23) Which of the following statements about nonforfeiture options found in life insurance policies is true? A) Under the reduced paid-up option, the paid-up policy is term insurance. B) Under the extended term option, the amount of term insurance is less than the face value of the surrendered cash value policy. C) Under the reduced paid-up option, no additional premiums must be paid. D) Unless the policyowner has selected another nonforfeiture option, the cash value option goes into effect automatically. Answer: C Question Status: Previous Edition 24) All of the following statements about the interest settlement option are true EXCEPT A) The minimum guaranteed interest rate is usually equal to the prime rate. B) The interest can be paid monthly, quarterly, semiannually, or annually. C) The beneficiary may be allowed to withdraw part or all of the proceeds. D) The beneficiary may be allowed to change to another settlement option. Answer: A Question Status: Previous Edition 25) Which of the following statements about life insurance settlement options is true? A) Under the fixed period option, the beneficiary normally has the right to make partial withdrawals in case of emergency. B) Under the fixed period option, any remaining proceeds revert to the insurer if the beneficiary dies before the end of the fixed period. C) Under the fixed amount option, the beneficiary can be given the right to increase or decrease the fixed amount. D) Under the fixed amount option, any interest credited in excess of the guaranteed rate increases the amount of each periodic payment. Answer: C Question Status: Previous Edition 26) Which of the following statements about life income settlement options is (are) true? I. Under a joint-and-survivor life income option, payments cease at the death of the first annuitant. II. Under a life income with guaranteed period, a contingent beneficiary is guaranteed a minimum number of payments regardless of when the primary beneficiary dies. A) I only B) II only C) both I and II D) neither I nor II Answer: D Question Status: Previous Edition 27) Disadvantages of life insurance settlement options include which of the following? I. Higher yields can often be obtained elsewhere. II. Life income options have limited usefulness at younger ages. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 28) Which of the following statements about the waiver-of-premium provision in life insurance is true? A) Because the probability of becoming disabled exceeds the probability of premature death, the cost to include this provision is usually prohibitive at younger ages. B) Premiums are usually waived if the insured becomes partially disabled. C) Life insurance protection continues in force during a period of disability, but dividends cease and cash values are reduced. D) The disability must occur before a stated age, such as 65, for premiums to be waived. Answer: D Question Status: Previous Edition 29) All of the following are requirements that must be satisfied before premiums are waived under a waiver-of-premium provision EXCEPT A) The insured must furnish proof of disability to the insurer. B) The insured must be disabled before some specified age, such as age 60 or 65. C) The insured must satisfy the definition of disability. D) The insured must satisfy a 2-year waiting period. Answer: D Question Status: Previous Edition 30) Which of the following statements about the guaranteed purchase option is true? A) An insured usually has 24 months to exercise an option. B) The option cannot be exercised until the insured reaches age 40. C) The amount of life insurance that can be purchased at each option is limited to 10 percent of the face amount of the basic policy. D) The additional coverage can be purchased without demonstrating insurability. Answer: D Question Status: Previous Edition 31) Which of the following statements about the guaranteed purchase option is true? A) It is usually available with term insurance policies. B) The premium when an option is exercised is based on the insured's age at the time the original policy was issued. C) The option permits the insured to purchase specified amounts of life insurance in the future even if the insured has become uninsurable. D) If a guaranteed purchase option expires without being used, it can be exercised at a later date. Answer: C Question Status: Previous Edition 32) Which of the following statements about a typical accidental death benefit rider is (are) true? I. Accidental injury must be the cause of death for the increased benefit to be paid. II. The accidental death must occur prior to some specified age for the increased benefit to be paid. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 33) Reasons for NOT purchasing an accidental death benefit rider include which of the following? I. Most people die as a result of a disease rather than from an accident. II. The economic value of a human life is not increased if death occurs because of an accident. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 34) The cost-of-living rider typically bases increases in the policy face value on changes in the A) gross national product. B) interest rate for short-term U.S. government securities. C) consumer price index. D) national wage level. Answer: C Question Status: Previous Edition 35) Which of the following statements about accelerated death benefits riders is (are) true? I. The benefit paid is usually less than the full face amount. II. Several different medical conditions may trigger the payment of benefits. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Revised 36) The practice of buying the life insurance policy of a terminally ill insured at a discount is referred to as a A) collateral assignment. B) viatical settlement. C) catastrophic illness conversion. D) grace period transaction. Answer: B Question Status: Previous Edition 37) Al was named the beneficiary in his mother's life insurance policy. His mother died during the contestable period. The insurer denied payment, citing a material misrepresentation on the application. Al believes the insurer should pay the claim because the misrepresentation occurred on the application, and the application is not part of the formal agreement between the insurer and the policyholder. Which provision protects the insurer by making the application part of the formal agreement between the parties to the contract? A) incontestable clause B) entire contract clause C) ownership clause D) reinstatement clause Answer: B Question Status: Previous Edition 38) Cal purchased a whole life policy 6 years ago. The policy requires annual premium payments. Cal forgot to pay the premium that was due 2 weeks ago. He wonders if his life insurance is still in force. Which life insurance policy provision is designed to keep the policy in force for a short time even if the premium payment is late? A) waiting period B) grace period C) guaranteed purchase option D) reinstatement clause Answer: B Question Status: Previous Edition 39) Bruce lied about his health history when he purchased a life insurance policy. He died 3 years after the policy was issued. Which life insurance policy provision will require the life insurer to pay the beneficiary even though Bruce lied on the application? A) incontestable clause B) entire contract clause C) ownership clause D) change-of-plan provision Answer: A Question Status: Previous Edition 40) Which life insurance policy provision specifies that it is the policyholder, and not the insured or beneficiary, who possesses all contractual rights while the policy is in force? A) nonforfeiture options B) entire contract clause C) incontestable clause D) ownership clause Answer: D Question Status: Previous Edition 41) Becky is considering the purchase of a whole life policy on her own life. She is concerned that if she becomes disabled, paying premiums will become a burden. Which provision can Becky attach to her life insurance policy to address this concern? A) guaranteed purchase option B) waiver-of-premium provision C) accidental death benefit rider D) accelerated death benefits rider Answer: B Question Status: Previous Edition 42) Tim purchased a 10-payment whole life insurance policy 15 years ago. Tim would like to donate this paid-up policy to a charity. Under which policy provision can Tim transfer all ownership rights in the policy to the charity? A) absolute assignment B) extended term nonforfeiture option C) reinstatement D) collateral assignment Answer: A Question Status: Previous Edition 43) Beth purchased a participating life insurance policy 6 years ago. Her life insurance needs have increased, but she has developed a medical condition that makes it impossible for her to purchase more life insurance at affordable premiums. Which dividend option makes sense for Beth to use given her medical condition? A) cash B) apply to premium C) dividend accumulations D) paid-up additions Answer: D Question Status: Previous Edition 44) Lionel purchased a $200,000 ordinary life insurance policy when he was 25 years old and had significant life insurance needs. Now Lionel is 50. His mortgage is almost paid-off and his children have left home and are financially independent. Lionel no longer wants to pay premiums, but he would like to have some permanent life insurance in force. Which nonforfeiture option could Lionel employ to meet these objectives? A) cash value B) reduced paid-up insurance C) paid-up additions D) extended term insurance Answer: B Question Status: Previous Edition 45) Jane purchased a life insurance policy on her own life and named her daughter, Cheryl, as beneficiary. Cheryl has a history of not managing money well. Jane wants the death benefit paid to Cheryl in monthly installments over 20 years. Which settlement option should Jane pre-select for Cheryl? A) lump sum B) fixed amount C) fixed period D) interest option Answer: C Question Status: Previous Edition 46) Malcolm would like to purchase life insurance. He is concerned that he might need additional life insurance in the future and that he might be uninsurable at that time. What provision can Malcolm add to his life insurance policy that will permit him to purchase additional life insurance at specified times in the future without providing evidence of insurability? A) double indemnity rider B) guaranteed purchase option C) waiver-of-premium provision D) accelerated death benefits rider Answer: B Question Status: Previous Edition 47) Which of the following statements is (are) true concerning settlement options? I. A straight life annuity provides the lowest amount of periodic income of all the life income options. II. Fixed-period and fixed-amount are life income options. A) I only B) II only C) both I and II D) neither I nor II Answer: D Question Status: Previous Edition 48) Which of the following statements is (are) true concerning the automatic premium loan provision? I. Unlike other policy loans, interest is not charged on automatic premium loans. II. The basic purpose of an automatic premium loan is to prevent a life insurance policy from lapsing. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 49) Life insurance policy proceeds can be paid to a trustee upon the death of the insured. All of the following statements concerning payment of proceeds to a trustee are true EXCEPT A) Use of a trustee provides flexibility with regard to the timing and amount of the payments. B) Trustees are often used when the beneficiary is a minor child or an adult with diminished mental capacity. C) The trustee is not permitted to accept a fee for rendering services. D) The trustee does not guarantee investment results. Answer: C Question Status: Previous Edition 50) Which of the following statements is (are) true regarding exclusions in life insurance contracts? I. Life insurance policies are remarkably restrictive, including numerous exclusions. II. A life insurer may exclude death attributable to certain activities or hobbies disclosed on the application. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 51) A life insurance policyholder may no longer need life insurance. Such a policyholder may sell the policy to a third party for more than its cash value. The purchaser becomes the new beneficiary and is responsible for subsequent premium payments. Such a financial transaction is called a(n) A) collateral assignment. B) accelerated death benefits rider. C) absolute assignment. D) life settlement. Answer: D Question Status: Previous Edition 52) A life insurance contractual provision protects the beneficiary by not permitting the insurer to introduce outside information to deny payment of the claim. Such outside information might be notes that the agent took while the insured completed the application. This contractual provision is the A) entire contract clause. B) incontestable clause. C) reinstatement clause. D) change-of-plan provision. Answer: A Question Status: Previous Edition 53) Which of the following is a standard nonforfeiture option? A) paid-up additions B) life income C) extended term insurance D) reduction of premiums Answer: C Question Status: Previous Edition

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48) To encourage low- to moderate-income workers to save for retirement, a tax credit called the Saver's Credit is available. Which statement about tax credits and tax deductions is true? A) Tax deductions are more favorable than tax credit for most taxpayers. B) Tax credits reduce taxes owed on a dollar-for-dollar basis. C) Tax credits reduce taxable income. D) Tax deductions reduce taxes owed on a dollar-for-dollar basis. Answer: B Question Status: New 49) The tax credit available through the Saver's Credit is equal to A) the annual IRA contribution limit. B) $2,000 regardless of income level and tax-filing status. C) a percentage of the contribution made to a traditional IRA, Roth IRA, 401-k, SIMPLE plan, or 403(b) plan. D) one-fourth of the Social Security taxes paid by the taxpayer. Answer: C Question Status: New 50) Which statement is true with regard to problems and issues with tax-deferred retirement plans in the United States? A) Inadequate participation in employer-sponsored retirement plans can create economic insecurity for retired employees. B) Retirement benefits for women are higher than retirement benefits for men, reflecting the higher wages women are paid. C) Employees do not invest sufficient amounts in the common stock issued by the companies where they work. D) Pension benefits are too often indexed for inflation, burdening employers with high pension costs. Answer: A Question Status: New

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1) Fundamental purposes of the principle of indemnity include which of the following? I. To reduce physical hazards II. To prevent the insured from profiting from insurance A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 2) Which of the following is a fundamental purpose of the principle of indemnity? A) to reduce moral hazard B) to minimize physical hazards C) to settle property insurance losses on a replacement cost basis D) to require deductibles in all property insurance policies Answer: A Question Status: Previous Edition 3) Sam's furniture was destroyed by a fire. The furniture cost $1200 when it was purchased, but similar new furniture now costs $1800. Assuming the furniture was 50 percent depreciated, what is the actual cash value of Sam's loss? A) $600 B) $900 C) $1200 D) $1800 Answer: B Question Status: Previous Edition 4) The loss settlement under which of the following supports the principle of indemnity? A) life insurance B) valued policies C) replacement cost property insurance D) actual cash value property insurance Answer: D Question Status: Previous Edition 5) Under which of the following rules is actual cash value determined by taking into consideration all relevant factors an expert would use to determine the value of the property? A) the circumstantial evidence rule B) the broad evidence rule C) the property indemnity rule D) the objective value rule Answer: B Question Status: Previous Edition 6) A total loss under a valued policy is settled on the basis of the A) market value of the loss. B) actual cash value of the loss. C) replacement value of the loss. D) amount of insurance covering the loss. Answer: D Question Status: Previous Edition 7) Which of the following statements describes how losses will be settled if a property insurance policy is written on a replacement cost basis? A) Losses are settled without the applicable deductible. B) Losses are settled without a deduction for depreciation. C) The insurer must replace the damaged or destroyed property in lieu of a cash settlement. D) The policy is converted to a valued policy. Answer: B Question Status: Previous Edition 8) Which of the following statements about the principle of insurable interest is (are) true? I. It makes it difficult to measure the amount of an insured's loss. II. It reduces moral hazard. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 9) All of the following will support an insurable interest for purposes of purchasing property and liability insurance EXCEPT A) former ownership of property. B) potential legal liability. C) secured creditors. D) contractual right. Answer: A Question Status: Previous Edition 10) Which of the following statements about an insurable interest in life insurance is (are) true? I. It is required of any person named as beneficiary. II. It may result from a pecuniary (financial) interest. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 11) When must an insurable interest legally exist in life insurance? A) only at the time of the insured's death B) only at the inception of the policy C) only at the time the beneficiary is paid D) both at the time of the insured's death and at the inception of the policy Answer: B Question Status: Previous Edition 12) When must an insurable interest legally exist in property insurance for an insured to receive payment for a loss from the insurer? A) only at the time of the loss B) only at the inception of the policy C) only at the time the loss settlement takes place D) both at the time of the loss and at the inception of the policy Answer: A Question Status: Previous Edition 13) Sue's office building was damaged by a fire caused by a careless tenant. After paying Sue for the loss, the insurance company sued the tenant to recover its loss. This suit is based on the principle of A) warranty. B) insurable interest. C) utmost good faith. D) subrogation. Answer: D Question Status: Previous Edition 14) Which of the following statements about subrogation is true? A) Subrogation eliminates adverse selection. B) Subrogation helps to hold down the cost of insurance. C) Subrogation results in violation of the principle of indemnity. D) Subrogation permits a party who caused a loss to avoid responsibility for the loss. Answer: B Question Status: Revised 15) Which of the following statements about subrogation is true? A) It is used primarily for losses paid under life insurance policies. B) It allows the insurer to sue its own insured who is negligent. C) The insured's right to collect benefits may be forfeited if the insured interferes with the insurer's subrogation rights after a loss occurs. D) The insurer is required to exercise its subrogation rights. Answer: C Question Status: Previous Edition 16) The principle of utmost good faith is supported by all of the following legal doctrines EXCEPT A) representations. B) warranty. C) subrogation. D) concealment. Answer: C Question Status: Previous Edition 17) What is the legal significance of a material concealment by an insurance applicant? A) The contract is automatically voided from its inception. B) The contract is voidable at the insurer's option. C) Loss payments are reduced by the degree of the concealment. D) The insurer is immediately entitled to a higher premium. Answer: B Question Status: Previous Edition 18) What is the legal significance of a material misrepresentation in an insurance application? A) The contract is automatically voided from its inception. B) The contract is voidable at the insurer's option. C) Loss payments are reduced by the degree of the misrepresentation. D) The insurer is immediately entitled to a higher premium. Answer: B Question Status: Previous Edition 19) A false material statement made by an applicant for insurance is an example of A) concealment. B) breach of warranty. C) lack of offer and acceptance. D) misrepresentation. Answer: D Question Status: Previous Edition 20) Which of the following statements about a warranty in an insurance contract is (are) true? I. It is part of the insurance contract. II. Statements made by an insurance applicant are considered warranties rather than representations. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 21) David owns a liquor store in a high-crime area. In order to obtain a reduced insurance premium, David promised to have a burglar alarm operating at the store when the store was closed. This agreement, which was incorporated into the insurance contract, is an example of a A) representation. B) binder. C) rider. D) warranty. Answer: D Question Status: Previous Edition 22) Which of the following statements about offer and acceptance for insurance contracts is true? A) In property and liability insurance, agents typically do not have the authority to bind coverage. B) In life insurance, the agent can usually accept an offer by immediately binding coverage. C) In property insurance, the offer and acceptance are usually in writing but may be oral. D) In life insurance, completing the application and paying the first premium constitute acceptance of the offer from the insurer. Answer: C Question Status: Previous Edition 23) Chris applied for life insurance and paid the first premium on Monday. She was given an insurability premium receipt which specified that coverage was effective on the date of the application or the date of the medical exam, whichever is later. She took the medical exam the following Thursday. She was found to be in perfect health. On which day was her coverage effective? A) on Monday, when she completed the application and paid the first premium B) on Wednesday, two days after completing the application and paying the first premium C) on Thursday when she passed the medical exam D) on Saturday, two days after passing the medical exam Answer: C Question Status: Previous Edition 24) Which of the following statements about consideration in an insurance contract is (are) true? I. The insured's total consideration is submission of a completed application. II. The insurer's consideration is the promise to do those things specified in the policy. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 25) A contract in which the values exchanged are not equal because chance is involved is called a(n) A) contract of adhesion. B) unilateral contract. C) conditional contract. D) aleatory contract. Answer: D Question Status: Previous Edition 26) Why are insurance contracts said to be contracts of adhesion? A) The values exchanged by the parties to the contract are not equal. B) One party writes the contract, and the other party must accept the entire contract as written. C) Only one party makes a legally enforceable promise. D) Conditions are placed on the insurer's promise to perform. Answer: B Question Status: Previous Edition 27) Why does the insured get the benefit of the doubt if an insurance policy contains any ambiguities or uncertainties? A) because insurance contracts are aleatory B) because insurance contracts are unilateral C) because insurance contracts are conditional D) because insurance contracts are contracts of adhesion Answer: D Question Status: Previous Edition 28) Why can an insurer refuse to pay a claim if an insured fails to abide by the policy provisions? A) because insurance contracts are aleatory B) because insurance contracts are unilateral C) because insurance contracts are conditional D) because insurance contracts are contracts of adhesion Answer: C Question Status: Previous Edition 29) Which of the following types of insurance policies can usually be assigned without the insurer's consent? I. Life insurance II. Property insurance A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 30) What is the practical effect of an insurance policy being a conditional contract? A) The insurer can refuse to a pay claim if the insured has not complied with all policy provisions. B) The insured can assign the policy only with the insurer's consent. C) The insurer can sue the insured for failure to pay any premiums. D) The insured gets the benefit of the doubt if a policy contains any ambiguities or uncertainties. Answer: A Question Status: Previous Edition 31) What is the practical effect of an insurance contract being a contract of adhesion? A) The insurer can refuse to pay claims if the insured has not complied with all policy provisions. B) The insured can assign the policy only with the insurer's consent. C) The insurer can sue the insured for failure to pay any premiums. D) The policy is interpreted in the insured's favor if the policy contains any ambiguities or uncertainties. Answer: D Question Status: Previous Edition 32) All of the following statements about the rules governing agency relationships are true EXCEPT A) An agent must be authorized to act on behalf of a principal. B) An agency agreement may grant certain powers to the agent as well as denying the agent other powers. C) The principal is responsible for the acts of agents only if the acts are criminal. D) Knowledge of the agent is presumed to be knowledge of the principal with respect to matters within the scope of the agency relationship. Answer: C Question Status: Previous Edition 33) The voluntary relinquishment of a legal right is called A) subrogation. B) adhesion. C) estoppel. D) waiver. Answer: D Question Status: Previous Edition 34) Frank asked his company's employee benefits director if his group health coverage could be converted to individual coverage. The benefits director said, "Yes, you can convert to an individual policy, and the coverage is identical to your group coverage." Frank quit his job and converted to an individual policy. Six months later he filed a claim. He was dismayed to learn the conversion policy was more limited compared to the group coverage, and his claim was denied. What legal doctrine will allow Frank to bring a successful legal action against his former employer because he was financially harmed due to his reasonable reliance upon a representation of fact? A) adhesion B) waiver C) estoppel D) subrogation Answer: C Question Status: Previous Edition 35) Janice purchased a living room set for $1,000 and insured this furniture on an actual cash value basis. Two years later the living room set was destroyed by a covered peril. At the time of loss, the property had depreciated in value by 25 percent. The replacement cost of the furniture at the time of loss was $1,200. Assuming no deductible, how much will Janice receive from her insurer? A) $900 B) $950 C) $1,000 D) $1,200 Answer: A Question Status: Previous Edition 36) Jacob sold his house to Shelia for $140,000 in cash. Jacob "threw in" insurance on the house as part of the deal and did not bother telling the insurer that there was a new owner. Four months after Shelia purchased the home, a windstorm damaged the roof. Which of the following legal characteristics of insurance contracts could the insurer use to legally deny payment for the damage to the roof? A) Insurance contracts are unilateral contracts. B) Insurance contacts are contracts of adhesion. C) Insurance contracts are aleatory contracts. D) Insurance contracts are personal contracts. Answer: D Question Status: Previous Edition 37) Melody's car was damaged when another driver ran a stop sign and hit her car. Melody decided to collect from her own insurer and to let her insurer recoup the loss payment from the negligent driver who hit her. What fundamental legal principle is illustrated in this scenario? A) the principle of utmost good faith B) the principle of insurable interest C) the principle of subrogation D) the principle of reasonable expectations Answer: C Question Status: Previous Edition 38) When Ben applied for life insurance, he was asked on the application if he smoked or used tobacco products. Ben answered "No." In reality, Ben smokes two packs of cigarettes a day. The policy was issued at the "preferred, nonsmoker rate." If Ben dies 6 months after the policy is issued, upon what grounds will the insurer be able to legally deny the claim? A) warranty B) misrepresentation C) waiver D) concealment Answer: B Question Status: Previous Edition 39) Robin plans to open a bar in a high-crime area. She had difficulty obtaining insurance for the business. She found an insurer willing to write the coverage, but only if Robin agreed to have a security alarm system in operation at all times when the business is closed. Robin's promise to have a security alarm system operational as a condition of having the insurance coverage in force is a A) binder. B) warranty. C) waiver. D) deductible. Answer: B Question Status: Previous Edition 40) Dave is an agent for Easy Pay Insurance. Easy Pay insures only high-quality applicants. Dave wanted to earn more commissions, so he sold some policies to applicants he knew were below-average