ANWSER LIFE 1

For a 30-year-old insured, which of the following life insurance policies of the same face amount would lead to the fastest buildup of cash value?

20-pay life Explanation: Term life insurance does not have a cash value.

All of the following statements are true with regard to whole life insurance EXCEPT:

Cash value cannot be accessed until the insured's death. Explanation: In a whole life insurance policy, the policyowner owns the cash value in the policy and can access it through policy loans or by surrendering the policy.

Which statement about Medicare is correct?

Like Social Security, it is funded by payroll taxes. Medicare, like Social Security, is funded by payroll taxes. It is a federal program for those who are at least 65 years old, and it consists of Parts A, B, C, and D. President Lyndon Johnson signed it into law in 1965.

Regarding variable life insurance policy guarantees, which of the following statements is correct?

Only a minimum death benefit is guaranteed. Explanation: With a variable life insurance policy, the investment performance of the underlying subaccounts is not guaranteed, and the death benefit and cash value will vary in response to the subaccounts' changing values. The insurer guarantees a minimum death benefit, usually the face amount of the policy at issue, but that's it. The cash value is not guaranteed.

Sophia owns a small publishing company and is covered by a business overhead expense policy. After suffering a disabling injury, the policy pays a $10,000 monthly benefit. How must the benefits be treated for tax purposes?

The benefits are fully taxable in the year received. Explanation: This insurance is an ordinary and necessary business expense, so premiums are tax-deductible. However, benefits are taxable income.

Which condition must exist for a risk to be considered insurable?

The loss must be ascertainable. Explanation: An ascertainable loss can be covered because it can be measured and determined with some degree of cert

Under a health insurance policy's intoxicants and narcotics provision, a health insurer may exclude insurer liability if which of the following occurs?

a loss results from intoxication or the use of non-prescribed narcotics Explanation: A health insurance policy may contain a provision that excludes insurer liability if a loss results from intoxication or the use of narcotics not prescribed by a physician.

A life insurance policy rider that provides an additional amount of insurance if the insured dies as a result of an accident is called a(n):

accidental death benefit rider Explanation: An accidental death benefit rider provides an additional amount of insurance if the insured dies as a result of an accident. The additional amount is typically double or triple the amount of the base policy's face value.

An errors and omissions insurance policy protects the:

agent or producer Explanation: Errors and omissions, or E&O insurance, covers injuries and losses incurred as a result of services that an insurance agent renders or fails to render.

Disability products that are marketed to blue-collar workers and manual laborers typically contain which definition of total disability?

any occupation Explanation: The own occupation definition of disability is normally available only in policies marketed to professional and white-collar employees.

Benefits paid through a life insurance policy's accelerated benefits rider:

can be used for any purpose Explanation: Though intended to help cover living and medical care expenses, accelerated benefits funds can be used for any purpose.

What type of insurance is most commonly used with credit life insurance?

decreasing term insurance Explanation: Designed to match the declining loan balance, decreasing term life insurance is most commonly used with credit life insurance.

All the following are types of disability insurance designed exclusively for business owners EXCEPT:

individual disability income insurance

As beneficiary of her husband's life insurance, Beth chooses to receive payments for life. However, she is guaranteed that the payments will be made for ten years. Beth has chosen which of the following settlement options?

life income with period certain Explanation: Under the straight life income option the policy's proceeds are converted into payments that are made for the life of the payee. The payments stop upon his or her death.

The concept of adverse selection refers to:

likelihood of consumers who are in poor health to seek insurance Insurers must account for the possibility that most applications they receive for individual health insurance represent people who are more at risk. This concept is known as adverse selection.

When determining whether a prospect is an insurable risk for an individual disability income policy, the producer need NOT inquire about the:

location of the prospect's business During the underwriting process, an insurer will consider the applicant's medical history, occupation, and earnings, among other factors. It will not consider where a person's business is located.

Placement, layering, and integration are steps in what kind of financial activity?

money laundering Explanation: Money laundering generally involves three stages: placement of illicit funds, layering through the purchase of financial instruments including life insurance, and integration back to the criminal.

What is the consideration that the insured gives in exchange for the insurer's promise to cover losses under an insurance policy?

premium payment Explanation: The consideration clause establishes that in exchange for the consideration paid, the premium, the insurer promises to indemnify the insured against loss covered by the terms of the policy.

Which is not a means of regulating the insurance business?

producer peer review Explanation: Producers do not regulate themselves. Regulation of insurance is now principally in the hands of the individual states, though the federal government and the industry itself have roles in this regulation.

