Study Set 1

Alice has a major medical policy with a $500 deductible and an 80%/20% coinsurance provision. If she receives a hospital bill for $7,500 of covered expenses, how much of that bill will she have to pay?

$1,900

If an employer pays the entire premium for a group life insurance policy, the policy must insure what percentage of eligible employees?

100%

What minimum percentage of eligible employees must be insured under a noncontributory group life policy?

100%

To qualify for Social Security disability benefits, the disability must be the result of a medically determinable physical or mental impairment that can result in blindness or death or last at least

12 months

Under the required claim forms provision of a health insurance policy, an insurer must furnish the claim form to the insured within how many days after receiving a notice of claim?

15 days

The minimum benefit period for a long-term care insurance policy is

24 months 18 months 12 months 36 months Explanation Long-term care insurance policies provide coverage for at least 12 months. Reference: 21.6.1 in the License Exam Manual

A Notice to Applicant must be issued to the consumer no later than

3 days after the report was requested

Most state laws allow life insurance policies to be backdated up to

6 months

Under COBRA regulations, group health coverage of terminated employees must be continued up to

6 months 8 months 12 months 18 months

The required grace period for weekly premium health insurance policies is

7 days

How many days from the date of loss does the insured have to submit a completed claim form to the insurer?

90 days

In which of the following situations would premium payments be tax deductible?

A company provides $25,000 of life insurance coverage to each of its 15 employees and pays the full premium.

What do insurers offer as an optional benefit to guard against inflation with disability policies?

A cost-of-living (COLA) rider

Which of the following distributions from a Roth IRA would be qualified and, therefore, NOT taxable, assuming the account was established at least 5 years ago?

A distribution of $10,000 used to buy a first house

Of the following payment modes, which is generally the least expensive?

Annual

Archibald surrenders a life insurance policy and receives a lump-sum cash payment of $32,000. His premium payments up to the time of surrender amounted to $26,000. How is the surrender treated for tax purposes?

Archibald will receive his $26,000 cost basis tax-free and will be taxed on $6,000.

Which of the following is NOT considered a routine dental service?

Cleaning Root canal X-rays Fluoride treatment

Which of the following statements is CORRECT?

George's brother, father, and grandfather had diabetes during their lifetimes. Family history will be considered a risk factor when George applies for insurance

Hearing aids might be covered under what type of health policy?

Hearing insurance

Jessica has a Roth IRA. Which of the following statements is TRUE?

Her IRA contributions are not tax deductible.

Kurt's medical expense policy states that it will pay him a flat $50 a day for each day he is hospitalized. The policy pays benefits on which basis?

Indemnity

What is the purpose of the Fair Credit Reporting Act?

It requires consumer report agencies to adopt reasonable procedures when exchanging credit information

Assume 4 individuals, all age 30, purchase the following life insurance policies. If all policies are still in force 10 years later, who will have the largest cash value in his policy?

Jack, who has a $100,000 life paid-up at 55 policy

What are accelerated benefits?

Life insurance death benefits paid before the death of an insured with a terminal illness

Which of the following statements regarding annuities is NOT correct?

Like life insurance, an annuity is used primarily to provide income at death.

Which of the following premium factors has the greatest effect on life insurance premium calculations?

Mortality

After an individual life insurance policy has been in effect for 2 years, which of the following is grounds for cancellation?

Nonpayment of premium

What is the name of the fixed monthly fee paid by the HMO to the provider?

Prepaid fee Primary care fee Capitation Fee for service

Which of the following statements regarding consumer rights is NOT correct?

Reporting agencies may not delete information in reports when proved incorrect.

What can a policyowner do if 9 days after an individual life insurance policy is delivered, he decides not to keep it?

Return it for a full refund of premiums

Major medical policies that pay 100% of covered expenses above a specified amount and after the insured's deductible contain what kind of a provision?

Stop-loss

Which of the following statements is CORRECT?

The Social Security program, including SS disability, is funded by a payroll tax.

Which of the following is stated in the consideration clause of a life insurance policy?

The amount and frequency of premium payments

Which of the following statements regarding Social Security disability benefits is CORRECT?

The disabled employee must be unable to perform the duties of any occupation.

Leo purchases a $50,000 5-year level term policy. Which of the following statements about Leo's coverage is CORRECT?

The policy provides a straight, level $50,000 of coverage for 5 years.

Who designates the beneficiary of a life insurance policy?

The policyowner

Express authority requires an agent to

act in accordance with the agency agreement Explanation The agency agreement is the agent's contract with the insurance company. It defines the conditions under which the agent agrees to represent the company and governs the agent's activities on behalf of the company. Reference: 1.9.1 in the License Exam Manual

An investigative consumer report is also called

an inspection report

When important and material facts are hidden by an insured on an application, this is known as

concealment Explanation When an individual knowingly fails to disclose known facts, this is known as concealment. If it is intentional and the information is material, the insurance company may void the contract. Reference: 1.10.2.9 in the License Exam Manual

Delivering policies in person gives the agent an opportunity to do all of the following EXCEPT

make last-minute changes to the policy

Which is NOT a life insurance policy provision?

cancellation

Major medical policies may include any of the following types of deductibles EXCEPT

decreasing

All of the following groups are eligible for group insurance EXCEPT

groups that exist solely in order to purchase insurance

Which of the following is NOT an optional provision?

insurance Insuring clause

An applicant for health insurance completes the application and satisfies all of the conditions of the conditional receipt. If the policy is eventually issued as applied for, coverage takes effect

just as if the policy had already been issued

All of the following can directly affect the amount of premium an individual insured pays EXCEPT

marital status

A life insurance gross premium is

net single premium plus expense

Under an executive bonus plan, the amount of premiums paid is

taxable income for the employee

An insurers' operating costs are known as

the expense load

Annuities are classified by all of the following EXCEPT

who issues them

Petra is self-employed and pays $5,000 a year in premiums for health insurance covering her family. If her spouse also works and is covered by an employer-sponsored health plan, what is the maximum income tax deduction that Petra can take for her health insurance coverage?

$0 $5,000 $2,500 $3,000 Explanation Partners and sole proprietors can deduct 100% of amounts paid during the taxable year for insurance that provides medical care for them, their spouses, and their dependents. However, the deduction is not available to a partner or sole proprietor if she is eligible to participate in a health plan maintained by an employer of the self-employed individual or her spouse. As a result, Petra will not be able to take an income tax deduction for the amount of premiums paid. Reference: 22.4 in the License Exam Manual

Offenders who refuse to obey the Director's cease and desist order for engaging in unfair trade practices are subject to a fine of:

$1,000 for each violation. $1,000 maximum. $5,000 maximum. $5,000 for each violation. Explanation Any offenders who refuse to obey the Director's cease and desist order for engaging in unfair trade practices are subject to a fine of $1,000 for each violation. Reference: See State Supplement. This content is not in the License Exam Manual

KAC Health Insurance Company insures a risk without being notified that the insured already has existing coverage for the same risk. The policy that KAC issued contains the insurance with other insurers provision. When a loss occurs, the total coverage that the insured had purchased (including the coverage that KAC was unaware of at the time of application) would pay $5,000. Had KAC been the only insurer, it would have paid $2,500. What amount is KAC liable to pay?

$1,250

Assume a dentist is insured with a business overhead expense policy that pays maximum monthly benefits of $3,000. The dentist became disabled and had covered expenses for the month totaling $1,500. The benefits payable would be

$1,500

Under Liz's group employer disability insurance, she is eligible to receive $1,500 every month. When she becomes disabled, she is also eligible to receive $850 each month from Social Security. How much will she receive each month from her group disability plan?

$1,500 $2,350 $650 $850

Natasha has paid $200 of her annual deductible through her employer's group health insurance policy. She recently went to the dermatologist and received a billing statement for $2,000. A week after her appointment, her employer replaces the group health plan with a different insurer, what will Natasha owe the dermatologist?

$1,800 $2,000 $1,500 $0

As established by law, the annual fee for an insurance producer's license is:

$100 every 2 years. $40 every year. $10 every year. $180 every 2 years. Explanation The fee for an insurance producer's license in Illinois is $180 every two years. All fees go into a special state fund, known as the Insurance Producer Administration Fund. The fund pays the Department's expenses in executing, administering, and enforcing the state's insurance laws. Reference: See State Supplement. This content is not in the License Exam Manual

Darlene owned a $100,000 whole life policy that had a $75,000 cash value when she died at the age of 75. The amount paid by the insurance company as a death benefit was

$100,000

Ken, the insured, purchased a $40,000 5-year level term policy and a $100,000 whole life insurance policy when he was 49. When he died at age 56, his beneficiary received

$100,000

James died after receiving $180 per month for 6 years from a $25,000 life with refund annuity. His spouse, Lucy, as his beneficiary, will now receive the same monthly income until her payments total

$12,040

Betty purchased a universal life insurance policy when she was 61. Upon her 66th birthday, she received sizable inheritance, paid an exceptionally large annual premium and, in doing so, violated the 7-pay test. The following year, hoping to correct the situation, she made no premium payment so that the average premiums paid were less than the 7-pay test average. Today the policy's cash value stands at $45,000, and her basis in the contract is $28,000. If she were to withdraw $30,000 from the policy's cash value, which of the following best describes the tax treatment this transaction would receive?

$13,000 of the distribution is tax-free, but $17,000 is subject to income taxation.

Last year Wendell, age 57, withdrew $1,500 from his IRA, which consists entirely of pretax contributions. In addition to including that amount in his taxable income, he has to pay a penalty of

$150

Beth is secondary beneficiary of a life policy, receiving monthly income benefits under an installment refund option. Her mother, the primary beneficiary, received a total of $4,200 in benefits before she died. The original proceeds totaled $22,000. Assuming Beth lives long enough, she will be paid monthly benefits until she has received a total of

$17,800

Maureen, age 62, owns a non-MEC whole life insurance policy with a death benefit of $200,000 and a cash value of $40,000. Her basis in the policy is $25,000. If she were to borrow $30,000 from this policy and then die immediately thereafter (without having repaid any portion of the loan), which of the following best describes the resulting tax treatment of the policy's death benefit?

$170,000 will be paid to the beneficiary, all of which is income tax-free.

Arthur incurs total hospital expenses of $8,300. His major medical policy includes a $500 deductible and an 80%/20% coinsurance feature. If this is the first covered expense he has incurred this year, how much will Arthur have to pay toward his hospital bill?

$2,060

Alberto falls from his ladder while hanging holiday lights around his house. He breaks his arm and files a claim for $3,100. His health insurance premium which is $310 is due at the end of the month and has not yet been paid. How much of the benefit will be paid, assuming no deductibles or coinsurance?

$2,790

Josie has been totally disabled for 2 years. During that time, the insurance company has paid all premiums (a total of $1,200) on her $25,000 life policy, which has a waiver of premium clause. If Josie dies now, the insurance company will pay a death benefit of

$25,000

Peggy takes out a $50,000 10-year term policy on herself and names her 2 children, aged 11 and 12, as primary beneficiaries to share equally in the proceeds. How much would each child receive if Peggy should die when the children are aged 19 and 20

$25,000

The insured in a $25,000 life insurance policy died of a heart attack. Since the policy had a double indemnity provision, the policy beneficiary received

$25,000

Cal, age 57, owns a whole life insurance policy with a $750,000 face amount that was paid for with a single premium of $100,000. The current cash value is $125,000. If he were to borrow $30,000 from this policy today, which of the following choices best describes the tax treatment this transaction will receive?

$25,000 of the loan is subject to income taxation plus an additional 10% penalty tax.

Roberta is the insured in a $30,000 life insurance policy for which she pays an annual premium of $700. There is an outstanding policy loan of $2,500. Her last premium due has not been paid, and she dies during the grace period. How much will her beneficiary receive?

$26,800

Naomi is killed in an auto accident before she is able to pay the semiannual $80 premium on her $30,000 accident policy. Under the policy's unpaid premium provision, her beneficiary will receive a check for

$29,920

Lee has a Social Security PIA of $800 at the time of his death. How much is payable to his surviving spouse, who is caring for an unmarried child under the age of 16?

$400

Micah pays $220 annually for a $50,000 life insurance policy. The premium is due June 1, however it is not paid until June 24. If Micah died on June 15, what would the amount of the death benefit?

$49,780

Larry purchased a traditional IRA when he was 32 years old. Over the years he has contributed (and deducted from his taxes) $50,000 into the contract. Now, at age 62, Larry is retiring and plans to annuitize the contract. His life expectancy is 20 years, and he will receive $450 per month under a straight life annuity income option. Of the $5,400 he will receive annually from this annuity, how much will represent taxable income?

$5,400

Tom has a $50,000 whole life policy. If he continues to pay the required premiums and lives to age 100, he will receive

$50,000 as an endowment

What is the daily fine that may be assessed against a person who disobeys a cease and desist order of the Director of Insurance?

$50.00 $100.00 $200.00 $500.00 Explanation A person who violates a cease and desist order of the Director of Insurance is subject to a fine of $100 for every day the violation continues, up to a maximum of $5,000. Reference: See State Supplement. This content is not in the License Exam Manual

Samiya purchased a $500,000 life policy from LHC Insurance Company at the age of 35. At her death the insurance company discovered that her primary beneficiary was older than Samiya had stated on the application. How much will Samiya's beneficiary receive?

$500,000

An insurance producer who violates, or aids or abets any violation of, an order issued by the head of the Insurance Department may have his or her license suspended or revoked and be fined a MAXIMUM penalty of:

$500.00 $5,000.00 $100.00 $1,000.00 Explanation An insurance producer who violates a cease and desist order is subject to a fine of $100 per day for every day the violation continues, up to a maximum of $5,000. The director may also revoke or suspend any license or certificate of authority. Reference: See State Supplement. This content is not in the License Exam Manual

Sarah owns a life insurance policy with a $50,000 face amount and a 10-year return-of-premium rider. She pays an annual premium of $700. If she were to die 6 years after purchasing the policy, what would be the total amount payable to the beneficiary?

$54,200

At age 60, David decides to stop paying premiums on his $60,000 whole life policy and exchanges it for extended term insurance. What face value will the term insurance have?

$60,000

Frank owns and is insured by a participating whole life insurance policy with a death benefit of $85,000, including $35,000 of paid-up additions to the face amount. His basis in the policy is $30,000. The beneficiaries are his daughter and son, equally. If he were to die today, what amount of this policy would be valued in Frank's estate?

$85,000

Betty owns a universal life insurance policy that was issued with a $100,000 face amount and now has total death benefit protection of $110,000. Several months ago she borrowed $15,000 from the policy. The outstanding loan balance (including interest) is $15,200. If Betty dies today, what will be the amount of the death benefit?

$94,800

With regard to the taxation of life insurance policies, which of the following statements is CORRECT?

. As long as a whole life policy is not surrendered, the cash value accumulates tax deferred.

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

. The business is the beneficiary.

A corporation has key-person life insurance on its president. If the president dies, which of the following statements would be CORRECT?

. The company may use the death benefit proceeds to search for and retain a new president.

Fred, age 60, has 3 years until he retires. He decides to surrender his whole life insurance policy and use the cash value to fund a single premium annuity. How many payments will he make to fund the annuity?=

1

A licensed independent life or health insurance producer may represent

1 or more authorized insurers Explanation An independent producer is one whose agency agreement allows her to represent more than one insurer. A captive producer is retained by a single insurance company to solicit, sell, renew, or negotiate insurance contracts for that specific company. Reference: 1.8.1 in the License Exam Manual

Group life insurance policies include a probationary period requiring new employees to wait a certain time before they can enroll in the plan. How long is the typical range for these probationary periods?

1 to 12 months

A company has 1,200 eligible employees for its group life insurance program, and the company pays the total premium. How many employees must be insured to initiate the plan?

1,200 employees

Which of the following is NOT a standard life insurance policy nonforfeiture option?

1-year term insurance option

How many hours of course study must an Illinois resident insurance producer complete to satisfy the ethics continuing education requirement for license renewal?

10 24 5 3 Explanation Before each license renewal, all resident insurance producers in Illinois must complete at least 24 hours of continuing education (CE). Three (3) of the 24 hours must consist of classroom ethics and all continuing education courses must be approved by the Director of Insurance before producers can take them for credit Reference: See State Supplement. This content is not in the License Exam Manual

A life insurance policy must give the policyowner at least how many days after delivery of the policy to cancel the policy?

10 days

A new life insurance policyowner has just received her policy. How long does she have to review and return it if she is not satisfied with it?

10 days

An accident and health insurance policy that provides for monthly payments has a grace period of:

10 days

Disability insurance policies must include a provision entitling policyholders to a grace period for premium payment. At least how long must the grace period be for monthly premium policies?

10 days

The free look, or right to examine provision allows a policyowner the right to review and then return a policy for a full refund within no less than how many days?

10 days

An agent-solicited Medicare supplement insurance policy must contain a printed notice that the insured, if not satisfied for any reason, is entitled to return the policy for a refund of the premium within:

10 days. 30 days. 7 days. 14 days. Explanation All Medicare supplement insurance policies must provide a period of at least 30 days after the policy is delivered, during which time the insured can return the policy for a full refund if not satisfied. Reference: See State Supplement. This content is not in the License Exam Manual

Assume there are 4 different mortality tables. Of these, the most reliable would be the mortality table covering A) 10 million lives B) 4 million lives C) 100,000 lives D) 500,000 lives

10 million lives Explanation The larger the group, the more certain or reliable the amount of loss (in this case, the death or mortality rate) will be. Reference: 1.5.1 in the License Exam Manual

Which of the following life insurance policies with the same face value would have the highest premium if issued to the same person?

10-year renewable and convertible level term

The Director of Insurance in Illinois may issue a temporary license for a period of up to:

120 days. 60 days. 365 days. 180 days. Explanation The Illinois Director of Insurance may issue a temporary license to transact insurance business to certain individuals. This license may be issued for up to 180 days, and at the Director's discretion, renewed for an additional 180 days without requiring an examination. The Director may also grant a 90-day temporary license for insurance producer applicants, as long as the applicant meets the necessary requirements. Reference: See State Supplement. This content is not in the License Exam Manual

A licensed insurance producer, limited insurance representative, or temporary insurance producer who is convicted of a felony must report the conviction to the Director of Insurance within how many days of the judgment date?

14 days. 30 days. 21 days. 45 days. Explanation Anyone convicted of a felony while serving as any kind of licensed insurance producer in Illinois must report the conviction to the Director of Insurance within 30 days of the judgment and must submit a copy of the judgment, the probation or commitment order, and any other relevant documents at the same time. Reference: See State Supplement. This content is not in the License Exam Manual

In the case of a deceased licensed insurance producer, the Director of Insurance initially may extend a temporary insurance producer license to the administrator or executor for a maximum period of

180 days. 120 days. 1 year. 90 days. Explanation The Director of Insurance may issue a temporary insurance producer license for up to 180 days and, at his discretion, may renew the temporary producer license for an additional 180 days without requiring an examination. A temporary license is no longer valid after the administrator or executor disposes of the deceased's insurance business. Reference: See State Supplement. This content is not in the License Exam Manual

A producer must inform the Director of Insurance of any change to his residential address within how many days of the change?

180 days. 60 days. 30 days. 90 days. Explanation The law requires a producer to give the Director written notice of a new residential address within 30 days of the change. Reference: See State Supplement. This content is not in the License Exam Manual

The U.S. Congress passed the Health Maintenance Organization Act in what year?

1979 1968 1973 1960

At the age of 34, Ben purchased a whole life policy with a guaranteed insurability option. How many opportunities will he have to purchase additional life insurance in the future?

2

According to the disability insurance time limit on certain defenses provision, how long after the date of a policy's issue can innocent misstatements on an application be used to void a claim?

2 years

An accident and health insurance policy may not be rescinded, EXCEPT for fraud, after it has been in effect for

2 years

An individual life insurance policy must become incontestable no later than how long after its effective date?

2 years

An insurer may NOT contest an individual life insurance policy after it has been in force for how long?

2 years

At what point after the effective date of an accident and health insurance policy does it become incontestable?

2 years

Which of the following provisions must be included in an individual accident and health insurance policy?

2-year time limit on certain defenses

All individual health insurance policies must include a notice of claim provision requiring that a written notice of claim must be given to the insurer within how long after the occurrence of the loss?

20 days

A required provision of individual health insurance policies is that a written notice of claim must be given to the insurer within

20 days after the loss occurs or commences, or as soon as is reasonably possible

Identify the number of days the insured or insurer must do the following in this order: Notice of Claim, Claims Forms, Proof of Loss, Waiting Period for Sickness Claims upon Reinstatement.

20, 15, 90, 10

Which of the following $50,000 limited-pay life policies will have the highest premium for an applicant who is age 30?

20-pay life policy

An employer may require an employee to be at least what age to be eligible to participate in a Keogh plan?

21

In Illinois, how many hours of continuing education must a resident insurance producer complete in each compliance period?

24 hours. 15 hours. 20 hours. 25 hours. Explanation Before each license renewal, all resident insurance producers in Illinois must complete at least 24 hours of continuing education (CE). Three (3) of the 24 hours must consist of classroom ethics and all continuing education courses must be approved by the Director of Insurance before producers can take them for credit. Reference: See State Supplement. This content is not in the License Exam Manual

Nonqualified withdrawals from a health savings account are subject to income taxes and a penalty of

25% 10% 20% 15% Explanation Distributions from an HSA for expenses other than qualified medical expenses are subject to income tax and a 20% penalty tax unless the account beneficiary has died, become disabled, or is age 65 or older. Reference: 22.6 in the License Exam Manual

Contributions to a simplified employee pension (SEP) are not included in the employee's taxable income for the year as long as the contribution does not exceed

25% of the employee's income up to a specified maximum amount

One of the first changes in health care due to the ACA was providing dependent coverage until a child's

26th birthday

Disability income benefits for partial disability typically are payable to eligible insureds for a maximum of

3 to 6 months

All individual life insurance policies must include a reinstatement provision providing that the policy can be reinstated at any time within how many years from the date of premium default?

3 years

An insured that wants to reinstate a lapsed permanent life policy must do so within

3 years

Edna stopped paying premiums on her permanent life insurance policy 7 years ago, though she never surrendered it. She is still insurable and has no outstanding loan against the policy. The company will probably decline to reinstate the policy because the time limit for reinstatement has expired. The limit is

3 years

If a life insurance policy lapses for nonpayment, within how many years from the date of premium default may the policy be reinstated?

3 years

The right to examine, or free-look, provision in a long-term care policy allows for an insured to return a policy within how many days for a full refund of premiums paid?

30 days

After receiving a department of insurance examination report, a producer has how many days to request a hearing about the facts and evidence in the report?

30 days. 10 days. 14 days. 15 days. Explanation The Director of Insurance shall allow a producer an opportunity to demand a hearing with reference to the facts and other evidence contained in the examination report. The producer may request a hearing within 14 calendar days after he or she receives the examination report by giving the Director written notice of that request, together with a written statement of the person's objections to the report. Reference: See State Supplement. This content is not in the License Exam Manual

Generally speaking, how many days does a certificate holder have to convert to an individual policy?

31

A policy's grace period is usually no more than

31 days

An accident and health policy whose premiums are paid on a quarterly basis must contain a grace period of at least

31 days

Patricia has a health insurance policy for which she pays a semiannual premium. If the premium is due on July 1, her grace period will end in

31 days

Employers must provide notification statements to individuals eligible for COBRA continuation within

31 days 14 days 30 days 21 days

Prior to the Affordable Care Act, according to HIPAA, a newly hired worker was not subject to a waiting period if she had less than how many days between jobs with no health insurance coverage?

39 days 63 days 93 days 36 days

To be eligible for Medicare, you must be fully insured according to Social Security. This involves accumulating a minimum of how many credits?

40 credits 80 credits 60 credits 100 credits Explanation Social Security fully insured status requires the accumulation of 40 credits, which are earned by generating a minimum amount of work-related income over at least the last 10 years and paying Social Security (FICA) taxes. Reference: 20.3.1 in the License Exam Manual

A consumer may make a written request for complete disclosure of the nature and scope of an investigative report regarding her credit history. The disclosure must be made within

5 days

An insurer can cancel a health insurance policy by delivering written notice to the insured at least how many days before the effective date of cancellation?

5 days

Under the standard cancellation provision, an insurance company has the right to cancel a policy at any time with how many days' written notice to the insured?

5 days

Interest earned and distributions made are tax-free if a Roth IRA is maintained for at least how many years?

5 years

Jessie owns a deferred fixed annuity in which the contractually guaranteed rate is 3%. The contract also has a standard current rate interest provision. If current rates are 5%, what rate of interest will be credited to Jessie's annuity?

5%

Brian, a 45-year-old general contractor, wants financial protection for his family while $300,000 of his assets are tied up in a building project for the next 5 years. Which of the following types of life insurance policies would give him that protection at the lowest cost?

5-year level term

Gerald, a 40-year-old building contractor, wants financial protection for his family while $150,000 of his assets are tied up in a building project for about 5 years. Which of the following types of life insurance policies would give him that protection at the lowest cost?

5-year level term

Which of the following period certain income options would call for the highest payment rate per $1,000 of life policy Proceeds?

5-year period certain

A disabled worker's unmarried dependent child, who is younger than 18, is eligible for monthly benefits equal to how much of the worker's primary insurance amount (PIA)?

50%

Each unmarried child under age 18 (or 19 if in high school) receives a benefit equal to what percentage of the disabled worker's PIA?

50%

To be considered currently insured, and therefore eligible for disability benefits under Social Security, a worker must have earned a minimum of

6 credits in the last 13 quarters

Claire had back surgery in May and in September her doctor informs her that she will need to undergo several more surgeries within the next two years. Since her injury is considered a continuing disability, how often will Claire need to provide Notice of Claim to the insurer?

6 months

For long-term care policies to be considered qualified, a health professional must certify that a chronic illness will last for a minimum of

6 months 9 months 3 months 12 months Explanation A health professional must provide certification stating that an individual's chronic illness will last for a minimum of 90 days (3 months). This is one of the requirements that must be met in order of a long-term care policy to be considered qualified. Reference: 21.8 in the License Exam Manual

Benefit periods for short-term disability income policies typically range from

6 months to 2 years

An individual may take legal action to recover on an accident and health insurance policy no sooner than how many days after a written proof of loss is provided?

60 days

Cynthia is scheduled to receive a $36,000 lump-sum distribution from her former employer's qualified pension plan and wishes to establish a rollover IRA to avoid paying taxes on the money that year. Within how many days must the rollover be completed for Cynthia to avoid paying taxes?

60 days

The insurer is generally required to pay the death benefit claim within

60 days

The payment of claims provisions states that the insurer will pay the death benefit within how many days after receiving notification of the claim?

60 days

What is the maximum number of days of skilled nursing facility care for which Medicare will pay benefits?

60 days 25 days 100 days 75 days Explanation Part A covers the costs of care in a skilled nursing facility as long as the patient was first hospitalized for 3 consecutive days. Medicare will cover treatment in a skilled nursing facility in full for the first 20 days. From the 21st to the 100th day, the patient must pay a daily co-payment. There are no Medicare benefits provided for treatment in a skilled nursing facility beyond 100 days. Reference: 20.3.2.3 in the License Exam Manual

When an employee's coverage terminates under a group health policy, the employee has the option to elect continuation within

60 days 45 days 30 days 10 days

An applicant for an insurance producer license may be granted a temporary insurance producer license that normally expires after:

60 days. 45 days. 90 days. 30 days. Explanation The director may grant a temporary insurance producer license to an applicant for an insurance producer license, without requiring an examination, for a period of 90 days. Reference: See State Supplement. This content is not in the License Exam Manual

Medicare supplement insurance is designed for persons who have reached the age of

60 or older 65 or older 50 to 65 70 to 80 Explanation Medicare supplement insurance fills the gaps in coverage left by Medicare, which provides hospital and medical expense benefits for persons aged 65 and older. Reference: 20.4 in the License Exam Manual

What is the minimum grace period that an individual accident and health insurance policy must include, if the premiums are due weekly?

7 days

If a group life insurance plan is contributory, what minimum percentage of eligible employees must participate?

75%

Jerome's Jazz and Juice Bar offers group life insurance on a contributory basis. How many of Jerome's employees must participate in the plan?

75%

If an employer group plan is contributory, most states require that at least

75% of the eligible employees participate

If a company has 1,000 employees who are eligible for a contributory group health insurance program, how many would be required to participate?

750

Under Medicare Part B, the participant must pay

80% of covered charges above the deductible 20% of covered charges above the deductible a per benefit deductible have a physician certify that skilled care is required Explanation Part B participants must pay a monthly premium and are responsible for an annual deductible. After the deductible, Part B will pay 80% of covered expenses, subject to Medicare's standards for reasonable charges. Reference: 20.3.3.2 in the License Exam Manual

For a beneficiary to receive accidental death benefits, the death of the insured generally must occur within how many days following the accident?

90 days

Lynn is insured under Medicare Part A and enters the hospital for surgery. Assuming that Lynn has not yet tapped into her lifetime reserve, what is the maximum number of days that Medicare will pay for her hospital bills?

90 days 60 days 120 days 150 days Explanation After an initial deductible is met, Medicare pays for all covered hospital charges for the first 60 days of hospitalization. The next 30 days are also covered, but the patient will be required to contribute a certain daily co-payment amount. If, after these first 90 days, the patient is still hospitalized, he can tap into a 60-day lifetime reserve and pay a higher level of daily co-payments. Consequently, a patient who has not yet tapped into the lifetime reserve days could have up to 150 days of Medicare coverage for a single hospital stay. Reference: 20.3.2.2 in the License Exam Manual

A Medicare supplement policy that contains restricted network provisions is known as

= an HMO a Medicare SELECT policy a long-term care policy an individual health policy Explanation A Medicare select policy or Medicare select certificate mean, respectively, a Medicare supplement policy or certificate that contains restricted network provisions. Reference: 20.5.5 in the License Exam Manual

Which of the following statements regarding a traditional individual retirement account (IRA) is NOT correct?

A 10% penalty is assessed on any distribution from an IRA before age 59½.

Which of the following statements regarding annuities is NOT true?

A 10% penalty on taxable earnings is levied if withdrawals are taken prior to age 72.

Of the following, which statement best describes a 10-year renewable term life insurance policy?

A 10-year renewable term is a policy with a fixed face amount and a premium that increases at each 10-year renewal period.

Which of the following statements regarding the Fair Credit Reporting Act is TRUE?

A Notice to Applicant is required.

Which of the following statements about preferred provider organizations (PPOs) is NOT correct?

A PPO is a group of health care providers, such as doctors, hospitals, and ambulatory health care organizations, that contracts with a group to provide their services. PPOs operate on a prepaid basis. PPO members select from among preferred providers for needed services. Employers, insurance companies, and other health insurance benefit providers are typical groups that contract with PPOs.

Which of the following statements about preferred provider organizations (PPOs) is NOT true?

A PPO is typically a closed panel or a network with a primary care physician. PPOs must offer complaint resolution procedures to the insured. In-network care is offered at prearranged or negotiated rates. PPOs charge for services on a fee-for-service basis.

Which of the following statements pertaining to the spendthrift clause in a life insurance policy is NOT correct

A beneficiary receives $125 per month from a life policy under the fixed-amount settlement option and a spendthrift clause. The beneficiary may have the company send the payments to a creditor to pay off a debt.

Who is most likely to offer group credit life insurance?

A car dealership

When an employer establishes a group insurance plan, what evidence of insurance may each participating employee receive?

A certificate of insurance

Regarding company claims practices, which of the following statements is NOT correct?

A company may require an insured to submit to a polygraph test as a condition for paying a claim. If a claim remains unresolved for 30 working days from the date it is filed, the company must provide the claimant with a reasonable written explanation for the delay. "Reasonable promptness" in settling claims is defined as a maximum of 15 working days from the time a communication is received from a claimant or insured. Companies may not influence an insured to settle a disability claim on a lumpsum basis. Explanation Insurers are specifically prohibited from requiring an insured from taking a polygraph or similar test as a condition for paying a claim. Reference: See State Supplement. This content is not in the License Exam Manual

What is the definition of pre-existing condition in a long-term care policy?

A condition for which advice or treatment was received within 1 year before the effective date of coverage. A condition for which advice or treatment was received within 3 months before the effective date of coverage. A condition for which advice or treatment was received within 6 months before the effective date of coverage. Any health condition that existed before coverage was in force. Explanation A condition is considered to be pre-existing if advice or treatment was received from a health care provider within 6 months before the effective date of coverage. Reference: 21.12.2 in the License Exam Manual

In addition to the Buyer's Guide, what must be delivered to an applicant or insured either with or before the delivery of a life insurance policy?

A copy of the signed application A statement regarding dividends A copy of the company annual report The outline of coverage Explanation The outline of coverage must be delivered with the policy or before the policy is delivered, whether by a producer or a direct response insurer. Reference: 20.5.1.1 in the License Exam Manual

Jessica saw an advertisement in the local newspaper for a new type of health insurance policy offered by Protective Insurers, Inc. She noticed that Protective Insurers was also selling these policies through vending machines. Protective Insurers would be considered what type of insurer?

A direct response writer Explanation Protective Insurers, Inc. sells insurance through the direct-selling method, where policies are sold directly to consumers through vending machines, advertisements, or salaried sales representatives. Insurers that operate using this method are known as direct writers or direct response insurers. Reference: 1.8.2 in the License Exam Manual

Which of the following statements regarding the cost-of-living rider is NOT correct?

A drawback of the rider is that a drop in the Consumer Price Index (CPI) can result in a decrease in the coverage previously added.

Which of the following causes of death would most likely be covered in a life insurance policy issued today, though for many years it was typically excluded from coverage?

A fare-paying passenger is killed in a commercial airplane crash while flying to visit a relative.

Joshua's insurance agent delivered his new term life policy to him. Three days later Joshua changed his mind—he no longer wanted the life policy and returned it to his agent. Joshua had paid the initial premium. Under the free-look provision, what is Joshua entitled to receive?

A full refund of the initial premium

Which of the following groups is least likely to be eligible for coverage through a group health plan?

A group of neighbors who wish to insure themselves and their families

What is stranger-owned life insurance?

A life insurance transaction where investors persuade seniors to take out new life insurance policies, naming the investor as the beneficiary

Which of the following is NOT an eligible group to obtain group life insurance?

A neighborhood investment club

Which of the following statements pertaining to reinstatement of a life insurance policy is CORRECT

A new contestability period is renewed with a reinstated policy.

What is the definition of a fiduciary?

A person in a position of trust and confidence who handles the affairs and funds of others Explanation A fiduciary is a person in a position of special trust and confidence who is charged with handling or supervising the affairs or funds of another Reference: 1.9.2 in the License Exam Manual

Which of the following statements regarding insurance company organization is CORRECT? A) Stock companies are owned by the policyholders. B) A stock company pays dividends to its policyholders. C) Mutual companies do not declare dividends. D) A policyholder in a mutual company may receive a dividend.

A policyholder in a mutual company may receive a dividend Explanation A stock insurance company is owned by investors, who are called stockholders. If a dividend is declared, it is given to the stockholders. A mutual insurance company has no stockholders but is owned by its policyholders. If any dividends are distributed, they are given to the policyholders, not to any outside investors. Reference: 1.6.2 in the License Exam Manual

Which of the following statements about life insurance is NOT correct

A policyowner must notify the beneficiary before transferring ownership.

Which of the following activities is NOT an example of misrepresentation? A) A producer participates in twisting. B) A producer tells a prospect that the insurer has a higher A.M. Best rating than it actually has. C) An insurer advertises a life insurance policy as a "retirement savings plan." D) A producer tells a prospect that the policy has received a certain level of dividends for the past 5 years.

A producer tells a prospect that the policy has received a certain level of dividends for the past 5 years. Explanation Misrepresentation includes using a title for a policy that misrepresents the true nature of the product, making false statements about an insurer's financial condition, and twisting, which is defined as misrepresentation to induce a policyholder to lapse, forfeit, or surrender a policy. Nothing prohibits a producer from disclosing the level of dividends from a policy if the information provided is true. Reference: 1.10.2.8 in the License Exam Manual

An individual accident and health insurance policy must include which of the following provisions?

A provision that the policy, including any endorsements or riders, constitutes the entire contract

Which of the following statements pertaining to recurrent disabilities and disability income insurance is NOT correct?

A recurrent disability policy provision would have no effect on the payment of benefits.

Which of the following statements regarding reinstatement of a sickness and accident insurance policy is NOT correct?

A reinstated policy only covers loss due to sickness for the first 10 days.

Which of the following statements regarding representations is CORRECT? A) A representation is guaranteed to be true. B) If a representation is false on a material point, the insurer may alter the contract but may not rescind it. C) Representations are statements the applicant may or may not believe to be true. D) A representation must be material for the insurer to void the contract.

A representation must be material for the insurer to void the contract. Explanation A representation that is determined to be false, but not material, would not void an insurance contract. Reference: 1.10.2.8 in the License Exam Manual

If the first premium was not paid at the time of application, what must the producer also collect?

A signed statement of good health

Jorge would like to purchase a life insurance policy that offers level premiums from the time the policy is issued until his death. He also wants a policy that combines death protection with a savings element that can eventually be used for retirement purposes. Jorge should consider purchasing which of the following plans?

A straight whole life insurance policy

Which of the following statements pertaining to reinstatement of a life insurance policy is NOT correct

A suicide exclusion period is renewed with a reinstated policy.

Which of the following descriptions characterizes a health reimbursement account (HRA)?

A tax-exempt trust or account in a financial institution in which the account holder saves money for qualified medical expenses An employer-funded account that pays employees for qualified medical expenses they incur A cafeteria plan with several components A tax-exempt trust or account designed to pay for qualified medical expenses of the account holder Explanation A health reimbursement account is an employer-funded account that reimburses employees for qualified medical expenses. A health savings account is a tax-exempt trust or account that pays for qualified medical expenses. A medical savings account is a tax-exempt trust or account in a financial institution in which one saves money to pay for qualified medical expenses. A flexible spending account is a cafeteria plan with 3 components: health insurance premiums, qualified medical expenses, and dependent care expenses. Reference: 22.7 in the License Exam Manual

Mitsuko is interested in buying a life insurance policy that must have these two features: a fixed premium and a separate account. What type of policy would best meet her needs?

A variable life policy

Which of the following statements about workers' compensation is NOT true?

A worker receives benefits only if the work-related injury was not her fault.

Steve is diagnosed with inoperable cancer and learns that he has only a few months to live. He wants to take an extended vacation with his spouse and needs some immediate funds. He has held a whole life insurance policy for many years. Which of the following options would be the best source of funds, if Steve wants a lump-sum payment?

Accelerated benefit rider

Which of the following statements regarding accelerated death benefits is NOT correct?

Accelerated death benefit payments are always 100% of the death benefit. The inability to perform activities of daily living (eating, dressing, bathing etc.) is considered a qualifying event.

What kinds of risks does a health insurance policy cover during the 10-day waiting period after it has been reinstated?

Accidents

In terms of long-term care, which of the following WOULD be covered by a Medicare supplement insurance plan?

Adult day care Custodial care Assisted living Hospice care Explanation Medicare supplement insurance will cover hospice care if the insured has a terminal illness and is not expected to live more than six months. Grief counseling would not be covered. Custodial care, assisted living and adult day care are benefits that may be covered under a long-term care insurance policy. Reference: 21.3.1 in the License Exam Manual

Which of the following statements regarding a producer's authority is NOT correct? A) Advising an applicant to answer certain questions in a manner in order to pass underwriting is an example of apparent authority. B) Reviewing a prospective applicant's insurance program and recommending the purchase of a particular product is an example of implied authority. C) Soliciting and negotiating insurance contracts on the company's behalf are considered part of an agent's express authority. D) An agent's apparent authority may be binding on an insurer under the law of agency.