risks. When these policyowners started filing claims, Easy Pay tried to deny the claims stating that Dave had not acted appropriately. Which general rule of agency makes Easy Pay responsible for the claims of the higher-than-average risk policyowners? A) There is no presumption of an agency relationship. B) Agents should be compensated based on the quality of the business they generate. C) A principal is responsible for the acts of its agents who are acting within the scope of their authority. D) An agent must have authority to represent the principal. Answer: C Question Status: Previous Edition 41) Ted's insurance claim was denied by XYZ Insurance Company. When Ted inquired why the claim was denied, he was told to, "Read the exclusion on page 5 of the policy." Ted read the exclusion. In his opinion, the exclusion was poorly worded and vague. If a court of law agrees with Ted's assessment of the exclusion, Ted may still be able to have his claim paid by the insurer because insurance contracts are A) personal contracts. B) unilateral contracts. C) aleatory contracts. D) contracts of adhesion. Answer: D Question Status: Previous Edition 42) Mark owns a bar. The bar has a back room where Mark has some slot machines. Mark lets some of his patrons play the machines, and Mark keeps any profits. This type of gambling is illegal where Mark lives. Mark wanted to purchase insurance in case his slot machines were confiscated by the police. Such an insurance contract would not be enforceable. Which requirement needed to form a valid insurance contract is missing? A) consideration B) offer and acceptance C) legal purpose D) competent parties Answer: C Question Status: Previous Edition 43) Which distinct legal characteristic of insurance contracts states that only the insurer's promise to perform is legally enforceable? A) contracts of adhesion B) unilateral contracts C) aleatory contracts D) personal contracts Answer: B Question Status: Previous Edition 44) Some courts have ruled that an alternative to "replacement cost less depreciation" should be used to determine the actual cash value of a property loss. Under this alternative, the value of property lost is determined by the price a willing buyer would pay a willing seller for the property in a free market. This method of determining actual cash value is called the A) intrinsic value method. B) valued policy method. C) fair market value method. D) forensic cost method. Answer: C Question Status: Previous Edition 45) Some states have a law that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law. These laws are called A) agreed amount laws. B) replacement cost laws. C) homestead laws. D) valued policy laws. Answer: D Question Status: Previous Edition 46) The general rule that ambiguity in insurance contracts is construed against the insurer is reinforced by an important legal principle. This principle states the insured is entitled to coverage under a policy that he or she would assume the policy would provide, and exclusions must be conspicuous, plain, and clear. This principle is known as A) the principle of utmost good faith. B) the principle of reasonable expectations. C) the principle of subrogation. D) the principle of indemnity. Answer: B Question Status: Previous Edition 47) Dave and Meagan Philips borrowed $150,000 from Fifth National Bank to help fund the purchase of a new home. The home serves as collateral for the loan. Fifth National has an insurable interest in the home based on A) potential responsibility for legal liability. B) being a secured creditor. C) expectation of ownership. D) having a contractual right. Answer: B Question Status: Previous Edition 48) All of the following statements about subrogation are true EXCEPT A) The general rule allows the insurer to recover up to the amount paid to its insured under the policy. B) Subrogation does not apply in life insurance. C) Interfering with the insurer's subrogation rights can jeopardize indemnification of the insured. D) The insurer reserves the right to subrogate against its own insureds. Answer: D Question Status: Previous Edition 49) Powers specifically conferred on an agent to act on behalf of a principal are A) incidental authority. B) apparent authority. C) implied authority. D) express authority. Answer: D Question Status: Previous Edition 50) If a third party is led to reasonably believe that an agent is acting within the scope of his/her authority, even though the agent is exceeding his/her authority, the principal may still be bound by the agent's actions. In this case, the agent has bound the principal by A) implied authority. B) apparent authority. C) incidental authority. D) express authority. Answer: B Question Status: Previous Edition 51) The authority of an agent to perform all incidental acts necessary to fulfill the purposes of the agency agreement is called A) implied authority. B) declared authority. C) apparent authority. D) express authority. Answer: A Question Status: Previous Edition 52) ABC Life Insurance Company insures both smokers and nonsmokers. Beth lied on her life insurance application, checking the box for "no" in response to the question of whether she smokes cigarettes or uses other tobacco products. Even though Beth smokes 10 to 15 cigarettes each day, the policy was issued at the "preferred nonsmoker rate." Beth's lie is materiel in this case because A) it was in writing on the application. B) it was given with the intent to deceive. C) the policy would have been issued on different terms if the insurer knew the true facts. D) the policy would have been issued for a lower face value if the insurer knew the true facts. Answer: C Question Status: Previous Edition 53) Bob purchased insurance on his home with an insurer that was not licensed to do business in the state. In this case, which requirement to form a binding insurance contract is lacking? A) exchange of consideration B) offer and acceptance C) legal purpose D) competent parties Answer: D Question Status: Previous Edition 54) A pharmaceutical company employs a young chemist who is responsible for three new patents last year and for the development of the company's two best-selling drugs. The company purchased a large life insurance policy on the chemist. In this case, the insurable interest requirement was met because of a(n) A) ownership interest. B) close family relationship. C) pecuniary interest. D) economic family relationship. Answer: C Question Status: Previous Edition 55) Hank bought a farm that had an old barn. He noticed one day that the roof of the barn was swaying in the wind. Hank went to see his insurance agent and he insured the barn for $20,000. The agent didn't ask if the roof might collapse, and Hank didn't say anything about it. One week later there was a strong wind and the roof collapsed. Assuming the insurer can prove it, under what legal grounds could the insurer deny payment of the claim? A) estoppel B) concealment C) warranty D) misrepresentation Answer: B Question Status: Previous Edition 56) Kim purchased a one-year property insurance policy. She agreed to pay half the premium when she bought the coverage, and the other half six months later. If Kim fails to pay the second premium, the insurer cannot sue her for the premium because insurance contracts are A) unilateral contracts. B) contracts of adhesion. C) personal contracts. D) aleatory contracts. Answer: A Question Status: New 57) Charles Blake told Wendy that he was an agent for Easy Pay Life Insurance Company. He presented no credentials. He asked Wendy some questions about her health and activities, and recorded the answers on scrap paper. He collected a $250 cash premium from Wendy. When Wendy did not receive a policy from Easy Pay, she contacted the company. Easy Pay said they do not have an agent named Charles Blake. Easy Pay is not responsible for Wendy's loss of $250 because A) the principal is never responsible for the acts of its agents. B) there is no presumption of an agency relationship. C) limitations can be placed on the powers of agents. D) knowledge of the agent is assumed to be knowledge of the principal. Answer: B Question Status: New 1) That part of a property and liability insurance contract that contains information about the property or activity to be insured is called the A) declarations. B) insuring agreement. C) exclusions. D) conditions. Answer: A Question Status: Previous Edition 2) What information is contained in the insuring agreement of an insurance policy? A) a description of the property or life to be insured B) a summary of the major promises of the insurer C) a summary of the obligations of the insured D) a list of the property, losses, and perils that are not covered Answer: B Question Status: Previous Edition 3) Which of the following statements about "open-perils" coverage is (are) true? I. All losses are covered except those losses specifically excluded. II. The burden of proof is on the insured to prove that a loss is covered. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 4) The exclusion of flood in a homeowners policy is an example of an A) excluded activity. B) excluded condition. C) excluded property. D) excluded peril. Answer: D Question Status: Previous Edition 5) Exclusions are used in insurance policies for all of the following reasons EXCEPT A) to reduce moral hazard. B) to waive policy conditions. C) to eliminate coverage for uninsurable perils. D) to eliminate coverage not needed by typical insureds. Answer: B Question Status: Previous Edition 6) Reasons why a peril may be considered uninsurable and therefore excluded from insurance contracts include which of the following? I. The losses from the occurrence of the peril may be due to a predictable decline in value. II. The losses from the occurrence of the peril may be incalculable and catastrophic. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 7) The policy provision requiring the filing of proof of loss with the insurer is an example of a(n) A) declaration. B) condition. C) insuring agreement. D) miscellaneous provision. Answer: B Question Status: Previous Edition 8) Which of the following statements about the definition of the insured is (are) true? I. In some cases, a person who is not specifically named may be classified as an insured. II. Under no circumstances can more than one person be named as an insured. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 9) All of the following statements about endorsements and riders are true EXCEPT A) They are usually written. B) They can be used to add or delete policy provisions. C) They normally take precedence over other conflicting policy provisions. D) They are primarily used to circumvent legislation requiring specific policy provisions. Answer: D Question Status: Previous Edition 10) Deductibles are not used in which of the following type of insurance? A) life insurance B) health insurance C) property insurance D) disability income insurance Answer: A Question Status: Previous Edition 11) One of the reasons that deductible are used in insurance policies is to A) eliminate coverage for small claims. B) place restrictions or limits on the insurer's promise to perform. C) provide broader coverage by increasing the number of perils covered. D) exclude perils that are not insurable. Answer: A Question Status: Previous Edition 12) The deductible used for automobile collision losses is an example of a(n) A) calendar year deductible. B) elimination period. C) straight deductible. D) aggregate deductible. Answer: C Question Status: Previous Edition 13) Which of the following statements about a calendar-year deductible is (are) true? I. It requires the insured to pay a specified amount of each claim regardless of when the claim occurs during the year and regardless of any previous claims during the year. II. It is used only in policies which cover direct property losses. A) I only B) II only C) both I and II D) neither I nor II Answer: D Question Status: Previous Edition 14) A provision in a disability income insurance policy that requires a person to be disabled for 60 days before receiving benefits is an example of a(n) A) calendar year deductible. B) grace period. C) elimination period. D) probationary period. Answer: C Question Status: Previous Edition 15) At what point in time must an insured meet the coinsurance requirement in a property insurance policy in order to avoid having to pay a portion of the loss? A) only at the time of loss B) only at the time when the policy is issued C) only at the time of policy application D) both at the time when the policy is issued and at the time of loss Answer: A Question Status: Previous Edition 16) David owns a commercial building with a replacement cost of $4 million. The building is insured on a replacement cost basis for $2.4 million under a fire insurance policy that has an 80 percent coinsurance clause. How much will David collect if the building sustains a covered fire loss with a replacement cost of $80,000? A) $50,000 B) $60,000 C) $66,667 D) $80,000 Answer: B Question Status: Previous Edition 17) The primary purpose of coinsurance in property insurance is to A) reduce moral hazard. B) achieve equity in rating. C) minimize problems in settling claims. D) eliminate small losses. Answer: B Question Status: Previous Edition 18) Which of the following statements about problems arising from the use of a coinsurance clause is (are) true? I. The amount of insurance should be periodically evaluated to avoid a coinsurance penalty because of inflation. II. An agreed value coverage option is one method used to solve the problem of values that fluctuate throughout the policy term. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 19) Connie has an individual medical expense policy with a $1,000 deductible. She is required to pay 20 percent of covered expenses in excess of the deductible. The insurer will pay 80 percent of expenses in excess of the deductible. If Connie has eligible medical expenses of $26,000, how much will be paid by her insurer? A) $10,000 B) $11,000 C) $20,000 D) $21,000 Answer: C Question Status: Previous Edition 20) Purposes of the coinsurance clause in health insurance contracts include which of the following? I. To reduce premiums. II. To exclude coverage for certain medical procedures. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 21) The purpose of other-insurance provisions is to A) eliminate the need for deductibles. B) penalize those insureds who carry inadequate amounts of insurance. C) specify who will pay losses if the insurer is bankrupt. D) preserve the principle of indemnity. Answer: D Question Status: Previous Edition 22) Lisa has three fire insurance policies on her office building. The policy from company A is for $400,000, and the policies from companies B and C are for $100,000 each. If Lisa has a $360,000 loss, how much of the loss will be covered by each policy if the loss is settled on a pro rata basis by the insurers? A) each policy: $120,000 B) policy A: $160,000; policies B and C: $100,000 each C) policy A: $240,000; policies B and C: $60,000 each D) policy A: $360,000; policies B and C: nothing Answer: C Question Status: Previous Edition 23) Kevin has three liability policies which provide for contribution by equal shares if other insurance applies to a loss. How much will each policy pay for a $3,000,000 liability judgment if policy A provides $500,000 of coverage, policy B provides $1,000,000 of coverage, and policy C provides $3,000,000 of coverage? A) Each policy will pay $500,000, and Kevin must pay the remaining $1,500,000. B) Policy A will pay $500,000, policies B and C will each pay $1,000,000, and Kevin must pay the remaining $500,000. C) Policy A will pay nothing, policy B will pay $1,000,000, and policy C will pay $2,000,000. D) Policy A will pay $500,000, policy B will pay $1,000,000, and policy C will pay $1,500,000. Answer: D Question Status: Previous Edition 24) Helen and John both own automobiles on which they carry liability insurance. If Helen is negligent and has an accident while driving John's car with his permission, how will each insurer respond to any liability judgment against Helen? A) The insurers will pay the judgment on a pro rata basis. B) John's insurer will pay on an excess basis if Helen's insurance is insufficient to cover the judgment. C) Helen's insurance will pay on an excess basis if John's insurance is insufficient to cover the judgment. D) The policies will pay the judgment on the basis of contribution by equal shares. Answer: C Question Status: Previous Edition 25) Kate is covered under her employer's group health plan. She is also covered as a dependent under her husband's group health plan. Under the usual coordination-of-benefits provision, how will each company respond to a claim filed by Kate? A) Kate's plan is primary, and her husband's plan is excess. B) Her husband's plan is primary, and Kate's plan is excess. C) The plan of the person with the birthday earliest in the year pays first, and the other plan is excess. D) Each plan will pay 50 percent of the claim. Answer: A Question Status: Previous Edition 26) Eric's property was damaged in an accident. He phoned his agent to see if the loss was covered under his property insurance policy. The agent said, "As long as the cause of loss is not specifically excluded in the policy, the loss is covered." Based on the agent's answer, what type of insuring agreement appears in the policy? A) unconditional coverage B) named-perils coverage C) extended-perils coverage D) "open-perils" coverage Answer: D Question Status: Previous Edition 27) Janet hit a wall causing a large dent in the fender of her car. She was busy at work and delayed reporting the damage to her insurer for 9 months. When she finally reported the claim, her insurer denied payment, stating, "Although such a loss is usually covered, you are required under the terms of the contract to provide prompt notification in case of loss." The prompt notification requirement is an example of a(n) A) declaration. B) definition. C) insuring agreement. D) condition. Answer: D Question Status: Previous Edition 28) Mark reviewed his homeowners policy. He learned that his personal property was insured on an actual cash value basis. He would like replacement cost coverage on his personal property. He contacted his agent who said, "I'll simply add an amendment to your contract that changes the basis of recovery to replacement cost." The written provision the agent was referring to is called a(n) A) endorsement. B) coinsurance clause. C) binder. D) deductible. Answer: A Question Status: Previous Edition 29) Under the terms of Jenny's auto insurance policy, she must pay the first $500 of any physical damage loss to her vehicle before her insurer will pay anything. What type of deductible is included in Jenny's auto insurance policy? A) calendar-year deductible B) waiting period C) straight deductible D) aggregate deductible Answer: C Question Status: Previous Edition 30) Shauna hurt her back and was unable to work. She filed a claim under her disability income insurance policy. Under terms of the policy, a period of time must pass between when the injury occurred and when the insurer begins to replace lost earnings. This time period is called a(n) A) grace period. B) enrollment period. C) probationary period. D) elimination (waiting) period. Answer: D Question Status: Previous Edition 31) ABC Company insured its building on a replacement cost basis for $700,000 under a property insurance policy that included an 80 percent coinsurance clause. The building had a