A third-party administrator (TPA) is associated with what type of health care plan?

self-insured Self-funded plans often use the services of an insurance company to act a third-party administrator of the plan. Insurers may provide such services without responsibility for claims payment under an Administrative Services Only (ASO) contract. A PPO contracts with a sponsoring organization' an employer, an insurer, or a third-party administrator' to provide health-care services to members of the organization.

A group disability income plan with a maximum benefit period of less than two years is considered what type of plan?

short-term disability plan Explanation: Group plans with maximum benefit periods of less than two years are short-term disability plans. Those with maximum benefit periods of two years or more are long-term disability plans.

Jessica purchased an annuity with a single $175,000 premium payment, and payments began one month later. Based on these facts, what type of annuity did she purchase?

single premium immediate annuity Explanation: An immediate annuity, purchased for distribution purposes only, can only be purchased with a single premium. A person who buys an immediate annuity exchanges a single large premium for an immediate stream of income.

An insured may require professional medical or nursing assistance at any time. What level of long-term care might be appropriate for this person?

skilled nursing care Explanation: Skilled nursing care is continuous, 24-hour care delivered by licensed medical professionals. It is usually delivered in a nursing home.

Carol was 35 when she bought her deferred annuity. Now, at age 38, she wants to withdraw funds from the contract to take a vacation. Carol is likely to encounter all of the following consequences in making the withdrawal EXCEPT:

statutory minimum withholding requirements Explanation: Carol is under age 59', so the withdrawal will be subject to a 10 percent premature distribution penalty tax. The withdrawal is also subject to last in-first-out (LIFO) income tax treatment and to surrender charges. There are no statutory minimum withholding requirements.

What type of life insurance company is owned by its stockholders?

stock company Explanation: There are no "universal insurance" companies; the term refers to a type of life insurance.

For any given life policy death benefit amount, which of the following settlement options generally provides the largest monthly income to the payee?

straight life income settlement option Explanation: For any amount of proceeds, the straight life income option normally provides the largest income to the payee.

In a collateral assignment, current policyowners may (or must) do all the following, EXCEPT:

surrender the policy Under a collateral assignment, the policyowner keeps most of the rights in the policy, including the right to change beneficiaries.

Which of the following is NOT a mandatory provision for an individual life insurance policy issued in Texas?

ten-day grace period Life insurance policies (except single premium policies) must have grace periods of at least one month or 31 days.

Who normally owns life insurance used to meet business insurance needs?

the business Explanation: Life insurance used to meet business insurance needs is normally owned by the business rather than the insured executive or employee.

Petra is self-employed and pays premiums each year for medical, dental, long-term care, and disability income insurance. She can fully deduct the premiums paid for all of the following policies EXCEPT:

the disability income policy Explanation: A self-employed person can take an income tax deduction for 100 percent of the premiums paid for medical, dental, and long-term care insurance. This does not include personal disability income insurance.

With a key person life insurance policy, who is the owner of the policy?

the employer Explanation: With a key employee life insurance policy, the business applies for, owns, and is the beneficiary of the policy covering the life of a key employee.

Mary wants to change the beneficiary of her life insurance policy. As her agent, you inform her that she may do so only if:

the existing beneficiary designation is not irrevocable Explanation: While difficult to see why a person would not want to be named a policy beneficiary, it is not necessary to obtain a person's permission to name him or her as a beneficiary.

The assumed interest rate (AIR) of a variable annuity is which of the following?

the expected rate of return during the annuitization period Explanation: The assumed interest rate is the rate of interest or rate of return that the contract's values are assumed to earn over the annuitization period. It is usually conservative, in the range of 3 to 5 percent.

All the following riders are available with life insurance policies EXCEPT:

the guaranteed dividend rider The guaranteed insurability rider guarantees that the policyowner can buy additional permanent life insurance on the insured's life in the future. He or she can do so without proof of insurability.

Which of the following correctly describes the people who can be covered under an individual or group insurance plan?

the insured, the insured's spouse, and the insured's dependent children only Explanation: Health insurance policies can cover an individual or an entire family under a single plan. Those eligible for family coverage typically include the primary insured, spouse, and dependent children.

Which does a basic physician expense policy specify?

the maximum benefit per visit, and a maximum number of visits per injury or illness Explanation: A limited choice of providers plan may require that insureds receive medical care from certain providers if the cost of the care is to be covered, but medical expense (indemnity) plans usually do not include this limitation.