Advising an applicant to answer certain questions in a manner in order to pass underwriting is an example of apparent authority. Explanation Express authority is specific authority given to an agent. Implied authority is authority that, while not specifically granted to an agent, can be assumed to have been granted as necessary to perform the agent's routine responsibilities. Apparent authority is authority that the public can logically assume an agent will possess, whether or not she has actually received such authority from the insurer. In this case, an agent that coaches a person in completing an application to pass underwriting is committing fraud. An agent would not have any authority to do so, apparent or otherwise. Reference: 1.9.1 in the License Exam Manual

Tom is covered under Medicare Part A. He spends 1 week in the hospital for some minor surgery and returns home on July 10. It was his first hospital stay in years. Which of the following statements regarding his Medicare coverage is CORRECT?

After Tom pays the deductible, Medicare Part A will pay 100% of all covered charges. After Tom pays the deductible, Medicare Part A will pay 80% of all covered charges. Medicare Part A will not cover Tom's hospital expenses because he was not hospitalized for 10 consecutive days. Medicare Part A will pay benefits, but Tom must make a daily co-payment. Explanation Medicare Part A pays 100% of covered services for the first 60 days of hospitalization after the deductible is paid. Reference: 20.3.2.2 in the License Exam Manual

When agents act on behalf of insurers, they are acting under which legal principle?

Agency Explanation By legal definition, an agent is a person who works for another person or entity (known as the principal), with regard to contractual arrangements with third parties. An authorized agent has the power to bind the principal to contracts and to the rights and responsibilities of those contracts. Reference: 1.9 in the License Exam Manual

exclusive or captive agents

Agents that work on behalf of 1 specific insurance carrier Explanation Agents that work on behalf of 1 specific insurance company are known as exclusive or captive agents. They are generally paid on a commission structure and represent the insurer, not the insured. Reference: 1.8.1 in the License Exam Manual

Which of the following statements regarding the fiduciary duty of a producer is CORRECT? A) Up to $5,000 a month of premium money may be used for the producer's personal needs. B) All premiums received by an insurance producer must be held in trust and cannot be used for personal matters. C) An insurance producer may never receive money meant for the insurer. D) Premiums may be kept in the producer's personal account.

All premiums received by an insurance producer must be held in trust and cannot be used for personal matters. Explanation All premiums, return premiums, or other funds received by a producer in insurance transactions are considered to be trust funds under the law. The producer operates in a fiduciary capacity and must promptly account for payment of such funds to the proper parties. Reference: 1.9.2 in the License Exam Manual

Alvin is employed by a construction company to erect a skyscraper downtown. He is injured when the company's crane operator, while lifting an I-beam, accidently strikes Alvin while he is guiding the crane operator. Which of the following statements is CORRECT?

Alvin is entitled to workers' compensation because he was injured in a workrelated activity.

Which of the following requires the insured to have a high-deductible health plan?

An HSA A POS plan An HMO A PPO Explanation Health savings accounts (HSAs) are tax-free accounts that hold money earmarked for health care. In order to contribute to an HSA, the insured must have a high deductible health plan (HDHP) Reference: 22.6.1 in the License Exam Manual

Which of the following statements pertaining to an agent's handling of premium money is NOT correct? A) An agent must not make personal use of premium money received from policyowners. B) An agent may spend premium money for his personal use. C) An agent holds premium money for the insured; the money belongs to the insurer. D) An agent who violates regulations concerning handling premium money may be charged with embezzlement or mishandling funds.

An agent may spend premium money for his personal use. Explanation An agent enjoys a fiduciary role with an insured. This establishes a relationship of trust. As a result, the agent must be very careful in handling money received from the insured and the company's premiums or be subject to harsh penalties. Reference: 1.9.2 in the License Exam Manual

Which of the following statements pertaining to a life insurance policy application is CORRECT?

An agent must be very specific when listing an applicant's occupation on an application.

Which of the following statements regarding an immediate annuity is NOT correct?

An immediate annuity has a long accumulation period.

Which of the following statements about nonresident agents is CORRECT?

An individual who holds a producer license in his or her home state and whose state accepts Illinois agents as nonresidents may apply for a nonresident license in Illinois. A nonresident agent must take the Illinois licensing examination to transact insurance in Illinois. A nonresident agent must file an affidavit with the Insurance Department that appoints the insurance director of his or her home state as an agent for service of process in any legal proceeding. A nonresident agent must take the same prelicensing education that resident agents complete. Explanation A nonresident agent does not have to take the Illinois licensing examination if he or she passed the licensing examination in his or her home state. A nonresident agent is also exempt from the prelicensing education requirement in Illinois. All nonresident agents must file an affidavit with the Insurance Department of Illinois that appoints the Illinois Director of Insurance as their agent for service of process in any legal proceeding. Reference: See State Supplement. This content is not in the License Exam Manual

Which of the following statements regarding annuities is NOT correct?

An installment refund annuity guarantees a specific amount of benefits, payable to the annuitant only; if death occurs before total payout, an amount equal to all premiums is refunded to the annuitant's estate or beneficiary.

Which of the following statements pertaining to the suicide clause in a life insurance policy is NOT correct

An insured with a $75,000 life insurance policy issued December 15 commits suicide two years later, on December 24th The beneficiary of the policy will receive a return of the premiums paid for the policy

Which of the following situations is the best example of unfair discrimination?

An insurer assigns a premium rating to an applicant because of studies that suggest members of the applicant's race have a shorter than average life expectancy.

Which of the following is NOT encompassed by agency law? A)The acts of an agent are the acts of the principal. B)A contract completed by the agent on behalf of the principal is a contract of the principal. C)Payments made to an agent intended for the principal are payments made to the principal. D)Knowledge of the principal is knowledge of the agent.

Answer Knowledge of the principal is knowledge of the agent. Explanation A fundamental rule of agency law states that information known to the agent is also known by the principal, as long as the agency relationship exists. Information known to the principal, however, is not presumed to be known to the agent. Reference: 1.9 in the License Exam Manual

Jamir is an agent for Assured Insurance. He visits Ada, a prospect, in her home. He arrives with business cards, sample policies from Assured, and an Assured rate book. He recommends Assured policies that can meet Ada's needs for insurance. Which of the following terms describes the kind of authority that Jamir has in this situation? A) Apparent B) Express C) Implied D) Binding

Apparent Explanation Apparent authority arises from the reasonable assumptions that a third party, such as an insurance prospect, makes on the basis of the actions or statements of the principal. By providing its agent with business cards, sample policies, and rate books, Assured gives a prospect the impression that it supports Jamir's statements and deeds with respect to his insurance transactions. Reference: 1.9.1 in the License Exam Manual

Daniel owns an insurance agency in a small town and represents just 1 insurer. He wears apparel with the company logo, has the company name on his vehicle, and hands out merchandise with the company's name imprinted on it. What type of authority does this represent?

Apparent Explanation Apparent authority is the authority that a prudent person assumes an agent has. Based on his actions, the prospective client assumes that he has the authority to represent and transact business on the behalf of this particular insurance company. In other words, the agent's authority to represent the insurance company is "apparent" to the prospect. Apparent authority is from the client's perspective. Reference: 1.9.1 in the License Exam Manual

An agent for Zephyr Insurance Company, equipped with business cards, sample Zephyr policies, and an Zephyr rate book, informs a prospect that Zephyr has given him unlimited binding authority. The prospect assumes this is true. Which of the following terms correctly defines the agent's authority in this case? A) Express authority B) Binding authority C) Apparent authority D) Implied authority

Apparent authority Explanation Apparent authority is what a third party (such as a member of the public) assumes an agent has, on the basis of the actions or words of the principal. By supplying the agent with business cards, sample policies, and rate books, the insurance company has given the impression that it supports his words and actions. Reference: 1.9.1 in the License Exam Manual

A 65-year-old employee of a company with 90 employees suffers a heart attack and, as a result, becomes totally disabled. Which of the following statements describes how his health benefits will be paid?

As an active employee, his employer-sponsored health insurance will pay all benefits. Because he is over age 65, Medicare is responsible for paying all benefits. Medicare pays most of the benefits. After that, his employer-sponsored health insurance pays the remainder. His employer is the primary payer and Medicare pays the remaining eligible expenses. Explanation The employer has more than 20 employees and the individual is still an employee. Therefore, the employer-sponsored health insurance will be primary and Medicare will cover the remaining eligible expenses. Reference: 20.3.8 in the License Exam Manual

Which of the following statements about executive bonus plans is NOT correct?

At the employee's death, the company receives the death proceeds free of tax.

Which of the following options is designed to protect the policyowner should the policy be in danger of lapsing for nonpayment of premiums?

Automatic premium loan

The concept of agent confidentiality requires all of the following practices EXCEPT

B) notifying the applicant of a substandard rating decision by the insurer Explanation Notifying the applicant of insurer rating decisions is important, but it is not part of an agent's confidentiality practices. These refer to the need for agents to carefully guard against providing applicants' confidential information to anyone except authorized insurer personnel. Reference: 2.4.1 in the License Exam Manual

Why do most states ban STOLI transactions?

Because the investor, who is named as the beneficiary, does not have an insurable interest in the insured

Which of the following statements regarding the required provisions in a long-term care policy is NOT true?

Benefit amounts are expressed as dollars per day. The elimination period is considered a time deductible. Prior hospitalization is required for payment of benefits. Policies must provide coverage for a minimum of 12 months. Explanation Long-term insurance policies do not require prior hospitalization as a condition to pay benefits. Reference: 21.6 in the License Exam Manual

Which of the following terms best describes the maximum length of time that disability income benefits will be paid to the disabled insured?

Benefit period

Which of the following statements regarding Social Security disability is NOT true?

Benefits are based on the U.S. average monthly income, indexed for inflation.

Which of the following statements pertaining to dental insurance is NOT correct?

Benefits are normally payable for most dental work, including cleanings, fillings, and extractions. Dental insurance is generally available in group plans, but seldom in individual policies. A maximum dental benefit is usually specified for a calendar year. Dental coverage usually includes a deductible provision, but not a coinsurance feature.

Which statement regarding the return of premium rider for a disability income policy is NOT correct?

Benefits are paid during the time period the rider is in effect.

Which of the following is NOT a benefit of a qualified long-term care policy?

Benefits are received income tax-free up to a specific amount. Expenses are reimbursable under Medicare. Premiums are tax deductible for self-employed people. Employer-paid premiums are not taxable income to employees. Explanation Qualified long-term care insurance receives favorable tax treatment. Benefits are tax-free and premiums may be tax deductible. Expenses are never reimbursable under Medicare. Reference: 22.3.1 in the License Exam Manual

Which of the following statements about dental insurance is NOT correct?

Benefits are usually paid for most dental work, including cleanings, fillings, and extractions. Dental coverage usually includes a deductible provision, but not a coinsurance provision. Group plans generally offer dental insurance, but individual policies seldom do. A maximum dental benefit is usually specified for a calendar year.

Which of the following statements pertaining to disability income policies is NOT correct?

Benefits may be payable for disabilities resulting from either accidental injury or sickness, and there are no exclusions.

What happens if the insurer discovers that the insured's age was accidentally misstated on an application for an individual life insurance policy?

Benefits will be calculated according to how much coverage the premium paid would have purchased for the correct age.

What happens if, when paying benefits, the insurer discovers that a person's age had been misstated on his individual life insurance application?

Benefits will be paid for the amount of coverage the premium would have purchased at the correct age.

What happens if a claim arises during the grace period of an individual life insurance policy?

Benefits will be paid, but unpaid premiums can be deducted from the policy proceeds.

After a proof of loss is submitted, legal action may be taken to recover on an individual health insurance policy only during what time period?

Between 60 days and 3 years

Traditional indemnity plans are characterized by all of the following EXCEPT

Billing and submission of claim forms for reimbursement Provision of care on a fee-for-service basis The ability to access care from a specialist only with a referral from a primary care physician The inclusion of a deductible and coinsurance requirement

Oliver, age 48, and Lucia, age 46, are married and file a joint tax return. Both are covered by their companies' pension plans. Which of the following statements regarding contributions they could make to a traditional IRA is NOT correct?

Both can take advantage of the catch-up provision and contribute the catch-up amount in addition to the base amount.

Which of the following statements regarding both individual credit life insurance and group credit life insurance is NOT correct?

Both policies are typically medically underwritten.

Which of the following statements regarding group coverage is NOT correct?

Both the policyowner and the insured receive a copy of the master policy.

Brian met with an insurance producer to discuss how much life insurance he would need to support his family in the event of his premature death. Both parties agreed that a $750,000 life insurance policy would be sufficient. When Brian stated that he wanted to discuss the matter with his spouse, the producer asked him to sign a general background information form before he left. However, the document was actually an application form that the producer submitted to the insurer. If the insurer then issues a contract, it will be legally unenforceable because

Brian did not make a valid offer Explanation To be legally enforceable, a contract must be made with a definite, unqualified offer by one party and the acceptance of its exact terms by the other party. Because Brian did not know that he was signing a life insurance application, he did not make a valid offer for the insurance contract. Reference: 1.10.1.2 in the License Exam Manual

What disability policy indemnifies the business for certain expenses incurred when the business owner is disabled?

Business overhead expense policy

Which of the following statements regarding buy-sell agreements is NOT correct?

Buy-sell agreements are only funded with annuities.

Which of the following is NOT a type of business disability insurance plan?

Buyout Key-person Split-dollar Business overhead expense (BOE) Explanation Businesses use disability insurance plans to assist a business in the event a key individual or businessowner suffers a disability. The 3 types of plans are business overhead expense policies, key-person disability insurance, and disability buyout insurance. Reference: 22.5 in the License Exam Manual

Which of the following acts of legislation requires fair and accurate reporting of a consumer's buying and bill-paying history?

C) Fair Credit Reporting Act

Which of the following statements regarding long-term care insurance is NOT true?

Care for physical safety and mental cognition is provided by long-term care insurance policies. The amount and type of policy benefits are chosen by the individual. Long-term care insurance assists individuals in planning for future needs. Long-term care insurance requires a prior 3-day hospital stay in order to receive skilled care in a nursing home. Explanation Medicare, not long-term care, requires a prior 3-day stay in a hospital in order to receive skilled care in a nursing home. Reference: 21.3.1 in the License Exam Manual

Roland purchases a life insurance policy and names his spouse, Carol, as a beneficiary. Roland's children, Sasha and Alex, are to share the benefits equally if Carol dies before him. His church is to receive the proceeds if his spouse and children all predecease him. The primary beneficiary is

Carol

After comparing policies for the last 3 months, Carol has finally found a health insurance policy that she would like to purchase. When Carol submits the application with the initial premium,

Carol has made an offer that the insurance company can accept or reject Explanation When Carol submits an application along with the initial premium, she is making an offer to the insurance company. The insurer can accept the offer by issuing the policy as applied for, or it may counteroffer by issuing another policy at different premium rates or with different terms. Until the insurer accepts the offer, Carol has the right to rescind it. Reference: 1.10.1.2 in the License Exam Manual

Which of the following types of annuity payout options guarantees, as a minimum, the payout of the entire annuity principal amount?

Cash refund

What type of annuity payment option provides a guaranteed income to the annuitant for life and, if the annuitant dies before the annuity is depleted, a lump-sum cash payment to the annuitant's beneficiary?

Cash refund option

The individuals who are insured under a group life contract are given which of the following as evidence of their coverage?

Certificates of insurance

Which of the following is a required policy provision?

Change of beneficiary

Which of the following is NOT considered unfair discrimination?

Charging a higher individual life insurance premium for a 50-year-old than for a 25-year-old

Which of the following statements pertaining to notice of claim and claim forms provisions in health insurance policies is NOT correct?

Charlotte is injured on January 5. Later, she wishes to file a policy claim for expenses incurred in connection with the injury. Generally, she would be required to submit a notice of claim to the company by February 5.

Henry owns a variable life insurance policy in which his spouse, Colin, is the primary beneficiary. His children, Jacob and Charlotte, are equal secondary beneficiaries. The American Red Cross and his alma mater are listed as equal tertiary beneficiaries. If both Colin and Jacob predecease Henry, how will the policy's death benefit be distributed at Henry's death?

Charlotte will receive 100% of the death benefit.

Larry owns a deferred annuity for which his spouse, Karen, is the designated annuitant and his son, Chris, is the designated beneficiary. If Larry were to die before the contract is annuitized, to whom would the contract's death benefit be payable?

Chris

Clarence, the insured, designated his estate as the beneficiary of his life insurance policy. Which of the following statements is CORRECT?

Clarence's creditors can make claims against the proceeds more readily than if the proceeds were paid to named beneficiaries.

The beneficiary on Lina's life insurance policy is listed as "children of the insured." Which of the following terms best describes this type of beneficiary designation?

Class beneficiaries

Winnie is insured under a life insurance policy. She designates "all natural children of the insured" as beneficiaries in her life insurance policy. Which of the following phrases best describes this type of beneficiary designation?

Class beneficiaries

What are the 2 types of assignment of rights to another in a life insurance policy?

Collateral and absolute (also known as permanent)

Which of the following organizations reimburses its insureds for covered medical expenses?

Commercial insurers

Which of the following statements regarding experience versus community rating by group health insurance plans is CORRECT?

Community rating takes the group's previous claims experience into account. Premiums for group insurance are typically not based on experience rating. Experience rating is based on past and projected medical costs of the group. Community rating is more cost-effective and competitive.

The fact that an insurance contract promises to pay benefits contingent on a future uncertainty (such as death or illness) makes it what type of contract?

Conditional Explanation An insurance contract is conditional in that the insurer's promise to pay benefits is dependent on the occurrence of the risk insured against. If the loss does not materialize, no benefits are paid. Reference: 1.10.2.6 in the License Exam Manual

Beth's health insurance policy contains a provision that allows her to renew coverage up to age 65. However, the policy also states that should Beth lose her job, the insurance company will cancel the policy, regardless of Beth's age. In terms of renewability, what type of policy does Beth have?

Conditionally renewable

Which of the following statements about a Roth IRA is CORRECT?

Contributions are not tax deductible.

Madge took out a $100,000 10-year convertible term policy at age 30. At age 36 she decides to convert the policy to permanent insurance of the same amount on an original-age basis. Which of the following statements is NOT correct?

Conversion will be contingent upon her evidence of insurability.

Matteo owns a nonqualified deferred annuity that has a current value of $50,000. He has 2 children, ages 11 and 17. If he decides to devote this annuity solely to help pay for their college education, and his goal is to maximize the annuity income payments, which of the following is the best option?

Convert to an immediate annuity using a 10-year period certain annuity option

Which of the following statements regarding indemnity dental plan exclusions and limitations is NOT correct?

Coordination of benefit provisions is not permitted with dental insurance, and a person may collect full plan benefits from every plan under which she is covered. Elective dental procedures such as teeth whitening are generally not covered under indemnity dental plans. Most indemnity dental plans limit the amount of services that are covered within a year. The maximum amount of coverage a plan will provide for any given form of dental care is most commonly based on the fees that are deemed usual, customary, and reasonable for the community in which the service is provided.

Monthly or weekly benefits payable under a disability income policy can be tied to changes in the Consumer Price Index through what type of rider?

Cost-of-living adjustment

Which of the following riders provides for changes in the benefit payable based on changes in the Consumer Price Index?

Cost-of-living adjustment rider

A qualified long-term care insurance policy must contain which of the following requirements?

Coverage for conditions that result from war Coverage for drug and alcohol dependency A probationary period of no longer than 180 days Guaranteed renewability Explanation As a result of the 1996 Health Insurance Portability and Accountability Act (HIPAA), all long-term care policies sold today must be guaranteed renewable. The insurer cannot cancel the policy and must renew coverage each year, as long as the insured pays the premiums. Reference: 21.8 in the License Exam Manual

Under the COBRA rules for employer group health insurance, which of the following statements is CORRECT?

Coverage may be continued for up to 36 months for a qualified beneficiary and 18 months for a terminated employee. Coverage may be continued for up to 18 months for both a qualified beneficiary and a terminated employee. Coverage may be continued for up to 36 months for both a qualified beneficiary and a terminated employee. Coverage may be continued for up to 18 months for a qualified beneficiary and 36 months for a terminated employee.

Jennifer's dental plan covers routine dental care at 80% (after the deductible), but major dental care is covered at 50%. Which of the following types of dental treatment would most likely have a 50% coinsurance requirement?

Creation of a fixed bridge A stainless steel crown Repair of dentures Scaling of the gums to treat a gum infection

Which of the following types of life insurance covers the life of a debtor in connection with a specific loan?

Credit life

Madison, who is 27, is interested in purchasing a car from the local dealership. What kind of insurance might be included when she finances her car?

Credit life insurance

The replacement regulations apply to which of the following?

Credit life insurance. Group life insurance. Whole life insurance. Nonrenewable term life insurance. Explanation Credit, group and nonrenewable term life insurance are exempt from the replacement regulations. Also exempt are transactions in which the issuing and replacing insurers are the same or the conversion from one insurance policy to another is transacted by the same company. Reference: See State Supplement. This content is not in the License Exam Manual

Cybil is insured under a key-person life insurance policy owned by Delta Corporation and then quits her job. Which of the following statements is NOT correct?

Cybil can convert the policy to an individual policy.

Which of the following organizations contracts with select doctors and hospitals to be a health care provider for its members?

DPO MIB HMO PPO

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

DPO MIB PPO HMO

Amanda took out a $250,000 home mortgage when she purchased her house 5 years ago. What type of life insurance policy would be the best choice to insure the remaining balance on her home mortgage?

Decreasing term

Joe buys his first home after obtaining a 30-year mortgage from his bank. He is considering the purchase of life insurance to ensure that the mortgage will be paid in the event of his death, in which case he will leave the house to his spouse and children. What would be the best life insurance protection for Joe?

Decreasing term

Which of the following is NOT an essential health benefit found in qualified health plans?

Dental services

Which of the following terms refers to the period following the death of a breadwinner during which the children are living at home?

Dependency period

Which of the following statements applies to both grandfathered and non-grandfathered health plans?

Dependent coverage must be extended to adult children until age 26.

Which of the following statements regarding group credit life insurance is NOT correct?

Depending on the loan amount, evidence of insurability may be required.

Which of the following may be used as a reason to cancel a long-term care policy?

Deterioration of the insured's health Age of the insured Deterioration of the insured's mental health Nonpayment of premiums Explanation Except for nonpayment of premiums, no long-term care contracts can be canceled. Furthermore, an insured's age or the deterioration of the insured's mental or physical health cannot be the basis for an insurer's refusal to renew a longterm care contract. Reference: 21.12 in the License Exam Manual

Which of the following dental plans covers dental services on a traditional fee-for-service basis?

Direct reimbursement plan Preferred provider organization Comprehensive plan Capitation plan

What disability policy can be used to fund buy-sell agreements between partners or stockholders in a closely held corporation?

Disability buyout policy

A guaranteed insurability rider may be attached to which of the following policies?

Disability income

A waiver of premium provision may be included with which kind of health insurance policy?

Disability income

Which of the following situations regarding covered employees is NOT considered a qualifying event?

Doreen becomes legally separated from her spouse. Dmitri's hours are reduced. Santino's son who no longer meets their dependent status. Laurie becomes eligible for Medicaid.

In which of the following cases would the insurance company most likely cover the loss under a life insurance policy?

During a cross-country flight to a shareholders' meeting, Judy's commercial airliner suffers engine failure and crashes with no survivors.

Which of the following statements regarding current assumption whole life insurance is NOT correct?

During a period of relatively high interest rates the premiums could be increased.

Which of the following statements regarding the delivery of a life insurance policy is NOT correct?

During the delivery appointment, the agent should ask for referrals

Which of the following situations would create a possible errors and omissions liability to the producer?

During the sale of a replacement health policy, the producer tells an applicant that the new policy will cover expenses ordinarily paid by Medicare.

Which of the following federal acts governs the funding, vesting, administration, and termination of private pension plans?

ERISA

Which of the following sets the requirements that must be met for long-term care insurance policies to be considered "Qualified"?

ERISA HIPAA PPACA FCRA Explanation The Health Insurance Portability and Accountability Act of 1996 (HIPAA) spells out specific requirements that must be met in order to be considered "Qualified" and take advantage of income tax benefits. Reference: 21.8 in the License Exam Manual

Which of the following statements regarding a health savings account (HSA) is NOT true?

Earnings grow tax deferred. Enrollment in a high-deductible health plan is required. Distributions are tax-free for qualified medical expenses. Contributions are taxed as ordinary income. Explanation Health savings accounts are medical savings accounts that provide tax advantages to taxpayers when they enroll in a high-deductible health plan. Contributions are tax deductible, earnings grow tax deferred, and distributions are tax-free when used for qualified medical expenses. Reference: 22.6 in the License Exam Manual

Which of the following statements regarding health savings accounts is NOT correct?

Earnings in HSAs grow tax-free. Qualified health care expenses include Medicare supplement premiums. The maximum annual HSA contribution is based on the statutory limit for the individual's type of coverage. Account beneficiaries can make tax-free withdrawals to cover qualified health care costs. Explanation Earnings in an HSA grow tax-free, and the funds from an HSA may be withdrawn tax-free if they are used to pay for qualified health care expenses. While there are a few exceptions where HSA funds can be used to pay insurance premiums, Medicare supplement premiums are not one of the exceptions. Therefore, HSA funds used to pay Medicare supplement premiums would be taxable as income since those premiums are not considered qualified health care expenses. Reference: 22.6.1 in the License Exam Manual

Which of the following statements regarding health savings accounts (HSAs) is NOT correct?

Earnings in an HSA grow tax deferred. Individuals who are covered by Medicare are eligible to establish HSAs. Funds roll over and accumulate year to year if not spent. Contributions to an HSA are tax deductible. Explanation Individuals are ineligible to establish an HSA if they have other comprehensive medical expense coverage such as Medicare. Reference: 22.6 in the License Exam Manual

All of the following persons who have no employer retirement plan would be eligible to set up a traditional IRA EXCEPT

Edna, age 62, a retired nurse

Which of the following would NOT be a criterion for group underwriting?

Education level of the group members Sex of the group members Ages of the group members Income level of the group members

Which of the following coverages must be included in all Medicare supplement policies?

Emergency care in a foreign country Cost of the first 3 pints of blood At-home recovery services Daily coinsurance amount for skilled nursing facility care Explanation Coverage for the reasonable cost of the first 3 pints of blood is part of the minimum benefits required for Medicare supplements. Reference: 20.4.1 in the License Exam Manual

Which act protects the interests of participants in employee benefit plans?

Employee Retirement Income Security Act

Which of the following statements regarding 401(k) plans is CORRECT?

Employees can make elective salary deferrals.

Which of the following statements regarding employee eligibility for group benefits is TRUE?

Employees must be actively at work

Which of the following employees would NOT be eligible for a 403(b) plan?

Employees of banks and credit unions

Which of the following employee populations may an employer legally exclude from group health benefits?

Employees over age 62 Married women between the ages of 25 and 40 Handicapped employees Union workers as a class

Which of the following statements about the tax advantages of a qualified retirement plan is NOT true?

Employees' contributions to retirement plans are included in ordinary income.

Which of the following statements regarding group long-term care insurance is NOT true?

Employers choose plan coverage for participants. Group rates are lower. Plans are tailored to meet individual needs. Evidence of insurability is not required. Explanation Group long-term care policies have lower rates, and evidence of insurability is not required. However, plans are not tailored to the individual; the employer chooses coverage for all employees who are participating in the plan. Reference: 21.10 in the License Exam Manual

Which provision of a life insurance policy declares that the application is part of the contract?

Entire contract clause

Which provision of a life insurance policy states that "no statement shall void this policy or be used in defense of a claim under it unless contained in the application"?

Entire contract clause

A variable annuity is based on which of the following?

Equity investments (stocks and bonds)

Jordan wants to set aside money so that his grandchildren's college tuition will be paid. While he is only 58, he is concerned that if he dies too young, he will not have had enough years to accumulate assets. What is Jordan's reason for purchasing life insurance?

Estate creation

Which section of a life insurance policy specifies the conditions, times, and circumstances under which the insured is NOT covered by the policy?

Exclusions

Which of the following statements regarding exclusive agents is NOT true? A)Exclusive agents represent only 1 company. B)Exclusive agents represent the insurer. C)Exclusive agents are usually compensated by commissions. D)Exclusive agents represent the insured.

Exclusive agents represent the insured. Explanation Exclusive agents represent the insurer (the insurance company). Reference: 1.8.1 in the License Exam Manual

Which of the following business life insurance premiums is tax deductible to the business?

Executive bonuses

Which of the following types of agent authority is specifically set forth in writing in the agent's contract? A) Personal B) Implied C) Express D) Apparent

Express Explanation Express authority is granted by a principal to its agent. The principal grants this authority through the agent's contract, which is the principal's appointment of the agent to act on its behalf. Reference: 1.9.1 in the License Exam Manual

What is the default nonforfeiture option?

Extended term

Which of the following acts of legislation requires fair and accurate reporting of a consumer's buying and bill-paying history?

Fair Credit Reporting Act

Jamal's agent delivers his life policy to him on February 5. Until what date can Jamal opt to return his policy and receive a full refund of the premiums paid?

February 15

Which of the following statements about health maintenance organizations (HMOs) is NOT correct?

Federal law requires employers with 5 or more employees to implement an HMO plan for health care coverage. HMOs must provide comprehensive health care benefits. Routine physicals and diagnostic services are covered expenses. HMOs stress preventive health care.

An insurance producer acts in what capacity when holding insurance premiums?

Fiduciary Explanation An insurance producer holds all premiums received in a fiduciary capacity. The producer must hold premiums in a separate trust account and must account for and pay the premiums to the insured or insurer that is entitled to them. An insurance producer may deposit all funds belonging to others in 1 account, as long as the separate amounts are recorded. An insurance producer who unlawfully appropriates insurance premiums for his own use commits theft. Reference: 1.9.2 in the License Exam Manual

An insured gives a premium to a producer with the expectation that the producer will act with the utmost good faith in forwarding it to the insurer. In this case, the producer is said to have what kind of responsibility to or relationship with the insured?

Fiduciary Explanation An insurance producer holds premiums in trust and is therefore in a position of trustee for the funds. He has certain fiduciary responsibilities to the insured and the insurer. As such, the producer does not obtain any rights of ownership in the funds. Reference: 1.9.2 in the License Exam Manual

What settlement option is designed to pay out a specified amount of income at regular intervals over an unspecified period of time?

Fixed-amount option

How long does an insurance producer's license remain valid in Illinois?

For as long as the 4-year licensing period, after which it must be renewed with another round of license testing. For as long as the appointing insurance company pays the appropriate fee each January 1. For as long as the fee is paid and the education requirements are met. Until revoked by the appointing insurer. Explanation Unless denied a license, persons who have met the licensing requirements will be issued a 2-year insurance producer license. An insurance producer license will remain in effect unless revoked or suspended, as long as the fee is paid and education requirements for resident individual producers are met by the due date. Reference: See State Supplement. This content is not in the License Exam Manual

Which of the following statements pertaining to Medicare is CORRECT?

For the first 90 days of hospitalization, Medicare Part A pays 100% of all covered services, except for an initial deductible. Elena is covered under Medicare Part She submitted a total of $1,100 of approved medical charges to Medicare after paying the required deductible. Of that total, Elena must pay $880. Medicare Part A is automatically provided when a qualified individual applies for Social Security benefits. Each individual covered by Medicare Part A is allowed one 90-day benefit period per year. Explanation Medicare Part A is available when an individual turns 65 and is automatically provided when he applies for Social Security benefits. Medicare Part B pays 80% of medical expenses after the insured pays the deductible. Reference: 20.3.2.1 in the License Exam Manual

Which standard life provision allows a policyowner to return a life policy, for any reason, within 10 days of delivery for a full refund of the premium

Free-look provision

Which of the following statements regarding the disposition of fiduciary funds is CORRECT? A) As long as the agent replaces any funds he used for personal expenses, the agent has not violated the fiduciary trust. B) Funds collected as premiums are to be kept separate from those used for personal expenses or investments. C) A licensee may invest fiduciary funds in the stock market. D) Since the insured knowingly gave the premiums to the agent, personal use of those funds by the agent would not be considered theft.

Funds collected as premiums are to be kept separate from those used for personal expenses or investments Explanation All premiums received by an agent are funds received and held in trust in a fiduciary capacity, and an agent or licensee is prohibited from commingling personal funds with funds held in a fiduciary capacity. Any agent who takes funds held in trust for personal use would be guilty of theft. A licensee may not expose the fiduciary funds to risk by investing them in the stock market. Reference: 1.9.2 in the License Exam Manual

Which of the following provisions of a life insurance contract generally helps to keep policies in force if policyowners neglect to pay their premiums?

Grace period

Sean has a young family and needs affordable whole life insurance. He is looking for a policy with lower initial premiums but is not averse to paying more at a later time. What type of whole life insurance variation would be suitable for him?

Graded premium

Gene, age 20, purchased a $50,000 life insurance policy. The premium at issue is lower than normal whole life rates, and it increases each year for the first 5 years of the policy period. After that, the premium levels off. What type of policy does Gene own?

Graded premium whole life

Jenna owns a policy in which the premium at the inception of the policy is lower than the continuous premium whole life rate and then increases each year for the first 5 years of the policy period. After 5 years, the premium levels off. What type of policy does Jenna own?

Graded premium whole life

Which of the following statements regarding group insurance is INCORRECT?

Group insurance plans sponsored by a business are sometimes referred to as employer group plans.

Which of the following statements about group and individual life insurance is CORRECT?

Group plans involve experience rating, while individual policies require individual underwriting and evidence of insurability.

Which of the following provisions gives a long-term care policyowner the option to purchase additional insurance amounts within specified parameters regardless of insurability?

Guarantee of benefits Guarantee of insurability Guaranteed renewability Guaranteed coverage Explanation A guarantee of insurability provision provides a long-term care insurance policyowner with the option to purchase additional insurance amounts within specified parameters regardless of insurability, claims history, or existing conditions. This is an optional benefit available to policyowners. Reference: 21.6.4 in the License Exam Manual

Which of the following life insurance policy riders will allow insureds to purchase additional insurance at future dates, regardless of their health?

Guaranteed insurability option

What accident and health insurance renewability clause provides that the insurer cannot unilaterally change any provision while the policy is in force but can change premium rates by class?

Guaranteed renewable

Which kind of health insurance policy ensures renewability up to a specific age of the insured, although the insurer reserves the right to change the premium rate on a class basis?

Guaranteed renewable

Applicants for which of the following types of policies would normally require the most comprehensive underwriting?

Guaranteed renewable disability income insurance

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

HMOs are funded by the federal government, and eligibility is determined by the income levels of the participants. Any insurance company that markets group health insurance is an HMO. An HMO offers comprehensive services on a prepaid basis to its subscribing members. If a person joins an HMO and undergoes a physical examination, she will be billed for the exam and each subsequent medical service as it is performed.

Harry, the owner of a convenience store, is the insured under a business overhead policy. Were Harry to become disabled, the policy would cover all of the following EXCEPT

Harry's salary

Which of the following statements explains why a person would NOT be a good applicant for a long-term care insurance policy?

He already has a long-term disability policy. Because of his financial situation, he must rely on Medicaid to pay the cost of long-term care. He has a Medicare supplement policy that will cover the cost of long-term care. He has substantial savings put aside to cover the cost of long-term care. Explanation If a person is destitute, Medicaid will pay the cost of a long-term care. Because the cost of long-term care can be high, often as much as $50,000 or more a year, even a large savings is not a guarantee of continued care. Medicare supplement policies do not pay LTC costs, nor do disability policies. Reference: 21.3.2 in the License Exam Manual

Eduardo has been back on the job for 2 weeks when he falls ill again and is unable to work. He is likely to receive benefits immediately for which of the following reasons?

He is covered under his disability income insurance policy's recurrent disability provision.

What are the tax consequences if Maksim makes a partial rollover of his 401(k) plan assets?

He must pay a 10% penalty plus income tax on the amount retained.

Maria is a new full-time employee who has just completed her probationary period with her employer. She is married with three children. Which of the following persons are NOT eligible to participate in her group plan?

Her 29 year old disabled son Martin Her 24 year old daughter Tina who just got married Her 26 year old son Juan Her husband Fernando

Sajji has an accidental death and dismemberment policy through her company. What is the tax treatment on the expenses if her employer pays 100% of the premiums?

Her employer may deduct the premiums and receive corporate benefits tax-free. The premiums are deductible for her employer and her benefits are tax-free. The premiums are not deductible for her employer and her benefits are taxed. She receives benefits tax-free and is taxed on the premium. Explanation If an employer offers an accidental death and dismemberment policy to employees and pays 100% of the premium, those premiums are deductible to the employer and are not taxable to the employee, and the employee receives the benefits tax-free. Reference: 22.3 in the License Exam Manual

Which of the following is the most valid reason for a person to purchase a specified (dread) disease health insurance policy?

Her family has a history of cancer, and she is concerned that she might contract the disease.

Julie has just received a lump-sum payment from her individual disability income policy provider. Which of the following is the best explanation for this payment?

Her policy includes a return-of-premium provision.

Trudy has been promoted from being a firefighter to working at a desk in the arson unit. How will this affect her health care according to the change of occupation provision?

Her premium will be reduced and the insurer will return the excess pro-rata unearned premium to her.

An employee is eligible to continue his health insurance under COBRA rules. Which of the following statements is CORRECT?

His coverage under COBRA will be identical to that which he had under his group plan. He can continue the coverage for up to 36 months, even if he obtains new coverage elsewhere. He can increase the benefits he will receive from his plan up to 102% of his previous coverage. His coverage can be continued even if the employer terminates the entire health plan.

Steve has an individual disability income policy that pays $600 a month if he becomes disabled. After he became disabled, he received a lump-sum payment of $10,000 in addition to his base benefit. Which of the following disabilities would result in this additional benefit?

His disability, which resulted in blindness, occurred in a car accident and is covered under the accidental death and dismemberment rider attached to his disability policy.

Which of the following is an optional benefit to a long-term care insurance policy?

Home day care Tax incentives Nonforfeiture benefit Medicare Explanation Nonforfeiture benefits are one of the optional benefits that may be added to a long-term care insurance policy. This benefit provides for either a growth in cash value or for a guaranteed return of some stated percentage of the premium, minus any paid benefits if the policy is lapsed or surrendered. Reference: 21.6.4 in the License Exam Manual

Which of the following is NOT covered by Medicare Part A?

Home health care An outpatient medical facility A skilled nursing facility Hospice care Explanation An outpatient medical facility is covered by Medicare Part B. Skilled nursing facilities, home health care and hospice are covered under Medicare Part A. Reference: 20.3.2.3 in the License Exam Manual

What is another name for services provided to insureds at their residences?

Home health care Long-term care Adult day care Acute care

HMOs may provide supplemental health care services. Which of the following is NOT a supplemental health care service?

Home health care Outpatient care Vision care Dental care

Which of the following statements is CORRECT?

Hospital and medical expense coverage helps pay doctor and hospital bills.

Which of the following policies pays a fixed hospital benefit directly to the insured, regardless of the actual hospital expenses incurred?

Hospital indemnity

Luis has 3 individual health insurance policies and is concerned that the benefits may overlap. What will happen in the event he makes a claim for coverage under all 3 policies?