replacement cost of $1 million when it sustained a $40,000 loss. How much will ABC Company receive from its insurer, assuming no deductible applies? A) $33,333 B) $35,000 C) $36,000 D) $40,000 Answer: B Question Status: Previous Edition 32) XYZ Company insured its building on a replacement cost basis for $450,000 under a property insurance policy that included an 80 percent coinsurance clause. The building had a replacement cost of $500,000 when it sustained a $50,000 loss. How much will XYZ Company receive from its insurer, assuming no deductible applies? A) $42,500 B) $45,000 C) $50,000 D) $56,250 Answer: C Question Status: Previous Edition 33) Laura's medical insurance policy includes a $500 deductible. Laura is required to pay 20 percent of covered expenses in excess of the deductible, and her insurer will pay 80 percent of covered expenses in excess of the deductible. Laura was hospitalized and her covered medical expenses were $10,500. How much of the $10,500 will be paid by the insurer? A) $7,500 B) $7,900 C) $8,000 D) $10,000 Answer: C Question Status: Previous Edition 34) James purchased liability insurance with a $100,000 limit from Insurer A. When Insurer A denied a claim that James thought should be covered, he bought a second liability insurance policy with a $150,000 limit from Insurer B. Before he cancelled the policy with Insurer A, a $60,000 loss occurred. If this loss is settled on a pro rata basis, how much must each insurer pay? A) Insurer A will pay $10,000 and Insurer B will pay $50,000. B) Insurer A will pay $20,000 and Insurer B will pay $40,000. C) Insurer A will pay $24,000 and Insurer B will pay $36,000. D) Insurer A will pay $40,000 and Insurer B will pay $20,000. Answer: C Question Status: Previous Edition 35) Jane purchased a $50,000 liability insurance policy from Insurer A. Fearing that she did not have enough liability insurance, she purchased an additional $100,000 of liability coverage from Insurer B. As a result of a negligent act, Jane was ordered to pay $75,000 in damages. Assuming the coverage from Insurer A is primary and the coverage from Insurer B is excess, how will this claim be settled? A) Insurer A will pay $50,000 and Insurer B will pay $25,000. B) Insurer A will pay $37,500 and Insurer B will pay $37,500. C) Insurer A will pay $25,000 and Insurer B will pay $50,000. D) Insurer A will pay nothing and Insurer B will pay $75,000. Answer: A Question Status: Previous Edition 36) The purpose of a coordination-of-benefits provision in group health insurance plans is to A) determine which plan pays first if more than one plan covers a loss. B) determine which health care provider an insured may use for his or her care. C) determine if the calendar-year deductible has been satisfied by the insured. D) determine if the employee is eligible for coverage under the group health plan. Answer: A Question Status: Previous Edition 37) As an alternative to coinsurance, rate discounts can be given as the amount of insurance to value increases. This alternative is called A) graded rates. B) agreed value coverage. C) retrospective rating. D) manual rating. Answer: A Question Status: Previous Edition 38) Mark owns a building that he insured for $90,000. The replacement cost of the building is $100,000. Mark's property insurance policy has an 80 percent coinsurance clause. Ignoring any deductible, if Mark's building is destroyed by a covered peril, how much will Mark receive from his insurer? A) $80,000 B) $90,000 C) $101,250 D) $112,500 Answer: B Question Status: Previous Edition 39) A special coverage policy is a policy that A) has no exclusions. B) provides open-perils coverage. C) provides coverage under special conditions. D) has coverage for multiple lines of insurance. Answer: B Question Status: Previous Edition 40) The section of the insurance policy that includes provisions that qualify or limit the insurer's promise to perform is the A) definitions. B) insuring agreement. C) exclusions. D) conditions. Answer: D Question Status: Previous Edition 41) An elimination (waiting) period is an example of a(n) A) exclusion. B) deductible. C) other-insurance provision. D) coinsurance provision. Answer: B Question Status: Previous Edition 42) Roger owns some farmland that he rents to a tenant. The tenant lives in an old farmhouse on the property and raises crops on the land. Roger is concerned about possible legal liability if the tenant injures someone. Roger requires the tenant to have liability insurance and to add himself to the liability coverage through an endorsement. Under the tenant's liability insurance, Roger is a(n) A) additional insured. B) first-named insured. C) second-named insured. D) other insured. Answer: A Question Status: Previous Edition 43) Maria's home was damaged by an earthquake. As Maria has open-perils coverage on her home, she was surprised to learn that her loss was not covered. Which section of a property insurance policy specifies which perils, property, and types of losses are not covered? A) the declarations B) the exclusions C) the conditions D) the insuring agreement Answer: B Question Status: Previous Edition 44) In determining insurance limits and deductibles, an important concept is that insurance should be used to pay big losses rather than small losses. The objective is to insure big losses that could cause financial ruin and to exclude small losses that can be budgeted out of current income. This concept is called the A) law of large numbers. B) efficient loss-cost concept. C) large-loss principle. D) retention-transfer tradeoff. Answer: C Question Status: Previous Edition 45) An insurance policy provision that specifies how a property loss will be settled if more than one property insurance policy covers the loss is the A) insuring agreement provision. B) loss settlement provision. C) other insurance provision. D) coinsurance provision. Answer: C Question Status: Previous Edition 46) Property insurance policies contain declarations, conditions, definitions, exclusions, and an insuring agreement. However, some policy terms, such as subrogation, cancellation, other insurance, and assignment do not fall into these categories. The part of an insurance contract in which these provisions can be found is the A) endorsements. B) binders. C) conditions. D) miscellaneous provisions. Answer: D Question Status: New 47) Ann Parks and Robert Evans jointly own a grocery store. Ann and Robert are both named insureds on the property insurance covering the store, but Ann is the first named insured. Which of the following statements is true with regard to Ann's status as the first named insured? A) Any loss settlement is paid to Ann only. B) Ann is responsible for making sure that the premium has been paid. C) Ann can assign the policy without the consent of the insurer. D) Ann can waive policy conditions. Answer: B Question Status: New 48) Maggie purchased a life insurance policy. She was concerned that if she became disabled, she would no longer be able to pay the premiums. Her agent added an amendment of the policy stating that if she became disabled, future premium payments would be waived. Such an amendment to a life insurance policy is called a(n) A) binder. B) rider. C) warranty. D) schedule. Answer: B Question Status: New 49) Homeowners insurance policies usually cover resident relatives of the named insured who are under age 24 and who are full-time students away from home. Under the homeowners policy, these full-time students are considered A) first named insureds. B) second named insureds. C) other insureds. D) additional insureds. Answer: C Question Status: New 1) Which of the following types of families is likely to have the least need for a large amount of life insurance? A) a blended family B) a traditional family C) a single person family D) a sandwiched family Answer: C Question Status: Previous Edition 2) The human life value is defined as the A) present value of a deceased breadwinner's future gross income. B) future value of a deceased breadwinner's past earnings. C) present value of the family's share of a deceased breadwinner's future earnings. D) future value of the family's share of a deceased breadwinner's future earnings. Answer: C Question Status: Previous Edition 3) Which of the following pieces of information is needed to calculate a person's human life value? A) the marital status of the person. B) the person's estimated annual Social Security benefits after retirement. C) the person's cost of self-maintenance. D) current outstanding debts, including mortgage debt. Answer: C Question Status: Previous Edition 4) To calculate a human life value, it is necessary to deduct certain costs from a person's average annual earnings. These costs include A) funeral costs. B) income taxes. C) investment income. D) pension benefits after retirement. Answer: B Question Status: Previous Edition 5) All of the following are defects which limit the usefulness of the human life value approach in determining the correct amount of life insurance to purchase EXCEPT A) The effects of inflation are ignored. B) Other sources of income for survivors are ignored. C) Earnings are assumed to remain constant. D) Earnings during the individual's productive lifetime are ignored. Answer: D Question Status: Previous Edition 6) Which of the following statements about the needs approach for estimating the amount of life insurance to purchase is (are) true? I. It involves an analysis of various family needs which must be met if a family breadwinner dies. II. Its use is appropriate only if a person currently has no life insurance protection. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 7) Which of the following is a cost/expense that an estate clearance fund is designed to pay? A) burial expenses B) retiring the mortgage C) education costs D) income for the widow(er) during the readjustment period Answer: A Question Status: Previous Edition 8) What is the length of the readjustment period which is considered when the needs approach is used to determine the amount of life insurance to own? A) 3 to 6 months B) 1 to 2 years C) until the youngest child reaches age 18 D) until the surviving spouse reaches age 65 Answer: B Question Status: Previous Edition 9) Under the needs approach, when is the dependency period of a surviving spouse assumed to end? A) 1 or 2 years after the breadwinner's death B) when the youngest child reaches age 18 C) when the surviving spouse reaches age 65 D) when the surviving spouse dies Answer: B Question Status: Previous Edition 10) The period during which a surviving spouse is ineligible for Social Security benefits is referred to as the A) emergency period. B) readjustment period. C) dependency period. D) blackout period. Answer: D Question Status: Previous Edition 11) Which of the following statements about premature death is (are) true? I. From an economic standpoint, premature means death before a specified age, such as 65. II. The economic problem of problem of premature death in the U.S. has declined substantially over time. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: New 12) Which of the following statements about re-entry term insurance is true? A) It permits the coverage to be renewed an unlimited number of times as long as insurability is demonstrated. B) It permits a refund of premiums paid if the term insurance is renewed a specified number of times. C) It permits a lower renewal premium if the insured demonstrates insurability. D) It permits a lapsed whole life policy to be reinstated as term insurance. Answer: C Question Status: New 13) Which of the following is a noneconomic cost associated with premature death? A) reduction in the standard of living B) loss of a parental role model C) additional expenses, such as uninsured medical bills D) loss of the deceased breadwinner's future earnings Answer: B Question Status: New 14) Tom and Nancy Boyle provide financial support for their two children. In addition, they provide financial support for Tom's aged father and Nancy's aged mother. The Boyle family can be described as a A) blended family. B) single-parent family. C) two-income earner family. D) sandwiched family. Answer: D Question Status: Previous Edition 15) Julian, age 45, would like to determine how much life insurance to purchase using the human life value approach. He assumes his average annual earnings over the next 20 years will be $40,000. Of this amount, $20,000 is available annually for the support of his family. Julian will generate this income for 20 more years and he believes that 5 percent is the appropriate interest (discount) rate. The present value of one dollar payable for 20 years at a discount rate of 5 percent is $12.46. What is Julian's human life value? A) $184,600 B) $249,200 C) $360,800 D) $400,000 Answer: B Question Status: Previous Edition 16) Jessica is an agent for LMN Life Insurance Company. She met with Brad, who was interested in purchasing life insurance. Jessica explained the various uses of life insurance, including income for Brad's wife during the 1- or 2-year period following Brad's death. This period is known as the A) dependency period. B) estate clearance period. C) blackout period. D) readjustment period. Answer: D Question Status: Previous Edition 17) Sarah is using the needs approach to determine how much life insurance to buy. Her cash needs are $30,000; her income needs are $140,000; and special needs are $100,000. Sarah has the following assets: $20,000 in bank accounts, $30,000 in retirement plans, and $40,000 in investment accounts. Sarah owns no individual life insurance. She is covered by a $50,000 group life insurance policy through her employer. Based on this information, how much additional life insurance should Sarah purchase? A) $80,000 B) $130,000 C) $150,000 D) $160,000 Answer: B Question Status: Previous Edition 18) Which of the following statements regarding convertible term insurance is true? A) Evidence of insurability must be provided to convert the policy. B) More term policies are converted using the original-age method than using the attained-age method. C) The converted coverage has a lower face amount than the term coverage. D) The annual premium for the cash value coverage is lower if an original-age conversion is used than if an attained-age conversion is used. Answer: D Question Status: New 19) Bill is attempting to determine how much life insurance to purchase. He has two dependent children and his wife does not work outside of the home. An advisor suggested that Bill should consider Social Security benefits when doing his life insurance planning. One concern in this regard is the period after Social Security benefits to a widow terminate until they resume again. This period is called the A) blackout period. B) dependency period. C) emergency period. D) readjustment period. Answer: A Question Status: Previous Edition 20) When using the needs approach, several "special needs" should be considered. One special need is money to cover unexpected events, such as major car repairs, dental bills, or home repairs. Money set aside for this purpose is called a(n) A) estate clearance fund. B) emergency fund. C) readjustment period fund. D) mortgage redemption fund. Answer: B Question Status: Previous Edition 21) Most family heads need substantial amounts of life insurance. However, with limited income, money spent on life insurance reduces the amount of discretionary income available for other high-priority needs. What an insured person gives up when he or she purchases life insurance instead of using the premium dollars for other purposes is called the A) estimated cost of life insurance. B) net cost of life insurance. C) real (inflation-adjusted) cost of life insurance. D) opportunity cost of buying life insurance. Answer: D Question Status: Previous Edition 22) Which of the following statements about yearly renewable term insurance is (are) true? I. It requires evidence of insurability for renewal. II. It is most appropriate when an insured needs lifetime protection. A) I only B) II only C) both I and II D) neither I nor II Answer: D Question Status: Previous Edition 23) What happens to the premiums for yearly renewable term insurance as an insured gets older? A) They increase at an increasing rate. B) They increase at a decreasing rate. C) They decrease at a constant rate. D) They remain level. Answer: A Question Status: Previous Edition 24) Which of the following statements about term insurance is true? A) The coverage is appropriate if the goal is permanent lifetime protection. B) Most policies can be renewed for additional periods without evidence of insurability. C) Premiums increase at a constant rate each time the policy is renewed. D) Most policies have a cash value that is refunded when coverage ceases. Answer: B Question Status: Previous Edition 25) All of the following statements about the conversion of a term policy are true EXCEPT A) Under an attained age conversion, the premium is based on the insured's attained age at the time of conversion. B) Under an original age conversion, the policyowner must pay a financial adjustment in addition to the premium for the new policy. C) Most insurers require original age conversion to take place within a specified period (5 years, for example) of the issue of the term policy. D) Evidence of insurability is required before a conversion is permitted. Answer: D Question Status: Previous Edition 26) Which of the following statements about a decreasing term insurance policy is true? A) The face amount of the policy decreases during the policy period, and the premium increases. B) The face amount of the policy decreases during the policy period, but the premium remains level. C) The premium decreases during the policy period, but the face amount remains constant. D) Both the premium and the face amount of the policy decrease gradually over the policy period. Answer: B Question Status: Previous Edition 27) The purchase of term insurance is justified by which of the following circumstances? I. The insured wants to save money through the policy for a specific need. II. The insured has a temporary need for life insurance protection. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 28) A legal reserve in life insurance is a result of A) premium taxes payable by life insurance companies being postponed during the early policy years. B) dividends being paid to policyholders. C) inadequate premiums in the early policy years being subsidized by investment earnings. D) excess premiums in the early policy years being invested at compound interest. Answer: D Question Status: Previous Edition 29) The net amount at risk for an ordinary life insurance policy is the difference between the A) present value of future benefits and the present value of future premiums. B) face amount of the policy and the total premiums that have been paid. C) face amount of the policy and the legal reserve. D) annual premium and the annual policyholder dividend. Answer: C Question Status: Previous Edition 30) Which of the following statements about life insurance cash values is (are) true? I. Cash values are a result of the level premium method of purchasing life insurance. II. The cash value of a policy must always exceed the policy's legal reserve. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 31) All of the following statements about ordinary life insurance are true EXCEPT A) Premiums are level throughout the policy period. B) The face amount of the policy is paid if the insured lives to age 65. C) There is a build-up of cash value that can be borrowed by the policyholder. D) It offers the policyholder the flexibility to meet a wide variety of financial objectives. Answer: B Question Status: Previous Edition 32) Which of the following statements about limited-payment life insurance is true? A) It is a form of term insurance. B) It matures at the end of the premium-payment period. C) The premium decreases each year during the premium-payment period. D) Its use may be appropriate if a person wants paid-up life insurance during retirement. Answer: D Question Status: Previous Edition 33) Which of the following statements about endowment insurance policies is (are) true? I. The face amount is paid if the insured dies during the policy period or at the end of the policy period if the insured is still alive. II. The use of endowment insurance has increased in recent years because of its favorable tax treatment. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 34) Which of the following statements about variable life insurance is true? A) Premium payments are flexible. B) The death benefit cannot be higher or lower than a guaranteed, specified, value. C) The policyowner has the option of investing the cash value in several investment accounts. D) The cash surrender value of the policy is guaranteed. Answer: C Question Status: Previous Edition 35) All of the following statements about universal life insurance are true EXCEPT A) Interest is credited to the policy's cash value each month. B) Any withdrawal of a policy's cash value reduces the amount of the death benefit. C) Interest credited to a policy's cash value is taxable for the policyowner in the year credited. D) The policyowner can add to a policy's cash value at any time subject to policy guidelines. Answer: C Question Status: Previous Edition 36) Which of the following statements about universal life insurance is (are) true? I. The current interest rate credited to the cash value at the time the policy is issued remains fixed for the life of the policy. II. A monthly deduction is made from the policy's cash value for the cost of insurance protection. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 37) All of the following statements describe the flexibility available to the owner of a universal life insurance policy EXCEPT A) Policy loans are permitted on an interest-free basis. B) The frequency of premium payments can be varied. C) The death benefit can be increased with evidence of insurability. D) Premium payments can be any amount provided there is sufficient cash value to keep the policy in force. Answer: A Question Status: Previous Edition 38) Which of the following statements about a variable universal life insurance policy is (are) true? I. There is a minimum guaranteed interest rate for the cash value. II. The policyowner has a variety of investment options for the savings component of the policy. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 39) All of the following statements about current assumption whole life insurance are true EXCEPT A) It is a form of participating whole life insurance that pays annual dividends. B) An accumulation account is credited with an interest rate based on present market conditions and company experience. C) Under the low-premium version, the premium is subject to change after an initial guaranteed period. D) Under the high-premium version, the premium may be discontinued after a period of time. Answer: A Question Status: Previous Edition 40) A whole life insurance policy in which premiums are reduced for an initial period (e.g. 3 years) and are higher thereafter is an example of a A) level-term policy. B) modified life policy. C) limited-payment whole life policy. D) variable life policy. Answer: B Question Status: Previous Edition 41) Which of the following statements about policies sold to preferred risks is (are) true? I. Preferred risks are people whose mortality experience (deaths per thousand at a given age) is expected to be more favorable than average. II. Insurers require preferred risks to purchase at least a minimum amount of life insurance, such as $250,000. A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 42) Which of the following statements about second-to-die life insurance is (are) true? I. The insurance is a form of endowment coverage. II. The premium is lower than the combined cost of purchasing a life insurance policy on each insured. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 43) Which of the following statements about savings bank life insurance is true? A) The maximum amount that a depositor can purchase is $50,000. B) The maximum amount of insurance that a depositor can purchase is limited to the amount of money on deposit in his or her savings account with the savings bank. C) The objective of savings bank life insurance is to provide protection to the bank in case a borrower dies before a loan is repaid. D) The objective of savings bank life insurance is to provide low-cost insurance to consumers by holding down expenses. Answer: D Question Status: Previous Edition 44) Which of the following statements about home service life insurance, which evolved over time from a type of life insurance called industrial life insurance, is true? A) Most policies have a face value exceeding $100,000. B) Premiums are usually not collected at the insured's home and are remitted directly to the agent or the insurer. C) Industrial life insurance is group term insurance coverage marketed to employees at the work site. D) This popular product accounts for over 40 percent of the life insurance sold today. Answer: B Question Status: Revised 45) Michael wants to make sure that life insurance proceeds are available to pay his outstanding mortgage balance if he dies. He purchased a type of life insurance in which the amount of coverage gradually declines, just as his outstanding mortgage balance gradually declines. This type of life insurance is called A) modified life insurance. B) decreasing term insurance. C) re-entry term insurance. D) current assumption whole life. Answer: B Question Status: Previous Edition 46) Carl would like to purchase life insurance. He would also like to invest in a mutual fund. An agent told Carl about a form of life insurance in which Carl could select where the saving component is invested. This form of life insurance has fixed premiums and the cash value is not guaranteed. This type of life insurance is called A) universal life insurance. B) whole life insurance. C) variable life insurance. D) current assumption whole life. Answer: C Question Status: Previous Edition 47) Tamara purchased a term insurance policy when she had high life insurance needs and limited income. Now Tamara can afford whole life insurance. What term life insurance provision will permit Tamara to switch her term insurance to whole life insurance without having to show that she is still insurable? A) renewal provision B) tax-free exchange provision C) conversion provision D) free look provision Answer: C Question Status: Previous Edition 48) Alex, age 26, purchased a 20-payment whole life insurance policy. After Alex has made 20 premium payments, his life insurance policy is considered A) matured. B) reduced. C) expired. D) paid-up. Answer: D Question Status: Previous Edition 49) Ann is considering the purchase of a life insurance policy with these characteristics: flexible premium payments, the insurance and savings components are separate, the interest rate credited to the cash value is tied to a changing market interest rate but a minimum interest rate is guaranteed, and a monthly administrative fee is charged. Ann is considering buying A) whole life insurance. B) variable life insurance. C) universal life insurance. D) current assumption whole life. Answer: C Question Status: Previous Edition 50) Dave purchased a life insurance policy. The policy is nonparticipating and the cash values are based on the insurer's present mortality, investment, and expense experience. After 2 years, the insurer will recalculate the premium based on the mortality, investment, and expense experience at that time. Dave purchased A) current assumption whole life. B) variable life insurance. C) universal life insurance. D) variable universal life insurance. Answer: A Question Status: Previous Edition 51) Which of the following $100,000 whole life insurance policies, issued by the same company to a man age 32, would require the highest first-year premium? A) continuous premium (ordinary) life B) whole life paid-up at 65 C) 10-payment whole life D) 20-payment whole life Answer: C Question Status: Previous Edition 52) Which of the following statements about variable universal life insurance is (are) true? I Variable universal life insurance has fixed premium payments. II. Variable universal life insurance allows the policyowner to decide where the premiums are invested. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 53) Which statement is true concerning the economic problem of premature death in the United States? I. The economic impact of premature death of the breadwinner varies for different types of families. II. Increased life expectancy has increased the economic problem of premature death over time. A) I only B) II only C) both I and II D) neither I nor II Answer: A Question Status: Previous Edition 54) Which of the following statements is (are) true regarding the results of the 2014 study by the Life Insurance Market Research Association (LIMRA) on the adequacy of life insurance owned by households in the United States? I. The average household is adequately insured against the risk of premature death. II. The average household is significantly underinsured against the risk of premature death. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Revised

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