Which one of the following is included in an employee's taxable income?

the value of any group life insurance exceeding $50,000, less any premiums the employee pays Explanation: The value of any group life insurance exceeding $50,000, less any premiums he or she pays, is included in the employee's taxable income.

Which one of the following types of life insurance lets the policyowner change the premium amount?

universal life insurance Explanation: Some policies, including adjustable life insurance, universal life insurance, and variable universal life insurance, have a flexible premium structure that lets the policyowner change the premium payment amount at will within a range set by the insurer.

At the time coverage ends for any covered child, the child can convert the coverage to any permanent life insurance policy the insurer is then issuing without further proof of insurability.

viatical settlement A terminally ill person can cover medical expenses through the use of a viatical settlement.

Blake has a vision care policy, while Tom has a policy that covers a variety of medical services. Which statement is correct?

Blake owns a limited care policy, while Tom owns a comprehensive policy A limited care policy is limited to a specific form of care, such as vision care or dental care only. A comprehensive policy covers a variety of conditions or medical services and will cost more than a limited care policy.

Raphael is an agent for ABC Insurers and refers a prospective client to Dana, an agent at XYZ Insurers. Which of the following statements about commissions in this case is correct?

Dana can legally share her commission with Raphael under Texas law. Licensed agents can share commissions with other licensed agents, for example, if one refers business to another.

How do employers contribute to a medical savings account (MSA)?

Employers can contribute to MSAs under the same principles that apply to health savings accounts. Employers can contribute to MSAs under the same principles that apply to health savings accounts.

Chris is a licensed life insurance agent. If he wants to sell variable life and annuity products, what else must he have?

FINRA Series 6 or 7 registration While some though not all states have a state securities registration requirement, producers in all states must have a FINRA Series 6 or 7 registration if they want to sell variable insurance products.

All of the following statements about health savings accounts (HSAs) are correct, EXCEPT:

Group HSAs must be entirely employee-funded. If an employer offers an HSA, employees must first have a high-deductible, high-cost insurance plan and set up an HSA account.

Adam bought an individual disability income policy with a social insurance supplement (SIS) rider. If he becomes disabled and is eligible for Social Security disability benefits, what will happen?

He will receive benefits under the SIS rider while he is waiting for his Social Security disability benefits to begin. A social insurance supplement (SIS) rider (also known as a Social Security rider) pays an additional monthly benefit before social insurance program benefits begin.

Who does NOT appear to need long-term medical care?

Lucy, who is recuperating from a severe back sprain Long-term care services are required by individuals who have lost some capacity to care for themselves because of a disabling condition or a chronic illness. A severe back sprain, though acute and temporarily disabling, is not a condition that fits this definition.

Mark has satisfied the requirements to reinstate his lapsed health insurance policy, but after 45 days has still not heard from his insurer about his reinstatement request. Which of the following will happen?

Mark's policy is automatically reinstated. If no notice is given during that period, the policy is automatically reinstated.

Which of the following best illustrates the intended use of an annuity?

Maura purchases an annuity to convert a sum of money into a series of payments to herself. The purpose of annuities is to liquidate a principal sum over a certain period by converting the funds into a series of income payments

Which of the following best describes the tax treatment of fixed annuity death benefit payments?

The beneficiary must pay taxes on any amount he or she receives that exceeds the sum of the premiums paid into the contract. Any amount the beneficiary receives that exceeds the sum of the premiums paid into the contract is taxable to the beneficiary.

The owner of a whole life policy who qualifies for accelerated benefits under the policy's accelerated benefits provision can expect to receive:

a percentage of (but less than) the policy's death benefit An accelerated benefits rider (or provision, if built into the policy) allows a payout of some portion of the policy's death benefit while the insured is still living. The typical provision allows up to 50 percent of the death benefit to be available, though some policies allow more.

Which of the following statements regarding participating life insurance policies is correct?

They are eligible for policy dividends. Participating life insurance policies are issued by mutual insurance companies.

Under Texas law, an individual life insurance policy may, but is NOT required to contain a(n):

accelerated benefit provision. An insurance policy can include an accelerated benefits provision or rider, but it is not mandatory.

Increasing term insurance has which of the following?

a level premium and an increasing death benefit With increasing term life insurance, the death benefit increases over the term and the premium normally remains level, though at a higher level than either level term or decreasing term.