If 1 insurer covers the risk, it will pay the claim and any premiums that apply to any excess will be returned to Luis.

Louise applied for a $40,000 life insurance policy, paid the initial premium, and received a conditional receipt. Which of the following statements is NOT correct?

If Louise died of a heart attack 1 day before taking the required medical exam, the insurer would still pay the beneficiary the coverage amount stated in the application.

Malia purchases a $50,000 5-year level term policy. Which of the following statements about Malia's coverage is NOT correct?

If Malia dies after the specified 5 years, only the policy's cash value will be paid.

Ted is disabled and is eligible to receive $1,200 in benefits through his disability policy. He is also covered for benefits under Social Security, with a primary insurance amount (PIA) of $750. Under which circumstances will he receive a total of $1,950 a month?

If he is unable to do work of any kind

Which of the following statements regarding the tax treatment of distributions from an individually owned, nonqualified, deferred annuity is NOT correct?

If the distribution is the result of the annuity contract owner's death, the cash value payable to the beneficiary is income tax-free.

Which of the following statements pertaining to the optional misstatement of age provision is NOT correct?

If the insured actually was older at the time of application than shown in the policy, the excess premiums paid would be refunded.

Rick purchased an annuity, making a single lump-sum payment on September 1. His benefits began on October 1 . What kind of annuity did Rick buy?

Immediate

Thomas, an insured, submits a claim and a proof of loss for medical expenses covered by his major medical policy. According to the time of payment of claims provision, how soon must the company pay the claim?

Immediately

Denicia is appointed by an insurance company to transact insurance on its behalf. She collects her clients' premiums and has them sign paperwork. By what authority can she do so?

Implied Explanation Implied authority is not expressly granted but is assumed to have been given in order to transact the principal's business. It is incidental to express authority because not every detail of an agent's authority can be specifically noted. Reference: 1.9.1 in the License Exam Manual

Which of the following statements regarding Social Security disability is NOT correct?

In order to qualify for benefits, a disability must be expected to end in death or total deafness.

Which of the following statements pertaining to the Medical Information Bureau (MIB) is CORRECT?

Information obtained from the MIB by insurers may not be used as the sole reason to decline an applicant's request for insurance

Which of the following statements pertaining to inspection reports and credit reports on life insurance applicants is NOT correct?

Inspection reports only require consumer notification when they are conducted.

Which annuity settlement arrangement guarantees to pay at least a minimum amount equal to the original investment?

Installment refund annuity

Which of the following is NOT included in the general powers of the Director of Insurance?

Instituting such actions or other lawful proceedings as deemed necessary to enforce the state insurance laws and regulations. Making rules and regulations as necessary to implement the insurance laws. Developing and writing insurance education courses. Conducting examinations as needed to determine whether a person or company has violated an insurance law or regulation. Explanation The Director of Insurance has the power to make rules and regulations as needed to implement the insurance laws, conduct investigations to determine whether an insurance law or regulation has been violated or to administer the laws efficiently, and initiate legal proceedings when necessary to enforce the laws and regulations. Reference: See State Supplement. This content is not in the License Exam Manual

Which of the following statements regarding Lloyd's associations is CORRECT? A) Lloyd's of London is an insurance company. B) Lloyd's associations are insurance companies. C) Insurance can only be offered in London. D) Insurance is provided by individual underwriters.

Insurance is provided by individual underwriters Explanation Lloyd's associations are made up of underwriters who are individually liable and responsible for the insurance contracts they underwrite. Reference: 1.6.6 in the License Exam Manual

What is credit life insurance?

Insurance that covers a debtor's life and will help provide funds to pay off a loan if the debtor dies before the loan is repaid

Which of the following is NOT one of the requirements for a policy to be considered "Qualified"?

Insureds must be given a 30-day free look period. Insureds must have a chronic illness that is expected to last for a minimum of three months. Policies must state renewal conditions (guaranteed renewable) on the first page. Policies may include optional coverage for reimbursement of certain Medicare expenses. Explanation Coverage must be for long-term care expenses only and may not reimburse expenses under Medicare. Reference: 21.8 in the License Exam Manual

What protects an insured against unintentional lapse?

Insureds receive a second notice in the mail Another individual also receives the premium due notice The insurer calls all insureds over the age of 80 Insurers email a reminder to the insured 30 days before issuing a notice of cancellation Explanation The insurer must be given the name of another individual to whom a premium notice will be sent if the policy enters its grace period. Reference: 21.12.2 in the License Exam Manual

Which of the following statements pertaining to the conversion privilege in group insurance policies is NOT correct?

Insureds who resign or are terminated have 365 days in which to convert their coverage to individual policies.

Which provision sets forth the insurer's basic promise to pay benefits upon the insured's death?

Insuring clause

All of the following are characteristics of an insurable risk EXCEPT A) intentional B) measurable C) affordable D) Calculable

Intentional Explanation If a loss is intentional, there is no risk because it is certain to occur. Therefore, a risk must be accidental for it to be covered by insurance. Reference: 1.5.2 in the License Exam Manual

Heather wants her $85,000 life insurance policy arranged to pay her spouse a monthly income if she dies first, but most or all of the proceeds to go to their 2 children after her spouse's death. Which of the following settlement options could Heather select to provide income for her spouse and conserve the proceeds for the children?

Interest-only option

Hector's spouse was the primary beneficiary of his $250,000 life insurance policy. She received payments of approximately $700 a month as long as she lived and, at her death, their 2 children received lump-sum payments of $125,000 each. What settlement option was in effect on Hector's policy?

Interest-only option

Winston, the insured, and his spouse, Irene, his sole beneficiary, both died in a hotel fire. Hospital physicians witnessed that Irene lived at least 2 hours longer than Winston. The life policy had no common disaster clause. Which of the following will receive the policy proceeds?

Irene's estate

What type of beneficiary on a life policy can only be changed with the written consent of that individual beneficiary?

Irrevocable

What is the most common approach for rating life insurance applicants who are determined to be substandard risks?

Issuing a policy in the amount applied for, with a higher than standard premium.

Which of the following best describes the basic purpose for the facility-of-payment clause found in some life insurance policies?

It authorizes the insurer to designate the payee of the life insurance death benefits if the designated beneficiary cannot be located.

A beneficiary receives the proceeds from a life insurance policy in a lump-sum payment. Which of the following statements best explains how the proceeds will be treated in relation to the debts of the beneficiary?

It can be subject to the beneficiary's debts and creditors.

Which of the following statements regarding blanket health insurance is CORRECT?

It covers a group of people who may be exposed to the same risks.

Which of the following statements does NOT apply to the insuring clause?

It defines losses not covered by the policy.

Which of the following statements accurately describes a health maintenance organization (HMO)?

It does not organize or deliver health care services. It arranges for health care services for its members on a prepaid basis. It is not required to be approved by the state before offering services to its subscribers. It provides health insurance coverage specifically to people who cannot obtain coverage from insurance companies.

Which of the following statements about the spendthrift clause is NOT correct

It gives the beneficiary the right to use the death benefit as collateral for a loan.

Which of the following statements about variable universal life insurance is NOT correct?

It guarantees a minimum cash value in the investment account.

Which of the following statements best describes the purpose of key-person or key-executive disability insurance?

It indemnifies the business to cover expenses and losses incurred when a key person is disabled.

Which of the following statements best describes the nature of a cash value loan?

It is a financial transaction in which the insurer loans the money and attaches a comparable portion of the cash value as collateral.

Which of the following statements best describes a Keogh (HR-10) plan?

It is a qualified retirement plan for self-employed individuals and their eligible employees.

Which of the following statements about Lloyd's of London is NOT correct? A) It helps its associates settle claims and disputes. B) It is an association of individuals and companies that individually underwrite insurance. C) It gathers and disseminates underwriting information. D) It is an insurance carrier that underwrites insurance.

It is an insurance carrier that underwrites insurance. Explanation Lloyd's of London is not an insurer but an association of individuals and companies that individually underwrite insurance. It gathers and disseminates underwriting information, helps its associates settle claims and disputes, and, through its member underwriters, provides coverages that might otherwise be unavailable in certain areas. A risk retention group is a mutual company formed to insure people in the same business, occupation, or profession, such as pharmacists, dentists, or engineers. Reference: 1.6.6 in the License Exam Manual

Which of the following statements about Medicare Part D is CORRECT?

It is available to anyone enrolled in Medicare Part A or Some plans offer basic drug coverage. It helps cover the costs of hospitalization. Benefits are available only through Medicare Advantage plans. Explanation Medicare Part D helps cover the cost of prescription drugs. It is available to anyone enrolled in Medicare Part A or Benefits are available through private prescription drugs plans or Medicare Advantage plans. All plans must offer basic drug coverage. Reference: 20.3.7 in the License Exam Manual

Which of the following statements about a modified whole life policy is NOT correct?

It is basically an endowment policy.

Which of the following statements regarding the waiver of premium provision is NOT correct?

It is frequently included with both individual and group policies.

Which of the following statements regarding a conditional receipt is CORRECT?

It is given only if the initial premium has been submitted with the signed application.

Which of the following statements accurately describes the writing of controlled business in Illinois?

It is illegal in all instances. A producer may not write controlled business in excess of 25% of his total insurance business. A producer may not write controlled business in excess of 10% of his total insurance business. A producer may not write controlled business in excess of 50% of his total insurance business. Explanation The Director of Insurance will not grant or extend a license if (one) during either of the two years immediately preceding the extension date of the license, the total amount of premiums on insurance from controlled business exceeded the total amount of premiums from all other insurance, or (two) during the 12 months immediately following the issuance of the license, the total amount of premiums from controlled business would exceed the total amount of premiums on all other insurance business of the applicant or licensee. Reference: See State Supplement. This content is not in the License Exam Manual

Which of the following statements regarding exposure is NOT true? A) It is the risk assumed by the insurer. B) It is measured in degrees. C) It is used to determine insurance premiums. D) It is measured in units.

It is measured in degrees Explanation Exposure is the degree of risk an insurance company is willing to assume and pay out in the event of a loss. Insurance premiums are calculated by multiplying the rate and the number of exposure units. Reference: 1.3 in the License Exam Manual

Shiyuan, while in the process of converting her group life insurance to an individual policy, dies. What happens to the claim her beneficiary submits?

It is paid under the old group plan.

Which of the following statements regarding the mortality rate is NOT correct?

It is used in the determination of health insurance rates.

Which of the following statements regarding the grace period for life insurance is NOT correct

It is usually shorter than 30 days.

Which of the following statements regarding the insuring clause is NOT correct

It is usually signed by the insured.

Which of the following statements regarding the respite care provision under a long-term care policy is CORRECT?

It pays a benefit for a family caregiver to get away from her duties for a short period of time. It pays a benefit to reimburse other family members who provide care for the insured. It pays a benefit for the insured to return home for short visits. It pays a benefit for the insured to take a break at an approved day spa or adult day care facility. Explanation The respite care provision pays the cost of either bringing in a substitute provider to the insured's home or moving the insured to a care facility for a period of time. Its purpose is to give an unpaid caregiver (such as spouse or other family member) relief from her daily duties. Reference: 21.5 in the License Exam Manual

Which of the following statements best describes the coordination of benefits provision of group medical expense policies?

It permits insurers covering a given insured to coordinate benefits so that, among all of them, no more than 100% of a claim is paid. It permits all insurers covering a given insured to coordinate benefits so that, among all of them, no more than 80% of a claim is paid. It permits insureds to collect full benefits from every policy under which they are covered. It prohibits consumers from being covered under more than 1 group medical policy.

How does an insurer treat benefits that are payable for expenses incurred when the company accepted the risk without being notified of other existing coverage for the same risk?

It prorates them.

Which of the following statements regarding Medicare Part B is NOT true?

It provides for annual mammograms for those over 40, pap tests, pelvic exams, and clinical breast exams. It provides glaucoma testing once every 12 months. It covers a routine physical exam within 6 months of enrollment. It pays for skilled care provided in the home like speech, physical, or occupational therapy. Explanation Medicare Part A pays for skilled nursing after a hospital stay lasting at least 3 days. The other routine preventive items are covered by Part B. Reference: 20.3.3.2 in the License Exam Manual

Which of the following statements about a health maintenance organization (HMO) is CORRECT?

It provides or arranges for health care services for the benefit of its subscribers. It does not need to be approved by the state before offering services to its subscribers. It provides health insurance coverage specifically to people who cannot obtain coverage from insurance companies. It generally hires medical professionals as employees to provide health care services to the general public.

Which of the following statements pertaining to a temporary insurance agreement is CORRECT?

It provides temporary coverage until an application is rejected or the policy is issued.

Which of the following statements about a 1-year renewable term policy is CORRECT?

It renews with an increase in premium based on the insured's age.

What was the effect of the 1985 Consolidated Omnibus Budget Reconciliation Act (COBRA) on group health insurance plans?

It requires any group health plan then in operation to cover all employees, without regard to years of service. It mandates that group health insurance coverage be extended for terminated employees for up to a specified period. It allows a group insurance participant to convert her coverage to an individual plan in the event of employment termination. It provides tax deductibility for the cost of group health insurance coverage.

Which of the following statements pertaining to the insuring clause in a life insurance policy is NOT correct

It specifies the length of the grace period.

Which of the following statements best summarizes the function of insurance? A) It spreads financial risk over a diverse group of people who are exposed to different risks. B) It protects against living too long. C) It is a form of legalized gambling. D) It spreads financial risk over a large group so as to minimize the loss to any one individual.

It spreads financial risk over a large group so as to minimize the loss to any one individual. Explanation The function of insurance is to safeguard against financial loss by having the losses of a few paid by the contributions of many who are exposed to the same risk. Reference: 1.3 in the License Exam Manual

Abner's age was misstated in his application for a $50,000 life policy. What will the company do when it discovers the error?

It will adjust either the premium rate or the amount of protection.

Which of the following statements does NOT describe a fixed annuity?

It will produce income benefits that are adjusted to keep pace with inflation.

What is the sole purpose of a risk retention group?

Its sole purpose is to provide liability insurance to its policyholders. Explanation A risk retention group is a formed to provide only liability insurance to its policyholders. The policyholders must be in the same industry, and they may operate in multiple states. The state where the group is headquartered issues the laws, rules, and regulations. Reference: 1.6.5 n the License Exam Manual

Of the following workers, who would qualify for the most favorable terms and rates on a disability income policy?

Jeremy, who is 56 years old and is a financial advisor.

Which of the following statements regarding risk factors is NOT correct?

Jill is 15 years younger than her supervisor and therefore poses a higher risk to an insurance company.

In which of the following cases would the insurance company most likely cover the loss under a life insurance policy?

Joe, a retired army general, dies of a heart attack at age 85.

Which of the following individuals is NOT eligible to contribute up to the maximum allowable limit to a traditional individual retirement account?

Joe, age 71, who is married, has unearned income, and is not covered under an employer-sponsored retirement plan

A family in which both parents work and, therefore, are in need of the same amount of coverage, would be a candidate for which of the following plans?

Joint life

Carlos and Jenna both work to support their family. To provide the same amount of life insurance protection in the event either dies, they should consider purchasing which of the following plans?

Joint life

George and Virginia have an annuity that will provide benefits for George's life and then continue to provide the same amount of benefits to Virginia as his survivor. What type of annuity did George set up?

Joint life and survivorship annuity

A Medicare supplement policy is issued on May 1st. Until what date may the insurer exclude coverage of preexisting conditions, if it chooses to use the maximum time allowed under Illinois law?

June 1st. August 1st. November 1st. May 1st of the following year. Explanation A Medicare supplement insurer may not exclude coverage of preexisting conditions longer than 6 months after the date the policy was issued. Reference: See State Supplement. This content is not in the License Exam Manual

Carl and Laura receive $270 per month under a joint and two-thirds survivor life policy settlement option. What would happen if Carl died within a year after payment started?

Laura would receive $180 per month for as long as she lived.

Which of the following dividend options produces a result similar to taking dividends in cash and depositing them in a bank savings account?

Leaving dividends to accumulate at interest

Lee, who is a CPA, would like to open up a traditional IRA as a savings vehicle for retirement. He will be 62 on his next birthday. Lee is currently interviewing with a Fortune 500 company. He was at his last job for over 15 years but is not currently working. Which of the following statements is TRUE?

Lee is currently not eligible to open an IRA because he does not have earned income.

Which of the following individuals is NOT eligible to receive a temporary license to conduct insurance business?

Legal guardian of a producer who is mentally incapacitated. Spouse of a deceased producer. Nonresident producer. Administrator of the estate of a deceased producer. Explanation The first three individuals are eligible to receive a temporary license to conclude the business of a producer who is dead or disabled. Other eligible persons include the employee or officer of a corporation or next of kin of a producer who, as the result of death or mental or physical disability, is unable to continue his business. The temporary license is meant to either conclude the producer's business or maintain it until he is able to resume work. Reference: See State Supplement. This content is not in the License Exam Manual

Which of the following is NOT a common characteristic of an insurance contract? A) Indemnity B) Legal purpose C) Utmost good faith D) Adhesion

Legal purpose Explanation Legal purpose is 1 of the 4 elements of a legal contract. Adhesion, utmost good faith, and indemnity are 3 of the 7 characteristics of insurance contracts. Reference: 1.10.2 in the License Exam Manual

Michelle has a term insurance policy in which the amount of protection remains constant during the term period. Which kind of term insurance does Michelle have?

Level term

The Insurer

Licensed and appointed agents represent. Explanation An agent is a person who has been authorized by an insurer to act as its representative to the public and offer for sale its goods and services. Reference: 1.9 in the License Exam Manual

Suppose Max wants to arrange the distribution of his life insurance proceeds so that his spouse, as beneficiary, will receive monthly payments for as long as she lives. Which of the following settlement options will meet this need?

Life income option

Which of the following statements pertaining to sole proprietor buy-sell plans is CORRECT?

Life insurance is an ideal medium for funding a buy-sell agreement because, for a reasonable premium, it makes money available when needed to activate the sale of the business.

Which of the following is a liquid asset?

Life insurance proceeds

Which of the following statements regarding the estate tax treatment of life insurance owned by the insured at the insured's death is NOT correct?

Life insurance that is owned by the insured will avoid estate tax inclusion as long as ownership is transferred to another party at least 1 year before the insured's death.

An individual wishes to purchase whole life insurance but does not wish to pay premiums past retirement age. Which of the following policies should the person buy?

Limited-pay

Which of the following statements regarding limited-pay life insurance is NOT correct?

Limited-pay policies mature more quickly than do continuous premium whole life policies.

Which of the following terms describes the ability to perform certain independent tasks?

Listing of daily activities Activities of daily living Daily tasks of living Activities of daily tasks Explanation Activities of daily living (ADLs) are a standardized list of routine and basic functions that are used to determine a person's ability to live independently. Reference: 21.4.1 in the License Exam Manual

Which of the following is least likely to sponsor group credit life insurance plans?

Local grocery stores

Which of the following types of care is described as a broad range of medical, personal, and environmental services designed to assist individuals who have lost their ability to remain completely independent in the community?

Long-term care In-house care Chronic care Specified care Explanation Long-term care (LTC) refers to care provided for an extended period of time, normally more than 90 days. Depending on the severity of the impairment, assistance may be given at home, at an adult care center, or in a nursing home. Reference: 21.3.3 in the License Exam Manual

Under many disability income insurance policies, which of the following is generally NOT considered a presumptive disability?

Loss of 1 leg

To supplement their income in their senior years, Harold purchased a fixed immediate annuity at age 65, naming his spouse, Lucy, as the joint annuitant under a joint and 50% survivor annuity payout option that pays the couple $1,000 per month. If Harold were to die today, which of the following statements would be CORRECT?

Lucy would continue receiving monthly benefits of $500 for the remainder of her life.

Jeremy did not designate a specific settlement option to be paid upon his death. How will the death benefit proceeds be distributed?

Lump-sum payments

MAG Trading Co. established a tax-qualified, long-term care insurance plan for its employees. Which of the following statements is NOT correct?

MAG Trading's employees can exclude from their income any employer-paid premium contributions. MAG Trading can take a deduction for the premiums it pays. Premiums paid by MAG Trading are considered a necessary business expense for tax purposes. Benefits received from the plan are subject to income tax. Explanation If MAG Trading Co. establishes a tax-qualified, long-term care insurance plan for its employees, any premiums it pays are excludable from the employees' incomes. In addition, MAG Trading can take a tax deduction for the premiums paid, which are considered a necessary business expense for tax purposes. Amounts received under the plan are excluded from income as amounts received for personal injuries and sickness. Reference: 21.8 in the License Exam Manual

A trust that is formed by a group of smaller employers in the same or similar industries is known as a

MET

Suppose an application for Medicare supplement insurance was taken on March 16th. The insurer issued the policy on March 28th, and it was delivered to the policyowner on April 5th. Under these circumstances, when does the policy's "free look" period end?

March 26th. May 5th. April 15th. April 27th. Explanation Medicare supplements must allow policyholders a minimum of 30 days for a "free look" after the policy is delivered. Reference: See State Supplement. This content is not in the License Exam Manual

Which of the following would NOT constitute unfair discrimination in insurance underwriting?

Maria is charged a higher premium based on her poor health.

Mary, age 70, recently purchased a nonqualified immediate annuity to supplement her retirement income, and through it will receive a lifetime income of $800 per month. Which of the following statements most correctly describes how this income will be taxed?

Mary will pay income tax each year on just a portion of the payments received, and when she has fully recovered her basis, all future payments will be taxable.

Max and Leah recently became grandparents. Max, age 71, is employed as an architect and earns an annual salary of $55,000. He has never set up an IRA, but he is thinking about it, now that he has grandchildren. His spouse, Leah, is covered by her company's corporate retirement plan. She has told him that he can contribute to her plan so that they can retire sooner. Which of the following statements is TRUE?

Max cannot contribute to Leah's company retirement plan.

Alecia buys a life insurance policy and names her spouse, Max, as a beneficiary. Alecia's children, Rosa and Manuel, are to share the benefits equally if Max dies before her. Her church is to receive the proceeds if her spouse and children predecease her. How would the proceeds of Alecia's policy be distributed if both her children predecease her?

Max would receive 100% of the proceeds

Which of the following is a federal and state program designed to help provide needy persons, regardless of age, with medical coverage?

Medicaid Medigap Workers' compensation Medicare Explanation Medicaid is a federal and state program designed to help provide needy persons, regardless of age, with medical coverage. Reference: 20.6 in the License Exam Manual

A qualifying event covers all of the following EXCEPT

Medicaid eligibility for the covered employee Bankruptcy of the employer Reduction in work hours for the covered employee Divorce of the covered employee from the covered employee's spouse

Excepted benefits are not included as minimum essential coverage. Which of the following is NOT an excepted benefit?

Medicare

Qualified long-term care policies must meet the specific requirements of

Medicare IRMI Medicaid HIPAA Explanation To receive preferential tax treatment, long-term care policies must meet the rules and requirements set forth by the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Reference: 21.8 in the License Exam Manual

State long-term care insurance partnership programs are a joint effort of all of the following EXCEPT

Medicare state insurance departments commercial insurers Medicaid Explanation To encourage more individuals to purchase long-term care insurance, qualified state long-term care partnership programs were created as a joint effort of commercial insurers, the state's insurance department, and the state Medicaid agency. Reference: 21.9 in the License Exam Manual

Which of the following statements regarding Medicare is CORRECT?

Medicare Part A carries no deductible. Medicare recipients are billed for their Medicare Part A premiums on a semiannual basis. Medicare Part B is voluntary. Under Medicare Part B, payments for physicians' services are unlimited. Explanation Medicare coverage has 2 distinct parts: Hospital Insurance (Part A) and Medical Insurance (Part B). Medicare Part A is automatically available to persons who have turned 65 and have applied for Social Security benefits. Part B is voluntary and may be elected or rejected as the recipient wishes. Reference: 20.3.3.1 in the License Exam Manual

Which of the following statements about Medicare supplement policies is CORRECT?

Medicare Plan B provides coverage for skilled nursing facility care and at-home recovery care. Medicare Plan A provides coverage for skilled nursing facility care. There are 3 basic supplement policies that are considered core plans. Each standardized Medicare supplement policy must cover the basic benefits. Explanation Each standardized Medicare supplement policy must cover the basic benefits. Medicare Plan A is the basic core plan. Medicare Plan B covers the basic benefits plus the Part A deductible for hospitalization. Neither Plan A nor Plan B covers skilled nursing facility care or at-home recovery care. Reference: 20.4.1 in the License Exam Manual

Which of the following statements about long-term care coverage is CORRECT?

Medicare and Medicaid are designed to cover a significant portion of the costs of long-term custodial or nursing home care. Long-term care insurance provides a broad range of coverage for services rendered at home, at adult care centers, or in nursing homes. Medicaid provides long-term care coverage for individuals, regardless of income levels. Medicare supplement policies provide a significant amount of long-term care coverage. Explanation Although Medicare and Medicare supplement policies protect the elderly against the costs of medical care, neither covers a significant portion of long-term custodial or nursing home care. Although Medicaid provides some long-term custodial care coverage, only individuals who are almost destitute are eligible to receive benefits. Long-term care insurance provides a broad range of coverage for services rendered at home, at adult care centers, and in nursing homes. Reference: 21.6 in the License Exam Manual

Paul, age 66, works for American Accounting, Inc., a firm with 500 employees. He is covered by its health insurance plan. He is also covered by Medicare. Which of the following statements is CORRECT?

Medicare is the primary payor, and American Accounting's plan is the secondary payor. Medicare will pay only the deductibles that are not covered by American Accounting's plan. Medicare is not required to provide coverage for Paul. American Accounting's plan is the primary payor, and Medicare is the secondary payor. Explanation Because Paul is over age 65, he is eligible for Medicare. He is also entitled to the same health insurance benefits that American Accounting offers to its younger employees. In this case, the employer-sponsored plan is considered the primary payor and Medicare is the secondary payor. This means that Medicare pays only those charges that the employer-sponsored plan does not cover. Reference: 20.3.8 in the License Exam Manual

Becky wants to make sure that she has insurance to protect herself if she eventually needs long-term custodial or nursing home care. Which type of policy will cover these types of care?

Medicare supplement insurance Medicaid Long-term care insurance Medicare Explanation Although Medicare and Medicare supplement insurance help protect the elderly against the costs of medical care, neither program covers long-term custodial or nursing home care. Medicaid covers some of the costs associated with long-term care, but it is available only to individuals without significant assets. Long-term care insurance is designed to cover the costs of long-term custodial or nursing home care. Reference: 21.5 in the License Exam Manual

Which of the following required provisions is INCORRECT?

Medigap policies must be at least guaranteed renewable. Medigap policies may not duplicate benefits provided by Medicare. Medicare supplement policies must have a 10-day free look period. Pre-existing conditions limitations may not last longer than six months from the date of issue. Explanation Medicare supplement policies must have a 30-day (not 10-day) free look period. Reference: 20.5.3 in the License Exam Manual

Megan is the sole proprietor of a bookstore and paid $5,000 last year in premiums for medical expense coverage. She incurred $6,000 in medical expenses and was reimbursed for these costs under her health plan. Which of the following statements is CORRECT?

Megan can take a partial deduction for the amount of premiums paid. Megan must include the benefits received from her health plan in income. Megan can take a deduction for the entire amount of premiums paid. Megan must include part of the benefits received from her health plan in income. Explanation Self-employed individuals can take an income tax deduction for all amounts paid for medical care, including insurance premiums, provided they have shown a net profit for the year and are not covered or eligible to be covered under a group plan. Reference: 22.4 in the License Exam Manual

A long-term care policy cannot limit or exclude coverage for which of the following conditions?

Mental disorders Intentionally self-inflicted injuries Service provided outside the United States Alzheimer's disease Explanation Although some mental or nervous conditions may be limited or excluded, benefits may not be excluded on the basis of Alzheimer's disease or other organic brain disorders. Reference: 21.7 in the License Exam Manual

All of the following are considered competent parties to enter into insurance contracts EXCEPT A) estates B) trusts C) business entities D) Minors

Minors Explanation Applicants, unless proven otherwise, are generally presumed to be competent to enter into insurance contracts, with the exception of minors, the mentally infirm, and those under the influence of alcohol or narcotics. In general, state laws hold that minors below a certain age are not capable of understanding the contract they agree to (although there are some situations in which minors may enter into contracts). Other competent parties that may enter into contracts of insurance with an insurance company include business entities, trusts, and estates. Reference: 1.10.1.4 in the License Exam Manual

A prospect with a young family needs affordable whole life insurance. As a rising young executive, it is likely that the prospect's current limited resources will increase substantially over the next 15 years. What type of whole life insurance variation would you recommend?

Modified life

What tool do life insurance actuaries use to help establish premium rates based on the probabilities of death at various ages?

Mortality table

Which of the following statements best describes the general tax treatment of life insurance pre- and post-death distributions?

Most distributions from a life insurance policy at the insured's death are income tax-free, but pre-death distributions may be subject to income taxation if the withdrawal exceeds premiums paid.

Which of the following statements with regard to group term life insurance is CORRECT?

Most group term policies contain a conversion privilege, allowing insureds to convert the coverage to an individual plan if they leave the group.

Which of the following statements about policy delivery is CORRECT?

Most insurers require agents to personally deliver the policy so that they can explain the policy's terms, exclusions, and riders.

Which of the following statements regarding home health care is NOT correct?

Most long-term care policies do not provide coverage for home health care. The services provided under home health care include physical therapy and certain types of custodial care. The care needed is able to be provided without the insured having to be confined to a nursing home. Home health care is an extension of intermediate custodial care. Explanation As an alternative to nursing home care, most long-term care policies now provide coverage for home health care. Home health care is an extension of intermediate custodial care and provides coverage for insureds who need some type of health care, but are generally able to function without the need to be confined to a nursing home. Physical therapy and some custodial care, such as meal preparation, are services that home health care might provide. Reference: 21.5 in the License Exam Manual

Why do dental plans encourage insureds to use preventive care?

Most plans cover only preventive care. Preventive services can eliminate the need for major dental work (which is more expensive) in the future. The insured pays for most of the costs associated with prevention. Preventive care can be performed by a dental assistant, which means the insured will not need to be treated by a dentist.

Which of the following statements concerning the free-look provision is NOT correct?

Most states require a 45-day free-look provision in health insurance policies.

Which of the following is an incorporated insurer that is owned by its policyholders and does not have capital stock or shares? A) Surplus lines company B) Mutual company C) Stock company D) Guaranty company

Mutual company Explanation Mutual companies are incorporated insurers that are owned by their policyholders and do not issue capital shares or stock. Many mutual companies sell participating policies, which share the insurer's divisible surplus in the form of policy dividends. Reference: 1.6.2 in the License Exam Manual

Which of the following insurance companies are organized and incorporated under state laws but have no stockholders? A) Reciprocal insurers B) Stock insurers C) Mutual insurers D) Lloyd's of London

Mutual insurers Explanation Mutual insurance companies are organized and incorporated under state laws but have no stockholders. Instead, the owners are the policyholders. Like mutual insurers, reciprocal insurers are also owned by their policyowners; however, the policyowners insure the risks of the other policyowners. Stock insurers are private organizations, organized and incorporated under state laws for the purpose of making a profit for their stockholders. Lloyd's of London, on the other hand, is an association of individuals and companies that individually underwrite insurance. Reference: 1.6.2 in the License Exam Manual

Which of the following statements regarding mutual insurers is TRUE? A) Mutual insurers are also known as reciprocal insurers. B) Mutual insurers issue participating policies. C) If a mutual insurer is profitable, it may issue taxable dividends to its policyholders. D) The board of directors oversees the operations of the company.

Mutual insurers issue participating policies. Explanation Mutual insurers issue participating (or par) policies and are owned by policyholders. The board of directors is elected by the policyholders; however, officers oversee the company's operations. If the company is profitable, it may return excess premiums to its policyholders, which are considered a nontaxable dividend. Reference: 1.6.3 in the License Exam Manual

Which of the following insurance companies is owned by its policyholders? A) Home service insurer B) Mutual life insurance company C) Reinsurer D) Stock life insurance company

Mutual life insurance company Explanation A mutual life insurance company is owned and controlled by its policyowners. These policyholders elect a board of trustees or directors to manage the firm. The savings and earnings of a mutual insurance company are returned to the policyowners in the form of dividends or retained as surplus to meet future obligations. Reference: 1.6.2 in the License Exam Manual

An insured may apply for reinstatement of a life policy within what period of time after voluntarily surrendering the life policy?

Never

Medicare Plans K and L are characterized by which of the following features?

No annual deductible No annual limit on annual out-of-pocket expenditures Lower co-payments Higher coinsurance contributions Explanation Medicare Plans K and L require higher co-payments and coinsurance contributions from Medicare beneficiaries. They also have a limit on annual out-of-pocket expenditures incurred by the policyholders. However, once the out-of-pocket limit on annual expenditures is reached, the policy covers 100% of all cost sharing under Medicare Parts A and B for the balance of the calendar year. Reference: 20.4.1 in the License Exam Manual

Bill names his church as the beneficiary of his $300,000 life insurance policy. When Bill dies, who is responsible for the income taxes payable on the lump-sum proceeds received by the church?

No income tax is payable on the death proceeds

How often must the commissioner examine the books, records, and documents of domestic insurers?

No more than once every seven years. At least once every five years. A least once every three years. No more than once every ten years. Explanation The commissioner examines domestic insurers at least once every five years. The commissioner may examine all other insurers whenever he or she decides that it is necessary. Reference: See State Supplement. This content is not in the License Exam Manual

Victoria currently as a Medicare Advantage plan. Should her agent sell her a Medicare supplement policy?

No, her agent already provides her with all the insurance she requires. Yes, if her agent does not offer to sell her a Medicare supplement policy, the agent could be sued under her Errors and Omissions policy. Yes, it is her agent's responsibility to make sure she has the coverages she needs. No, it is illegal for anyone to sell a Medicare supplement policy to someone who is already in a Medicare Advantage plan (Medicare Part C). Explanation When a person is already in a Medicare Advantage plan, it is illegal for anyone to sell that person a Medicare supplement policy. Reference: 20.4 in the License Exam Manual

Which of the following types of health insurance policies prevents the insurer from changing the premium rate or modifying the coverage in any way?

Noncancelable

What types of organizations are eligible for 403(b) plans to benefit their employees?

Nonprofit organizations such as public schools, churches, and hospitals

Which of the following is NOT acceptable when advertising group health insurance?

Not being misleading or obscure Providing a summary of benefits that fails to list coverage limitations Clearly outlining policy benefits Clearly outlining policy exclusions or limitations

If a life insurance policy specifically names a beneficiary other than the insured's estate, what recourse may the creditors of the deceased insured take to attach the policy proceeds?

Nothing, because life insurance proceeds are exempt from the claims of the deceased insured's creditors as long as there is a named beneficiary other than the insured's estate

Susan, the beneficiary on John's $500,000 life policy, chose life-only as her settlement option. Susan received 5 years of settlement checks from the insurance company, totaling $150,000. How much will Susan's beneficiary receive upon her death?

Nothing, because life-only states that when the beneficiary dies, any remaining death benefit is kept by the insurance company

Chantal applied for life insurance on November 1, but she did not submit a premium payment with the application. She underwent a physical examination on November 10, which she passed, and the results of that exam were forwarded to the insurance company. The policy was issued by the company on November 15, and the agent delivered the policy to Chantal on November 17, at which time she paid the first premium. When did Chantal's coverage become effective?

November 17

Which of the following is NOT a type of agent authority? A) Express B) Apparent C) Obvious D) Implied

Obvious Explanation There are 3 types of agent authority: express, implied, and apparent. Reference: 1.9.1 in the License Exam Manual

Sidney, age 58, owns a deferred variable annuity that he purchased 15 years ago and into which he has paid $25,000 in the form of periodic premiums. Today its cash value is $37,000. If he dies today, which of the following statements best describes the tax treatment this transaction will receive?

Of the cash value, $25,000 is payable to the beneficiary income tax-free and $12,000 is subject to income taxation.

Alaina, age 39, is married and has a small son. She is employed as a sales manager by R.J. Links, a sole proprietorship that owes much of its success to Alaina's efforts. She recently borrowed $50,000 from her brother-in-law, Pete, to finance a vacation home. Which of the following individuals does NOT have an insurable interest in Alaina's life?

One of her customers

Which of the following provides for an enhanced death benefit on a universal life policy?

Option B

Which of the following renewability provisions is the least favorable provision for the insured?

Optionally renewable

Which renewability provision allows an insurer to not renew a health insurance policy on a given date as specified in the policy?

Optionally renewable

Which of the following statements about point-of-service (POS) plans is TRUE?

Out-of-network care is billed on a prepaid basis. A POS plan allows a subscriber to access care both in-network and out-of network. A POS plan does not include the use of a deductible or coinsurance. A POS plan does not require a primary care physician to manage in-network care.

Which of the following is NOT a cost containment method used to reduce hospital care costs?

Outpatient benefits Preauthorization Indemnification of medical expenses Mandatory second opinions

From the insured's perspective, which of the following types of disability coverage would be the least restrictive as to qualifying for benefit payments?

Own occupation

Which of the following is NOT an example of a managed care health plan?

PCP POS HMO PPO

A fully insured retired worker is entitled to full Social Security disability benefits. This equals 100% of which of the following?

PIA

Which of the following statements regarding PPOs is TRUE?

PPOs do not afford access to a primary care physician. Health care services offered by in-network providers are contracted between the PPO and the providers. PPOs do not use managed care procedures. Health care services offered by out-out-network providers have lower deductibles and coinsurance than those offered by in-network providers.

Which of the following statements regarding partial disability is INCORRECT?

Partial disability means a person is unable to perform any part of the job for 9-12 months.

Paul, age 62, is applying for a universal life insurance policy and wants to arrange the beneficiary designation in such a way as to use the proceeds to provide lifetime income to his spouse, Marsha. Which of the following settlement options is best suited for this purpose?

Paul, as the owner, can pick life income as the settlement option his spouse must take when he dies. This option will give Marsha a monthly income she cannot outlive.

Suppose a whole life insurance policy was issued on August 3. On August 31 two years later, the insured committed suicide. What action will the insurer probably take?

Pay the policy's face amount

Ben is considering the purchase of a $75,000 whole life policy. Which of the following options would tend to lower his premiums?

Paying premiums annually as opposed to monthly

Which of the following criteria used in group health insurance underwriting reduces the risk of adverse selection?

Persistency Administrative capability Size of the group Flow of members through the group

Which of the following statements regarding traditional IRAs is NOT correct?

Peter inherits $15,000 in traditional IRA benefits from his father who recently died. Peter can set up a tax-favored rollover traditional IRA with the money.

Which of the following scenarios regarding individual retirement accounts (IRAs) is NOT correct?

Peter is currently employed, but his spouse, Karina, is not. Since Karina has no earned income that she can contribute to a traditional IRA, Peter can set up a joint IRA account for the two of them.

Which of the following is NOT a common health insurance exclusion?

Plastic surgery to repair scar tissue

Which of the following statements regarding fraternal benefit societies is NOT true? A) Life insurance is a benefit of membership. B) Policies are called contracts. C) The society exists for the benefit of its members. D) They are organized under a lodge system.

Policies are called contracts Explanation Fraternal benefit societies operate under a special state insurance code. Policies are called certificates, and members who own life insurance are called certificate holders. Reference: 1.6.3 in the License Exam Manual

What is credit life insurance?

Policies that cover payment of a debt if the debtor dies

Concerning mutual insurers, which of the following statements is CORRECT? A) Policyholders may participate in dividends. B) In a mutual company, there are shareholders. C) In a mutual company, there are stockholders. D) Mutual companies are sometimes referred to as nonparticipating companies.