When qualifying for Medicaid, the concept of "spending down" assets means that an applicant must:

almost exhaust his or her savings If personal assets are above the allowable limit, the applicant must nearly exhaust them before becoming eligible for Medicaid. This is referred to as spending down.

Under Section 1035, all of the following tax-free exchanges are allowed, EXCEPT:

an annuity for a life insurance policy A life insurance policy can be exchanged for another life insurance policy.

Abby, who lives in New Mexico where she is a licensed life insurance agent, wants to apply for a nonresident license in Texas. To do so, she must submit which of the following to TDI?

an application, fee and letter of certification from her home state The Texas Department of Insurance has waived the fingerprint requirements for nonresidents.

Most major medical policies have which of the following types of deductibles?

annual deductibles Most major medical policies have per-year deductibles, not monthly deductibles. The insured must pay the full deductible each year. After the annual deductible is paid, the insurer pays any claims the insured submits for the rest of the year.

In an absolute assignment, what term is used to describe the new policyowner?

assignee The assignor is the person, usually the policyowner, making the assignment.

If a small employer insurer decides to terminate all small employer health benefit plans it issues in Texas, it must notify the Texas commissioner and all affected employers of its intent to do so at least

at least 180 days before it ends coverage If a small employer insurer decides to terminate all small employer health benefit plans it issues in Texas, it must notify the Texas commissioner and all affected employers of its intent to do so at least 180 days before it ends coverage.

Dave owns a small business. He wants disability coverage that would pay routine business expenses if he is unable to work. What kind of insurance would suit this need?

business overhead expense insurance Business overhead expense insurance reimburses the company for certain business expenses if the business owner is disabled. Covered expenses may include utilities, leased equipment, office supplies, nonowner salaries, and rent.

The owner of a deferred annuity normally has the right to do all of the following, EXCEPT:

choose or change the income payout option before or after the annuity starting date During the accumulation stage, the owner can decide on the annuity starting date.

Which of the following provisions, found in all major medical insurance policies, states that the insured must pay a certain percentage of the covered costs after the deductible is satisfied?

co-insurance provision A stop-loss feature protects the insured by limiting the out-of-pocket dollar amount the insured must pay. This amount is usually defined annually.

A typical errors and omissions (E&O) policy covers all the following , EXCEPT:

completing and signing an application for an applicant without that person's knowledge Producers can get Errors and Omissions (or E&O) insurance to cover harm arising from non-willful actions a producer gives or failed to give. However, the policy will not cover willful fraud and other criminal acts.

When Kendra applied for coverage through the Texas Health Insurance Risk Pool, she was being treated for complications from diabetes. If she is issued a policy, the earliest that it will begin paying for expenses that she incurs to treat her diabetes will be

in 12 months. Because Kendra's diabetes is considered a pre-existing condition, the policy will not cover expenses that she incurs to treat her illness immediately.

Which type of health coverage pays benefits for the cost of medical care, providing coverage that ranges from limited to broad for all kinds of medical care?

medical expense Medical expense insurance provides benefits for the cost of medical care. Depending on the type of policy, coverage can range from limited to quite broad.

A producer who intentionally does not tell an applicant for long-term care insurance that the policy has a cap on the amount of benefits that it will pay so that the applicant will buy the policy thinking it will cover all of her long-term care expenses has committed:

misrepresentation False information and advertising involves publishing or otherwise disseminating to the public an advertisement or statements containing an untrue, deceptive, or misleading statement about the business of insurance or about a person who conducts the business of insurance.

What rights, if any, does an insured person have in a policy when another person owns the policy?

no rights In a third-party ownership situation, the insured under the life insurance policy generally has no rights under the policy.

Bailey owns a participating whole life insurance policy and received a $200 check when Best Insurers declared a dividend this year. How will this dividend payment be treated for income tax purposes?

not taxable Life insurance dividends are considered to be a return to owners of participating policies of unearned premiums they paid on their policies. The dividends are basically premium amounts that were more than what the insurer required to cover the costs of its liabilities and operations. For that reason, policy dividends are not taxable when they are paid in cash to a policyowner.

When classifying insurance risks, insurance underwriters most often use the:

numerical rating system Under the numerical rating system, credits are added for favorable risk factors. Debits are subtracted for adverse or unfavorable factors. This system has largely replaced the judgment method.

Kendra is covered by a group long-term disability plan. She is injured on the job and receives benefits under that plan. Which source of income will NOT affect her benefits?

personal savings If Kendra is covered by a long-term group disability plan, the benefit can be reduced by income received from other sources, such as workers' compensation.

Which is considered a pre-paid health plan?

preferred provider organization Under a prepaid health plan, the health-care provider pre-negotiates with the insurer the fees for a given service. The health-care provider bills the insurer directly rather than billing the insured. HMOs and PPOs typically use the pre-paid option.

The automatic premium loan (APL) provision does which of the following?

prevents a life insurance policy from lapsing if the policyowner fails to pay a premium The automatic premium loan prevents a policy from lapsing if the policyowner does not pay the premium; it does not function as the policyowner's emergency or opportunity fund.

The Fair Credit Reporting Act is primarily intended to:

regulate the use and disclosure of consumer credit information This describes the MIB, a cooperative exchange of life and health insurers that maintains a database of confidential medical information on applicants for life and health insurance who have been underwritten by a member insurer and found to have an identified medical impairment.

Medical savings accounts (MSAs) were specifically created for:

self-employed people and employees of small employers Medical savings accounts were created specifically for self-employed people and employees of small employers.

If an employer/employee group offers group life insurance on a contributory basis, what percentage of the group must enroll?

At least 75 percent of the group must enroll in the plan. If an employer/employee group life insurance plan is contributory, 50 percent of the group is not required to enroll in the plan.

In which of the following instances is a disability income insurance policy's 'other insurance with other insurers' provision likely to come into play?

the insured has coverage from a state's workers' compensation program The other insurance with other insurers provision applies to coverage with multiple insurers when the primary insurer knows of them. Often the insured is covered by a state's workers' compensation program.

Micki purchased a nonqualified deferred annuity with a $50,000 deposit. Ten years later, the contract has grown to $67,000, and Micki decides to withdraw $16,000 from the annuity. How much, if any, of the withdrawal is subject to income tax?

$16,000 Explanation: Annuity withdrawals are now treated on a last-in/first-out (LIFO) basis: that which is last put into the contract is deemed first to be withdrawn. Therefore, the full amount of Micki's withdrawal will be subject to tax because it is deemed to be a withdrawal of interest earnings.

How long is the typical life insurance policy's free-look period?

10 days Explanation: While 10 days is the standard life insurance free look period, variable life insurance policies usually have a free-look period that is the later of 10 days from policy delivery or 45 days from when the application was completed and signed.

Before revoking an insurer's certificate of authority in Texas, the TDI commissioner must first give the insurer notice of at least

10 days If the commissioner determines that an insurer's certificate of authority needs to be revoked or modified, he or she must first give the insurer at least ten days' notice and explain the reasons for doing so.

In setting up a viatical settlement, the provider pays the policyowner a lump-sum payment that is typically in the range of:

50 to 80 percent of the policy's face amount Policyowners do not need a viatical settlement to access their policy cash values, which are always 100 percent owned by the policyowner.

With respect to qualifying for Social Security Disability Income benefits, which of the following statements is correct?

A 5-month waiting period must be met before Social Security disability benefits begin. Explanation: To be eligible for disability benefits under Social Security, a worker must meet the program's definition of totally disabled, which requires him or her to be unable to work in any gainful occupation.

Which statement is correct about the optional coverage that a health insurance policy provides?

A policy will not cover medical losses that arise from the insured's intoxication. Explanation: While most health insurance policies exclude coverage for losses resulting from intoxication or being under the influence of an illegal narcotic, this is an optional provision. All other provisions described here are mandatory.

Which of the following statements about the conversion provision in group life insurance policies is correct?

A terminated employee is covered for 31 days following the termination date even if he or she has not applied for a conversion policy. Explanation: If a terminated group life participant dies within the 31-day conversion period, the group life death benefit is payable even if the participant has not yet applied for conversion.

Liz earns a gross salary of $3000 per month and is covered under her employer's group disability income policy. She becomes totally disabled and receives a monthly benefit payment of $1,800 per month. The benefit does not match her original salary because

Aa DI policy will not replace full gross income, since doing so promotes malingering. Explanation: Disability income benefits do not replace the insured's full salary, since doing so promotes malingering. The benefit is typically 60 to 75 percent of pre-disability earnings.

All of the following statements regarding deferred annuities are True EXCEPT:

Accumulated funds cannot be accessed until the payout period. Explanation: Funds in a deferred annuity belong at all times to the owner. The insurer cannot withhold the funds or refuse to honor the owner's request.

Which of the following is most likely to be considered a preferred underwriting risk?