Policyholders may participate in dividends. Explanation In a mutual company, there are no stockholders. The ownership rests with the policyholders. Funds not paid out after paying claims and other operating costs are returned to the policyowners in the form of policy dividends. Reference: 1.6.2 in the License Exam Manual

Which of the following statements regarding emergency medical services under the ACA is FALSE?

Pre-authorization must be obtained by the insured or family member.

Which of the following is NOT a characteristic of an insurable risk? A) Noncatastrophic B) Premeditated C) Homogenous D) Affordable

Premeditated Explanation The 6 characteristics of an insurable risk are that the risk must be calculable, affordable, noncatastrophic, homogeneous, accidental, and measurable. Reference: 1.5.2 in the License Exam Manual

Which of the following terms relates directly to the consideration clause?

Premium

Which of the following statements regarding health insurance benefits is CORRECT?

Premium amounts are determined only by the age of the insured. Policyowners who have policies with identical benefits pay the same premiums. Policyowners who have the same jobs pay the same premiums. The greater a policy's benefits, the more expensive the premium.

Which of the following statements regarding conversion is TRUE?

Premiums are based on the attained age at conversion.

Which of the following statements regarding medical expense policies for people who are self-employed is NOT true?

Premiums are not tax deductible. Premiums are deductible if the business shows a net profit at the end of the year. Benefits are not taxable. Premiums are not deductible if the insured is eligible to participate in a group health plan. Explanation A person who is self-employed may deduct 100% of her health insurance premiums from her gross income as long as she shows a net profit for the year and does not claim a deduction if she is eligible to participate in a group health plan, including one that is offered by her spouse's employer. The benefits received are not taxable. Reference: 22.4 in the License Exam Manual

Which of the following statements regarding business life insurance policies is NOT true?

Premiums are tax deductible, except for executive bonus plans.

Which of the following statements regarding nonqualified annuities and their tax treatment is NOT correct?

Premiums are tax deductible.

Mark purchased a 20-year $100,000 level term life insurance policy and a $250,000 straight whole life insurance policy. Which of the following statements is CORRECT?

Premiums for both policies are set at the time of policy issue and remain level throughout the term of the policies.

Which of the following statements applies to universal life insurance?

Premiums generally may be increased or decreased at the policyowner's option.

Which of the following statements regarding the tax treatment of disability income insurance premiums is CORRECT?

Premiums paid by an employer are deductible by both the employer and the individual. Premiums paid for personal disability income insurance are deductible by the individual. Premiums paid by an employer for a group disability plan are considered a taxable benefit to the employee. Premiums paid by an employer for a group disability plan are deductible by the employer. Explanation Premiums paid by an employer for a group disability or sick-pay plan are deductible by the employer as a reasonable business expense. Premiums paid by an individual for a personal disability plan are not tax deductible; however, premiums paid on an individual's behalf by an employer under a group plan are not considered a taxable benefit. Reference: 22.1 in the License Exam Manual

Oral surgery, braces, and implants are all examples of what kind of dental service?

Preventive Major Routine Elective

Which of the following is a common benefit trigger for a long-term care policy?

Prior hospitalization Cognitive or mental impairment Inability to operate a motor vehicle Retirement Explanation A benefit trigger is an event or condition that must occur before policy benefits become payable. Diagnosis of chronic illness is a benefit trigger and can be based on 2 conditions: physical or cognitive illness. The physical diagnosis of a chronically ill individual is one who has been certified as being unable to perform at least 2 activities of daily living (ADLs), which are eating, toileting, transferring (getting out of bed), bathing, dressing, and continence. An individual would also be considered chronically ill if he requires substantial supervision to protect his health or safety because of severe cognitive impairment. Reference: 21.4.2 in the License Exam Manual

Which of the following is NOT a component of a basic total disability plan?

Probationary period

Which of the following is NOT a characteristic of fraternal benefit societies? A) Representative form of government B) Profit-making organization with capital stock C) Insurance benefits to members D) Lodge system

Profit-making organization with capital stock Explanation A fraternal benefit society is any incorporated or unincorporated society, order, or lodge that operates solely for the benefit of its members and their beneficiaries. The society must be nonprofit and operate on the lodge system with a representative form of government. Fraternal benefit societies usually provide insurance benefits, including death benefits; endowments; annuities; disability benefits; hospital, medical, and nursing benefits; and monument or tombstone benefits. Reference: 1.6.3 in the License Exam Manual

Which of the following would be an authorized method of handling an initial premium payment?

Provide the applicant with a signed receipt of the appropriate type (binding or conditional)

Of the following, which best describes a need that decreasing term insurance is often used to meet?

Providing funds to pay off an outstanding loan at a reasonable premium

Employees of which of the following generally may participate in a tax-sheltered annuity (TSA) plan?

Public school systems

What type of annuity settlement arrangement stops making payments when the annuitant dies?

Pure life annuity

Which of the following types of risk is insurable? A) Partial risks B) Pure risks C) Whole risks D) Speculative risks

Pure risks Explanation Only pure risks are insurable because they involve only the chance of loss; there is never a possibility of gain or profit. The risk associated with the chance of injury from an accident is an example of pure risk. There is no opportunity for gain if the event does not occur, only the opportunity for loss if it does occur. Insurance is concerned with the economic problems created by pure risks. Reference: 1.3 in the License Exam Manual

For tax purposes, retirement plans can be divided into which of the following 2 categories?

Qualified and nonqualified

Which of the following is the best reason why a medical plan would require a concurrent review for hospital patients?

Quality care is ensured at the most reasonable expense. The doctor and the patient consult on discharge times. The patient is discharged in the shortest possible time. The insurance company and the health care providers make decisions jointly.

Ralph owns a $50,000 nonparticipating whole life policy. Its cash value has accumulated to $15,000, and he has paid a total of $9,500 in premiums. If he surrenders the policy for its cash value, how will it be taxed?

Ralph will receive $9,500 tax-free; the $5,500 balance is taxable as income.

Which of the following statements about dental benefits offered by a preferred provider organization is NOT correct?

Rates offered through a PPO are negotiated and save money for the insurer. If an insured decides to obtain treatment from a dentist who does not participate in the panel, he usually can receive the same care for the same costs. In contracting to render services, a PPO's dentists agree to charge less than their usual fees when treating group members. Preferred provider organizations offer dental care through a panel of dentists who have agreed to treat a group of insureds.

John, age 55, owns a whole life policy with a face amount of $100,000 for which the annual premium is $1,000. John explains to his agent that he lost his job and cannot afford his $1,000 annual premium but still desires to have life insurance to age 100. What nonforfeiture option could John's agent recommend to him?

Reduced paid-up policy

Which of the following is a required provision in all individual life insurance policies?

Reinstatement

With what provision of a standard health insurance policy would the following clause be associated: "the insured and the insurer shall have the same rights thereunder as they had under the policy immediately before the due date of the defaulted premium"?

Reinstatement provision

Which of the following statements regarding accelerated life insurance benefits is NOT correct?

Requesting an acceleration, the insurer must send a written statement showing the effect the payment will have on cash value, face value accumulation account, death benefit, premium, policy loans, and liens. They may be payable to an insured who has undergone surgery for a triple heart bypass and will have to remain on medication for the remainder of his life but who can live at home and continue to work. They may be payable to an insured in the advanced stages of AIDS and who is expected to live no more than 1 year or so. When accelerated benefits are paid, the insurer must send a revised benefits page for the insured policy, describing the amount of remaining (unpaid) benefits. Explanation In order to qualify for early payment of a policy's face amount, an insured must either suffer from a terminal medical condition (that will result in death within 24 months or requires institutionalization until death) or have a qualified covered condition (such as a heart attack, stroke, life-threatening cancer, kidney failure, major organ transplant, and the like) that requires skilled nursing care. Reference: See State Supplement. This content is not in the License Exam Manual

Which of the following statements regarding required minimum distributions is NOT correct?

Required minimum distributions must occur no later than age 59½.

Which of the following terms relates to disability income insurance?

Residual basis

Self-insurance is an example of what kind of risk treatment?

Retention Explanation Self-insurance is a form of risk retention because the individual or business entity personally retains the risk and must accept any resulting economic loss. Reference: 1.4 in the License Exam Manual

Upon the insured's death, which of the following policies will pay the face amount of the policy plus a sum equal to all or a portion of the premiums paid?

Return-of-premium policy

What must be delivered with a policy that is issued on a basis that differs from the terms applied for?

Revised Outline of Coverage. Notice of insured right to cancel. Replacement Notice. Physician report. Explanation A revised Outline of Coverage must be delivered to the insured when the insurer issues a policy on terms that differ from those for which the insured applied. A specific notice above the company name on the outline must draw the insured's attention to the revised nature of the policy. Reference: See State Supplement. This content is not in the License Exam Manual

Which of the following terms indicates the insured's right to change beneficiaries in a life insurance policy?

Revocable

Which of the following policyowner rights relates directly to the cash value of permanent insurance?

Right to take a policy loan

Rodney, age 35, earned $40,000 last year and did not participate in an employer retirement plan. Rodney has a nonworking spouse, with whom he filed a joint income tax return. Which of the following statements is TRUE?

Rodney could establish a separate IRA for himself and another for his spouse and could deduct a contribution of up to the current annual maximum, which is adjusted annually for cost of living.

On August 1, Roger completed an application for a major medical policy, gave his agent a check for the initial premium, and received a conditional receipt from the agent. No medical examination was required. On August 3, the agent submitted Roger's application and premium to the insurance company. On August 6, Roger was involved in an accident and admitted to a hospital. On August 12, the agent received Roger's policy from the insurance company. Which of the following statements concerning this situation is CORRECT?

Roger's coverage began when he received the conditional receipt.

Angela's fiancé gets a job with an architectural firm of 20 employees. He obtains medical expense coverage through his employer's group plan. Angela and her fiancé marry, and he lists Angela as a dependent under his plan. She becomes pregnant. What coverage, if any, can she expect from her spouse's group policy?

Routine maternity care will be covered in full. Care for complications arising from the pregnancy is excluded. Routine maternity care is partially covered because of Angela's status as a dependent. Medical care during pregnancy is not covered.

Scott, who recently married JoEllyn, wants to start saving money for their retirement. He is an engineer for a small company that does not have an employer-sponsored retirement plan, and he earns an annual salary of $65,000. Which of the following statements is TRUE?

Scott could set up 2 individual accounts (1 for himself and 1 for JoEllyn).

How long must an insurance company maintain documentation of an advertisement used in promoting a life insurance policy or annuity?

Seven years. Four years. Three years. Five years. Explanation An insurance company is required to maintain a file of all advertisements for four years or until the next examination report of the insurer, whichever is the longer period of time. Reference: See State Supplement. This content is not in the License Exam Manual

Under Barbara's individual disability income policy, she has been receiving $700 a month for the last 3 years. This year, her benefit increased to $728. Which of the following is the most likely reason her benefit amount has gone up?

She has a cost-of-living (COLA) rider on her policy.

Sophia has a $250,000 10-year convertible term policy and would like to convert it to a permanent policy. Her agent provides her with the following information. Which statement is NOT correct?

She may convert to the permanent policy for up to 12 months following the term policy's expiration.

A third-grade teacher with a congenital hip dislocation wishes to purchase a disability income policy, but she fears she will not be insurable. What option does she have to get coverage?

She may purchase a policy with an extra premium to cover any disability that would involve her hip.

In which of the following situations might Gabriela be eligible for group credit insurance?

She recently purchased a car and financed it through the dealership.

Jackie is injured at a construction site. Which of the following statements best explains why she will be eligible for workers' compensation benefits?

She was performing work that is required for her job.

Jasmine is covered under her employer's health plan. She is called to active military duty. Upon her return, which of the following statements regarding her coverage is CORRECT?

She will be fully covered, without the need to provide proof of insurability.

Monica is covered under Medicare Part A. She spends 9 days in the hospital for back surgery and is released on August 22nd. It was the first time she ever had to stay overnight in the hospital. When the bill arrives, she pays her deductible, and Medicare pays the balance. She is admitted to the hospital again on November 14th of that same year for additional surgery. Which of the following statements is CORRECT?

She will not have to pay the Part A deductible again. She need not pay the Part A deductible, but she must make a daily co-payment. She will have to pay the Part A deductible again only if the second surgery is unrelated to the first surgery. It will be considered the start of a new benefit period. Explanation The second hospitalization is part of a new benefit period, since it begins more than 60 days after the first hospitalization started. The new benefit period will require payment of the deductible again, but another hospitalization period of 60 days with 100% coverage of benefits is available. Reference: 20.3.2.2 in the License Exam Manual

Which of the following individuals would be eligible for Medicare?

Simon, who is 62 and just started receiving his Social Security monthly retirement checks Bernadette, who retired at 55 and is now 60 and living on her company pension Marta, who is 59 and has received Social Security disability benefits for the last 36 months Nick, a single person who is 45 and has never worked Explanation Marta is the only one who would be eligible for Medicare coverage. Eligibility is based on being 65 years of age or older; receiving Social Security disability benefits for at least the previous 24 months; or having end-stage renal disease (kidney failure). Reference: 20.3.1 in the License Exam Manual

Skilled nursing care differs from intermediate care in which of the following ways?

Skilled care encompasses rehabilitation, while intermediate care is care given to meet daily personal needs, such as bathing and dressing. Skilled care must be available 24 hours a day, while intermediate care is daily, but not 24-hour, care. Skilled care must be performed by skilled medical professionals, whereas intermediate care does not require medical training. Skilled care is typically given in a nursing home, while intermediate care is usually given at home. Explanation Skilled care is daily nursing care ordered by a doctor and performed by skilled medical personnel. It is available 24 hours a day, and it is typically administered in nursing homes. Intermediate care is occasional or rehabilitative care ordered by a doctor and is also performed by skilled medical personnel, typically in nursing homes. It is provided for stable conditions that require daily, but not 24-hour, supervision. Reference: 21.5 in the License Exam Manual

An individual who requires 24-hour-a-day supervision by skilled medical professionals in a nursing home receives what kind of care?

Skilled nursing care Intermediate nursing care Custodial care Respite care Explanation Skilled nursing care is daily nursing care performed by, or under the supervision of, skilled medical professionals and is available 24 hours a day. It is typically administered in nursing homes. Reference: 20.3.2.3 in the License Exam Manual

Skilled nursing care differs from intermediate care in which of the following ways?

Skilled nursing care encompasses rehabilitation, whereas intermediate care is for meeting daily personal needs, such as bathing and dressing. Skilled nursing care must be available 24 hours a day, whereas intermediate care is daily, but not 24-hour, care. Skilled nursing care is typically given in a nursing home, whereas intermediate care is usually given at home. Skilled nursing care must be performed by skilled medical professionals, whereas intermediate care does not require medical training. Explanation Unlike intermediate care, skilled nursing care is continuous, around-the-clock care provided by licensed medical professionals under the direct supervision of a physician. It is usually administered in nursing homes. Intermediate care is provided under the supervision of a physician by registered nurses, licensed practical nurses, and nurse's aides. Intermediate care is provided in nursing homes for stable medical conditions that require daily, but not 24-hour, supervision. Reference: 20.3.2.3 in the License Exam Manual

All of the following are sources of insurability information about life insurance applicants EXCEPT

Social Security reports

Which of the following terms best describes the policy provision for the payment of additional income when the insured is eligible for social insurance benefits, but those benefits have not yet begun?

Social Security rider

Eric works for J&G Corporation and is recently divorced. His 56-year-old ex-spouse, Sophie, wants to know if she can maintain coverage under Eric's group medical insurance plan. Which of the following statements best describes how this situation might be treated?

Sophie would be able to continue coverage for up to 3 years by paying up to 102% of the premium required for the group coverage. Sophie would no longer qualify for coverage under Eric's group medical plan because she no longer is a dependent. Sophie would be able to qualify for coverage under an individual policy, provided she submits to individual underwriting and pays a premium commensurate with her risk. Sophie would be able to continue coverage until age 65 by paying up to 102% of the premium required for the group coverage.

Which of the following statements pertaining to sources of insurability information is CORRECT?

Special questionnaires are used to obtain additional information when an extra hazard or risk may be involved.

Which type of provision in a life insurance policy ensures that a beneficiary will not spend all of the insurance proceeds at once?

Spendthrift provision

Which of the following statements regarding life insurance applications is NOT correct?

Statements made by the applicant on the application are considered to be warranties.

Which kind of insurance company is owned by individuals who buy shares but are not entitled to receive policy dividends?

Stock insurance company Explanation Stock companies consist of stockholders, also known as shareholders, that receive stock dividends, not policy dividends. Mutual companies consist of policyholders, and if the company is profitable they may receive a policy dividend, which is actually a nontaxable return of excess premium. Reference: 1.6.1 in the License Exam Manual

What is the difference between a stock insurer and a mutual insurer?

Stock insurers have shareholders and mutual insurers have policyholders. Explanation A stock insurer is an incorporated insurer with capital that is divided into shares and owned by shareholders. A mutual insurer is owned by its customers, who are known as policyholders. Reference: 1.6.1 in the License Exam Manual

What are life insurance transactions that are marketed to senior citizens and a possible method of fraud called?

Stranger-owned life insurance (STOLI) or investor-owned life insurance (IOLI)

Which of the following is NOT required in order to reinstate a lapsed permanent life policy?

Submit an application for reinstatement within 4 years of the lapse

Which of the following is a mandatory minimum benefit for Medicare supplement policies?

Supplemental coverage for 80% of all eligible hospital expenses not covered by Medicare A $1,000 death benefit Coverage of the 30% coinsurance amount under Medicare Part B, subject to a calendar year deductible of $100 Coverage of Medicare Part A-eligible hospital expenses to the extent not covered by Medicare from the 61st through the 90th day in any Medicare benefit period Explanation The benefits in Plan A, which is known as= the core plan, must be contained in all other plans sold. Among the core benefits is coverage of Medicare Part A-eligible expenses for hospitalization, to the extent not covered by Medicare, from the 61st day through the 90th day in any Medicare benefit period. Reference: 20.4.1 in the License Exam Manual

Which of the following types of plans integrates its coverage with basic medical expense coverage, providing benefits in excess of those specified in the basic plan?

Supplementary major medical

Which of the following items is NOT typically covered under a medical expense policy's miscellaneous expense benefit?

Surgeon's fees

Which of the following uses life insurance death benefits to provide financial support for dependents when the primary wage earner dies?

Survivor protection

Susan, age 52, withdrew $5,000 from her traditional individual retirement account, which consisted entirely of pretax contributions, to purchase her first home. What are the tax consequences?

Susan will not be assessed the 10% penalty on her early withdrawal.

Which of the following statements pertaining to tax-sheltered annuities (TSAs) is CORRECT?

TSAs are available to employees of certain nonprofit organizations.

Hachiro, age 45, purchased a life insurance policy from AllPro Insurers and named his 8-year-old son, Takeshi, as a beneficiary. Which of the following statements regarding this situation is CORRECT? A) Hachiro, AllPro Insurers, and Takeshi are considered parties to the insurance contract. B) Hachiro and Takeshi are considered parties to the insurance contract. C) Takeshi is not a party to the insurance contract. D) Takeshi is not a competent party to the insurance contract because he is a minor.

Takeshi is not a party to the insurance contract. Explanation A beneficiary is not a party to an insurance contract. The fact that Takeshi is a minor is irrelevant in this case. Under certain conditions, even minors can enter into insurance contracts as competent parties. Reference: 3.3 in the License Exam Manual

Which of the following employers is NOT eligible for small employer group health insurance?

Tariq, who owns an art supply business that employs 10 full-time employees and 8 part-time employees. Kallie, who owns a hardware store that employs 55 full-time employees and 12 part-time employees. Alice, who owns a web design company that employs 12 full-time employees and 6 part-time interns. David, who owns a trucking company that employs 45 full-time drivers and 20 independent drivers.

Ted, the insured in a $75,000 life policy, and his sole beneficiary, Maxine, are killed instantly when their car is struck by a train. Under the Uniform Simultaneous Death Act, to whose estate will the policy proceeds be payable?

Ted's estate

Which of the following statements pertaining to term insurance is CORRECT?

Term insurance provides protection for only a temporary period.

What can an insured add to a permanent insurance policy which will provide additional coverage, yet cost less than purchasing a separate policy?

Term insurance rider

AGC Publishing applied for key-person life insurance on its chief executive officer. Which of the following parties must sign the application?

The CEO, another officer of AGC, and the agent handling the application

Which of the following statements pertaining to the Fair Credit Reporting Act is NOT correct?

The Fair Credit Reporting Act is a state law that helps to ensure accurate reporting of information about consumers.

With a life insurance contract, which of the contracting parties makes an enforceable promise? A) The applicant or owner B) The agent C) The beneficiary D) The insurer

The Insurer Explanation A life insurance contract is unilateral in that only one party—the insurer—makes an enforceable promise (the promise to pay the policy's benefit if certain occurrences come to pass or certain conditions are met). The applicant or owner makes no enforceable promise and is not legally required to maintain the contract (by continuing to pay the premiums). Reference: 1.10.2.4 in the License Exam Manual

Which of the following statements pertaining to the Medical Information Bureau (MIB) is NOT correct?

The MIB is organized and supported by private hospitals.

In addition to the Department of Insurance, who has the authority to regulate variable life insurance?

The Securities Exchange Commission

Who, besides the state, regulates the sale of variable life insurance and variable annuities?

The Securities and Exchange Commission (SEC)

Who represents an insurance company in an insurance transaction?

The agent Explanation An agent is authorized in writing by an insurance company to solicit, negotiate, or effectuate insurance contracts on the company's behalf and to collect insurance premiums. A broker is paid to negotiate insurance policies and place risks for his client, the party to be insured. A consultant is paid to offer advice or to counsel the public with respect to the benefits, advantages, and disadvantages of insurance policies. Reference: 1.9 in the License Exam Manual

Which of the following statements regarding policy delivery is NOT true?

The agent may hold on to the policy for safekeeping without showing it to the policyowner.

Janet, the insured, dies during a grace period for her $50,000 life policy. What happens, considering that her premium has not been paid?

The amount of the premium due is deducted from the policy proceeds paid to the beneficiary.

Ron, the insured, dies during the grace period for his $100,000 life insurance policy. Considering that the premium on the policy has not been paid, what happens?

The amount of the premium is deducted from the policy proceeds paid to the beneficiary.

Lisa exercised her automatic premium loan provision to pay her annual premium on her $50,000 life insurance policy. She died 4 months after the loan was taken, never having a chance to repay it. Which of the following statements is CORRECT?

The amount paid to Lisa's beneficiary as the death proceeds was reduced by the amount of the loan plus interest due.

Who are the parties to a life insurance contract?

The applicant and the insuring company Explanation The parties to a life insurance contract are the applicant and the insuring company. Neither the beneficiary nor the agent is a contracting party. Reference: 1.10.1.2 in the License Exam Manual

Of the following, which is a situation that could result in the conditional receipt becoming void?

The applicant is found to be a substandard risk.

What is the basic source of information for life insurance underwriting and policy issue?

The application

With regard to life insurance applications, which of the following statements is CORRECT?

The application includes the names of the insured and the beneficiary

Joanie was injured in an automobile accident. She is now in a coma and expected to die. Under the terms of her individual accidental death and dismemberment (AD&D) policy, which of the following is CORRECT?

The beneficiary cannot be changed.

Which of the following statements regarding the medical reimbursement benefit available in some individual disability income policies is CORRECT?

The benefit is paid in addition to other benefits under the policy. The benefit is paid for a disabling illness. The benefit is only paid if the insured is still able to continue working. The benefit is a percentage of the monthly income benefit.

Which of the following statements pertaining to reinstating a life insurance policy is NOT correct?

The cash surrender value must be forfeited to the insurer.

An individual health insurance policyholder can change the beneficiary of the policy under what circumstances?

The change can be made without the beneficiary's consent, unless the original designation is irrevocable.

Which of the following factors is NOT used to calculate each payment with the fixed period option?

The chosen payment amount

Who would NOT have an insurable interest for a life insurance policy?

The closest friend of the insured

Vivian commits suicide 4 years after taking out a $100,000 life insurance policy on herself. Her beneficiary is concerned that the death claim will be denied. Which of the following statements is NOT correct

The company has definite proof of the cause of her death, so it can refuse to pay the death benefit.

Regarding the consideration clause, which of the following statements is INCORRECT?

The consideration given by the insured is the promise to pay the premiums.

Which of the following statements regarding group life insurance is FALSE?

The converted policy must be a term insurance policy, not permanent insurance.

Which of the following statements about the differences between individual and group life insurance is CORRECT?

The cost of group life insurance is generally lower than individual insurance.

Which of the following statements regarding a cost-of-living rider on a life insurance policy is NOT correct?

The cost-of-living adjustment is tied to the gross domestic product (GDP).

If an insured does not exercise the option to increase coverage under a guaranteed insurability rider, what is the result?

The coverage will not change and the option automatically expires.

Michelle, age 31, just purchased a $50,000 variable life insurance policy. Which of the following statements is NOT correct?

The death benefit of $50,000 is not guaranteed.

John purchased a life insurance policy with a $250,000 death benefit at age 32. When John died the insurer discovered that he was really 25 years old at the time of application. How much will the beneficiary receive?

The death benefit will be increased according to how much coverage the premium John paid would have purchased had he reported his correct age.

Which of the following coverages must be included in all Medicare supplement policies sold in Illinois?

The deductible amount for Medicare Part A. Hospitalization coverage for an additional year after Medicare benefits expire. The cost of prescription drugs. Skilled nursing coinsurance coverage. Explanation The core plan must continue Part A eligible hospital expense coverage for a maximum of 365 days after Part A coverage ends. Reference: See State Supplement. This content is not in the License Exam Manual

Brent is covered by his employer's group disability plan, which is noncontributory. He was involved in a car accident and was unable to work for 6 months. During that time, Brent received $9,000 in disability income payments. Based on these facts, which of the following statements is CORRECT?

The disability benefit payments are deductible by Brent's employer. The disability income payments are not considered taxable income to Brent. The disability income payments will be fully taxable to Brent. Brent will be able to deduct the amount of premiums associated with his coverage, but he will be taxed on the benefit payments. Explanation Disability benefits provided by a group insurance plan are fully taxable to the extent that they are paid for by the employer. In this case, since the plan was noncontributory and Brent paid nothing toward the premium, the benefits will be fully taxable to Brent. Had Brent contributed, say, 10% of the premium, then 10% of the benefits would have been received tax-free. Disability benefits are received tax-free in proportion to the premium paid. Reference: 22.3 in the License Exam Manual

Which of the following statements regarding an accidental death and dismemberment rider for a disability insurance policy is NOT correct?

The dismemberment feature provides insureds with periodic payments to help them during a rehabilitation period.

What is one of the primary considerations of a disability buyout policy?

The elimination period

Which of the following statements regarding a deferred compensation plan is CORRECT?

The employee agrees to forgo part of his current income until a specified future date, typically retirement, and may use life insurance as the funding vehicle for the plan.

Which of the following statements pertaining to executive bonus plans is CORRECT?

The employee has access to the policy's living benefits.

Which of the following statements regarding deferred compensation plans is NOT correct?

The employee may convert the funds to another plan if he leaves the company.

Which of the following statements about a contributory group life insurance plan is CORRECT?

The employees must pay for part of the cost of the insurance program.

The key person designates the beneficiary. Which of the following statements regarding executive bonus plans is NOT correct?

The employer becomes the policyowner of the insurance policy.

Under COBRA regulations, which of the following statements regarding coverage of a spouse after divorce from an insured employee is CORRECT?

The ex-spouse's coverage can be continued with an increase in coinsurance and deductible. The ex-spouse's coverage can be converted to an individual policy. The ex-spouse's coverage can be continued with identical benefits for a specified period. All coverage ends at the time of the divorce.

Which of the following statements pertaining to a whole life policy is NOT correct?

The face amount may be paid as a lump sum at the policyowner's selected retirement age.

Which of the following statements regarding trusts in life insurance is NOT correct

The grantee is the party that manages a trust.

Which of the following statements about the Affordable Care Act is TRUE?

The health care law includes reforms to the affordability, availability, and quality of health insurance.

Which of the following statements about immediate annuities is NOT correct?

The income flow must be fixed rather than variable.

An exchange of value, consideration, is necessary to form a valid contract. Whose consideration is it, in a contract for insurance, to make truthful statements on an application?

The insured

The annuitant of an annuity can be compared to which of the following with respect to a life insurance policy?

The insured

Whom do independent insurance agents represent?

The insured Explanation An independent insurance agent has relationships with multiple insurance companies but represents the insured by comparing coverage and costs to provide the most appropriate insurance. Reference: 1.8.1 in the License Exam Manual

Which of the following is the best example of the insurance with another insurer provision?

The insured has a hospital income policy with company A with a $100 daily benefit, and a hospital income policy with company B with a $200 daily benefit. Company A would pay one third of the loss, subject to its policy limit.

In which of the following situations would an accidental death and dismemberment (AD&D) policy most likely NOT pay a benefit?

The insured injures a finger while using a chainsaw in his workshop.

Which of the following situations involves a loss that would typically NOT be excluded under a health insurance policy?

The insured is injured while vacationing in a state that is not her state of residence.

Tammy owns a participating whole life insurance policy for which she has elected the paid-up additions option. If the insurer declares a dividend of $500 in the current year, how will this amount be used with this dividend option?

The insured uses the $500 as if it were a single premium to purchase a unit of paid-up whole life insurance based on Tammy's attained age.

All of the following are basic premium factors EXCEPT

The insured's annual income

In an insurance transaction, licensed agents legally represent which of the following?

The insurer Explanation A licensed insurance agent legally represents the insurer in a sales transaction and in any disputes between the insured or beneficiaries and the insurer. Reference: 1.9 in the License Exam Manual

In an insurance transaction, whom does a licensed agent legally represent?

The insurer Explanation Under the law of agency, insurance agents represent the insurers that appoint them. Reference: 1.9 in the License Exam Manual

Under the optional illegal occupation provision, which of the following applies if a loss occurs while the insured is participating in a felony or an illegal occupation?

The insurer is not liable for that specific loss.

Which of the following statements characterizes a cancelable policy?

The insurer may cancel the policy at any time.

Which of the following statements regarding a conditionally renewable policy is NOT correct?

The insurer may refuse to renew the contract as the result of the insured's deteriorating health.

If total disability (loss-of-time) benefits from all disability income coverage for the same loss exceed the insured's monthly earnings at the time of disability, what is the insurer's liability to the insured?

The insurer must pay the proportionate amount of benefits that the insured's earnings bear to the total benefits.

Jane submits written notice of a health insurance claim to her insurance company. After a month has passed, the insurer still has not provided her with a claim form. Which of the following statements is CORRECT?

The insurer should have furnished Jane with a claim form no later than 15 days after receiving the notice of claim.

Which of the following statements pertaining to life insurance premiums is NOT correct?

The interest factor is a premium charge based on assumed lost earnings after claims

Which of the following statements pertaining to qualified pension plans is NOT correct?

The interest on the employer's contributions is included in the employee's gross income and is currently taxable.

Which of the following statements regarding a variable annuity is TRUE?

The investment risk is borne by the annuitant/contract owner.

Norma and Luis are considering the purchase of an annuity for retirement. Which payout option would be the least suitable for them?

The joint life annuity option

Which of the following statements regarding the elimination period in a long-term care policy is NOT true?

The longer the elimination period, the lower the premium. The elimination period can be considered a time deductible. The insured selects the length of the elimination period. The longer the elimination period, the higher the premium. Explanation To make the policy premium more affordable, the insured may select a longer elimination period. This period acts as a time deductible: care must be received for a specified number of days before the benefits begin to pay for the expenses. Reference: 21.6.3 in the License Exam Manual

Which section of the application should contain a record of any injuries the applicant may have suffered?

The medical section

Which of the following statements pertaining to provisions in health insurance policies is CORRECT?

The misstatement of age provision allows the insurer to adjust the benefits payable under the policy if the age of the insured was misstated in the policy application.

Which of the following is NOT found in Part I of the application?

The name and address of the insured's current physician

Which of the following statements regarding Medicare supplement insurance is INCORRECT?

The number of standard Medigap plans changes every year. Medicare supplement policies cover co-payments, coinsurance and deductibles. All standard Medigap plans must include 100% of the Part A hospital coinsurance. It is illegal to sell a Medicare supplement policy to a person who is in a Medicare Advantage plan. Explanation Medicare supplement insurance (Medigap) is standardized by the National Association of Insurance Commissioners (NAIC). There are 10 standard plans which offer different combinations of benefits and premiums. Reference: 20.4.1 in the License Exam Manual

If both an older and a younger person had annuity funds of the same amount and simultaneously began to receive monthly life payments, which individual would receive the larger payments?

The older person

Which of the following statements regarding a disability income rider is NOT correct?

The only way to provide disability benefits in a life insurance policy is through a disability income rider.

Which of the following statements about the group conversion option is NOT true?

The option guarantees the member that coverage will continue for 60 days.

When a variable annuity is purchased, who is responsible for the investment risk?

The owner

Which of the following statements regarding the paid-up additions life insurance policy dividend option is NOT correct?

The paid-up additions dividend option is only available to insureds that remain insurable.

Which of the following is NOT a characteristic of group health insurance plans?

The parties to a group health contract are the employer and the employees. Their benefits are more extensive than those under individual plans. The cost of insuring an individual is less than what would be charged for comparable benefits under an individual plan. Employers may require employees to contribute to the premium payments.

Which of the following statements regarding a stock insurer isA)The policies are participating policies. B)It is owned by shareholders. C)Profits may be distributed as dividends. D)The operations are overseen by a board of directors. NOT true?

The policies are participating policies. . Explanation A stock insurer is owned by its stockholders, or shareholders, who choose a board of directors to oversee the operations of the organization. If the company is profitable, it distributes dividends to its stockholders. Policies are called nonparticipating policies. Participating policies are issued by mutual insurers. Reference: 1.6.1 in the License Exam Manual

What is one of the advantages of purchasing an individual credit life insurance policy?

The policy can continue in force even after the loan has been paid off.

Which of the following statements pertaining to key-person life insurance is CORRECT?

The policy is a company-owned asset.

Which of the following has the greatest impact in making one individual's life insurance premium different from that of another individual, assuming both own the same type of policy?

The policy's mortality factor

Which of the following phrases best describes a life insurance policy under the entire contract clause?

The policy, any amendments or riders, and a copy of the signed application

Which of the following situations constitutes an insurable interest?

The policyowner must expect to suffer a loss when the insured dies or becomes disabled.

Which of the following statements pertaining to life policy assignment is NOT correct

The policyowner must obtain approval from the insurance company before a policy can be assigned.

As a beneficiary, Kathryn receives $800 monthly from her deceased spouse's life insurance under a fixed-amount option. Each payment consists partly of principal (proceeds) and partly of interest. How is this income taxed?

The portion of each payment consisting of interest is taxed; the remainder is taxfree.

Which of the following statements pertaining to modified whole life and graded premium whole life policies is NOT correct?

The premium for modified whole life increases each year after the first few years of policy issue.

Willa purchases a 5-year $50,000 level term policy with an option to renew. Which of the following statements about the policy's renewability is CORRECT?

The premium for the renewal period will be higher than the initial period.

Helen has just taken out a modified whole life policy. Which of the following statements is CORRECT?

The premium will be lower during the next few years and then be increased to a higher, constant level.

Tanya has lost both legs as the result of complications caused by diabetes. Previously a horse trainer, she has taken a position as a computer programmer. Nonetheless, her insurance company pays her benefits under her disability income insurance policy under which of the following provisions?

The presumptive disability provision

When the insured dies, who stands first to receive the life policy's death benefit?

The primary beneficiary

Which of the following statements regarding insurers is CORRECT? A) A stock company that issues both participating and nonparticipating life insurance policies is classified as a full lines company. B) If a life insurance company is owned by its policyowners, it is a stock company. C) The primary purpose of an insurance company that is organized as a stock insurer is to earn a profit for its stockholders. D) Mutual insurance companies sell insurance to insurers.

The primary purpose of an insurance company that is organized as a stock insurer is to earn a profit for its stockholders. Explanation Stock insurance companies are owned by stockholders, not policyowners. They are organized for the purpose of making a profit for their stockholders. Reference: 1.6.1 in the License Exam Manual

Which of the following is an accurate statement for a producer to make regarding underwriting? A consumer

The primary source of information used in underwriting will be the application.

Which of the following statements about accelerated living benefits is NOT correct?

The proceeds must be spent on the insured's medical expenses.

Which of the following statements regarding direct-writing companies is NOT true? A) Employees are paid a salary, commission, or both to sell the company's insurance products. B) The insurer owns all of the business that is produced. C) Producers are considered employees. D) The producer owns the book of business.

The producer owns the book of business Explanation Direct-writing companies employ producers to sell the company's insurance products. These employees are paid a salary, commission, or both. The insurer owns the business that the producers write. Reference: 1.8.2 in the License Exam Manual

Which of the following is NOT taken into account when using the needs approach to determine the proper amount of insurance protection?

The projected future earnings of the breadwinner and the number of years she expects to work

Which of the following statements concerning a coordination of benefits provision is CORRECT?

The provision allows all policies that cover an individual to divide equally all health care costs. This provision can be found in both group and individual policies. The purpose of the coordination of benefits provision is to avoid duplication of benefit payments and overinsurance. Coordination of benefits provisions are found most often in family policies where the insured is still paying for a dependent's health care.

Social Security disability benefits are characterized by which of the following?

The recipient must be unable to engage in any gainful employment.

Which of the following describes facultative reinsurance? A) The reinsurer accepts all risks from the ceding company. B) The reinsurer rejects most risks from the ceding company. C) The reinsurer accepts all risks of a certain type from a ceding company. D) The reinsurer considers each risk before allowing the transfer to be made from the ceding company.

The reinsurer considers each risk before allowing the transfer to be made from the ceding company. Explanation A reinsurance company can accept risks in 2 different ways. The first is facultative reinsurance, whereby the reinsurer considers each risk before allowing the transfer to be completed by the ceding company. Treaty reinsurance is when a reinsurer accepts all risks of a certain type from the ceding company. Reference: 1.5.4 in the License Exam Manual

Which of the following statements regarding the lifetime reserve of hospital coverage for Medicare patients is CORRECT?

The reserve does not renew with a new benefit period. Tapping into the reserve results in a lower daily co-payment. The reserve may be replenished if the patient reenters a hospital after a benefit period ends and pays a new deductible. If a patient exhausts the reserve, she must pay a higher co-payment. Explanation The lifetime reserve is an additional 60 days of coverage on top of the 90-day benefit period Medicare provides for hospitalization. A patient who is hospitalized for longer than 90 days can tap into the 60-day reserve. This reserve is a onetime benefit; it is not replenished with a new benefit period. Tapping into the reserve will require a higher copayment from the patient. If a patient is hospitalized beyond the 60th lifetime reserve day, thus exhausting the reserve, she will be responsible for all hospital charges. Reference: 20.3.2.2 in the License Exam Manual

Which of the following statements regarding an individual disability income policy's rehabilitation benefit is CORRECT?

The rider helps pay the cost of therapy and retraining.

Dan is 25, and he expects his income to increase over the next 10 years. Under the disability income insurance policy, he is considering, why might he add a guaranteed insurability rider?

The rider will allow him to increase his benefit amount periodically without being required to show evidence of insurability.

Which of the following statements does NOT apply to an elimination period?