An applicant who has excellent health, works in a business office and whose family has a very good health history. Explanation: This applicant may be insurable as a standard risk but does not rise to the level of preferred risk due to a risky job and poor family health history.

An individual can set up a health savings account (HSA) and buy a high-cost insurance policy. What is another way to set up an HSA?

An employer can set up an HSA plan for the benefit of its employees. Explanation: An employer can set up an HSA for the benefit of its employees. Groups of people cannot set up their own accounts.

Which statement about maximum benefit periods in disability income policies is NOT correct?

Benefit periods in short-term disability income policies are limited to five years. Maximum benefit periods can be as short as one or two years or as long as the insured's lifetime. Common benefit periods are six months, two years, five years, to the insured's age 65, or for life.

For taxation purposes, the term "self-employed person" includes all of the following EXCEPT:

C corporation stockholders The term "self-employed person" for taxation purposes includes sole proprietors, partners, and S corporation owners.

All the following statements regarding a life insurance policy's cost-of-living (COL) rider are correct EXCEPT:

COL riders are best suited for universal life insurance policies. Explanation: A cost of living (COL) rider is tied to an inflation index such as the Consumer Price Index (CPI). As the CPI increases, so does the policyowner's coverage. Proof of insurability is not required for the increased coverage.

All of the following statements about health insurance reinstatement provisions are correct, EXCEPT:

Claims resulting from sickness are covered immediately upon policy reinstatement Reinstatement is normally effective when the insurer notifies the insured.

The cost of living adjustment (COLA) rider adjusts the disability income benefit payments according to changes in the:

Consumer Price Index Explanation: A COLA rider adjusts the benefit payments according to changes in the Consumer Price Index (CPI). Benefit payments are not tied to changes in the Dow Jones Industrial Average.

The Department of Insurance issues certificates of authority to insurers wishing to market insurance products in Texas.

Income limits are determined by the state. In addition to being over age 65 without qualifying assets, if a Medicaid applicant has an income below the state limit, he or she qualifies for assistance.

Jason, age 27, is single, works for a small computer company, and earns $150,000 a year. Because the company does not have any retirement plan for its employees, Jason set up and contributed to a traditional IRA this year. Which of the following statements is correct?

Jason can deduct the full amount that he contributes to his traditional IRA. If Jason were covered by a qualified employer plan, he would not be able to take a deduction for his IRA contribution because his adjusted gross income is too high.

Mary lost her job on June 15. She wants to convert her group life insurance policy to an individual policy. To do so, Mary must apply for a conversion policy by:

July 16 Explanation: Conversions typically must be requested within 31 days following termination or retirement from the group.

Which association protects owners of life and health insurance policies issued by insurers who become financially unable to pay claims and benefits?

Life, Accident, Health and Hospital Service Insurance Guaranty Association The Life, Accident, Health and Hospital Service Insurance Guaranty Association provides protection for policyholders and claimants if an insurer suffers financial difficulty.

Janet has been continuously licensed as an agent in Texas for the past 25 years. Her friend, Steven, is a nonresident licensee in Texas and every year completes his state's continuing education requirements. When they ask you for advice on meeting the Texas continuing education requirements, you inform them that:

Neither Steven nor Janet needs to comply with Texas's continuing education requirements. Explanation: Janet is exempt from Texas' continuing education requirements because she has continuously held a license for at least 20 years. Steven is also exempt, provided that he has complied with his resident state's continuing education requirements.

Explanation: Regardless of their FRA, workers may start receiving benefit payments as early as age 62, but doing so will result in a permanent reduction of as much as 30 percent from the worker's PIA.

Neither a producer nor an insurer may use the existence of the guaranty association to sell insurance covered by the association. Explanation: Insurance producers and companies may not use the existence of the guaranty association to sell, solicit, or induce the purchase insurance covered by the association.

If an applicant for health insurance includes the first premium with the application , which of the following statements is correct?

The applicant has made an offer to the insurer. Explanation: A completed application and a premium payment constitute an offer from the applicant. The insurer accepts the offer by issuing the contract as applied for.

Mary and her husband Mark are covered by a group health insurance policy that provides health coverage for newborn children. Mary has a baby on March 1. Which of the following correctly describes the policy's coverage of the child?

The baby is covered by the policy from the time of birth. Mary and Mark's baby must be covered from the time of birth, and continue to be covered for 31 days, at which time a premium is due to continue the coverage.

All the following statements about family term riders with life insurance are correct, EXCEPT:

The family term rider covers multiple family members (spouse plus children) with term insurance based on their ages. Explanation: A family term rider is an alternative to either a separate spousal rider or separate children's rider.

While traditional major medical policies control costs through deductibles and coinsurance, HMOs control costs by imposing:

a small co-payment for each doctor visit or health service HMOs impose no deductibles for health care provided in their networks. In addition, they require only a small co-payment for each doctor visit or health service, such as $15 or $30.

When underwriting a group health insurance contract, a community rating considers the:

characteristics of the region in which the group operates Community rating examines the community or region in which the group operates. The premium is then based on the larger risk pool of that community or region.

Tom enrolled in Medicare Advantage when he first became eligible for Medicare Part B. If he is dissatisfied with Medicare Advantage, he can

disenroll from it and enroll in a Medicare supplement policy on a guaranteed issue basis within the first 12 months. Explanation: A person who enrolls in Medicare Advantage when first eligible for Medicare Part B has the right to disenroll from Medicare Advantage within the first 12 months and enroll in a Medicare supplement policy on a guaranteed issue basis.

In converting a term life insurance policy to a permanent policy, the premium for the permanent policy is determined on what basis?

either the attained age basis or original age basis Converting a term policy to a permanent policy can be done on either an attained age or an original age basis depending on the insurer.

Employee contributions to a 401(k) plan are known as:

elective deferrals Explanation: Employee contributions to a 401(k) are known as elective deferrals because the employee can choose whether to participate in the plan and to defer a portion of wages for retirement.

To renew a term life insurance policy at a lower rate than the guaranteed rate under the re-entry renewal method, what must the insured prove?

insurability Explanation: To get the lower re-entry rate, the insured must prove insurability at the time of renewal or at periodic intervals throughout the policy's term.

All of the following are prohibited insurer practices EXCEPT:

investigating insurance applicants Applicants must grant approval for insurers to access and use MIB information pertaining to them, something that is requested by the insurer in the application.

Billy's parents want to buy a juvenile life insurance policy for their son. What could they add to the policy to ensure that the insurance stays in force if a designated parent dies or becomes disabled?

payor benefit rider This is a made-up term.

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

policy loan Explanation: Nonforfeiture options are ways to obtain a life insurance policy's cash value if the policy is lapsed or surrendered. A policy loan does not involve the surrender of a policy.

A disability income benefit rider differs from a waiver of premium (WP) rider in that, unlike the WP rider, the disability income benefit rider:

provides a monthly income Explanation: The disability income benefit contrasts with the waiver of premium rider, which only waives the policy's premiums but provides no disability income.

Under the re-entry renewal method, an insured can renew a level term insurance policy at the end of the specified term at a lower rate than the guaranteed rate by doing what?

proving insurability Explanation: To get the lower re-entry rate, the insured must prove insurability at the time of renewal or at periodic intervals throughout the policy's term.

All the following are possible ways to access a universal life insurance policy's cash value EXCEPT:

with a policy loan Explanation: UL policyowners who want to access their policy's cash value can do so through a withdrawal (called a partial surrender) or a full surrender of the policy.

When a life insurance policy is being replaced, the replacing insurer must notify the current policy's insurer of that fact

within five business days of receiving a completed application Explanation: The replacing insurer must notify any existing insurer affected by the proposed replacement within five business days of receiving a completed application indicating replacement or the date of replacement, if it is not indicated on the application.

Kate bought a universal life policy with a $200,000 death benefit and chose death benefit option 1. In year five of the policy, she withdrew $50,000 from the policy's cash value. If she dies after withdrawing the $50,000, what will her beneficiary receive?

$150,000 If Kate withdraws $50,000 from her universal life policy, the specified amount will drop by $50,000.

Although stop-loss amounts vary by insurer and by policy, what is the usual range?

$2,000 to $5,000 a year Explanation: Stop-loss amounts are usually around $2,000 to $5,000 a year. Once an insured's deductibles and co-payments equal the stop-loss limit, the policy will pay 100 percent of all other covered costs for that year.

Pam is a 56-year-old vice president employed by Gulf, Inc. Under Gulf's employer-pay-all group life plan, Pam's coverage is $300,000. The value of what portion of that coverage is taxable to Pam?

$250,000 Explanation: The IRS Table I value of coverage in excess of $50,000 is a taxable benefit to the plan participant, who must include the amount in his or her income for tax purposes.

If the straight life income annuity purchase rate (APR) for an individual is $5.50, how much income can the annuitant expect and for how long will payments last with a $100,000 purchase?