The shorter the elimination period, the lower the premium for comparable disability benefits.

Which of the following statements pertaining to a life insurance contract is CORRECT? A) The term unilateral refers to the legal obligations of the policyowner. B) The term adhesion indicates that the parties to the contract have a right to expect honesty from each other. C) The term conditional indicates that the insurer will pay benefits regardless of a loss. D) The term aleatory indicates that the values received by each party may be unequal.

The term aleatory indicates that the values received by each party may be unequal. Explanation A unilateral contract in insurance refers to the insurer's legal obligations. Adhesion indicates that the contract was drafted by one party (the insurer) and must be accepted or rejected by a second party (the applicant), who cannot bargain with respect to its terms. Conditional refers to the fact that the insurer's promise to pay benefits is conditioned on the occurrence of a loss. Aleatory describes a contract where the values exchanged by the parties may be unequal. Reference: 1.10.2.2 in the License Exam Manual

A policyowner stops paying premiums on a whole life policy with an accidental death benefit and exchanges the policy for extended term insurance. Which of the following statements pertaining to this situation is NOT correct?

The term policy will have a reduced face value.

Which of the following is the definition of risk? A) The uncertainty about whether a loss will occur B) The transfer of insurance to a different insurer C) The measurement of a loss D) An insurance term for a claim

The uncertainty about whether a loss will occur Explanation A risk is the possibility that a loss that is covered by insurance will happen. Reference: 1.3 in the License Exam Manual

Which of the following statements about annuities is NOT correct?

The withdrawal rule on annuity cash value is FIFO.

Which of the following statements regarding insurance is NOT true? A) All types of insurance are implemented through a contractual agreement between the insurance owner and the insurer. B) All types of insurance indemnify the insured against financial loss. C) There are no physical hazards in life and health insurance. D) All types of insurance are based on the law of large numbers.

There are no physical hazards in life and health insurance. Explanation There are many types of physical hazards in life and health insurance, such as diabetes and heart and lung conditions. These can be identified through tests and medical equipment. Reference: 1.3 in the License Exam Manual

Which of the following statements regarding the standard cost-of-living rider used with life insurance policies is NOT correct?

There is no additional premium required to pay for increases in the death benefit resulting from the cost-of-living rider.

After working 2 years with a competitor, Sergey immediately goes to work for MEP Company. Having been fully covered under his employer's group disability income plan, Sergey enrolls in his new employer's plan at his first opportunity to do so. As a new employee with MEP, when does the exclusion period for pre-existing conditions end?

There is no exclusion period After no more than 18 months Only after he has provided proof of insurability After no more than 12 months

Kelly, age 48, owns a universal life insurance policy (non-MEC) with a current death benefit of $270,000 and a cash value of $20,000. Her basis in the policy is $12,000. Kelly is interested in either borrowing or withdrawing $15,000 from this policy. What would be the tax consequences if she were to borrow the $15,000 through a policy loan?

There would be no income taxation on any portion of the amount borrowed, whether or not she repaid the policy loan.

Which of the following statements pertaining to SIMPLE plans is NOT correct?

These plans are reserved for employers with 500 or more employees.

Which of the following statements pertaining to business key-person disability insurance is NOT correct?

These policies are used to indemnify a business in the case of a merger with another company.

Which of the following statements about comprehensive dental expense insurance is NOT correct?

They are also known as nonscheduled plans. Diagnostic and preventive care are generally not subject to deductibles. They usually pay a fixed-benefit dollar amount. They usually are subject to coinsurance.

Which of the following statements about fraternal benefit societies is NOT correct? A) They operate on a lodge system. B) They are exempt from the licensing requirements if they provide insurance benefits to their members only. C) They do not have capital stock. D) They are nonprofit societies that have a representative form of government.

They are exempt from the licensing requirements if they provide insurance benefits to their members only Explanation A fraternal benefit society is a nonprofit organization that does not have capital stock and exists solely for the benefit of its members. Fraternals must have a representative form of government and maintain a lodge system. Fraternal benefit societies that provide insurance benefits for their members must be licensed by the director and file an annual statement of their financial affairs. Reference: 1.6.3 in the License Exam Manual

Which of the following statements about participating policies is NOT correct? A) The annual premium rate is generally higher than that for nonparticipating policies. B) They enable the policyowner to share in the earnings of the company. C) They are issued only by stock companies. D) They are eligible for dividends.

They are issued only by stock companies Explanation Participating policies are issued by both stock and mutual companies. They are called participating because they are eligible for dividends, thus enabling policyowners to share in the earnings of the company. For this reason, the premium cost is generally higher for participating policies than for nonparticipating policies. Reference: 1.6.2 in the License Exam Manual

Which of the following statements regarding deferred annuities is NOT correct?

They generally permit contract owners to withdraw a specified percentage annually, tax-free and without a surrender charge.

Which of the following statements about flexible spending accounts is NOT correct?

They may be provided as a stand-alone plan or as part of a traditional cafeteria plan. They provide reimbursement for medical expenses incurred. They allow participants to pay for health care expenses with pretax dollars. They may reimburse participants for all medical expenses. Explanation A flexible spending account is a benefit provided by an employer that allows an employee to deposit a certain amount of his paycheck into an account before paying income taxes. During the year, the employee is then directly reimbursed from this account for eligible health care and dependent care expenses. Only qualified medical expenses are reimbursable, not all medical expenses. Eligible expenses include certain medical expenses, health care plan deductibles, and co-payments. Reference: 22.8 in the License Exam Manual

Which of the following statements about preferred provider organizations is NOT correct?

They offer health care services to their members at discounted rates that are negotiated in advance. Physicians who are part of a PPO are in private practice. They operate on a fee-for-service basis. They offer health care coverage to low-income individuals.

Which of the following statements regarding persons participating in an HMO is CORRECT?

They pay for health care services as they are incurred, at a rate discounted for the HMO. They negotiate health care service fees with contracted HMO providers. They pay for health care services as they are incurred. They pay a fixed periodic fee whether or not health care services are used.

Which of the following statements pertaining to inspection reports on life insurance applicants is NOT correct?

They provide information obtained principally from law enforcement officials

Which of the following is a goal of managed care plans?

To apply financial incentives that reduce the quantity and cost of services To fight fraud in the insurance business To protect insureds from insolvency of health insurers To provide low-cost health care to people who could not ordinarily afford health insurance

Under a group health insurance plan, a terminated employee may have which of the following options?

To continue the identical coverage at the same premium To convert the coverage to an individual plan at an adjusted premium To convert the coverage to an individual plan at the same premium To continue reduced-benefit coverage under the group plan at an adjusted premium

Rachel added a Social Security rider to her individual disability income plan. This rider provides an additional monthly benefit for what purpose?

To ensure that a projected level of benefit is received.

Which of the following was the primary purpose of the Health Insurance Portability and Accountability Act of 1996 (HIPAA)?

To establish government benefits for otherwise uninsurable individuals To provide government subsidies for indigents' insurance To expand coverage eligibility to many people that are uninsured To require employers to provide medical coverage for all employees

Roland is 45 years old and married. He has a 19-year-old son who is in his first year of studies at a local university. He also has an 8-year-old daughter. A decreasing term policy could be recommended for Roland for which of the following reasons?

To guarantee that his son's college tuition will be covered

Which of the following statements best defines why an applicant would want to backdate an insurance application?

To have the policy's premium based on the insured's age at the earlier date the policy issue date ahead of a disqualifying event, such as a diagnosis of a terminal disease

Which of the following statements regarding the conversion privilege in group health insurance is CORRECT?

To obtain a conversion policy, an insured employee must show evidence of insurability. An insurer cannot change the premium amount for an insured who is converting to an individual policy. An insured employee who resigns or is terminated has up to 1 year in which to take out a conversion policy. During the period when the insured is converting from the group to the individual plan, she is still insured.

What is the insurer's consideration or exchange of value regarding an insurance policy?

To pay death benefits to the beneficiary when the insured dies.

For which of the following reasons would a domestic insurer set up separate accounts?

To provide for annuities to be payable in fixed or variable amounts or for variable life insurance

Which of the following statements about the reinstatement of individual life insurance policies is NOT correct

To reinstate a policy, the insured is never required to provide evidence of insurability.

Which of the following dental services usually require the insured to pay a deductible or co-payment?

Topical fluoride treatments Preparation of retainers and braces Complete x-ray surveys Oral examinations

Which of the following statements regarding universal life is INCORRECT?

UL premiums are fixed, however the policyowner may increase or decrease the death benefit.

Which of the following statements about the grace period and reinstatement provisions in a health insurance policy is NOT correct?

Under a health policy's reinstatement terms, insured losses from accidental injuries and sickness are covered immediately after reinstatement.

Which of the following statements pertaining to the grace period and reinstatement provisions in health insurance policies is NOT correct?

Under a health policy's reinstatement terms, insured losses from accidental injuries and sickness are covered immediately after reinstatement.

Which of the following statements regarding nonqualified deferred compensation plans is NOT correct?

Under a nonqualified deferred compensation plan, an employee can rely on guaranteed future benefits.

Which of the following descriptions of life insurance policy settlement options is CORRECT?

Under an installment refund option, if the primary beneficiary dies, payments of the same amount continue to the secondary beneficiary until all installments to both beneficiaries equal the original amount of proceeds.

Which of the following statements regarding how to fix a mistake in an insurance application is NOT correct?

Under no circumstances may an agent correct information on an insurance application once it has been completed by the applicant.

Which of the following statements about life insurance policy settlement options is NOT correct?

Under the fixed-period option, the payment of excess interest will lengthen the payment period.

Which of the following is NOT a type of insurance agent? A) Underwriter B) Independent agent C) Managing general agent D) Captive agent

Underwriter Explanation An underwriter works for the insurance company, does not sell insurance, and is not an agent. The other 3 are types of agents who sell insurance. Reference: 1.8.1 in the License Exam Manual

Which of the following factors is the most pronounced difference between group and individual insurance plans?

Underwriting process

Which of the following terms indicates that a life insurance contract contains the enforceable promises of only one party? A) Unilateral B) Conditional C) Aleatory D) Adhesion

Unilateral Explanation Insurance contracts are unilateral in that only one party—the insurer—makes any kind of enforceable promise. Insurers promise to pay benefits when a certain event occurs, such as death or disability. The applicant makes no such promise—he does not even promise to pay premiums, and the insurer cannot require that they be paid. In contrast, with a bilateral contract, each contracting party makes enforceable promises. Reference: 1.10.2.4 in the License Exam Manual

While a policy loan is generally an available option with any form of permanent life insurance, a partial withdrawal of cash value from the policy is available only with which of the following types of life insurance?

Universal life

Which of the following provisions is optional in an individual health insurance policy?

Unpaid premium

Patrick owns an adjustable life policy. Which of the following statements is CORRECT?

Upon showing evidence of insurability, Patrick can increase the face amount of his policy.

Wendy has a $100,000 whole life participating policy. She recently married and is planning to have a family. She wants to increase her life insurance coverage but at minimal additional cost. Which of the following dividend options would be most suitable for her needs?

Use dividends to buy paid-up additions

How can an insured access all or a portion of a life insurance benefit to pay for a long-term illness or life-threatening disease?

Use the accelerated death benefit rider

Arnold buys a $25,000 participating whole life policy. He has a definite need for more life insurance but believes he cannot afford it. Which of the following dividend options would help to solve this problem automatically?

Using dividends to buy paid-up additions

For which of the following types of policies would premiums be invested in an insurer's separate account?

Variable annuities

With respect to the regulation of variable contracts and those who sell them, which of the following statements is most accurate?

Variable contracts and their distribution are regulated separately but in a fairly coordinated fashion between the Department of Insurance, the SEC, and FINRA

Which of the following types of life insurance requires that the agent be licensed by FINRA before selling the policy?

Variable life

Which of the following statements pertaining to variable life insurance is CORRECT?

Variable life insurance cannot be proposed in a sales situation unless the proposal is preceded or accompanied by a prospectus.

Which of the following types of life insurance riders is NOT based on term life insurance?

Waiver of premium

Which of the following causes of death is generally NOT covered by a life insurance policy?

War

When is an insurance producer exempt from the bond requirement?

When he holds a nonresident license. After certifying to the Director of Insurance that he is acting solely for an insurance company, which has assumed the same responsibility that a surety would assume under a bond. When his license applies to only one class of insurance. After he signs a personal bond waiver. Explanation Insurance companies that appoint agents to act on their behalf bond their agents by assuming responsibility for the acts of their agents, for the contracts they accept from their agents, and for monies their agents collect from applicants and policyholders. Reference: See State Supplement. This content is not in the License Exam Manual

With regard to substandard life insurance risks, which of the following statements is CORRECT?

When the applicant represents a substandard risk, the policy may be modified to reduce the benefits provided.

When is a conditional receipt normally given to an applicant?

When the initial premium is paid

. Herb and Felicia have been married for several years and are interested in increasing their life insurance protection as their family grows. Herb is a lawyer with a midsized firm. Felicia is a freelance writer of children's books. In planning for the future, when might they expect that their family will have its greatest need for income should one of them die?

While the children are in elementary school

Which of the following policies endows at age 100?

Whole life and limited-pay life

Diane would like to purchase a life insurance policy in which the face amount remains level and the cash value grows each year until she dies (or reaches age 100). Which type of policy should she purchase?

Whole life policy

Which statement regarding health savings accounts (HSAs) is NOT correct?

Withdrawals for nonqualified medical expenses are subject to taxation. Individuals that set up HSA accounts are not required to be enrolled in a high deductible health plan (HDHP). An individual may not establish an HSA if she is covered by Medicare. Contributions to an HSA are tax deductible. Explanation The eligibility requirements to establish a health savings account (HSA) state that an individual must be enrolled in a high-deductible health plan. Reference: 22.6.1 in the License Exam Manual

At the time the policy was applied for, to the best of her knowledge Mary answered all of the questions on her individual health insurance application truthfully. Two and a half years later she is diagnosed with cancer. Is her insurer obligated to cover her expenses?

Yes, as long as Mary did not make any fraudulent misstatements and this condition was not excluded from coverage.

If consumer information reports are obtained under false pretenses, the maximum penalty is

a $5,000 fine, imprisonment for 1 year, or both

When a cash value life insurance policy is converted into an annuity in a nontaxable transaction, the event is generally known as

a 1035 exchange

An individual accident and health insurance policy must contain all of the following EXCEPT

a 21-day grace period

To control costs, medical insurance plans available from commercial insurers and fraternal organizations are likely to provide care through

a Blue Cross/Blue Shield plan a closed-network PPO an HMO an open-network PPO

An insurance producer who, for the first time, misappropriates insurance funds amounting to $150 or less would be guilty of:

a Class 2 misdemeanor. a Class A misdemeanor. a Class 4 felony. a Class 3 felony. Explanation An insurance producer who knowingly misappropriates or converts to his own use or illegally withholds fiduciary monies amounting to $150 or less is guilty of a Class A misdemeanor. Repeated occurrences of such acts raise the crime to a Class 4 felony. is not in the License Exam Manual

An attending physician's statement (APS) requested by the underwriting department will normally contain all of the following applicant information EXCEPT

a Medical Information Bureau report

The primary difference between a preferred provider organization (PPO) and a point-of-service (POS) plan is that

a PPO utilizes a gatekeeper, while a POS plan does not a POS plan allows the individual to use any service provider, while a PPO requires the individual to use only preselected providers a POS plan utilizes a gatekeeper, while a PPO does not a PPO allows the individual to use any service provider, while a POS plan requires the individual to use only preselected providers

An agent that represents only 1 insurance company is

a captive agent Explanation Captive agents work exclusively with one insurance company. Reference: 1.8.1 in the License Exam Manual

A peril is

a cause of loss Explanation A peril is a cause of loss, such as illness, injury, or premature death. Insurance is purchased to transfer the financial loss of a covered peril from an individual or business to an insurance company. Reference: 1.3 in the License Exam Manual

With regard to insurable risks, which of the following statements is NOT correct? A) a cause of loss B) a moral hazard C) a type of risk D) an exposure

a cause of loss Explanation A peril is a cause of loss, such as illness, injury, or premature death. Insurance is purchased to transfer the financial loss of a covered peril from an individual or business to an insurance company. Reference: 1.3 in the License Exam Manual

The license an insurer usually needs to sell insurance in a state is called

a certificate of authority Explanation Most states require an insurer to have a certificate of authority to underwrite and sell insurance in that state. Reference: 1.7.3 in the License Exam Manual

What are members of a group health policy given that shows evidence of insurance?

a certificate of qualified benefits a master policy a certificate of coverage a coverage notification

All of the following are considered service providers EXCEPT

a commercial insurance company

Joni is covered under a dental insurance plan that requires her to annually pay the first $200 of dental expenses (other than routine semiannual examinations and cleanings, which are covered in full), at which point the plan reimburses her for 80% of the cost of routine care. Joni is most likely covered under

a comprehensive plan a dental health maintenance organization an exclusive provider organization a capitation plan

When Lisa applied for a life insurance policy, the agent issued a receipt stating that the coverage is effective as of the date of application, if the applicant is found to be insurable under the company's general underwriting rules. This type of receipt is known as

a conditional receipt

A group of employers from a similar industry assembled to qualify for group health insurance is

a contributory trust a modified group plan a multiple employer trust an insured union

Individual life insurance policies must include all of the following provisions EXCEPT

a conversion provision

A basic medical expense policy is usually written with first-dollar coverage, which means it does not have

a deductible

An insurance company that transacts insurance directly with consumers without the assistance of producers is called

a direct response company Explanation Direct response companies sell to consumers without using producers. These companies may use their own employees to sell insurance directly to prospective buyers or do so through the mail or at airport booths. Reference: 1.8.2 in the License Exam Manual

Assured Insurance Company deals directly with insureds and does not have any agents. Assured is

a direct writer Explanation A direct writer deals directly with policyowners through salaried employees instead of commissioned agents. Reference: 1.8.2 in the License Exam Manual

An insurance agent could be any of the following EXCEPT A) an exclusive or captive agent B) an independent agent C) a direct-writing commissionable agent D) a general agent or managing general agent

a direct-writing commissionable agent Explanation An insurance agent may be independent, exclusive, or a general agent. Direct-writing companies do not use traditional agents, but use salaried employees to sell policies by phone or email. Reference: 1.8.1 in the License Exam Manual

A life insurance company is incorporated under the laws of the state of Michigan and maintains its home office in Detroit. The company would be considered

a domestic company Explanation A domestic insurer is one that is admitted to, formed and incorporated under the laws of the state in which insurance is written Reference: 1.7.2 in the License Exam Manual

All of the following groups would be eligible for group insurance EXCEPT

a family of 10

A rider on a whole life policy that adds temporary coverage for a spouse and children is

a family term rider

An individual who occupies a position of trust when handling the financial affairs of another is

a fiduciary Explanation A fiduciary is an individual occupying a position of trust and confidence when handling or supervising the funds or the affairs of another. A trustee is a person appointed or required by law to execute a trust to the benefit or use of another. Reference: 1.9.2 in the License Exam Manual

A producer who receives life insurance premiums holds the money in trust as

a fiduciary Explanation A producer is considered to be a fiduciary—that is, a person in a position of financial trust to both the insurance buyer and the insurer. As such, a producer must remit all premiums and other insurance proceeds to the insurer promptly and maintain records of all funds received in this fiduciary capacity, including premiums due to the insurer. Reference: 1.9.2 in the License Exam Manual

An insurance producer in a position of financial trust to both the client and the insurer is best described as

a fiduciary Explanation An insurance producer acts in a fiduciary capacity when holding premiums or money collected from a policyholder that is to be paid to an insurance company. Producers are prohibited from misappropriating or converting such funds to their own use or illegally withholding them. Producers who convert or misappropriate these funds are guilty of theft and can be punished as provided by law. Reference: 1.9.2 in the License Exam Manual

The penalty for knowingly violating the laws governing the sale of Medicare supplements in Illinois can include:

a fine of up to $10,000. fines from $100 to $1,000. fines from $250 to $2,500. imprisonment for up to 3 years. Explanation Companies or producers who violate any law regulating the sale of Medicare supplement policies may be fined from $500 to $5,000 for each offense. A company or producer that knowingly sells a Medicare supplement policy that has not been approved by the Director of Insurance commits a Class 3 felony and may be fined up to $10,000. Reference: See State Supplement. This content is not in the License Exam Manual

A life insurance company organized in Pennsylvania, with its home office in Philadelphia, is licensed to conduct business in New York. In New York, this company is classified as

a foreign company Explanation A foreign insurance company is one that is doing business outside of the state in which it is domiciled. Reference: 1.7.2 in the License Exam Manual

An insurer that is domiciled in Ohio and does business in Alabama is considered to be

a foreign insurer Explanation An insurer doing business in a state other than where it is domiciled is considered a foreign insurer. Reference: 1.7.2 in the License Exam Manual

Individuals who own life insurance and are called certificate holders are members of a

a fraternal benefit society Explanation Fraternal benefit societies are organized under a lodge system and receive some income tax advantages. Insurance programs are operated under a special section of the state's insurance code. Members who own life insurance are called certificate holders. Reference: 1.6.3 in the License Exam Manual

A nonprofit organization with a representative form of government and an elected officer that sells life insurance only to its members would be considered

a fraternal benefit society Explanation To be characterized as a fraternal benefit society, the organization must have a lodge system that may include charitable work. Insurance programs are operated under a special section of the state code, and fraternals receive some income tax advantages. Reference: 1.6.3 in the License Exam Manual

An individual who recruits agents to sell insurance within a certain geographical area is

a general agent Explanation A general agent is responsible for hiring, training, and supervising agents to sell insurance in a certain location. Reference: 1.8.1 in the License Exam Manual

All of the following types of groups are eligible for group life insurance EXCEPT

a group of creditors

All of the following are considered to be insurers EXCEPT A) an association B) a group of employees enrolled in an insurance plan C) an insurance company D) a fraternal organization

a group of employees enrolled in an insurance plan Explanation An insurer, also known as an insurance company, is a corporation, fraternal organization, or other association, society, or individual that engages as a principal in any kind of insurance or surety business. A group of employees enrolled in an insurance plan would not be considered an insurer. Reference: 1.6 in the License Exam Manual

A contract designed primarily to supplement reimbursement under Medicare for hospital, medical or surgical expenses is known as

a home health care plan an alternative benefits plan a Medicare supplement plan an alternative health care plan Explanation Because of the significant gaps in coverage provided by Medicare, many insurers offer Medicare supplement policies that supplement Medicare, paying much of what Medicare does not. To protect consumers, the law narrowly defines what must be included in a Medicare supplement policy. These minimum standards apply to both individual and group policies. Reference: 20.4 in the License Exam Manual

Joanna and her spouse, Bill, have a $40,000 annuity that pays them $200 a month. Bill dies, and Joanna continues receiving the $200 monthly check as long as she lives. When Joanna dies, the payments cease. This is an example of

a joint and full survivor annuity

Medicare is designed to pay for

a large portion of the health care bill for eligible persons death benefits disability benefits old-age benefits Explanation Medicare is designed to pay for a large portion of the health care bill for those eligible. To be covered, a person must be fully insured according to Social Security. The qualifications include accumulating 40 credits, which are earned by generating a minimum amount of work-related income over at least 10 years and paying Social Security taxes. Reference: 20.3.1 in the License Exam Manual

Which of the following would be a source of instant liquidity upon the death of an estate owner?

a life insurance policy on the estate owner's life, payable to the estate

At the time of application, all applicants for accident and health insurance except policies issued by direct response insurers must be given:

a list of exemptions. a notice of disclosure. an outline of coverage. a replacement notice. Explanation Every individual accident and health policy delivered in Illinois, other than direct response policies, must include an outline of coverage, which must be presented to an applicant at the time the application is taken. Reference: See State Supplement. This content is not in the License Exam Manual

If an annuitant has a refund annuity and dies after the annuity income begins, her beneficiary will receive

a lump-sum cash payment equal to the starting annuity fund, less the amount of income already paid to the deceased

All of the following individuals should be eligible to establish a Keogh (HR-10) retirement plan EXCEPT

a major stockholder-employee in a family corporation

An agent that hires, trains, and supervises other agents within a specific geographical area is

a managing general agent Explanation An insurance producer represents the insurer, not the insured. A producer acts as the insurer's representative or agent by virtue of an appointment to act as such. Reference: 1.8.1 in the License Exam Manual

In Illinois, reasonable promptness in claims settlement means:

a minimum of 10 days from the date of the loss. a maximum of 15 working days from receipt of communication from a claimant or insured. a minimum of 90 days from the alleged date of the loss. a maximum of 45 days from the receipt of communication from a claimant or insured. Explanation "Reasonable promptness" in replying to a claim is considered a maximum of 15 business days from the time a communication is received by the insurer from a claimant or insured. An insurer must affirm or deny liability on claims within a reasonable time and offer payment of approved claims within 30 days after affirming liability. If a claim remains unresolved for 30 business days from the date reported, the company must provide the insured or, when applicable, the insured's beneficiary, with a reasonable written explanation for the delay. Reference: See State Supplement. This content is not in the License Exam Manual

A false statement of fact is known as

a misrepresentation Explanation False statements of facts, called misrepresentations, may provide grounds for voiding the policy if they are material. This is true even if the misrepresentation was unintentional. Reference: 1.10.2.8 in the License Exam Manual

Filing a fraudulent health insurance claim is an example of

a moral hazard Explanation A moral hazard is a subjective characteristic of the insured that increases the chance of loss. Careless actions or behaviors are example of morale hazards. A peril is the specific event causing a loss. A hazard is any factor that gives rise to a peril. Reference: 1.3 in the License Exam Manual

All of the following are basic factors used to compute life insurance premiums EXCEPT

a morbidity factor that covers the risk of becoming disabled and triggering the waiver of premium provision

A single plan that covers the employees of two or more unrelated employers is called

a multiple administrative plan (MAP) a combined risk plan (CRP) a multiple employer welfare arrangement (MEWA) a multiple employer trust (MET)

An incorporated insurer whose governing body is elected by the policyowners is

a mutual company Explanation An incorporated insurance company that does not have permanent capital stock is a mutual insurer. The policyowners own the company and elect its governing body. A stock insurer, on the other hand, is an incorporated insurance company with its capital divided into shares of stock owned by the stockholders. A combined stock and mutual insurer is also an incorporated insurance company; its capital is divided into shares owned by the stockholders. However, both the stockholders and policyowners control the company. Reference: 1.6.2 in the License Exam Manual

An insurance company that is owned by its policyholders, who share in the company's profits in the form of dividends, is known as

a mutual insurance company Explanation A mutual insurance company is owned by its policyholders, who share in the company's profits in the form of dividends. Reference: 1.6.2 in the License Exam Manual

An insurance company that is owned by its policyowners, who share the insurer's divisible surplus in the form of participating policy dividends, is known as

a mutual insurance company Explanation A mutual insurance company is an incorporated entity owned by its policyowners. It does not have capital stock, charges a fixed premium, and must maintain the same reserves as a stock company. It is common for mutual companies to sell participating policies in which the policyowners share the insurer's divisible surplus in the form of policy dividends. Reference: 1.6.2 in the License Exam Manual

An insurance company that is owned by its policyowners, who share the insurer's divisible surplus in the form of participating policy dividends, is known as

a mutual insurance company Explanation A mutual insurance company is an incorporated entity owned by its policyowners. Many of these companies sell participating policies that share the divisible surplus of the insurer with the policyowners in the form of policy dividends. Reference: 1.6.2 in the License Exam Manual

An insurance company that is owned by its policyowners is known as

a mutual life insurance company Explanation A mutual life insurance company is a corporation, but there are no stockholders. Instead, the company is owned by its policyowners, from whom its resources are derived. Its assets and income are held for the benefit of the policyowners, who, as contractual creditors, have the right to vote for directors or trustees. Reference: 1.6.2 in the License Exam Manual

A deferred compensation plan is

a nonqualified plan funded by the employer

If a medical report is required on an applicant, it is completed by

a paramedic or examining physician

Dying too soon is an example of

a peril Explanation A peril is the direct cause of a loss. For example, a married woman who is expecting her first child may purchase insurance to protect her spouse and child in the event that she suffers an accident or early death. Reference: 1.3 in the License Exam Manual

In disability income insurance, an elimination period is

a period of days following the start of a disability during which benefits are not payable

In the context of a health maintenance organization (HMO), a subscriber is:

a person who has enrolled in a health care plan. the authority of record. an individual who has become a shareholder in a health care plan. a person who contracts with the HMO to provide or arrange for health care for beneficiaries of the contract. Explanation A subscriber is a person who has entered into a contract with an HMO for the provision or arrangement of at least basic health care services to beneficiaries of the contract, the enrollees in the HMO. Reference: See State Supplement. This content is not in the License Exam Manual

A life insurance policy is all of the following EXCEPT A) a unilateral contract B) a conditional contract C) a personal contract D) an aleatory contract

a personal contract Explanation Unlike a property-casualty insurance policy, a life insurance policy is not a personal contract and the owner is not fixed. Instead, a life insurance policy is a valued contract and the owner may be changed by assignment. Reference: 1.10.2 in the License Exam Manual

All of the following are likely to appear on a group participant's certificate of insurance EXCEPT

a physician's address

Regarding long-term care insurance, the existence of symptoms that would cause an ordinarily prudent person to seek diagnosis or treatment, or a condition for which medical advice or treatment was recommended by or received from a provider of health care services within 6 months before the effective date of an insured's coverage, is known as

a pre-existing condition previous symptoms the 6-month rule a pre-coverage warranty Explanation The most restrictive definition allowed for a pre-existing condition in long-term care insurance is the existence of symptoms that would cause an ordinarily prudent person to seek diagnosis or treatment, or a condition for which medical advice or treatment was recommended by or received from a provider of health care services within 6 months preceding the effective date of an insured's coverage. Reference: 21.12.2 in the License Exam Manual

Jack is covered under a dental plan that encourages him to obtain care from a select group of dentists but allows him to get care from any dentist (though the coverage may be less with the non-plan dentists). Jack's plan is most likely

a preferred provider organization dental plan a direct reimbursement plan a dental health maintenance organization an indemnity plan

The period of time a new employee has to wait before she may enroll in a group life insurance plan is called

a probationary period

An insurer of an insurer is known as

a reciprocal Explanation A reinsurer insures part of the life insurance underwritten by another life insurance company to reduce the potentially large loss of the other company. Reference: 1.5.4 in the License Exam Manual

A group of individuals who agree to share each other's losses is known as

a reciprocal group Explanation A reciprocal insurer or reciprocal exchange is a group of individuals (subscribers) who agree to indemnify each other for their losses. The exchange of these agreements is made through an attorney-in-fact common to all subscribers. Reference: 1.6.4 in the License Exam Manual

A fiduciary responsibility is defined as

a relationship of special trust and confidence when a person is entrusted with another's funds Explanation A fiduciary responsibility is a relationship of special trust and confidence in which a person is entrusted with the funds of another person. For instance, all premiums belonging to insurers and all unearned premiums belonging to insureds received by an insurance producer are held in a fiduciary capacity. Reference: 1.9.2 in the License Exam Manual

All of the following are required provisions in life insurance policies EXCEPT

a replacement provision

The financial strength rating of an insurance company is similar to

a report card Explanation The financial strength rating of a company is like a report card because it is the "grade" an independent rating firm has given based on the financial wellness of the company. Reference: 1.7.5 in the License Exam Manual

Which of the following individuals is allowed to receive commission or compensation for selling insurance?

a retired producer who was licensed at the time of the initial transaction an unlicensed clerical employee an attorney who referred an estate planning prospect to the producer a client if increasing coverage on an existing policy Explanation An insurer or producer may not pay a commission to a person for selling insurance if that person is required to be licensed but is not licensed. However, renewal or deferred compensation may be paid to a person for selling insurance if the person was licensed at the time of the initial sale. Reference: See State Supplement. This content is not in the License Exam Manual

Javier purchased a long-term care insurance policy with an optional benefit that provides a yearly increase in benefits. His policy offers

a return of benefits option an insurability option nonforfeiture benefits inflation protection Explanation Inflation protection is an optional benefit that provides for automatic annual increases in benefits based on a cost-ofliving adjustment (COLA). The increase is stated as a percentage and is compounded annually. Reference: 21.6.4 in the License Exam Manual

Because increasing term insurance can be added to permanent policies and, when added, is less expensive than a stand-alone policy, it is almost always sold as

a rider

A corporation or other limited liability association that assumes and spreads the liability exposure for any of its group members is called

a risk retention group Explanation A risk retention group is a corporation or other limited liability association that assumes and spreads the liability exposure for any of its group members. All members of a risk retention group have an ownership interest in the group and must be in businesses that expose them to similar liabilities. Reference: 1.6.5 in the License Exam Manual

Miguel works for a mutual insurance company that was formed to handle the insurance needs of lawyers. The type of company that Miguel works for is called

a risk retention group Explanation A risk retention group is a mutual insurance company formed to insure people in the same business, occupation, or profession, such as pharmacists, dentists, lawyers, or engineers. Risk retention groups tend to handle commercial liability exposures. Reinsurers, in contrast, insure other insurers, while the policyholders themselves insure the risks of other policyholders in a reciprocal insurer. Fraternal benefit societies are noted for their social, charitable, and benevolent activities and have memberships based on religious, national, or ethnic affiliations. Reference: 1.6.5 in the License Exam Manual

The combination of current tax deduction for the employer plus tax deferral for the employee is possible with all of the following types of plans EXCEPT

a savings account

Annuities may be purchased with all of the following EXCEPT

a single payment that may be deferred for 5 years

All of the following are eligible to establish a health savings account (HSA) EXCEPT

a small employer a large employer an individual family a group of unassociated individuals Explanation Employers, individuals, and families can establish HSAs. Random groups of individuals, however, are not eligible. Reference: 22.6.1 in the License Exam Manual

An insured that meets the average health and life expectancy anticipated by the insurer for a person of that age and gender would be classified as

a standard risk

An incorporated insurer whose capital is divided into shares and owned by its stockholders is

a stock insurer Explanation A stock insurer is an incorporated insurer whose capital is divided into shares and owned by its stockholders. Reference: 1.6.1 in the License Exam Manual

Another name for an entity plan is

a stock redemption plan

Murt Enterprises wants to build 3 new casinos in Illinois. It is possible the necessary insurance coverages will be placed through

a surplus lines company Explanation Surplus lines companies write insurance that standard insurance companies have declined because a risk has atypical underwriting conditions, needs more coverage than an admitted insurer will assume, or requires forms or rates that are not filed in that state. Reference: 1.7.4 in the License Exam Manual

Specialized risks that admitted insurers are not able to cover may often be obtained through

a surplus lines insurer Explanation When a risk is either too large or too specialized for an authorized insurer to underwrite, coverage can be obtained from a surplus lines insurer who is nonadmitted or does not have a certificate of authority from the state. Reference: 1.7.4 in the License Exam Manual

An individual life insurance policy must include all of the following EXCEPT

a table showing the annual loan values of the policy for at least 30 years

In an insurance contract, only one party is legally bound to perform under the contract. This describes

a unilateral contract Explanation Insurance contracts are unilateral contracts because only one party promises to do something. The insurance company promises to pay covered claims (as long as the premium has been paid and the policy is in force); however, the insured does not promise to pay the premiums. Reference: 1.10.2.4 in the License Exam Manual

Which of the following is a promise in exchange for an action? A) An aleatory contract B) A condition contract C) A unilateral contract D) A contract of adhesion

a unilateral contract Explanation Insurance contracts are unilateral contracts because only one party—the insurer—makes any kind of enforceable promise. The insurer promises to pay benefits if and when certain events, such as death or disability occur. The insured's act of paying the premium is given in exchange for this promise. However, the insured is not obligated to make these payments and can let the policy lapse. Reference: 1.10.2.4 in the License Exam Manual

At a certain point in time, an employee will have a nonforfeitable right to the money contributed to a pension plan by the employer. This right is known as

a vested interest

In legal terms, the voluntary relinquishment of a known right is called

a waiver Explanation A waiver is a voluntary relinquishment of a known right. If an insurer waives a legal right under an insurance policy, it cannot deny a future claim based on a violation of that right. This is known as estoppel, and the insurer is estopped from denying the claim. Reference: 1.10.3.1 in the License Exam Manual

A life insurance policy in which the face amount remains level and the cash value grows to an amount equal to the face amount when the insured reaches age 100 is

a whole life policy

Under Social Security, a fully insured worker is

a worker who has paid in to Social Security for 10 years, earning 40 credits

Which of the following is NOT a type of agent? A) Absolute agents B) General agents C) Independent agents D) Captive agents

absolute agents Explanation The different types of agents are independent agents, captive or exclusive agents, and general or managing general agents. Reference: 1.8.2 in the License Exam Manual

An individual life insurance policy must contain all of the following provisions EXCEPT

accelerated benefit

An insurance company that holds a certificate of authority in a state may be known as any of the following EXCEPT A) approved B) authorized C) admitted D) Accepted

accepted Explanation When an insurer is licensed in a state, they are considered to be admitted, authorized, or approved. Reference: 1.7.3 in the License Exam Manual

Premiums paid into a variable annuity, after deduction for expenses, are applied regularly to purchase

accumulation units

All of the following are elements of a contract EXCEPT A) acknowledgment B) legal purpose C) competent parties D) Agreement

acknowledgment Explanation The elements of a contract are agreement, consideration, competent parties, and legal purpose. Reference: 1.10.1 in the License Exam Manual

Which characteristic of insurance contracts provides legal protection for insureds when coverages are not clearly stated in the policy? A) Utmost good faith B) Conditional C) Adhesion D) Indemnity

adhesion Explanation An insurance contract is a contract of adhesion. The insurer writes the contract and the insured adheres to it as the contract has been written. Insureds are protected by the courts with regard to ambiguities in insurance contracts. In these cases, the courts will usually rule in favor of the party that did not draft the contract. Reference: 1.10.2.1 in the License Exam Manual

All of the following are types of care defined in long-term care insurance policies EXCEPT

adult day care respite care home day care home health care Explanation The types of care that are defined in long-term care insurance policies include home health care, adult day care, respite care, and assisted living facilities. Reference: 21.5 in the License Exam Manual

In order to be insured, a group must be randomly selected to avoid

adverse selection Explanation Adverse selection exists when an insurer has more bad risks than good, resulting in a group of policyowners whose mortality or morbidity experience exceeds the normal or expected rates. Reference: 1.5.3 in the License Exam Manual

The tendency of higher-risk individuals to get and keep insurance is known as

adverse selection Explanation The inclination of higher-risk individuals to be "first in line" to get and keep insurance is called adverse selection. One of the purposes of underwriting is to identify and rate up or decline higher-risk individuals. Reference: 1.5.3 in the License Exam Manual

Exclusions for pre-existing conditions help to avoid

adverse selection against an insurer

The premium for transferring a risk should be

affordable Explanation The premium for transferring a risk should be affordable for the average customer. Reference: 1.5.2 in the License Exam Manual

Which of the following criteria may be used when determining the premium rate for an insurance applicant?

age

In an insurance transaction, the insurer is represented by the

agent Explanation In an insurance transaction, the agent represents the insurer. The actions of the agent bind the company to an insurance contract. Reference: 1.9 in the License Exam Manual

In the direct-selling marketing system, insurance can be sold to the public through all of the following methods EXCEPT A) agents B) telephone solicitations C) vending machines D) direct mail

agents Explanation Direct-selling systems are the exception to the general rule that insurance is sold mainly through agents. Under these systems, the insurer deals directly with the insured, without agents, through employees of the insurer (e.g., specialized or limited lines, such as airport vending for accidental death and dismemberment protection). Direct selling may be accomplished using mail, telephone, or other means without an agent. Reference: 1.8.2 in the License Exam Manual

To have an individual life insurance policy reinstated, a person must do all of the following EXCEPT

agree to a new policy without another reinstatement provision

A contract in which one party may receive considerably more in value than the other party is

an aleatory contract Explanation Insurance contracts are considered to be aleatory because either party may receive considerably more in value than the other. The insured may pay premiums for years without a claim. Alternately, the insured may pay premiums for a short period of time before a loss, and then the insurance company must pay the claim, which can be much greater than the amount of premium received. Reference: 1.10.2.2 in the License Exam Manual

An insurance company formed under the laws of any country other than the United States would be considered

an alien insurance company Explanation Insurance companies formed under the laws of any country other than the United States are considered alien insurers. Reference: 1.7.2 in the License Exam Manual

A contract that is designed primarily to augment reimbursement under Medicare for hospital, medical, or surgical expenses is known as

an alternative health care plan an alternative benefits plan a home health care plan a Medicare supplement plan Explanation Medicare supplement policies cover significant gaps in Medicare health insurance coverage. Reference: 20.4 in the License Exam Manual

Under Social Security, a worker's primary insurance amount (PIA) is

an amount equal to the worker's full retirement benefit at the full retirement age or disability benefit

an executive bonus plan is an employee benefit arrangement in which

an employer pays the premiums on a permanent life insurance policy that is owned by the employee

Stella sends a written request to her insurer for a change to be made on her policy. What is that change called?

an endorsement

A provision in a policy that expressly cites a risk that is NOT covered is known as

an exclusion

An agent that represents only 1 insurance company is known as

an exclusive or captive agent Explanation Insurance agents who represent just 1 insurance company are known as exclusive or captive agents. They are generally compensated by commission. These types of agents represent the insurer (the insurance company). Reference: 1.8.1 in the License Exam Manual

Ron is covered under a group dental insurance plan through his employer. His plan requires that he use a dentist who is specifically listed in the plan. The dentist he chooses will be compensated for care rendered to Ron by a flat per capita fee paid by the insurer and by a co-payment fee paid by Ron with each visit. This type of plan is most likely

an exclusive provider organization a preferred provider organization an indemnity plan a dental health maintenance organization

Who must sign endorsements, modifications, or any other changes to a life insurance contract?

an executive officer of the company

All of the following provisions are optional in individual health insurance policies EXCEPT

an incontestability provision

A deductible that is measured in time rather than dollars is called

an incorporation period a probationary period an exception period an elimination period Explanation A term used both in disability and long-term care insurance is elimination period. This is the period of time an insured must pay out-of-pocket for care before the policy will begin to pay benefits. An elimination period is considered a time deductible. Reference: 21.6.3 in the License Exam Manual

A dental plan that pays a capitation fee to the dental provider is

an indemnity plan a preferred provider organization a dental health maintenance organization an exclusive provider organization

All of the following are exempt from the insurance licensing requirements of Illinois EXCEPT

an individual who administers an employee benefit plan. a temporary producer. an individual who takes an application for a group health plan. a salaried employee of a producer. Explanation A temporary producer must be licensed by the insurance director. The licensing requirements for a temporary producer differ slightly from those for a regular producer and are generally less stringent. Reference: See State Supplement. This content is not in the License Exam Manual

Which of the following is an insurer? A) The Commissioner of Insurance B) Any person who pays premiums C) An insurance producer D) An insurance company

an insurance company Explanation An insurance company is an insurer because it alone underwrites the coverage and assumes the risk. Reference: 1.8.1 in the License Exam Manual

All of the following provisions are required in an individual health and accident policy EXCEPT

an insurance with other insurers provision

People age 65 or older who enroll in Medicare Part B may also select Medigap coverage during

an open enrollment period a grace period a free-look period a free-enrollment period Explanation People age 65 or older who enroll in Medicare Part B are afforded a 6-month open enrollment period for purchasing Medigap insurance coverage. The coverage becomes effective the following July 1. Reference: 20.5.1.2 in the License Exam Manual

All of the following specify owners' rights in a health insurance policy EXCEPT

an unpaid premium provision

The Illinois Guaranty Fund was established to protect all of the following EXCEPT

annuitants. beneficiaries. insurance companies. policyowners. Explanation The purpose of the Illinois Guaranty Fund is to protect policyowners, insureds, beneficiaries, annuitants, and their assignees from the insolvency of insurers and the inability of insolvent insurers to perform their contractual duties. Reference: See State Supplement. This content is not in the License Exam Manual

The Illinois Guaranty Fund applies to all of the following EXCEPT

annuity contracts. variable life insurance contracts. life and health insurance contracts. supplemental life and health insurance contracts. Explanation The fund covers direct life and health insurance contracts, annuity contracts, supplemental insurance contracts, contracts to furnish health care services and subscription services. It does not cover a health maintenance organization, the portion of a variable life or annuity contract not guaranteed by the insurer, the portion of any policy whose risk is borne by the policyholder, a reinsurance contract carried by an insolvent insurer, or a burial or fraternal society insurance contract or contracts issued by a dental, vision or pharmaceutical service plan corporation. Reference: See State Supplement. This content is not in the License Exam Manual

All of the following are characteristics of an insurable risk EXCEPT A) affordable B) assessable C) accidental D) Anomalistic

anomalistic Explanation Risks that can be insured are assessable (measurable), affordable, accidental, calculable, similar, and noncatastrophic. Reference: 1.5.2 in the License Exam Manual

Changes made to a policy must be

approved in writing by an executive officer of the insurance company.

When a Medicare supplement policyholder applies for and is entitled to Medicaid benefits, Medicare supplement policies:

are automatically canceled. must provide for a suspension of benefits and premiums for up to 24 months. provide enhanced benefits. increase dramatically in premium cost. Explanation All Medicare supplement policies must provide for a suspension of benefits and premiums (up to 24 months) in the event the policyholder applies for and is entitled to Medicaid benefits. To obtain such a suspension, the policyholder must notify the insurer within 90 days of becoming entitled to this assistance. The coverage is automatically reinstituted if the insured loses his entitlement, notifies the insurer within 90 days, and pays the premium effective as of that date. Reference: See State Supplement. This content is not in the License Exam Manual

Annuity buyers who want their product to be supported by the insurers' general accounts would most likely be looking for interest returns that

are guaranteed never to be less than the rate specified in the contract

In the standardized Medicare supplement policy, Plan A is characterized by

availability only to Medicare recipients younger than age 75 duplicating Medicare benefits for maximum security providing the least comprehensive coverage offering the widest coverage Explanation In the 12 standardized Medicare supplement plans, Plan A provides the least coverage and is referred to as the core plan. Plan J has the most comprehensive coverage. Plans K and L provide basic benefits similar to plans A through J, but cost sharing is at different levels. Reference: 20.4 in the License Exam Manual

Bob is severely injured after falling off of his roof while cleaning the gutters. If he is unable to provide proof of loss within 90 days, it may

be filed up to one year after the date of loss.

To sell variable contracts, a person must

be licensed for life insurance, maintain both federal and state securities licenses, and, in some states, have a specific variable annuity endorsement

Individuals claiming a need for Medicaid must prove that they cannot pay for their own nursing home care. In addition, the potential recipient must

be receiving Social Security be a long-term care insurance policyowner be at least 70 years old need the type of care that is provided only in a nursing home Explanation To qualify for Medicaid nursing home benefits, an individual must be at least 65 years old, blind, or disabled; be a U.S. citizen or permanent resident alien; need the type of care that is provided only in a nursing home; and meet certain asset and income tests. Reference: 20.6 in the License Exam Manual

Variable annuities are regulated as

both insurance products and securities

Flexible spending accounts (FSAs) are also known as

buffet plans commissary plans cafeteria plans snack bar plans Explanation Flexible spending accounts, also known as cafeteria plans, are funded by employee contributions on a pretax basis. Approved benefits and withdrawals are tax-free to employees and must be used within a specific time period or else be forfeited. Reference: 22.8 in the License Exam Manual

Jerry has just purchased a life insurance policy and is taking time to review the policy's provisions. He will find that his policy excludes death by all of the following means EXCEPT

cancer

Under the relation of earnings to insurance provision, the insured's benefit

cannot exceed earnings

All of the following are distribution systems EXCEPT A) independent agencies B) direct writing C) direct response D) claims handling

claims handling Explanation Insurance is distributed through many different channels, including direct response, direct writing, independent agencies, and exclusive agencies. Claims handling is a function of the insurance company. Reference: 1.8 in the License Exam Manual

The time of payment of claims provision in an accident and health insurance policy requires that

claims must be paid immediately after the insurer receives a written proof of loss

All of the following policyowner rights contribute to the flexibility of a life insurance policy EXCEPT

classification of the applicant

Routine dental services include all of the following EXCEPT

cleaning x-rays gum surgery fluoride treatment

A relatively small flat dollar amount that HMO subscribers pay for each doctor visit is known as

coinsurance capitation fees deductibles co-payments

A producer may receive an insurance license in all the following lines of authority, EXCEPT

commercial lines health personal lines life Explanation The lines of authority for producers licenses are: life; variable life and variable annuity products; accident and health; property; casualty; and personal lines. Reference: See State Supplement. This content is not in the License Exam Manual

All of the following are types of insurers EXCEPT A) mutual B) communal C) fraternal D) Stock

communal Explanation The various types of insurers include stock and mutual insurers, fraternal benefit societies, reciprocal insurers, and risk retention groups. Reference: 1.6 in the License Exam Manual

If a worker is killed in an industrial accident, workers' compensation insurance will cover all of the following EXCEPT

compensation to the employer for loss of the employee's services

To fully satisfy the insurance prelicensing education requirements in Illinois, an applicant for a resident insurance producer license must successfully:

complete a minimum of 20 total hours of self study. complete a minimum of 24 hours of self study. complete a minimum of 20 total hours, with at least 7.5 of those hours completed in a classroom setting. complete a minimum of 24 total hours, with at least 8 of those hours completed in a classroom setting. Explanation The minimum prelicensing study requirement in Illinois for a resident insurance producer license is 20 total hours, with at least 7.5 of those total 20 hours required having been completed in a classroom setting. This requirement applies to all of the major lines of insurance - property, casualty, life, and accident/health. Reference: See State Supplement. This content is not in the License Exam Manual

To fully satisfy the insurance prelicensing education requirements in Illinois, an applicant for a resident insurance producer license must successfully:

complete a minimum of 20 total hours of self study. complete a minimum of 24 total hours, with at least 8 of those hours completed in a classroom setting. complete a minimum of 20 total hours, with at least 7.5 of those hours completed in a classroom setting. complete a minimum of 24 hours of self study. Explanation The minimum prelicensing study requirement in Illinois for a resident insurance producer license is 20 total hours, with at least 7.5 of those total 20 hours required having been completed in a classroom setting. This requirement applies to all of the major lines of insurance - property, casualty, life, and accident/health. Reference: See State Supplement. This content is not in the License Exam Manual

Angela, a recent applicant for a $50,000 life insurance policy, failed to state on her application that she suffered a heart attack a year earlier, fearing it would affect her insurability. Which of the following terms describes Angela's action? A) Warranty B) Concealment C) Conversion D) Indemnification

concealment Explanation Angela's action is a concealment because she knowingly failed to disclose pertinent, material information on the application. The test of materiality of a concealed fact is whether the insurer, had it known the fact, would have been influenced in accepting or rejecting the risk. Reference: 1.10.2.9 in the License Exam Manual

The intentional failure to disclose known facts on an insurance application is called

concealment Explanation Concealment occurs when the applicant intentionally fails to disclose known facts that could influence the issuance of the policy. This may give the insurer grounds for voiding the policy. Reference: 1.10.2.9 in the License Exam Manual

All of the following are types of utilization management EXCEPT

concurrent review preauthorization review prospective review retrospective review

Since the obligations of the insurance company hinge on certain acts of the policyowner, the beneficiary, or both, the insurance contract is termed

conditional Explanation Insurance is a conditional contract because the obligations of the insurance company hinge on the performance of certain acts by the owner and the beneficiary, such as the payment of premiums and furnishing proof of loss. Reference: 1.10.2.6 in the License Exam Manual

Direct response marketing is

conducted through ads in the mail, in magazines, and on the internet Explanation There are no agents or producers in direct response marketing. Policies are sold directly to the public, and marketing is done through the mail or by advertisements in newspapers and magazines, on the radio, on television, and on the internet. Reference: 1.8.2 in the License Exam Manual

One of the requirements of a qualified long-term care policy is the inability of an insured to perform some number of the activities of daily living by themselves. Which is considered a measurement of the most impaired person?

continence eating bathing dressing Explanation The activity that provides a measure of the most impaired person is eating. Bathing is the measurement attributed to the least impaired person. The other activities are dressing, toileting, transferrin and continence. Reference: 21.4.1 in the License Exam Manual

Leland elects to surrender his whole life policy for a reduced paid-up policy. The cash value of his new policy will

continue to increase

Lynn elects to surrender her whole life policy for a reduced paid-up policy. The cash value of her new policy will

continue to increase

In contrast to traditional whole life insurance policies, with variable life insurance products

contract cash values are not guaranteed

Group life insurance plans in which employees contribute to the overall premium are called

contributory

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

coverage for Part A co-payment amounts the first 3 pints of blood each year long-term care insurance deductibles the 20% Part B coinsurance amounts for Medicare-approved services Explanation This plan includes coverage for Part A co-payment amounts; 365 additional (lifetime) days of Medicare-eligible expenses once the Medicare lifetime reserve days are exhausted; the 20% Part B co-payment amounts (for Medicare approved services); and the first 3 pints of blood each year. At a minimum, all Medicare supplement policies must contain these core benefits. Reference: 20.4.1 in the License Exam Manual

The purpose of Medicare supplement insurance is to provide

coverage for certain expenses not fully covered by Medicare an alternative insurance plan for people who do not want to use Medicare coverage to elderly people who are not covered under a corporate plan for retired employees coverage for certain medical expenses before the insured becomes eligible for Medicare Explanation The primary purpose of Medicare supplement insurance is to augment Medicare by paying hospital, medical, or surgical expenses that Medicare does not cover because of the deductibles, coinsurance amounts, or other limitations. Medicare supplement policies cannot contain benefits that duplicate those provided by Medicare. Reference: 20.4 in the License Exam Manual

The purpose of Medicare supplement insurance is to provide

coverage for certain expenses not fully covered by Medicare an alternative insurance plan for people who do not want to use Medicare coverage to elderly people who are not covered under a corporate plan for retired employees coverage for certain medical expenses before the insured becomes eligible for Medicare Explanation The primary purpose of a Medicare supplement insurance policy is to augment Medicare with payment of hospital, medical, or surgical expenses that Medicare does not cover. Reference: 20.4 in the License Exam Manual

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

coverage for the first 3 pints of blood each year coverage for the 20% Part B coinsurance amounts for Medicare-approved services coverage for the Part A coinsurance amounts coverage for the Medicare Part A deductible Explanation The Medicare Plan A supplement policy does not provide coverage for the Medicare Part A deductible. All the other answer choices are included in the core benefits that all Medicare supplement policies must provide, including Medicare Plan A supplement policies. Reference: 20.4.1 in the License Exam Manual

All of the following are purposes of juvenile insurance EXCEPT

covering the medical expenses of a child

All of the following factors influence an applicant's mortality EXCEPT

credit report

Medicare Part A covers

custodial care 80% of the cost of durable medical equipment the first three pints of blood private duty nursing Explanation Medicare Part A covers 80% of the cost of durable medical equipment such as wheelchairs and hospital beds. The following are specifically excluded: private duty nursing, non-medical services, intermediate care, custodial care, and the first three pints of blood. Reference: 20.3.2.6 in the License Exam Manual

All of the following benefits are available under Medicare EXCEPT

custodial care skilled nursing care following a hospital stay of at least 3 days home health care visits for a speech therapist hospital expenses Explanation Medicare provides benefits for hospital stays, skilled nursing, and home health care visits under Part A. Reference: 20.3.2 in the License Exam Manual

Sam applied for a term life insurance policy, paid the initial premium, and received a conditional receipt on December 1. If the insurer issued the policy on January 1 and the agent delivered the policy on January 3, the policy effective date is

december 1

Leonard owns a major medical health policy that requires him to pay the first $200 of covered expenses each year before the policy pays its benefits. The $200 is the policy's

deductible

The premiums and benefits in a business overhead expense plan are

deductible and taxable not deductible and taxable deductible and tax-free not deductible and not tax-free Explanation A business overhead expense plan taxes benefits and allows for premium deductions. Reference: 22.5 in the License Exam Manual

When a group disability insurance plan is paid entirely by the employer, benefits paid to disabled employees are

deductible income to the employer taxable income to the employer taxable income to the employee deductible income to the employee Explanation Disability benefit payments are subject to income tax as well as FICA tax for the first 6 months. Reference: 22.3 in the License Exam Manual

All of the following are essential health benefits EXCEPT

dental care

If statements on an accident and health policy application are conflicting or incomplete, the insurer is obligated to:

deny all claims that may be made on the coverage. reject the application entirely. investigate further to clarify answers. issue the policy based on the application representations. Explanation The insurer has an obligation to investigate conflicting or incomplete statements on the application. If there is no such investigation, the insurer has no grounds to deny a claim or rescind the policy because of an alleged preexisting illness or condition. The insurer may rescind a policy only if it can show that the insured withheld material information or answered material questions incorrectly, which would have caused the insurer to deny or restrict the amount of coverage or rate up the premium for the policy requested. Reference: See State Supplement. This content is not in the License Exam Manual

Nancy is an agent for Assured Life and Health Insurance Company and convinces Sook, a young newlywed, to buy a policy. Sook and her spouse have recently moved to the city and found new jobs. Nancy wants to help them get settled. She may help them in all of the following ways EXCEPT A) delivering the policy B) depositing the initial premium in her own account C) collecting the initial premium D) explaining the coverage

depositing the initial premium in her own account. Explanation Depositing client funds in an agent's personal account, which is called commingling, violates fiduciary responsibility. Reference: 1.9.2 in the License Exam Manual

The overall purpose of the USA PATRIOT Act is to

deter terrorist activity

In the sale of Medicare supplement policies, producers must do all of the following EXCEPT

determine which, if any, policy is appropriate for the prospective applicant. identify themselves as insurance producers. complete a policy check list (in duplicate). explain that the Social Security Administration recommends that all seniors buy a Medigap policy to supplement Medicare. Explanation Agents who sell Medicare supplement policies must identify themselves and the insurers they represent and disclose their addresses and phone numbers. They must determine if a Medicare supplement is appropriate for the prospect, determine the applicant's medical history, and complete the policy checklist. Reference: See State Supplement. This content is not in the License Exam Manual

All of the following are types of hazards in life insurance EXCEPT

direct Explanation In life insurance there are 3 types of hazards: physical, moral, and morale. Reference: 1.3 in the License Exam Manual

Insurers that deal directly with insureds without the use of agents are known as

direct response Explanation A large volume of insurance is sold through direct-writing companies that do not use agents, but instead employ their own salespersons. Reference: 1.8.2 in the License Exam Manual

With regard to insurance, consideration means

directly giving something of value Explanation The term consideration refers to an exchange of value. With insurance, the consideration given by the insured is the paid premium and the consideration given by the insurer is the promise to pay for any valid claim. Reference: 1.10.1.3 in the License Exam Manual

All of the following are common exclusions under a disability contract EXCEPT

disabilities resulting from accidents

Dread disease policies generally cover diseases that

do not occur frequently, but involve significant costs when they do occur

Withdrawals from a universal life policy

do not require repayment

Which of the following is NOT one of the six activities of daily living?

dressing shopping bathing eating Explanation The six activities of daily living are bathing, dressing, toileting, transferring, continence, and eating. Reference: 21.4.1 in the License Exam Manual

All of the following are types of agent authority EXCEPT A) dubious authority B) implied authority C) apparent authority D) express authority

dubious authority Explanation There are 3 types of authority under the law of agency: apparent, express, and implied. Reference: 1.9.1 in the License Exam Manual

A social insurance supplement (SIS) rider pays a monthly benefit

during the policy's benefit period while the insured remains disabled

All of the following are characteristics of group life insurance EXCEPT

each insured in the group receives a policy

Which of the following does NOT appear in the producer's report?

education

Dental insurance plans manage costs by using all of the following measures EXCEPT

eliminating all coverage for specified periods limiting the type of services that the plan will cover setting a maximum dollar limit on benefits that the insured can receive during 1 year limiting the number of services that the plan will cover

Most dental insurance plans control costs by all of the following means EXCEPT

eliminating all coverage for specified time periods limiting the type of services that the plan will cover limiting the number of services that the plan will cover limiting the dollar limit on the benefits an insured can receive in 1 year

All of the following are requirements which were enacted as a result of HIPAA EXCEPT

eliminating pre-existing conditions for all eligible individuals creating various mandated benefits for pregnant women ensuring the portability of group insurance coverage enforcing the privacy of individuals' health information

Durwood is hospitalized with leukemia and, upon checking his disability income policy, learns that he will not be eligible for benefits for at least 60 days. His policy probably has a 60-day

elimination period

Pedro is hospitalized with a back injury and, upon checking his disability income policy, learns that he will not be eligible for benefits for at least 60 days. His policy probably has a 60-day

elimination period

When using the needs approach to determine the amount of life insurance required, all of the following are income needs EXCEPT

emergency fund needs

All of the following home health care services will be covered by group plans EXCEPT

emergency surgery nutritional consultation occupational therapy physical therapy

A state's workers' compensation program is designed to provide benefits to employees for all of the following EXCEPT

employment-related compensation packages

Medical cost management is designed to

encourage people to seek medical help when other options are no longer available discourage people from using health care services control health claims expenses influence hospital charges and doctors' fees

The contract provision that states that the policy, a copy of the application, and any attached papers constitute the complete insurance contract is the

entire contract provision

Vanita and Tarun have an estate worth $10 million, most of which is invested in their family business. In order to pay the federal estate tax that will be due at the death of the survivor, their reason for purchasing life insurance would be for

estate conservation

Every health maintenance organization (HMO) must provide enrollees with all of the following EXCEPT

evidence of coverage. how and where enrollees can obtain the services of the HMO. a description of the HMO's services. the exact monthly cost of these services. Explanation HMOs must provide enrollees with evidence of coverage, a description of services, and an explanation as to how enrollees may obtain these services. Information that describes the services and how they can be obtained must be provided at the time of enrollment and then on an annual basis. Reference: See State Supplement. This content is not in the License Exam Manual

When there is no coverage available through an authorized carrier in the state, this insurance is referred to as

excess and surplus lines Explanation Excess and surplus lines is the name given to insurance when there is no coverage available through an authorized carrier in the state where the risk arises or the risk is located, or for which there is no market through the original producer. This type of business must be placed through a licensed excess or surplus lines broker. Reference: 1.7.4 in the License Exam Manual

Which of the following would be considered a moral hazard in underwriting a health insurance risk? A) A family history of diabetes B) A hazardous occupation C) Excessive dieting D) A serious heart ailment

excessive dieting Explanation Moral hazards are habits or lifestyles of applicants that could pose additional risk for the insurer. These hazards are evaluated carefully when underwriting health insurance policies. Reference: 1.3 in the License Exam Manual

Dental insurance generally promotes preventive care, and toward that objective it does all the following EXCEPT

exclude dental care for diseases that could have been prevented with better personal hygiene usually cover the cost of routine cleanings in full cover up to 2 routine examinations per year, once every 6 months generally require the insured to cover more of the cost for the treatment of dental disease than for the cost of preventive care

Which of the following is NOT a characteristic of an insurable risk? A) Expensive B) Calculable C) Accidental D) Measurable

expensive Explanation The 6 characteristics of an insurable risk are that the risk must be calculable, affordable, noncatastrophic, homogeneous, accidental, and measurable. Reference: 1.5.2 in the License Exam Manual

The Buyer's Guide is intended to:

explain the 3 basic kinds of life insurance and demonstrate how to use cost indexes. direct the consumer to the best kind of life insurance to purchase. compare available life products by price. warn consumers away from the purchase of term life insurance. Explanation The Buyer's Guide is intended to explain the three basic kinds of life insurance (term, whole life and endowment) and how to use the cost indexes. The guide also points out that a policy with a small index number generally is a better buy than a comparable policy with a larger index number. Reference: See State Supplement. This content is not in the License Exam Manual

If a premium payment has not been given with the application, the policy becomes effective only when the producer delivers the policy and

explains its provisions and obtains the initial premium and a signed statement of continued good health

Which of the following types of agent authority is specifically set forth in writing in the agent's contract? A) Personal B) Implied C) Apparent D) Express

express Explanation Express authority is the authority a principal gives to its agent. Express authority is granted by means of the agent's contract, which is the principal's appointment of the agent to act on its behalf. Reference: 1.9.1 in the License Exam Manual

When an agent's duties are specifically spelled out in the contract with the insurance company, this is an example of

express authority Explanation Express authority is granted to an agent in the contract and explicitly details the duties and responsibilities to the insurance company. Reference: 1.9.1 in the License Exam Manual

The authority that an insurer gives to its agents by means of the agent's contract is known as

express authority Explanation Express authority is what the insurer intends to, and in fact does, give to its agent through means of the agency agreement. This authority explicitly appoints the agent to act on behalf of the insurer. Reference: 1.9.1 in the License Exam Manual

Bonita's written contract with the insurance company she represents specifically addresses issues such as her duties in collecting premium payments. This is an example of

express authority Explanation The written contract or agreement between an agent and the insurer that is explicit about responsibilities, rights, and powers is known as express authority. Reference: 1.9.1 in the License Exam Manual

When a reinsurer considers each risk as a single transaction before assuming it, this is called

facultative reinsurance Explanation Facultative reinsurance is an agreement in which the reinsurer accepts and underwrites risks on a case-by-case basis. The reinsurer does not have to accept and reinsure all risks within a defined class. Reference: 1.5.4 in the License Exam Manual

Under Illinois law, all of the following are defined as unfair claims practices by insurance companies EXCEPT

failing to promptly acknowledge pertinent communications concerning claims. delaying an investigation or claim payment by requiring a duplicate verification of facts. compelling policyowners to go to court to recover amounts due them by offering them substantially less than the amounts recovered through litigation. offering payment of approved claims within 30 days after affirming liability. Explanation Illinois insurance law lists a substantial number of illegal and unfair claims practices. Payment of claims 30 days after establishing liability is, however, a reasonable and fair manner of settling claims. Reference: See State Supplement. This content is not in the License Exam Manual

Which of the following acts helps ensure confidential, fair, and accurate reporting of consumer information?

fair credit reporting act

A life insurance policy may pay death benefits before the insured dies for all of the following reasons EXCEPT

financial difficulties

Major risk factors in life and health insurance underwriting include all of the following EXCEPT

financial status

Penalties for violating the Fair Credit Reporting Act include

fines, actual damages suffered by the consumer, punitive damages, and reasonable attorney's fees

Variable universal life policies provide all of the following EXCEPT

fixed premiums

When it is used, the time limit on the certain defenses provision in a health insurance policy provides that the policy cannot be contested and claims cannot be denied after 2 (or 3) years EXCEPT

for fraudulent statements in the application

All of the following are examples of social (governmental) insurance EXCEPT A) workers' compensation B) fraternals C) Medicare D) Medicaid

fraternals Explanation Social insurance is provided by or required by a governmental entity, either federal or state. As such, Social Security, including Medicare and Medicaid, and state insurance programs, such as workers' compensation, are included. Fraternal insurers are commercial insurers with no governmental connection. Reference: 1.7.1 in the License Exam Manual

A Medicare supplement policy must offer coverage of Medicare Part A-eligible expenses for hospitalization

from days 1 through 90 from days 61 through 90 for the first year for the length of the illness Explanation Medicare supplement policies must offer certain minimum benefits. For example, they must offer coverage of Medicare Part A-eligible expenses for hospitalization not covered by Medicare from days 61 through 90 in any Medicare benefit period. Reference: 20.4.1 in the License Exam Manual

An insurance producer's license remains in effect as long as she does all of the following EXCEPT

fulfill the continuing education requirement. meet the bond requirement. pay the renewal fees. take the renewal examination every two years. Explanation Meeting the bond requirement, paying the renewal fees, and fulfilling the continuing education requirement are all that are required to maintain an insurance producer's license. There is no requirement to take additional examinations to maintain the license. Reference: See State Supplement. This content is not in the License Exam Manual

Ron is eligible for full death, retirement, and disability benefits under Social Security. His work status is

fully insured

Medicaid provides

funds to states for the provision of medical care to the aged funds to charitable organizations for providing medical benefits to poor people funds to states to assist their medical public assistance programs medical benefits to those who have contributed to its funding through payroll taxes Explanation Medicaid provides matching federal funds to states for their medical public assistance programs to help needy persons, regardless of age. Reference: 20.6 in the License Exam Manual

All of the following factors are usually considered cash needs when determining the life insurance needs of a family EXCEPT

funds to support spousal retirement

All of the following are features of HMOs EXCEPT

gatekeepers extensive choice of providers prepaid services co-pays

Lisa is in the hospital awaiting surgery. The doctors meet in the morning to discuss the best way to proceed as a routine procedure in their PPO. This is an example of

gatekeeping concurrent review retrospective review provider credentialing

One characteristic that the capitation, schedule of allowances, and usual, reasonable and customary methods of dental benefit determination have in common is that all 3 methods

generally involve high deductibles and coinsurance requirements require that the insured select a dentist from a specific list of approved providers are available only with indemnity plans determine benefits on some form of scheduled basis

An option whereby additional insurance may be purchased at various times without evidence of insurability is known as

guaranteed insurability

An equity-indexed annuity

has its interest tied to a stock market-related index

When credit life or health insurance is required to secure a debt, the debtor must

have the option of getting required coverage from existing coverage or from any authorized insurer

If a policyowner purchases a $250,000 single premium whole life insurance policy and needs additional funds for retirement 6 months later,

he can draw on the cash value to supplement his retirement income

Health maintenance organizations are known for stressing the provision of

health care and services to government employees health care and services in hospital settings preventive care health care and services on a fee-for-service basis

Elaine signs an application for a $50,000 life policy, pays the first premium, and receives a conditional receipt. If Elaine were killed in an auto accident 2 days later,

her beneficiary would receive $50,000, if Elaine qualified for the policy as applied for

Elaine signs an application for a $50,000 life policy, pays the first premium, and receives a conditional receipt. If Elaine were killed in an auto accident 2 days later,

her beneficiary would receive $50,000, if Elaine qualified for the policy as applied for

Lisa's private dental expense plan might deny a portion of her claim for all the following reasons EXCEPT

her care was diagnostic

Smith and Jones Insurance has totally revised its individual health insurance policy. Tamika likes the coverage she already has and is concerned about the changes. She contacts the producer who sold her the policy, who tells her that

her policy will not be affected by the changes

All of the following are found in the first part of the application EXCEPT

hobbies

All of the following are required provisions in an individual life insurance contract EXCEPT

home health care

A long-term care policy will cover all of the following EXCEPT

home health care nursing care custodial care emergency hospital care Explanation Long-term care insurance covers skilled and intermediate nursing care, home health care, and custodial care. It does not cover benefits that would be paid by the following kinds of insurance: basic Medicare supplement; basic hospital expense; basic medical-surgical; hospital confinement indemnity; major medical expense; disability income protection; accident-only; and specified disease or accident. Treatment given in an emergency room setting would be covered by a hospital expense policy. Reference: 21.5 in the License Exam Manual

All of the following are considered to be viable medical plan cost-saving options EXCEPT

hospice care skilled nursing facilities emergency room preadmission testing specialized birthing centers

Death benefits paid out to a beneficiary may NOT be protected from the insured's creditors

if the beneficiary is the insured's estate

The insurance concept of returning consumers to the financial status they enjoyed prior to a loss is known as

indemnification Explanation Utmost good faith is an insurance contract characteristic, but indemnification means to return an individual to the financial condition she had prior to a loss. This is why insurance deals in pure risk rather than speculative risk; it is about indemnification, not profit. Reference: 1.10.2.7 in the License Exam Manual

An optional benefit that allows an insured to buy additional coverage at certain times using their attained age is

inflation protection guaranteed benefits guaranteed insurability nonforfeiture benefits Explanation Guaranteed insurability is an option that allows an insured to purchase additional coverage at his attained age without having to provide evidence of insurability. Reference: 21.6.4 in the License Exam Manual

According to federal law, HMO basic health care services include all of the following EXCEPT

inpatient and outpatient hospital services physician services vision care services emergency services

The most costly type of medical care is

inpatient hospitalization outpatient benefits prescription drug costs home health care

The phrase "the applicant for insurance has more to gain if the insured continues to live than if the insured dies" is the

insurable interest

Care that is provided on an intermittent basis by licensed nurses is known as

intermediate care custodial care home health care skilled nursing care Explanation There are 3 levels of long-term care. Skilled nursing care is provided on a 24-hour basis, 7 days per week and may only be performed by licensed nurses under a doctor's orders. Intermediate care is intermittent care and is also provided by licensed nurses under a doctor's orders; however, care is provided fewer than 7 days a week or less than 8 hours per day. Custodial care may be provided by someone without medical training who is hired to help the insured in performing ADLs. Reference: 21.5 in the License Exam Manual

All of the following are levels of long-term care EXCEPT

intermediate nursing care hospital care skilled nursing care custodial care Explanation The 3 levels of long-term care are skilled nursing care, custodial care, and intermediate nursing care. Skilled nursing care is continuous, around-the-clock care provided by licensed medical professionals under the direct supervision of a physician. Custodial care provides assistance in meeting daily living requirements, such as bathing, dressing, getting out of bed, and toileting, and it is given under a doctor's order. Intermediate nursing care is provided by RNs, licensed practical nurses, and nurses' aides under the supervision of a physician. Reference: 21.5 in the License Exam Manual

When a policyowner cannot exercise her rights of ownership without the policy beneficiary's consent, the beneficiary is designated

irrevocable

Any standard health insurance policy provision that is in conflict with a state statute

is automatically amended to conform to the state statute

A flexible spending account (FSA)

is funded by employer contributions to pay for approved health care costs is a qualified employee benefit plan and approved withdrawals are not taxed allows funds to roll over from year to year requires employees to establish a high-deductible health plan (HDHP) Explanation A flexible spending account, also called a cafeteria plan, is funded with pretax employee contributions taken as salary reductions. Withdrawals are not taxed; however, they may only be used for specifically approved benefits. The plan does not roll over from year to year, so employees must spend the allocated funds or lose them at the end of the year. Reference: 22.8 in the License Exam Manual

If an agent fails to perform an act required by a policy, the insurer

is still required to fulfill its obligation Explanation The insurer is liable for its agent's acts if the agent is licensed and has a contract with the insurer. Reference: 1.9 in the License Exam Manual

Which of the following statements regarding mass marketing insurance is CORRECT? A) It takes advantage of small group situations. B) It is considered unethical and is illegal in some states. C) It involves one-on-one meetings between prospects and agents. D) It is marketed through various forms of print, visual, and aural media.

it is marketed through various forms of print, visual, and aural media. Explanation Mass marketing insurance takes advantage of large group situations, selling through direct mail, newspapers, radio, and television. It is an acceptable means of marketing insurance, though there is usually little client contact with an agent or a broker. Reference: 1.8.2 in the License Exam Manual

If a long-term care policy is considered tax qualified,

its benefits will qualify for tax-exempt treatment it must base premiums solely on the insured's age, health, and benefits it must conform to certain standards established by the individual state in which it is offered it can be offered as an employee benefit by an employer Explanation Benefits payable under long-term care policies are not taxable to the insured, provided the policy is considered tax qualified. This means that the policy's provisions must conform to certain standards and guidelines set forth by the Internal Revenue Code and the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Reference: 21.8 in the License Exam Manual

All of the following are optional provisions in an individual health insurance policy EXCEPT

legal actions

For group health insurance, employees may be classified by all of the following EXCEPT

length of service duties age type of payroll

David has a $300,000 nonrenewable 5-year term policy. The premium he pays for this policy would be

less than for a $300,000, 5-year renewable term policy

A policy loan is generally available with all of the following types of life insurance policies EXCEPT

level term life insurance

Nora, age 25, just started working and would like to purchase life insurance to ensure that her spouse and child are protected if she dies prematurely. She has very limited funds but would eventually like to have permanent protection. Nora should consider purchasing

level term life insurance

The optional other insurance in this insurer provision is specifically designed to

limit the risk with any 1 individual insured by the insurance company

All of the following individuals are required to become licensed or registered in order to transact insurance business in Illinois EXCEPT

limited insurance representatives. salaried employees in the office of a licensed producer whose compensation does not vary by amount of premiums received. nonresident producers who hold the CLU designation. registered firms. Explanation Salaried employees in an insurance producer's office or other office who do clerical and administrative work and whose salaries do not depend on commissions are exempt from the insurance licensing requirement in Illinois. Reference: See State Supplement. This content is not in the License Exam Manual

A whole life policy that makes it possible to stop premium payments at the end of a specified time without a reduction in the death benefit is called

limited-pay

Life insurance protects people from dying too soon, while annuities protect people from

living too long

In the life insurance business, a word that is synonymous with expenses is

loading

All of the following are characteristics of an insurable risk EXCEPT A) loss must be intentional B) loss must be measurable C) loss must be accidental D) loss must not be catastrophic

loss must be intentional Explanation The characteristics of an insurable risk are as follows: there must be a large number of homogeneous exposure units, loss must be accidental and unintentional, loss must be measurable, loss cannot be catastrophic, and the premium must be economically feasible. Reference: 1.5.2 in the License Exam Manual

An insurance policy benefit that increases benefits to keep up with anticipated cost increases for long-term care services is said to have

loss of income protection guaranteed benefits Medicare supplemental protection inflation protection Explanation All insurers offering long-term care policies must offer policyholders the option to buy a policy with inflation protection. Reference: 21.6.4 in the License Exam Manual

Comprehensive medical expense insurance covers all of the following EXCEPT

loss of income resulting from sickness

All of the following are penalties for violating the Fair Credit Reporting Act EXCEPT

loss of license indefinitely

Health policies classified as non-occupational normally provide coverage for

losses due to sickness or accidents that are not work-related

The best reason for designating a trust as a life insurance policy beneficiary is to

make it possible to manage the policy proceeds for the long-term benefit of an individual or organization

The parties to an insurance contract must act in utmost good faith, which means that both the agent and the applicant

make no attempt to deceive each other Explanation Both the policyowner and the insurer must know all material facts and relevant information. There can be no attempt by either party to conceal, disguise, or deceive. A consumer purchases a policy largely on the basis of what the insurer and its agent claim are its features, benefits, and advantages. An insurer issues a policy primarily on the basis of what the applicant reveals in the application. Reference: 1.10.2.3 in the License Exam Manual

HMOs include all of the following features EXCEPT

managed care a fee-for-service policy a gatekeeper (primary care physician) prepaid services

Major risk factors in health insurance underwriting include all of the following EXCEPT

marital status

False information that will void an insurance contract is known as

material misrepresentations Explanation Information that is not true and that would affect an underwriter's decision to reject a risk is a material misrepresentation. These statements are grounds for voiding an insurance contract. Reference: 1.10.2.8 in the License Exam Manual

Suppose a licensee in Illinois has been found guilty of rebating and has received the commission for the sale giving rise to the illegal rebate. This commission:

may be recovered by the insurance company. has been earned and is retained by the licensee. must be turned over to the Department of Insurance. is awarded to the purchaser of the insurance product by the Department of Insurance. Explanation A licensee who is found guilty of rebating a Class B misdemeanor may not receive commission for selling the policy associated with the rebate. The insurer may recover the commission if it has been paid to the producer. Reference: See State Supplement. This content is not in the License Exam Manual

Nicole plans to take out a $200,000 mortgage for a vacation home. Her bank, however, requires her to provide some type of collateral for the loan. If Nicole owns a $500,000 whole life insurance policy, the policy

may be used as collateral for the loan

All the following are alternatives to hospital care EXCEPT

meal delivery programs skilled nursing facilities intermediate nursing facilities rehabilitative facilities

With regard to medical benefits available through the federal government, Medicaid provides

medical benefits exclusively for the aged medical benefits for the disabled, regardless of income funds to states to assist their medical public assistance programs medical benefits to all who have contributed to its funding through payroll taxes Explanation Medicaid provides funds to states to assist their medical public assistance programs. Medicare provides health benefits for the aged and disabled. Reference: 20.6 in the License Exam Manual

All of the following are annuity premium factors EXCEPT

medical history

Which of the following is LEAST likely to appear on a group insurance application?

medical questions

To have a long-term care partnership policy approved by the Illinois Director of Insurance, the insurer must:

meet all cost guidelines. license specific producers for the long-term care product. meet the producer training requirement for the long-term care partnership policy. use the standardized long-term care product as specified by the state. Explanation Insurers seeking approval of a long-term partnership policy must provide the Director with written evidence that any producer who will market or sell such a policy has completed the required training in long-term care insurance and in the state program called the Long-Term Care Partnership Policy. Reference: See State Supplement. This content is not in the License Exam Manual

Under the time of payment of claims provision, policies that provide for periodic payment of benefits (such as disability income policies) must pay these benefits at least

monthly

All of the following are premium elements EXCEPT

morality

What factor in life insurance is comparable to the morbidity factor in health insurance?

mortality

Selena is a single parent paying for her home. She is concerned about where her children will live if she suddenly dies. Her primary reason for purchasing life insurance is

mortgage payoff

Dental plans encourage insureds to take advantage of preventive care because

most plans only cover preventive care this type of care can be performed by a dental assistant, eliminating the need to pay a dentist the insured pays for most of the costs associated with prevention preventive services can eliminate the need for major, and more expensive, dental work in the future

Endorsements or modifications to a contract

must be in writing and agreed to by both the insurer and the policyowner

Under a Keogh (HR-10) plan, employers

must contribute the same percentage to their eligible employees as they contribute to their own plans

In the sale of life insurance, all references to policy dividends

must include a statement that dividends are not guaranteed

The annual gross premium of a life insurance policy is defined as

net premium plus expense

The typical coinsurance ratio for dental insurance plans is

no coinsurance 60/40 80/20 50/50

A temporary license for an insurance producer applicant may be issued:

once in a five year period. only once in lifetime. once in a ten year period. as often as needed by the insurance company. Explanation An individual applicant may not hold more than one temporary insurance producer license during her lifetime. Reference: See State Supplement. This content is not in the License Exam Manual

In group insurance plans, if the plan is noncontributory, the employer

pays the entire premium

An agent must notify the applicant that all of the following sources will be used to assess the applicant EXCEPT

personal references

Basic hospital expense insurance provides coverage for all of the following EXCEPT

physician services

Advertising for accident and health insurance policies cannot use terms which:

plainly state the limited nature of policies. lead consumers to believe that a policy will enable them to profit from hospitalization. disclose modification of benefits or premiums because of age. give detailed explanations about policy exceptions, reductions, or limitations. Explanation As a rule, the content of all advertisements must be sufficiently clear to avoid deception or the tendency to mislead or deceive. Therefore, advertisements for accident and health insurance policies cannot use terms such as "tax free," "extra cash," "extra income" or other words which could lead consumers to believe that they could make a profit from being hospitalized. Reference: See State Supplement. This content is not in the License Exam Manual

The scope of an entire contract does NOT include

premium computations

All of the following are required long-term care insurance standards EXCEPT

providing a shopper's guide and an outline of coverage a clearly visible notice on the policy that it is guaranteed renewable requiring an applicant to sign a Notice Regarding Replacement, if necessary a 10-day free-look period Explanation The required free-look period for a long-term care insurance policy is 30 days. All of the other statements are marketing standards. Reference: 21.12.1 in the License Exam Manual

When selling a health benefit plan to a small employer, insurers must make, as part of their solicitation and sales material, a reasonable disclosure of all the following, EXCEPT

provisions concerning the insurer's right to change premiums. provisions relating to preexisting conditions. information relating to the insurer's claim experience. provisions relating to policy renewability. Explanation In a sale of a health benefit plan to a small employer, insurance carriers need only to disclose information about their right to change premiums and the factors other than claim experience that affect premiums, in addition to other required disclosures. Reference: See State Supplement. This content is not in the License Exam Manual

All of the following are considered suspicious activities EXCEPT

receipt of cash payments in excess of $5,000

If an individual life insurance policy contains a spendthrift provision, the policy can prohibit the beneficiary from taking all of the following actions EXCEPT

receiving equal installment payments under the policy

Unincorporated groups of people that agree to insure each other's losses under a contract are known as

reciprocal insurers Explanation Reciprocal insurers are unincorporated groups of people called subscribers. Subscribers pay premiums into individual accounts, and if there is a loss, they are assessed an amount to pay the claim. Such groups are run by an attorney-in-fact, who is often overseen by an advisory board made up of subscribers. Reference: 1.6.4 in the License Exam Manual

Maynard earns $70,000 a year. Under his disability income policy, the maximum amount of monthly benefit he will receive is $7,000 a month. Under the relation of earnings to insurance provision, his disability income benefit will be

reduced, and he will be refunded for any premiums he paid for excess coverage

A contract in which one insurer cedes all or part of a risk to another is known as

reinsurance Explanation Reinsurance is the act of one insurer selling part of a policy to another insurer. The original insurer, or primary insurer, is called the ceding company, and the second insurer is called the assuming company. Many insurers reinsure some of their larger risks because they do not want to be exposed to the exceptional losses they would incur if they had to pay claims on those policies. Reference: 1.5.4 in the License Exam Manual

Many disability buyout plans are characterized by all of the following EXCEPT

relatively short elimination periods ranging from 3-6 months

Workers' compensation benefits cover all of the following EXCEPT

relocation rehabilitation medical treatment loss of income due to disability or death

All of the following are methods of handling risk EXCEPT A) avoidance B) sharing C) repetition D) Transfer

repetition Explanation The different methods for handling risk include sharing, transfer, avoidance, reduction, and retention. Reference: 1.4 in the License Exam Manual

All of the following acts are illegal under the insurance laws of Illinois, EXCEPT

replacing a life insurance policy with another. misrepresenting the assets of an insurance company. misrepresenting terms of an insurance policy. falsifying records with intent to injure or defraud any company or person. Explanation Replacement is any transaction in which new life insurance is to be purchased and existing life insurance will consequently be lapsed or surrendered, converted into paid-up insurance, amended or reduced in face amount, or pledged as collateral for a loan or subject to borrowing more than 25% of its existing cash value. Replacement is not illegal; in some cases, it may even be advisable. Nevertheless, Illinois law regulates replacement transactions in order to protect the consumer. In situations where replacement is not warranted, it can become the illegal practice of twisting. Reference: See State Supplement. This content is not in the License Exam Manual

All statements made by an applicant in an application for life insurance are considered to be

representations Explanation Most states require that life insurance policies contain a provision that all statements made in the application be deemed representations, not warranties. A representation is a statement made by the applicant that she believes to be true. A warranty is a statement made by the applicant that is guaranteed to be true. Reference: 1.10.2.8 in the License Exam Manual

Statements made on an application regarding the applicant's medical history or health that require a medical opinion to be confirmed are called

representations Explanation Representations are statements on an insurance application that the applicant represents to be true to the best of her knowledge and belief. By contrast, a warranty is guaranteed to be true. Reference: 1.10.2.8 in the License Exam Manual

Statements made by an applicant in completing a life insurance application are considered to be

representations Explanation Statements made by an applicant for insurance that he represents as being substantially true to the best of his knowledge and belief are representations. Even an untrue representation, unless it is material or fraudulent, will not prevent the policyholder from recovering for losses under the policy. Reference: 1.10.2.8 in the License Exam Manual

In order for any contract, including an insurance policy, to be legal it must contain all of the following elements EXCEPT A) legal purpose B) consideration C) representations D) competent parties

representations Explanation The 4 elements of any legal contract are competent parties, legal purpose, agreement, and consideration. Representations are statements made on an application that the applicant believes to be factual. Reference: 1.10.1 in the License Exam Manual

When life insurance is replaced, the replacing insurer must do all of the following EXCEPT

require that agents comply with replacement regulations. forward the Notice Regarding Proposed Replacement of Life Insurance or Annuity to the existing insurer within 30 days of receiving the replacement application. furnish applicants with a copy of the Buyer's Guide. keep replacement notices on file for at least 3 years. Explanation The replacing insurer must forward the Notice Regarding Proposed Replacement of Life Insurance or Annuity to the existing insurer within three business days of receiving the replacement application. The replacing insurer must maintain a file containing the replacement notice for at least three years. Reference: See State Supplement. This content is not in the License Exam Manual

All of the following are methods of handling risk EXCEPT A) sharing B) retention C) reduction D) Resistance

resistance Explanation The different methods for handling risk include sharing, transfer, avoidance, reduction, and retention. Resistance is not a method for handling risk. Reference: 1.4 in the License Exam Manual

The purpose of a 401(k) plan is to save for

retirement

As it pertains to group health insurance, COBRA stipulates that

retiring employees must be allowed to convert their group coverage to individual policies group coverage must be extended for terminated employees up to a certain period of time at the employer's expense terminated employees must be allowed to convert their group coverage to individual policies group coverage must be extended for terminated employees up to a certain period of time at the employee's expense

A contract in which one insurer cedes all or part of a risk to another insurer is known as

retro insurance Explanation In a reinsurance contract, an insurer protects itself from loss or liability arising from an original contract of insurance by insuring itself through another insurer. Reinsurance is the spreading or sharing of a risk too large for one insurer by ceding part of the risk to another company or reinsurer. Reference: 1.5.4 in the License Exam Manual

A formal technique designed to evaluate the clinical necessity, appropriateness, or efficiency of health care services, procedures, or settings is known as

retrospective review external review utilization review adverse selection

The concepts of agent accuracy and completeness would prohibit all of the following practices EXCEPT

reviewing the completed application with the applicant to ensure accuracy

The advantages of qualified retirement plans to employers include all of the following EXCEPT

rewarding a few employees rather than many

Related costs associated with a surgical expense policy do NOT include

room and board

A stock insurer is owned by its

shareholders Explanation A stock insurer is a public or private corporation that allows shareholders to purchase stock in the company. The shareholders, as owners, elect a board of directors. Reference: 1.6.1 in the License Exam Manual

Jill met with an insurance agent to discuss purchasing a $500,000 term life insurance policy. If Jill signs a contract 2 weeks later while intoxicated,

she will not be presumed to be competent Explanation To be enforceable, a life insurance contract must be entered into by competent parties. In general, an applicant will be presumed to be competent unless proven otherwise. However, applicants who are under the influence of alcohol or drugs when signing the contract are not presumed to be competent. Reference: 1.10.1.4 in the License Exam Manual

To reinstate a lapsed policy, the insured must do all of the following EXCEPT

sign a Notice to the Applicant Regarding Replacement

All of the following are alternatives to hospital care EXCEPT

skilled nursing home health care assisted living care intermediate nursing

Assisted living facilities provide

social networking at a facility other than the insured's home care for people who are no longer independent housing, meals, and help with personal care housing for families of terminally ill patients Explanation Assisted living facilities are generally for senior citizens who are still able to live independently but want the combination of housing, meal preparation, and personal and social support services. Medical care is generally available on the premises around the clock. Reference: 21.5 in the License Exam Manual

According to insurance law, an insurance agent is a person who

solicits, negotiates, procures or effects insurance or annuity contracts on behalf of an insurer Explanation An insurance agent is an individual or business entity that solicits, negotiates, procures, or effects insurance or annuity contracts on behalf of an insurer. Reference: 1.9 in the License Exam Manual

Which of the following is a distinctive feature of fraternal life insurance? A) Some policies are referred to as open contracts. B) Policies are only available to men who have lived in a fraternity. C) Fraternal societies are exempt from income taxes. D) Members must be related.

some policies are referred to as open contracts Explanation Certificate holders might be assessed additional charges if premiums are not sufficient to pay claims during a given period. Policies with this feature are called open contracts. Stock and mutual insurers do not assess their policyowners. Reference: 1.6.3 in the License Exam Manual

Elimination (waiting) periods in disability income policies are designed to

specify a limited period of time at the start of disability when benefits are not payable

The type of risk that involves the chance of both loss and gain is

speculative risk Explanation Speculative risk involves the chance of both loss and gain. For example, the placement of a bet at a racetrack is a speculative risk. Reference: 1.3 in the License Exam Manual

To be eligible for Medicare's skilled nursing facility care benefit, the claimant must do all of the following EXCEPT

spend at least 3 days in a hospital meet acceptable income limits have a physician certify that skilled care is required enter a Medicare-certified skilled nursing care facility Explanation Medicare nursing facility care benefits are available only if the following conditions are met: the patient must have been hospitalized for at least 3 days before entering the skilled nursing care facility and admittance to the facility must be within 30 days of discharge from the hospital; a doctor must certify that skilled nursing is required; and the services must be provided by a Medicare-certified skilled nursing care facility. Reference: 20.3.2.3 in the License Exam Manual

Premium funds held by insurance producers or registered firms must be deposited in:

state banks. insurance company accounts. premium fund trust accounts. the insurance producer's personal savings account or firm account for safekeeping. Explanation Funds received from applicants or policyholders and held by producers for longer than 15 days before remittance to insurers must be placed in a premium fund trust account, which must be established and maintained with an Illinoisbased financial institution. Reference: See State Supplement. This content is not in the License Exam Manual

Premium payment amounts can be all of the following EXCEPT

static

Marta is covered by 2 group health policies: one provided by her employer and the other provided by her spouse's employer. The coverage provided by her spouse's policy is called

surplus coverage primary coverage secondary coverage related coverage

Many of the basic protections associated with qualified employer plans can be traced to

the Employee Retirement Income Security Act

The head of the Illinois Department of Insurance is:

the Insurance Superintendent. the Insurance Chief. the Director of Insurance. the Insurance Commissioner. Explanation The Director of Insurance is the head of the Illinois Department of Insurance and is appointed by the governor. He has the rights, powers, and duties necessary to enforce and execute the Illinois insurance laws. Reference: See State Supplement. This content is not in the License Exam Manual

According to the National Association of Insurance Commissioners' standardized model Medicare supplement policy, insurers must offer coverage for all of the following core benefits EXCEPT

the Medicare Part A deductible Medicare Part A-eligible hospital expenses not covered by Medicare from the 61st day through the 90th day in any Medicare benefit period coverage under Medicare Parts A and B for the first 3 pints of blood or equivalent (unless replaced according to federal regulations) the coinsurance amount of Medicare Part B-eligible expenses, regardless of hospital confinement, subject to the Medicare Part B deductible Explanation All Medicare supplement policies must provide certain core benefits, including coverage for Medicare Part A-eligible hospital expenses not covered by Medicare from the 61st day through the 90th day in any Medicare benefit period, the coinsurance amount of Medicare Part B-eligible expenses, and coverage under Medicare Parts A and B for the first 3 pints of blood. Although Plan A does not provide coverage for the Medicare Part A deductible, other Medicare supplement policies (Plans B through J) cover this deductible. Reference: 20.4.1 in the License Exam Manual

If an application for insurance is sent to the insurer without the first premium, but the premium is paid when the policy is delivered, the effective date of coverage is

the date the policy was issued

If an application for insurance is sent to the insurer without the first premium, but the premium is paid when the policy is delivered, the effective date of coverage is

the date the policy was issued

Which of the following events would NOT terminate Brian's COBRA before the 18-month time limit?

the day his former employer goes bankrupt. the day his coverage is effective at the new job the day he becomes eligible for Medicare the fifth day his premium is overdue

An accidental death and dismemberment (AD&D) policy rider's principal sum is equal to

the death benefit on the base life insurance policy

The fixed monthly fee paid to the healthcare provider is called

the deductible coinsurance the fee-for-service the capitation fee

The calendar year deductible provision of a major medical policy stipulates that

the deductible is applied only once during the calendar year

The period of time an employee must wait before becoming eligible to enroll in an employer-sponsored health plan is Called

the delay period the elimination period the eligibility period the probationary period

Social Security defines disability as the inability to engage in

the duties of any occupation

A master policy is issued to the sponsoring group and the policyholder is

the employer

Typically, a contract for group life insurance is issued to

the employer

When the premiums for qualified long-term care insurance are paid by an employer,

the employer may not deduct the premiums the employee pays taxes on the premiums the employee pays taxes on the benefits the benefits are tax-free up to a specified inflation-indexed limit for employees Explanation Employer-paid group long-term care insurance is deductible to the employer, not taxable to the employee, and benefits are tax-free to the employee up to certain specified limits. Reference: 22.3 in the License Exam Manual

Group health insurance policies must provide extended benefits to insureds who are disabled at the time of policy discontinuance until the earliest of any of the following occurrences EXCEPT

the end of the calendar year. the end of the total disability. the end of 12 months. the date the maximum benefit is reached. Explanation In the case of HMO plans and hospital or medical expense coverages, an extension will be considered reasonable if it extends coverage until the earlier of the end of 12 months, date the maximum benefit is reached, or end of total disability. Reference: See State Supplement. This content is not in the License Exam Manual

The time period between the date when premium is due and when coverage lapses is called

the grace period

Regular notices sent to policyowners for payment of their life insurance policy premiums reflect

the gross premium

By most insurers' definitions, partial disability is

the inability of an insured to perform at full capacity

In writing group insurance, insurance companies use all of the following underwriting criteria EXCEPT

the individuals' medical histories

Upon issuance of a conditional receipt to an insurance applicant who has paid the insurer an initial premium,

the insurance company is conditionally assuming the risk

An insurance contract is prepared by one party, the insurer, rather than through negotiation between the contracting parties. Which of the following statements explains this characteristic of insurance contracts? A) The insurance contract is a contract of adhesion. B) The insurance contract is a unilateral contract. C) The insurance contract is an aleatory contract. D) The insurance contract is a conditional contract.

the insurance contract is a contract of adhesion Explanation Insurance contracts are contracts of adhesion, meaning that they are prepared by one party, the insurer. They are not negotiated contracts. In effect, the applicant adheres to the terms of the contract when she accepts it. Reference: 1.10.2.1 in the License Exam Manual

The purpose of the incontestability provision is to protect

the insured

Under a common disaster clause in a life insurance policy, it is assumed that

the insured died last, unless the primary beneficiary lives beyond a stipulated period

The HIPAA privacy regulations require health care providers, insurers and producers to respect the privacy of all of the following EXCEPT

the insured's age, make and model of car the insured's medical information the insured's prescription drug information the insured's health information

Upon the issuance of a life insurance policy, an insurable interest must exist between

the insured's annual income

Under a group life plan, eligible dependents of an insured employee could include all of the following EXCEPT

the insured's in-laws

Who is responsible for examination costs when required by the insurer?

the insurer

In an insurance transaction, an insurance producer who sells insurance policies to the public represents

the insurer Explanation A producer who represents the insurer and is authorized to sell its insurance or annuity contracts is considered to be an agent of the insurer in an insurance transaction. Reference: 1.9 in the License Exam Manual

An exclusive insurance producer who solicits insurance represents

the insurer Explanation An insurance producer who sells insurance for an insurer represents the insurance company, not the insured, in any controversy. Reference: 1.9 in the License Exam Manual

Insurance agents represent

the insurer Explanation Insurance brokers represent their clients or insureds. Reference: 1.8.1 in the License Exam Manual

Andrei is a newly licensed insurance agent. In any insurance transaction, his primary duty is to serve

the insurer Explanation Licensed insurance agents legally represent the insurer in all insurance transactions and in any disputes arising between the insured or beneficiary and the insurer. Reference: 1.9 in the License Exam Manual

Morris is a licensed insurance agent. His principal is

the insurer Explanation The insurer appoints licensed agents to act on its behalf. Therefore, Morris would be the agent of the insurance company that appointed him. Reference: 1.9 in the License Exam Manual

When Mary applied for a life insurance policy, she did not disclose that she had just been treated for cancer 3 months ago. In addition, Mary intentionally misstated her age so that her premiums would be lower. If the insurer issues the policy but discovers the misrepresentations 1 year later,

the insurer can challenge the validity of the contract

A certificate holder will lose their coverage under a group life insurance plan due to any of the following EXCEPT

the insurer increases the premium

In insurance,

the insurer is the principal and the producer is the agent Explanation In insurance, the insurer is the principal and the producer is the agent. An agency relationship is created by the consent of both the agent and the principal. Reference: 1.9 in the License Exam Manual

With individual life insurance, all of the following would factor into the premium rate EXCEPT

the insurer's reserves

A broad statement that generally appears on the first page of a health insurance policy and specifies conditions under which benefits will be paid is known as

the insuring clause

During the accumulation period of a deferred variable annuity, the value of the individual account rises or falls based on

the investment results

Which of the following is NOT a part of what constitutes the entire contract?

the invoice for first month's premium

The law of large numbers states that

the larger the number of risks combined into 1 group, the less uncertainty there will be as to the amount of loss that will be incurred Explanation The law of large numbers operates under the principle that the larger the number of similar risks combined into 1 group, the less uncertainty there will be as to the amount of loss that group will incur. Thus, an insurance company is able to determine in advance the approximate number of claims it will receive in a given period for a given risk and place its business on a nonspeculative basis. Reference: 1.5.1 in the License Exam Manual

The settlement option that will pay the largest amount to the beneficiary regardless how long he lives is

the life only or straight life option

A primary difference between a SEP and an IRA is that

the limit of money an employer is permitted to contribute to a SEP each year is higher than the limit for an IRA

All of the following are elements of an insurable risk EXCEPT A) the loss must be the result of chance B) the loss must have a determinable value C) the loss must be catastrophic D) the loss must be predictable

the loss must be catastrophic Explanation One of the criteria for an insurable risk is that it not be catastrophic. A principle of insurance holds that only a small portion of a given group will experience loss at any one time. Risks that would adversely affect large numbers of people or large amounts of property, such as wars, are typically not insurable. Similarly, insurers would not issue a policy for $1 trillion on a single life. That one death would create a catastrophic; loss to the company. Reference: 1.5.2 in the License Exam Manual

Insured losses are covered immediately after a health policy is reinstated when

the losses result from accidental injuries

The policy provision that permits the insurer to adjust benefits because of an incorrect age is

the misstatement of age provision

HMOs can be a key factor in reducing

the number of hospitals nurses' unemployment health care costs the number of physicians needed

Ahana was recently hired by a consulting firm. She must wait before she is eligible to enroll in the employer's group health insurance plan. This is known as

the open enrollment period the insurability period the initial eligibility period the probationary period

Juan names his sister, Silvia, as the beneficiary of his $250,000 life insurance policy. At Juan's death, if Silvia chooses to have the proceeds paid over time, rather than in a lump sum,

the original death benefit is not taxable; however, interest earned is taxable as ordinary income to Silvia

The provision that allows a person to select the premium payment mode, settlement options, borrow cash values that have accumulated or cancel the policy is known as

the ownership rights provision

With regard to a breadwinner's death, the blackout period generally can be defined as

the period that begins when the youngest child is 16 and ends when the surviving parent turns 60

The payor benefit typically waives premiums on a juvenile policy if

the person who pays the premium dies or becomes disabled before

Co-payments are paid by

the plan administrator the provider the HMO the subscriber

Coverage for a health insurance policy will take effect just as if the policy had already been issued if all of the following conditions have been met EXCEPT

the policy has been legally delivered to the applicant

All of the following elements of an adjustable life policy are adjustable EXCEPT

the policy loan rate

The party to whom the life insurance policy cash values belong is

the policyowner

When a life insurance beneficiary is revocable,

the policyowner can change that beneficiary at any time with written notice

Individual certificates issued to all individuals insured under an insurance policy must include all of the following information EXCEPT

the premium amount

A significant feature of adjustable life insurance is that

the premiums may be increased or decreased from time to time by the policyowner

Life insurance proceeds are included in the gross estate if

the proceeds are payable to the insured's estate or the insured had any incidence of ownership in the policy at time of death or transferred ownership within 3 years of death

A health insurance policy does NOT go into force if

the producer completes the application Explanation The insured must complete the application, not the producer. If the initial premium is paid at the same time the application is submitted, and the terms of the conditional receipt are met, coverage will take effect as if the policy were issued. Reference: 1.9.1 in the License Exam Manual

The first page of a Medicare supplement policy must contain all of the following EXCEPT

the producer's commission and the policy's premium highly visible notice of the 30-day free look period the policy's renewal provision, including a description of any premium increases that may be involved the Notice to Buyer -this policy may not cover all of your medical expenses Explanation The disclosure regulations require the first page of the policy to contain the Notice to Buyer, 30-day free look period notice and the renewal provision with descriptions of premium increases. Applicants must be also provided with a buyer's guide "A Guide to Health Insurance for People with Medicare", and an Outline of Coverage. Reference: 20.5.1 in the License Exam Manual

Malik works as a dentist and mountain climbs, skis, and flies airplanes in his spare time. When he applies for a life insurance policy, the agent's and Malik's signatures will be required on all of the following documents EXCEPT

the report issued by the Medical Information Bureau

A life insurance policyowner has all of the following rights EXCEPT

the right to change the grace period

The incontestability period is usually

the same for both individual and group life insurance policies

Under an installment refund settlement option, if the primary beneficiary dies, the secondary beneficiary will receive

the same income payments until the total amount paid out to both beneficiaries equals the original amount of proceeds

ERISA requires that certain benefit and insurance plan information be made available to all of the following EXCEPT

the state legislature

Jordan completed an application for life insurance and paid the initial premium. When his agent delivers the policy, the premium is higher. This is because

the underwriters determined Jordan to be a substandard risk

If an agent or producer diverts funds belonging to an insurer to her own use, she has committed the illegal act of

theft Explanation An agent or producer who receives a premium holds it in a fiduciary capacity. The producer is placed in a position of trust by the insured who paid the premium and the insurer to whom the premium is owed. Therefore, a producer who diverts these funds for personal use has stolen them. Reference: 1.9.2 in the License Exam Manual

With life, accident, and health insurance, an insured's oral misrepresentation or false warranty will NOT void a policy unless

there was intent to deceive or it materially affects the insurer's decision to accept the risk Explanation An insured's oral misrepresentation or false warranty cannot be used to void a policy, but misrepresentations made in writing (as on the application) can be grounds for voiding a contract in accordance with the terms of the policy's contestability clause. Even then, a misrepresentation or false warranty will not void a policy unless the applicant actually intended to deceive or it materially affected the company's decision to accept the risk. Reference: 1.10.2.8 in the License Exam Manual

The death benefit proceeds of a life insurance policy are protected from the beneficiary's creditors unless

they are paid out in a lump sum

All of the following statements regarding a life insurance policy summary are correct EXCEPT

they must illustrate the annual premium for the policy and each optional rider for the first 5 policy years plus other target years. they must include the generic name of the policy being described. they may be combined in one document with the Buyer's Guide. they must include dividend projections through at least the 20th policy year. Explanation The policy summary must be printed as a separate document and not combined with any other document. Reference: See State Supplement. This content is not in the License Exam Manual

Health reimbursement accounts are established by employers who provide covered employees with high-deductible health plans. The employer makes tax-deductible contributions, which employees can use for all of the following purposes EXCEPT

to create tax-deferred savings accounts to pay coinsurance to pay deductibles to apply co-payments Explanation Health reimbursement accounts (HRAs) are high-deductible health accounts set up by employers through taxdeductible contributions on behalf of their employees. Employees may use the funds in the HRA to pay for deductibles, co-payments, and their coinsurance amounts. Reference: 22.7 in the License Exam Manual

All of the following are rights of policy ownership EXCEPT

to determine the method of submitting claims

Most participating whole life insurance policies allow all of the following uses of standard life insurance dividends EXCEPT

to increase the policy's face amount

According to the principle of human life value, the purpose of life insurance is

to replace an individual's economic value

All of the following insurance products are exempt from Illinois life insurance replacement regulations EXCEPT

transactions where the existing and replacing insurer are the same insurer. life insurance or annuities used with benefit plans qualified for tax-exempt premiums. convertible term life insurance policies. group life insurance or group annuities. Explanation Illinois life insurance replacement regulations do not apply to transactions involving credit life insurance; group life insurance and group annuities; policies issued in connection with a pension, profit-sharing, or other benefit plan that qualifies for tax deductibility of premiums; registerd contracts, except that the appropriate prospectus or offering circular shall be given to the applicant; nonconvertible term life insurance that expires in five years or less and that cannot be renewed; transactions where the replacing insurer and the existing insurer are the same; or transactions where the total cash surrender value of all existing policies affected by the replacement is less than $500 and the sum of their face amounts is less than $5,000. Reference: See State Supplement. This content is not in the License Exam Manual

Purchasing insurance is an example of

transferring risk Explanation Purchasing insurance is the most common method of transferring risk. The burden of carrying the risk and indemnifying against financial or economic loss is transferred from the individual or business entity to the insurance company through the insurance contract. Reference: 1.4 in the License Exam Manual

Taxpayers are able to withdraw IRA funds without penalty for all of the following reasons EXCEPT

travel necessitated by medical reasons

A contract agreement between a ceding insurer and reinsurer to underwrite certain classes of risks is known as

treaty reinsurance Explanation The agreement in which a reinsurer agrees to underwrite a certain class of business submitted by the ceding insurer is known as treaty reinsurance. Underwriting is done for a class or classes of risks, as opposed to on an individual basis. Reference: 1.5.4 in the License Exam Manual

Cost-saving measures of managed care include all of the following EXCEPT

unlimited mental and nervous benefits smoking cessation annual physical visits wellness programs

Contracts that provide payments based on the investment return of a segregated asset account are called

variable life insurance and annuities

During the underwriting process, an insurer may do all of the following EXCEPT

verify the applicant's military records, if any

Benefits paid for customary charges incurred during an examination by an ophthalmologist or optometrist are included In

vision care insurance

A lapsed life insurance policy may be reinstated if all of the following requirements are met EXCEPT

waiting 7 years after the premium default date to reinstate

Statements that are guaranteed to be true are called

warranties Explanation Warranties are statements that are guaranteed to be true. Representations are statements that are believed to be true. Reference: 1.10.2.8 in the License Exam Manual

Denise, age 52, has a straight whole life policy and decides to stop paying premiums and take a paid-up policy for a reduced amount. Her paid-up policy will be

whole life

Emily is 3 months pregnant and receiving prenatal health care from her employer group health plan. When her employer switches plans with a new insurer, Emily's claim with the original insurer

will be terminated, and she will have to seek coverage from the new plan will be terminated, and she will not be insurable under the new plan because her condition is pre-existing will be continued for the balance of her pregnancy under the no loss/no gain rule will be transferred to the new insurer plan under the no loss/no gain rule

Individuals who choose not to purchase qualifying health care coverage

will pay a tax penalty

An example of a state-administered disability program is

workers' compensation

To provide compensation to individuals who have sustained job-related injuries is the primary purpose of

workers' compensation insurance

Jia is applying for individual medical insurance coverage. All of the following factors will adversely affect her ability to obtain coverage at a reasonable premium EXCEPT

working at a desk every day

All of the following are basic health care services offered by HMOs EXCEPT

x-ray services emergency care inpatient hospital care rehabilitative and home health services

Jay has a $50,000 life insurance policy with an accidental death benefit that pays triple the face amount. If Jay commits suicide 3 years after purchasing the policy, how much will his beneficiary receive?

$50,000

The penalty for premature withdrawal of funds from a traditional IRA is

10% of the taxable amount withdrawn

After how many days is coverage is automatically reinstated if the insurer has not disapproved the application and notified the insured?

45 days

A consumer may make a written request for complete disclosure of the nature and scope of an investigative report regarding her credit history. The disclosure must be made within

5 days

Which of the following types of dental insurance plan is characterized in part by the fact that dentists are paid a prearranged fee for dental services.?

A direct reimbursement plan A preferred provider organization dental plan An indemnity plan A dental health maintenance organization

Which of the following statements regarding 1035 exchanges is NOT correct?

A life insurance policy that is a modified endowment contract (MEC) may be exchanged for a new life insurance policy and, provided that premiums are paid for at least 7 years thereafter, no longer be considered a ME

Choua applied for a $100,000 whole life policy but did not pay the initial premium at the time of application. When the agent later delivers the policy, the agent must collect the premium and obtain which of the following statements from Choua?

A statement of good health

Tony, who is 65 and in excellent health, wants to buy an annuity with $100,000 he recently gained on the sale of his home. He wants to select an income option that will provide him the highest monthly income possible. Which annuity income option best meets Tony's objective?

A straight life annuity income option

Under the misstatement of age provision in a health insurance policy, what can an insurer do if it discovers that an insured gave a wrong age at the time of application?

Adjust the benefits

Which of the following statements is CORRECT?

After a policy is delivered to and accepted by the policyowner, it cannot be changed in any way, except in accordance with terms stated in the contract.

Which of the following would NOT be an eligible dependent?

Alondra, the employee's adopted daughter, who just turned 8. Lorna, who is 27 and is working on her master's degree in social work. Arielle, the last of the employee's children to graduate high school. Bonita, who was married last month after celebrating her 25th birthday.

Which of the following statements regarding group health insurance is FALSE?

An employee may enroll in a group health plan at any time during the year without having to prove evidence of insurability. The eligibility period follows the probationary period. In some cases, union workers as a class may be excluded from coverage. Coverage must be made available to dependents, other than spouses, up to a certain age.

Which of the following best describes the concept of vesting, with respect to qualified retirement plans?

An employee's right to funds or benefits contributed by an employer

An insurable interest may be found in which of the following?

An employer in the life of a key employee

Which the following statements regarding 1035 exchanges is NOT correct?

Annuity to life insurance transfers are tax-free.

Acme Corporation has established a nonqualified deferred compensation plan with life insurance as the funding vehicle. Acme currently has 100 employees, 90 of whom work full time. Which of the following individuals must be covered by the plan?

Any employee, officer, or executive that Acme selects

When the insured and the beneficiary in a life insurance policy die simultaneously, how must the proceeds of the policy be distributed?

As if the insured had survived the beneficiary

A group life insurance plan participant who has been covered under the plan for 4 years terminates employment on October 1. On October 22 she dies without having made a decision whether to convert her group coverage to an individual policy. What action will the insurer take?

Assume that the deceased employee would have elected the conversion option and pay the death benefit without regard for the deceased employee's insurability prior to death

All of the following are examples of government insurance EXCEPT

Blue Cross and Blue Shield coverage

A point-of-service (POS) plan is most like a health maintenance organization (HMO) in which of the following ways?

Both allow subscribers to use outside providers. Both use a primary care physician. Both are generally nonprofit organizations. Both feature providers who are employees of the plan itself.

Which of the following statements pertaining to limited-pay life policies is CORRECT?

Both limited-pay life and whole life policies endow at age 100.

In which of the following circumstances would the incontestable clause of an insurance policy apply?

Concealment of smoking

An exchange of value is necessary to form a valid contract. What is the legal term that means something of value?

Consideration

Which of the following was enacted to protect the interests of participants in qualified benefit plans as well as group insurance plans?

ERISA PPACA COBRA HIPAA

When a cross-purchase plan is funded by life insurance,

Each partner owns a policy on the lives of each of the other partners

Which of the following statements concerning qualified retirement plans is NOT correct?

Employer contributions to a qualified plan on behalf of its employees are taxable income to the employees when they are made.

What kind of policy will protect an insurance agent against liability arising out of acts committed in her professional capacity?

Errors and omissions

Annuity payments are taxable to the extent that they represent interest earned rather than capital returned. What method is used to determine the taxable portion of each payment?

Exclusion ratio

Gina, age 66, has worked for the past 35 years as a dermatologist and has funded her defined contribution plan at the maximum allowed each year. She would like to delay taking income from the account for 3 years. Which of the following statements is TRUE?

Gina can delay taking income until age 69 even though she is retired, as she is not required to begin RMDs until age 72.

Which of the following would most likely NOT be a reason to purchase a life insurance policy for the purpose of accumulating cash?

Going on a shopping spree

Ramon's premium payment was due on June 1, but the company did not receive it until June 28. Which policy provision kept Ramon's policy from lapsing?

Grace period

Which of the following individuals can access the cash value of her life insurance policy to provide extra retirement income?

Harriet, who owns a $100,000 single premium whole life policy

Which of the following statements comparing group and individual life insurance is NOT true?

Individual insurance is generally available at lower rates than group insurance.

As a result of the Health Insurance Portability and Accountability Act (HIPAA), which of the following is NOT guaranteed medical coverage?

Individuals who have had their coverage canceled for nonpayment of premiums Individuals who have at least 18 months of aggregate creditable coverage Individuals who are not eligible for coverage under Medicare or Medicaid Individuals who have exhausted their extension of benefits under COBRA

Which of the following is usually included in an individual health insurance contract?

Injuries due to accidents

Which of the following statements regarding life insurance is NOT correct?

Insurable interest must be maintained throughout the life of the contract..

Which of the following statements about fraternal benefit societies is NOT correct? A)Policies are called certificates. B)Life insurance is one of the benefits of membership. C)Insurance may be sold to members as well as nonmembers. D)The society must operate under a lodge system of government.

Insurance may be sold to members as well as nonmembers. Explanation Fraternal society insurance may be sold only to members of the society. Reference: 1.6.3 in the License Exam Manual

Which of the following statements describes variable life insurance?

It provides insurance benefits that vary according to the investment experience of separate accounts maintained by the insurer.

Juan owns a 5-year $50,000 term life insurance policy, and Maria owns a $50,000 whole life insurance policy. Which of the following statements is CORRECT?

Juan's policy, but not Maria's, may have an option to convert.

Charles signs up for Medicare Part B on March 21, during the open enrollment period. His coverage will become Effective

July 1 March 21 April 1 June 30 Explanation Medicare Part B coverage for those who sign on during the open enrollment period always becomes effective the following July 1. Reference: 20.3.3.1 in the License Exam Manual

Kevin, the insured in a $200,000 life insurance policy, and his sole beneficiary, Lynda, are killed instantly in a car accident. Under the Uniform Simultaneous Death Act, to whose estate will the policy proceeds be paid?

Kevin's estate

What annuity payout option provides for lifetime payments to the annuitant but guarantees a certain minimum term of payments (typically 5, 10, or 20 years), whether or not the annuitant is living?

Life with period certain

Which type of license is required to solicit industrial life insurance or industrial accident and health insurance?

Limited lines producer license. Temporary insurance producer license. Industrial license. Insurance producer license. Explanation A limited lines producer is authorized to solicit certain lines of insurance, including industrial life, travel, and legal expense insurance and some limited health care plans. Reference: See State Supplement. This content is not in the License Exam Manual

Which of the following statements regarding basic forms of whole life insurance is NOT correct?

Limited payment life provides protection only for the years during which premiums are paid.

Agnes purchases a round-trip travel accident policy at the airport before leaving on a business trip. Her policy would be which type of insurance?

Limited risk

Which of the following statements regarding multiple employer trusts (METs) is NOT correct?

METs are established to provide group benefits to employers within a specific industry, such as construction. METs provide coverage only on a self-funded basis. METs are most typically used by smaller employers. An employer desiring coverage for its employees from a MET must subscribe by becoming a member of the trust.

Mark has worked for the past 20 years as a construction worker. However, 7 months ago he injured his back and has not been able to work since. Which of the following statements is CORRECT?

Mark will be eligible for Social Security disability benefits if he unable to engage in any substantial gainful work and his disability is expected to last at least 12 months.

Doris and Arnold receive $450 per month under a joint and one-half survivor life insurance option. What would happen if Arnold were to die first after the payments have started?

Monthly payments of $225 would be made to Doris as long as she lived.

Norris is the primary beneficiary of a life insurance policy. He dies after receiving $275 per month for 6 years, under a 10-year period certain income option. His son, Neil, is the secondary beneficiary. Which of the following statements pertaining to this situation is CORRECT?

Neil will receive income checks in the same amount as his father for 4 years.

Katrina is working in London for a year. She was injured in a car accident and is now unable to work. Will she be able to receive benefits from the disability income insurance policy she purchased while she was living in New York?

No, the policy specifically excludes coverage when living overseas

If a life insurance applicant is given a binding receipt, when does her coverage become effective?

On the date the receipt is given

All of the following conditions are typically covered in a long-term insurance policy EXCEPT

Parkinson's disease Alzheimer's disease senile dementia alcohol dependency Explanation Most LTC insurance policies exclude coverage for drug and alcohol dependency, acts of war, self-inflicted injuries, and nonorganic mental conditions. Organic cognitive disorders, such as Alzheimer's disease, senile dementia, and Parkinson's disease, are almost always included. Reference: 21.7 in the License Exam Manual

The abbreviation PDP refers to which part of Medicare?

Part B Part D Part A Part C Explanation PDP stands for prescription drug plan. Medicare Part D makes prescription drug coverage available to people covered by Medicare Part A and Part B. Reference: 20.3.7 in the License Exam Manual

Which of the following statements concerning HMOs is CORRECT?

Participants pay a onetime, fixed fee in advance for health care services. HMOs place special emphasis on preventive health care. HMOs primarily provide emergency medical treatment for their members. HMOs are generally owned by life insurance companies.

All of the following titles refer to the Affordable Care Act (ACA) EXCEPT

Patient Assistance Act

When separate deductibles are required for each illness or accident, what kind of deductible is in effect?

Per cause

Hubert, the insured, changes to a more hazardous job than the one he had when he applied for his disability income policy. According to the policy's change of occupation provision, what will happen when the insurer learns of his job change?

Policy benefits will be reduced to the amount the premiums would have purchased if they were based on the more hazardous occupation.

Which of the following statements about participating and nonparticipating life insurance policies is NOT correct?

Policy dividends are considered taxable income.

A person who always wears a seatbelt in a car is using what risk handling method?

Reduction Explanation Wearing a seatbelt is an example of risk reduction because it can lessen the likelihood or severity of injuries resulting from an auto accident. Reference: 1.4 in the License Exam Manual

Which of the following would NOT be required of a producer who wants to sell variable annuities?

Registration with the National Association of Insurance and Financial Advisors

What action will an insurer take if it learns that a deceased life insurance policyholder was actually older than the insurer had believed?

The face amount will be lowered to reflect the proper amount based on the correct age.

Which of the following differentiates a variable life product from a conventional life product?

The fact that the product has a separate account which is distinct from the general account

If a licensee requests a hearing after an examination report, the Director will issue a written notice scheduling the hearing. Which of the following statements about the notice is NOT correct?

The hearing date will be scheduled for between 20 and 30 days from the date of the notice. The notice will state the possible criminal charges which may result from the licensee's actions. The notice will identify the location of the hearing. The notice will state the grounds or charges for which the license was revoked or suspended. Explanation The notice need only state the grounds or charges on which the hearing is based, and the time and place of the hearing. Participants must receive written notice of the hearing at least ten days in advance. Reference: See State Supplement. This content is not in the License Exam Manual

Which of the following statements about accelerated benefit provisions is NOT correct?

The insured must be expected to die within 6 months.

Which of the following statements regarding proofs of loss is CORRECT?

The insured must file a proof of loss within 90 days of the date of loss.

Which of the following statements about reinstating an individual life insurance policy is CORRECT

The insured must pay all back premiums with interest premium loans before the policy can be reinstated.

When meeting with an applicant for health insurance, an insurance producer notices a pack of cigarettes in the applicant's shirt pocket, even though the applicant says he has been a nonsmoker for 10 years. Which of the following statements best describes the producer's responsibility?

The producer should provide an agent's report to the insurer explaining what she observed.

Which of the following statements regarding policy dividends is CORRECT?

They are the difference between the gross premium charged and the actual experience of the insurer.

Which of the following statements about blanket accident and sickness insurance policies is NOT correct?

They can be issued on a group basis or an individual basis.

Which of the following statements about reinstated health insurance policies is CORRECT?

They only cover illnesses that began more than 10 days after the policy is reinstated.

Which of the following statements regarding a spousal rider to a life insurance policy is NOT correct?

This rider usually provides coverage that lasts as long as the coverage that is provided through the base policy.

The insurer under a health policy is liable for which of the following losses?

Those sustained while under the influence of a prescribed medication

How can the cash value accumulation in a straight whole life insurance policy be accessed while the insured is living and while keeping the coverage in force?

Through a policy loan

When does a surviving family have the greatest need for income?

While the children are growing up

An insurance company that is owned by its policyholders, who share the insurer's divisible surplus in the form of participating policy dividends, is known as

a mutual insurance company Explanation A mutual insurer is an incorporated insurer owned by its policyowners, who hold policies as their evidence of ownership. It is common for mutual companies to sell participating policies, in which the policyowners share the insurer's divisible surplus in the form of policy dividends. Reference: 1.6.2 in the License Exam Manual

An insurer that issues participating policies is

a mutual insurer Explanation Mutual insurers have participating policies because the policyowners participate in the operating results of the company. Reference: 1.6.2 in the License Exam Manual

An individual may purchase a life insurance policy on all of the following persons EXCEPT

a neighbor

An unincorporated group of subscribers who operate through an attorney-in-fact to provide indemnity insurance for each other is called

a reciprocal exchange Explanation A reciprocal exchange is a type of cooperative insurance. Under this form of insurance, each policy owner is insured by all of the others. Each insured is also an insurer, because contracts are exchanged on a reciprocal basis. A reciprocal is managed by an attorney-in-fact. Reference: 1.6.4 in the License Exam Manual

In most states, all of the following are optional provisions in an accident and health insurance contract EXCEPT

a reinstatement provision

An insurer is NOT required to present an applicant with a copy of the Notice to Applicant Regarding Replacement of Accident and Health Insurance before issuing a(n):

accident only policy. major medical insurance policy. basic hospital policy. surgical-expense policy. Explanation An insurer or its agent need not present the replacement notice when selling or issuing an accident-only policy or single-premium nonrenewable policy. Reference: See State Supplement. This content is not in the License Exam Manual

The inclination of higher-risk individuals to be "first in line" to get and keep insurance is called

adverse selection. Explanation The inclination of higher-risk individuals to be "first in line" to get and keep insurance is called adverse selection. One of the purposes of underwriting is to identify and rate up or decline higher-risk individuals. Reference: 1.5.3 in the License Exam Manual

Which of the following terms correctly describes a life insurance company that is organized outside the United States or its possessions? A) Remote B) Distant C) Foreign D) Alien

alien Explanation An alien insurance company is one that is incorporated or organized under the laws of a foreign nation, province, or territory. Reference: 1.7.2 in the License Exam Manual

If an employer pays all the premiums for a group life insurance policy, the policy must insure

all eligible employees

Suppose an insurer offers coverage to a small employer in Illinois. This carrier must offer coverage to:

all of the employer's eligible employees and their dependents. certain eligible classes of employees of the employer only. certain highly-compensated employees of the employer only. all small employers in Illinois. Explanation If a small employer insurance carrier offers coverage to a small employer, the carrier must offer coverage to all of the employer's eligible employees and their dependents. The carrier may not offer coverage to only certain members of an eligible class of a small employer group, except in the case of a late enrollee. Reference: See State Supplement. This content is not in the License Exam Manual

Medicare supplement (or Medigap) policies pay

all or most of Medicare's deductibles benefits provided under Medicare Part A medical costs arising from extended custodial (nursing home) care benefits to those who cannot afford Medicare Part B coverage Explanation Medicare supplement, or Medigap, policies pick up coverage where Medicare leaves off. These policies supplement Medicare's benefits by paying most, if not all, coinsurance amounts and deductibles and paying for some health care services not covered by Medicare, such as outpatient prescription drugs. They do not cover the cost of extended nursing home care. Reference: 20.4 in the License Exam Manual

When a dental insurance plan requires that the insured and her dentist notify the insurer of proposed dental care, its purpose is primarily to

allow the insurer to determine if the dentist is an approved provider allow the insurer to predetermine and advise the insured of the amount of coverage the plan will provide for the proposed care help the insured better understand and appreciate the full costs of dental care give the insurer an opportunity to obtain a second opinion from a dentist of its choosing

A stop-loss feature in a major medical policy specifies the maximum

amount the insured must pay toward covered expenses

An assignment in which the assignee receives full control over the policy is called

an absolute assignment

Tina's grandparents purchased a $250,000 universal life insurance with the intent to permanently transfer ownership to her when she turned 21. What is that transfer of rights known as?

an absolute assignment

A managed health care system that finances and delivers health care services through contract providers is called

an accident and health guaranty association a contract health provider a health maintenance organization a major medical expense association

When applicable, all of the following forms require an applicant's signature EXCEPT

an agent's report

A commercial insurer can take all of the following forms EXCEPT A) an individual benefit society B) a mutual insurance company C) a fraternal benefit society D) a stock insurance company

an individual benefit society Explanation A commercial insurer is classified by its form of ownership and can be a stock insurance company, mutual insurance company, or fraternal benefit society. Reference: 1.6 in the License Exam Manual

All of the following are required provisions of group life insurance policies EXCEPT

an individual policy contract

The entire contract provision of a disability income policy defines the contract to include all the following EXCEPT

any riders the insurer may unilaterally add to the policy in the future

Susan is the receptionist at an insurance agency. She is currently studying for her life insurance license. One day at lunchtime, Carla comes in the office to pay her auto insurance premium. Susan talks to her about the importance of life insurance, and Carla immediately completes an application and gives Susan a check for the premium. Carla leaves the agency believing she is covered by life insurance. Susan has acted with

apparent authority Explanation Carla was led to believe that Susan had the authority to issue the policy because she accepted the application and premium. Even though Susan does not have the authority to write the contract, the insurance company may be legally bound to provide coverage. Reference: 1.9.1 in the License Exam Manual

Unlike corporate dividends, insurance policy dividends

are not considered taxable income

Skilled nursing long-term care is provided

around the clock only in hospitals intermittently only in assisted living facilities Explanation Skilled nursing care is provided on a 24-hour basis and may only be performed by licensed nurses under a doctor's orders. This is often referred to as facility-based care. Reference: 21.5 in the License Exam Manual

If the insured and the beneficiary of the insured's life insurance policy both die simultaneously, the policy proceeds will be distributed

as if the insured had survived the beneficiary

All of the following may be done to determine insurability in regard to AIDS EXCEPT

asking questions regarding the applicant's sexual orientation

All of the following are dividend options EXCEPT

assigning dividends to pay off a mortgage

While Debby was out of the country on vacation, she forgot to pay her life insurance premium, missed the grace period and wants to reinstate her policy. Which of the following is NOT a condition of reinstatement?

assignment of a new beneficiary

An individual who chooses not to enroll in Part B when first applying for Medicare may do so

at any time after enrolling in Part A on the anniversary of his Part A enrollment date during an annual open enrollment period between July and September of each year Explanation Applicants can choose to enroll in Part B of Medicare during the open enrollment period each year, from January 1 through March 31. Coverage then begins the following July 1. Reference: 20.3.3.1 in the License Exam Manual

With a life insurance contract, an insurable interest must exist

at the inception of the contract

Insurable interest must exist between the policyowner and the insured

at the time the contract is entered into

A contract based on the principle of indemnity

attempts to return the insured to his original financial position Explanation An indemnity contract pays an amount equal to the loss—it attempts to return the insured to his original financial position. In contrast, a valued contract pays a stated sum, regardless of the actual loss incurred, when the contingency insured against occurs. Reference: 1.10.2.7 in the License Exam Manual

All of the following are personal uses of life insurance EXCEPT

auto protection

Underwriting techniques commonly used by insurers in issuing policies to applicants who do not measure up to a standard rating include all of the following EXCEPT

averaging total risks pending

Underwriting techniques commonly used by insurers in issuing policies to applicants who do not measure up to a standard rating include all of the following EXCEPT

averaging total risks pending

One reason a plan may require employees to sign up within 31 days after the probationary period is to

avoid adverse selection

All of the following are activities of daily living EXCEPT

bathing eating dressing reading Explanation The activities of daily living include bathing, dressing, toileting, transferring, continence, and eating. Reading is not a measurement of a person's ability to live independently. Reference: 21.4.1 in the License Exam Manual

To enroll in an employer's qualified retirement plan, employees must

be at least 21 years old and complete 1 year of service

For a long-term care insurance policy to begin paying benefits, the insured must

be diagnosed as chronically ill receive skilled nursing care for at least 3 days be hospitalized for at least 3 days be diagnosed as terminally ill Explanation As a result of the Health Insurance Portability and Accountability Act of 1996, prior hospitalization can no longer be used as a benefit trigger for long-term care policies. Instead, the individual must be diagnosed as chronically ill. A diagnosis of chronic illness can be made on 2 levels: physical and cognitive. The illness must be expected to last a minimum of 90 days. Reference: 21.8 in the License Exam Manual

To be eligible for Social Security disability benefits, one of the requirements is that the person

be totally and permanently disabled for at least 5 months

Don just bought a new car. On the way home from the dealer, he had an accident and was disabled. Under the credit disability plan that he purchased at the time he picked up the car, the insurer will pay

benefits directly to the lender to cover Don's car payments while he is disabled

All of the following are standard modes of premium payments EXCEPT

biennially

Anna applied for a $2 million life insurance policy and paid the first premium but was later found to be uninsurable. The agent gave her a receipt that guarantees coverage until the insurer formally rejects her application. Which type of receipt did Anna receive?

binding

Health and accident insurance that covers special groups of persons who are not required to be named or fill out an application is called

blanket insurance

Funds held by an insurance producer in a fiduciary capacity

cannot be converted to an individual's or a firm's own use Explanation Money received by producers is generally held in a fiduciary capacity and, therefore, may not be misappropriated or converted to personal or company use. Reference: 1.9.2 in the License Exam Manual

After Joe died, Well Life Insurance Company discovered that he had misrepresented his health status when he applied for a life insurance policy 7 years ago. The insurer

cannot void or revoke the policy

Jane, age 35, has just purchased a 20-pay whole life policy. When she turns 55, she will

cease paying premiums

All of the following are optional provisions in an individual accident and health insurance policy EXCEPT

change of beneficiary

All of the following are mandatory health insurance policy provisions EXCEPT

change of occupation

All of the following are required uniform provisions in an individual health insurance policy EXCEPT

change of occupation

Individual accident and health insurance policies must contain all of the following provisions EXCEPT

change of occupation provision

An annuity contract owner has the right to do all of the following EXCEPT

change the interest rate

All of the following are rights of policy ownership EXCEPT

changing a policy provision with the agent's approval

All of the following are forms of unfair discrimination EXCEPT

charging one person a higher premium than someone else of the same age and sex because of a higher risk represented by that person

The time of payment of claims provision requires that

claims must be paid after the insurer is notified and receives the proof of loss

Applicants for licensing as insurance producers must meet all of the following requirements EXCEPT

comply with the bond requirement. be competent, trustworthy and have a good business reputation. be age 21. complete an approved prelicensing course of study. Explanation In order to qualify for an insurance producer's license, an applicant must be at least 18 years old. Reference: See State Supplement. This content is not in the License Exam Manual

Common exclusions in health insurance include all of the following EXCEPT

cosmetic surgery to repair a cleft palate

When Harry sells his car to his brother, Nate, he transfers his auto insurance policy to him as well. Harry's insurer will

disallow the process because auto insurance is a personal contract Explanation Auto and other property insurance policies are personal contracts, meaning they are made with a particular person and may not be transferred. Life insurance policies are valued contracts; they pay a certain value and are transferable property. Changing the owner of a life policy is called assignment. Reference: 1.10.2.5 in the License Exam Manual

Which of the following is NOT a business use of life insurance?

estate conservation

The premium cost for group insurance is generally based on

experience rating

An eligible applicant for Social Security disability benefits must meet all of the following qualifications EXCEPT

have had surgery within 30 days before applying for benefits

All of the following groups may contract with PPOs EXCEPT

health insurance benefit providers employers insurance companies government programs

Under a fixed-period life insurance settlement option, excess interest will

increase the size of the payments

Equity index life insurance policy values are determined by a specified participation rate and

indirect links to a stock market index

All of the following are required provisions of accident and health insurance policies EXCEPT

inflation protection

The payor benefit option or rider is typically used with

juvenile policies

A principal function of annuities is to

liquidate an estate

Oral or written statements that are false or derogatory to the financial condition of an insurer is

misrepresentation defamation rebating coercion Explanation Oral or written statements that are false or derogatory to the financial condition of an insurer is defamation. Reference: See State Supplement. This content is not in the License Exam Manual

The net premium is defined as

mortality minus interest

hich of the following is an incorporated insurer that does not have capital stock and has a governing body that is elected by its policyholders? A) Guaranty association B) Reciprocal insurer C) Mutual insurer D) Stock insurer

mutual insurer Explanation A mutual insurer is an incorporated insurer that is owned collectively by its policyowners, who elect its directors. Mutual insurers do not have capital stock. Stock insurers, on the other hand, are incorporated insurers with capital divided into shares that are owned by stockholders, while a reciprocal insurer is an unincorporated group of persons, or subscribers, who operate through a common attorney to provide insurance for each other. Reference: 1.6.2 in the License Exam Manual

With respect to life insurance policy beneficiaries, all the following are examples of a class designation EXCEPT

my sister Mimi and my nephew Rodolfo

Under a group life insurance plan, each employee has the right to

name their beneficiary

Underwriting for group health plans requires

no medical examination a lengthy probationary period during which no benefits will be provided a credit report on each insured a medical examination on each insured

Long-term care insurance policies sold in Illinois must include a renewability provision that is at least as favorable as a provision that makes the policy:

noncancelable (premiums cannot be increased). renewable at the insurer's option. guaranteed renewable (premiums may be increased). cancelable (insurers may cancel at any time provided a minimum of 30 days written notice is provided the policyowner). Explanation Long-term care policies sold in Illinois cannot be canceled or refused renewal. In other words, they must be "guaranteed renewable." Nevertheless, a policy may be canceled if the insured fails to pay premiums. Reference: See State Supplement. This content is not in the License Exam Manual

Certain perils, like war, are usually excluded from most insurance policies because they have the potential to adversely affect large numbers of insureds at the same time. This explains why one of the characteristics of an insurable risk is that the risk be

noncatastrophic Explanation Insurable risks must be noncatastrophic so insurers are able to pay for losses to the insured. If an event causes extensive damage to large numbers of insureds simultaneously, the insurer may not have the ability to pay all of the claims. Reference: 1.5.2 in the License Exam Manual

The privilege of accessing the cash value of an insurance policy if it is surrendered is known as the

nonforfeiture provision

A long-term care policy can be terminated because of the insured's

nonpayment of premiums age loss of physical capability deterioration of mental capacity Explanation Long-term care policies cannot be terminated on the grounds of the insured's age, deterioration of mental capacity, or loss of physical capability. Reference: 21.11 in the License Exam Manual

With employer-paid group health insurance, premiums are

not deductible for employers taxable for employees not taxable for employees not taxable for employers Explanation When an employer pays the premiums for a group health insurance policy, the premiums are not taxable for the employees and are deductible for the employer. Reference: 22.3 in the License Exam Manual

A captive agent who has an exclusive contract with an insurer may

not represent another insurer selling an identical policy Explanation It is unethical for a captive agent to represent 2 or more insurers selling the same policies. Reference: 1.8.1 in the License Exam Manual

When he was 45, Frank purchased a $40,000 5-year level term policy. When he died at age 52, his beneficiary Received

nothing

All of the following are life insurance policy provisions EXCEPT

notice of claim

The concept of agent confidentiality requires all of the following practices EXCEPT

notifying the applicant of a substandard rating decision by the insurer

Independent rating agencies evaluate all of the following factors of an insurer to assess their financial strength EXCEPT A) number of agents B) loss experience C) operating expenses D) Investments

number of agents Explanation While not all firms rate the same companies or use the same criteria, the main indicators of financial strength are the insurer's loss experience, reserves, investment performance, management, and operating expenses. Reference: 1.7.5 in the License Exam Manual

All of the following medical expenses are generally excluded from coverage under individual medical expense policies EXCEPT

nursing care in a hospital

If the insurer cancels policy, unearned premium will be returned to the insured

on a pro rata basis

Under Medicare Part A, the participant must pay his deductible

once per benefit period annually monthly twice per benefit period Explanation For Medicare Part A, the participant must pay his deductible once per benefit period. A benefit period starts when a patient enters the hospital and ends when the patient has been out of the hospital for 60 consecutive days. Once 60 days have passed, any new hospital admission is considered to be the start of a new benefit period. Thus, if a patient reenters a hospital after a benefit period ends, a new deductible is required and the 90-day hospital coverage period is renewed. Reference: 20.3.2.2 in the License Exam Manual

A grandfathered health policy is

one that existed prior to the Affordable Care Act

An insurance producer whose license is revoked or whose application for a license is denied will be ineligible to reapply for any license for:

one year. three years. five years. two years. Explanation An insurance producer whose license is revoked or whose license application is denied may not reapply for any license for three years. Reference: See State Supplement. This content is not in the License Exam Manual

All of the following are distinguishing characteristics of straight whole life policies EXCEPT

option to renew insurance

Which of the following types of dental treatment is usually excluded under a dental expense plan?

oral surgery teeth whitening fluoride treatments orthodontics

In a typical dental plan, one might expect all of the following types of treatments or procedures to be covered as routine care EXCEPT

orthodontics protective fluoride treatments local anesthetics semiannual oral examinations and teeth cleaning

Universal life is distinguished from whole life insurance in that

partial withdrawals can be taken from the cash value account

Sally, age 66, has accumulated 50 credits from working during the past 15 years. For Social Security purposes, this means that Sally is

partially insured fully insured ineligible for Medicare ineligible for full retirement and survivor benefits Explanation Sally is fully insured if she has accumulated the required number of credits, which in most cases is 40 (representing approximately 10 years of work). Because she is fully insured, Sally is eligible for full retirement, survivor, and disability benefits. Reference: 20.3.1 in the License Exam Manual

Insurance policies that pay dividends are referred to as

participating policies

Medicare supplement (Medigap) policies do NOT

pay for most or all Medicare deductibles and co-payments pay for extended nursing home care supplement Medicare benefits pay for some health care services not covered by Medicare Explanation Medicare supplement, or Medigap, policies supplement Medicare's benefits by paying most deductibles and copayments as well as some health care services that Medicare does not cover. They do not cover the cost of extended nursing home care. Reference: 20.4 in the License Exam Manual

All of the following statements about rebating are correct EXCEPT

paying a bonus to policyholders out of the insurance company surplus is not classified as rebating. any company or person convicted of a rebating violation will be guilty of a Class B misdemeanor. an agent or broker who is found guilty of rebating may not receive any commission for selling a policy associated with the rebate. while it is unlawful for an agent to give a rebate, it is not illegal for an insured or insurance applicant to accept a rebate. Explanation It is illegal for an insured or applicant to accept any kind of rebate or valuable consideration other than that which is specified in the policy. Reference: See State Supplement. This content is not in the License Exam Manual

Which life insurance policy provision refers to the prompt payment of the death benefit?

payment of claims

Floods, heart attacks, theft, and choking are all examples of

perils Explanation A peril is something that causes a loss. It can be within or beyond a person's control. Death, accidents, and sickness are also examples of perils. Reference: 1.3 in the License Exam Manual

All of the following are underwriting criteria for group health insurance EXCEPT

persistency composition of the group size of the group geographic location of the group

When an employer renews the group coverage with the same insurer year-to-year, this is known as

persistency plan design composition administrative capability

A mutual insurer is owned by its

policyholders Explanation Mutual insurers are owned by their customers, or policyholders. Reference: 1.6.2 in the License Exam Manual

A mutual insurance company is an incorporated entity owned by its

policyowners Explanation A mutual insurance company is an incorporated entity owned by its policyowners. Reference: 1.6.2 in the License Exam Manual

Self-insurance is

practiced by organizations that establish reserves to protect themselves against loss Explanation Self-insurance is a legitimate method of insuring loss by establishing one's own reserve of funds. Reference: 1.6.7 in the License Exam Manual

All of the following reforms began in 2010 under the Affordable Care Act EXCEPT

pre-existing coverage for all insureds, regardless of age

All of the following are methods to reduce hospital care costs EXCEPT

preauthorization and limits on length of stay nursing home benefits outpatient benefit utilization second surgical opinions

As a cost-containment method in medical plans, all of the following are examples of case management provisions EXCEPT

precertification provision second surgical opinion concurrent review reduction provision

All of the following are examples of medical cost management EXCEPT

precertification review ambulatory surgery mandatory second opinion denying claims

To be considered qualified, a long-term care insurance policy must conform to requirements concerning all of the following EXCEPT

premium charges marketing standards policy replacement policy conversion Explanation To be considered a qualified contract, a long-term care insurance policy must follow NAIC's long-term care insurance model regulations, which address the following: policy replacement, conversion, marketing standards, prohibitions on limits and exclusions, and policy renewability, among other things. These regulations do not address premium charges. Reference: 21.8 in the License Exam Manual

Accident and health insurance policy provisions that relate to all of the following must be disclosed in advertisements that are an invitation to contract EXCEPT

premium rates. renewability. cancelability. termination. Explanation Policy provisions that affect renewability, cancelability, termination and modification of premiums or benefits because of age or other reasons must be disclosed in advertisements that are a condition to contract and refer to specific benefits or cost. Reference: See State Supplement. This content is not in the License Exam Manual

For situations where no initial premium was paid when the application was taken, when delivering that policy the agent is generally required to do all of the following EXCEPT

present the insured with a conditional receipt

For situations where no initial premium was paid when the application was taken, when delivering that policy the agent is generally required to do all of the following EXCEPT

present the insured with a conditional receipt

In a health maintenance organization, the role of gatekeeper is performed by the insured's

primary physician claims adjuster insurance broker insurer

All of the following provisions in an individual health insurance policy are optional EXCEPT

proof of loss

ERISA was enacted to

protect the interests of participants in employee benefit and health plans

The purpose of the common disaster provision is to

protect the interests of the contingent beneficiary

All of the following are directly related to ERISA (Employee Retirement Income Security Act) EXCEPT

protecting participants and their beneficiaries' interests requirements regarding qualified pensions mandating standards for fiduciaries assistance with Medicare

An agent may do all of the following to comply with disclosure notification rules EXCEPT

provide a copy of the information disclosure procedures form to the state Department of Insurance

In major medical and comprehensive medical expense policies, a coinsurance provision

provides for percentage participation by the insured

The significance of a free-look provision is that it

provides life insurance policyholders with the right to return their policies for any reason within 10 days of delivery for a full refund of premiums

Credit health insurance

provides payments on loans that become due while the debtor is disabled

In contrast to traditional whole life insurance policies, term life insurance

provides pure insurance protection only

With group life insurance policies, standard provisions that apply to employees who join during the open enrollment period typically include all of the following EXCEPT

providing proof of insurability

All of the following events are allowable reasons to take an early withdrawal from an IRA and not pay a tax penalty EXCEPT

purchase of a vacation home

All of the following are examples of liquid assets EXCEPT

real estate

An example of an illiquid asset is

real estate

Paul is a single father with 2 young daughters. He has decided to give up his 2 favorite hobbies—skydiving and race car driving—because they are risky pursuits that could lead to his premature death. This method of dealing with risk is called

risk avoidance Explanation Paul has chosen to deal with the risk of dying prematurely by giving up his 2 favorite hobbies, race car driving and skydiving. This method of dealing with risk is called avoidance. Reference: 1.4 in the License Exam Manual

Beth and Talli's California neighborhood was ravaged by wildfires last summer. As a result, they installed a sprinkler system in their home to minimize damage in the event of a fire. This method of dealing with risk is called

risk reduction Explanation Installing a sprinkler system in a home is a method of reducing risk. Although the possibility that a home may catch fire cannot be avoided entirely, Beth and Talli can reduce the risk of loss due to fire by installing a sprinkler system. Reference: 1.4 in the License Exam Manual

The purpose of a health savings account is to

save for retirement provide funds to pay for the health care of dependents serve as a tax-favored way to accumulate funds to cover medical expenses shield assets for the purpose of qualifying for Medicaid Explanation The purpose of an HSA is to provide a medical savings plan that has tax advantages for taxpayers enrolled in a highdeductible health plan (HDHP). Contributions are tax deductible, earnings grow tax deferred, and distributions are taxfree when used to pay for qualified medical expenses. Reference: 22.6 in the License Exam Manual

Underwriting is a process of

selecting, classifying, and rating risks

Long-term care policies can limit or exclude coverage for all of the following EXCEPT

self-inflicted injuries treatment provided without cost to the insured alcoholism or drug addiction a family history of a heart condition Explanation Long-term care policies cannot exclude or limit coverage by type of illness, treatment, medical condition, or accident. They exclude war or acts of war, alcohol or drug abuse, self-inflicted injuries, treatment provided at no cost to the insured (i.e.; veteran's hospital), and mental illness and nervous disorders for which there is no demonstrable organic cause. Dementia, Alzheimer's disease and other organic-based mental illnesses are covered. Reference: 21.7 in the License Exam Manual

The premiums insurance producers receive from insureds must be kept

separate from any personal funds Explanation All premiums received by an insurance producer are funds received and held in trust. Insurance producers must keep these funds separate from their own personal funds, including any business accounts the producer may have. Reference: 1.9.2 in the License Exam Manual

Lawrence signed an application for a life insurance policy on September 2 and took a required medical exam on September 4. He gave the agent a check for the initial premium and received a conditional receipt at the time of application. The policy was issued as originally applied for and the agent delivered the policy to him on October 15. The earliest effective date for Lawrence's insurance policy would be

september 4

Individual life insurance policies can exclude benefits if death occurs as a result of any of the following EXCEPT

suicide, if within 5 years from the date of policy issue

Making appropriate product recommendations based on the needs, objectives, and circumstances of a client is referred to as

suitability considerations Explanation One aspect of an agent's fiduciary duties is to provide product recommendations to clients based on how suitable the features and benefits are to meet their goals. Reference: 1.9.2 in the License Exam Manual

As defined by law, the term advertisement covers all of the following EXCEPT

television scripts. an insurance policy. prepared sales talks. training materials for insurance sales personnel. Explanation The term advertisement is broadly defined to include printed and published material, descriptive literature used in direct mail, newspapers, magazines, radio and television scripts, billboards, prepared sales talks and presentations, as well as other material used for recruiting, training, and educating sales personnel. The insurance policy itself, however, is a legal document; specifically, a contract. Reference: See State Supplement. This content is not in the License Exam Manual

With an optionally renewable policy, the insurance company reserves the right to

terminate coverage at any policy anniversary date or premium due date

When indebtedness is discharged before the scheduled maturity date, credit insurance is

terminated and a refund is paid to the insured

After a family's breadwinner dies, the blackout period generally can be defined as the period

that begins when the youngest child turns 16 and ends when the surviving parent reaches age 60

All Medicare supplement policies must cover 100% of the Part A hospital coinsurance amount for each day used from

the 45th through the 90th day in any Medicare benefit period the 30th through the 90th day in any Medicare benefit period the 61st through the 90th day in any Medicare benefit period the 1st through the 60th day in any Medicare benefit period Explanation All Medicare supplement policies must cover the core basic benefits that Plan A covers. This includes covering 100% of the Part A hospital coinsurance amount for each day used from the 61st through the 90th day in any Medicare benefit period and 100% of the Part A hospital coinsurance amount for each Medicare lifetime inpatient reserve day used from the 91st through the 150th day in any Medicare benefit period. Reference: 20.4.1 in the License Exam Manual

The entire contract in health insurance includes all of the following EXCEPT

the Buyer's Guide

The entire contract of an individual health insurance policy includes all the following EXCEPT

the Buyer's Guide and any riders

A producer owes a fiduciary responsibility to all of the following EXCEPT A) the Commissioner for license fees B) the insured, on canceled policies C) the insurer, for premiums due D) the prospective purchaser of insurance, when the application is rejected

the Commissioner for license fees Explanation A producer is in a position of financial trust to the insurance buyer and the insurer. Therefore, a producer must promptly remit all premiums and other insurance proceeds to the insurer. Any money that is held on behalf of an applicant or insured, such as premiums on an application or a canceled policy, must be returned to the applicant or former insured. No such relationship exists between the producer and the Commissioner or Director of Insurance within a state. Reference: 1.9.2 in the License Exam Manual

ERISA requires certain information concerning group insurance plans be made available to all of the following EXCEPT

the Department of Commerce plan participants and their beneficiaries the IRS the Department of Labor

Variable life insurance policies are regulated by

the SEC, FINRA, and the states

An annuity has 2 phases: the annuitization phase and

the accumulation or pay in phase

The time during which funds are being paid into an annuity is called

the accumulation period

All of the following statements regarding the insuring agreement are true EXCEPT

the agent or producer must sign the clause

The needs approach can be used to determine all of the following EXCEPT

the amount needed to replace the breadwinner's projected increasing annual Salary

Keenan has coverage with two separate insurers that provide similar benefits. If he has a loss,

the amount paid by the two insurers will be prorated and Keenan will be refunded any excess premium.

All of the following are factors that determine the annuity benefit amount EXCEPT

the annuitant's tax bracket

The period during which annuity benefits are received is called

the annuitization period

If there are changes to an insurance application due to an error in information, who must initial the corrections?

the applicant

An insurer will use all of the following to determine if a person should be issued a policy EXCEPT

the applicant's work history

A mortality table reflects

the average number of deaths that will occur during a given year for a given age group of individuals

Alexandria assigns her $10,000 life insurance policy to a bank as collateral for a loan. The assignee is

the bank

Each application for life insurance requires the signature of all of the following EXCEPT

the beneficiary

If a business entity purchases disability insurance on the lives of the businessowners to fund a disability buyout,

the business cannot take a deduction for the premiums paid the business can take a full deduction for the premiums paid the businessowners can take a deduction for the premiums paid the business can take a partial deduction for the premiums paid Explanation If a business entity is the purchaser, policyowner, beneficiary, and premium payor of disability insurance covering the lives of its businessowners, the premiums are nondeductible. However, the proceeds are exempt from regularly calculated income tax. Reference: 22.5 in the License Exam Manual

If a company buys disability buy-sell insurance,

the business must pay tax on the benefits received the businessowners must pay tax on the benefits received the premiums are deductible by the businessowners the premiums are not deductible by the business Explanation A business cannot deduct premiums paid for disability buy-sell insurance, but the benefits received are not taxed. Reference: 22.5 in the License Exam Manual

With interest-sensitive whole life insurance,

the cash value fluctuates in accordance with interest rates

Variable life insurance policies are regulated by the Securities Exchange Commission and FINRA because

the cash values are tied to the actual performance of investment funds

When marketing long-term care insurance, the insurer or agent must consider

the commission amount possible referral business if the insured is likable the suitability of the purchase Explanation One of the marketing standards for long-term care insurance is considering whether the purchase of a policy is suitable for the applicant's needs, objectives, and circumstances. Reference: 21.12.1 in the License Exam Manual

If a company pays the premiums on a disability income policy covering a key employee,

the company can deduct the premium if the benefits are payable to the company the company receives benefits from the policy income tax-free the benefits received by the employee are not subject to tax the company cannot deduct the premium if benefits are paid to the key employee Explanation If a company pays the premiums on a disability income policy covering a key employee, the company cannot deduct the premium if the monthly benefit is payable to the corporation. The benefits received from the policy are not taxed. Reference: 22.5 in the License Exam Manual

Jake and Sue signed a contract in which Sue agreed to pay half of the life insurance proceeds to Jake if he murdered her estranged spouse. The contract between Jake and Sue would not be enforceable in court because

the contract lacks a legal purpose Explanation To be legally enforceable, a contract must have a legal purpose. This means that the goal of the contract and the reason the parties enter into the agreement must be legal. A contract wherein Jake agrees to kill Sue's spouse in exchange for half of the insurance proceeds would be unenforceable in court because the contract does not have a legal purpose. Reference: 1.10.1.1 in the License Exam Manual

James signed an application for a $50,000 life insurance policy and paid the first premium on October 1. The agent issued a conditional receipt. A week later, James took the required medical examination and was found to be insurable. If he dies before the insurer approves the application,

the coverage will be retroactively effective

The mode of premium payment refers to

the frequency of the payment

The loaded premium is

the gross premium

The amount of an annuity payment depends on all of the following factors EXCEPT

the insurer's reserves

Decreasing term insurance could be recommended for all of the following EXCEPT

to build a retirement fund

The owner of an annuity contract possesses all the following rights EXCEPT

to cancel a deferred annuity at any time and receive its full cash value

For a waiver of premium rider to become operative, the insured must be

totally disabled

With regard to insurance, risk can be defined as

uncertainty regarding loss Explanation Risk refers to the uncertainty of financial loss. Insurance replaces the uncertainty of risk with certain guarantees of financial stability. Reference: 1.3 in the License Exam Manual

To avoid adverse selection, insurers determine many different factors and rely on an extensive amount of information before issuing a policy. This process is called

underwriting Explanation Insurers use many different sources of information when evaluating a risk, using a process known as underwriting. Reference: 1.5.3 in the License Exam Manual

An applicant determined by underwriting to be declined would be

uninsurable at any price

With a participating life insurance policy, a policyowner may do all of the following with dividends received EXCEPT

use the dividends to pay overdue premiums from previous years

All the following are standard life insurance dividend options EXCEPT

using the dividend to increase the base whole life policy's face amount

When negotiating a contract of insurance, the parties make no attempt to conceal or disguise important facts or deceive each other. The contact is said to be one of

utmost good faith Explanation Insurance is a contract of utmost good faith. Both the policyowner and the insurer must know all material facts and relevant information. There can be no attempt by either party to conceal, disguise, or deceive. A consumer purchases a policy based largely on what the insurer and its agent claim are its features, benefits, and advantages. Reference: 1.10.2.3 in the License Exam Manual

Limited representatives can sell any of the following kinds of insurance EXCEPT

variable life

Mark and Steve signed a contract in which Mark agreed to apply for health insurance and Steve would submit fraudulent medical claims through his physician billing service. Mark and Steve plan to share the proceeds. The contract between Mark and Steve can best be described as

void Explanation Mark and Steve's contract would be considered a void contract because it lacks one of the elements specified by law for a valid contract. The contract has an illegal purpose (fraudulently submitting medical claims), and neither party to the contract can enforce it. Furthermore, no court would enforce its terms. Reference: 1.10.2.10 in the License Exam Manual

Workers' compensation covers income loss resulting from

work-related disabilities