$550 a month for life Explanation: Different for every age, gender, and settlement option, the annuity purchase rate (APR) is the amount of periodic income provided for every $1,000 of annuitized principal.

An insurance company that does business in a state other than the one in which it is domiciled is a foreign company in the other state.

$800 An employee is taxed on the percentage of the premium that an employer pays for a group disability income insurance plan. Dana will be taxed on 80 percent of her weekly benefit of $1,000, or on $800.

When does the free-look period for a variable life insurance policy end?

10 days after the policy is delivered, or 45 days after the insurance application is completed, whichever is later Explanation: The free-look period for a variable life policy generally ends 10 days after the policy is delivered, or it can extend for 45 days after the insurance application is completed, whichever is later. Some states require longer free-look peri

For how many days would a patient pay coinsurance under Medicare for a hospital stay that lasts 71 days?

11 days Medicare coinsurance starts after 60 days of hospitalization. In this case, the patient would need to pay coinsurance for the 61st through the 71st days.

Ted, Ella, Theresa, and Christian are equal partners in a small publishing company. If they enter into a cross-purchase buy-sell agreement and fund it with life insurance, how many policies will be needed?

12 Explanation: If there are 4 partners to a cross-purchase buy-sell agreement, 12 life insurance policies will be needed. This is determined by using the formula N * (N - 1), where "N" equals the number of partners or shareholders.

A health insurance policy with 'grandfather' status under the Affordable Care Act can typically exclude coverage for pre-existing conditions for how long after the policy's effective date?

12 to 24 months If a policy is exempt from the ACA, it does not need to cover losses from pre-existing conditions that occur within an initial period after the policy's effective date. That period is usually 12 to 24 months, depending on the language in the policy (and state law).

Ed had worked at ABC Computers for 15 years when he was laid off unexpectedly. To convert his group life insurance policy to an individual policy, Ed must apply for a conversion policy within how many days after being laid off?

31 Explanation: Under Texas law, Ed has more than 15 days after being laid off in which to apply for a conversion policy and pay the first premium.

In Texas, newborn children must be covered under their parent's accident and health insurance policy for how many days following birth, even if the policyowner has not reported the birth or made any required premium payments for the coverage?

31 days Explanation: Newborns are covered under their parent's accident and health insurance policy from the time of birth for 31 days even if an additional premium is required for additional insureds and the policyowner has not yet paid that additional premium.

Bryson Inc. has 150 employees and a contributory group health plan. Bryson finds that 100 of its employees are eligible to participate in the plan. How many employees must the plan cover?

75 Explanation: Contributory plans must cover at least 75 percent of eligible employees. Noncontributory plans must cover 100 percent of those who are eligible to participate.

How much advance notice must the insurer of a group health plan give the sponsor before terminating coverage?

90 days Insurers must notify plan sponsors of their intent to discontinue a group health plan at least 90 days before terminating the plan.

Which of the following statements about using testimonials or endorsements by a third party in insurance advertisements is correct?

Advertisements must state whether a person is being paid for endorsing the insurance product. Advertisements for insurance cannot state or imply that products are endorsed by the state or federal government.

Amanda used a basic illustration to help Mark, a potential client, understand how the cash value of his life insurance policy would grow. Mark then agreed to buy the policy. Which of the following best describes Amanda's duties with respect to delivering a copy of the illustration used?

Amanda must deliver a signed copy of the illustration to both Mark and the insurer. Amanda is not required to submit the illustration used to the Texas Department of Insurance.

Which of the following statements about agent/producer responsibilities is NOT correct?

As long as the applicant understands the life insurance product being recommended, it is not necessary for the agent to be concerned with the product's suitability for the applicant. Explanation: Producers are expected to determine the suitability of every insurance transaction, based on a careful analysis of the prospective customer's needs. All other statements are correct.

Which statement is true about contributory group insurance?

At least 75 percent of eligible persons must participate in the plan. Explanation: Under group contributory health insurance plans, the underwriter cannot discriminate among enrollees, and all must be accepted. A minimum level of company participation, usually 75 percent of eligible members, is required.

Joan bought a health insurance policy from Delta Insurers. Which statement describes the consideration that a party gave under the contract?

Delta promises to pay benefits when a stated future event occurs. Explanation: The applicant's consideration in the health insurance contract is the application and the first premium he or she pays. The insurance company's consideration is the promise to pay a benefit when a stated future event occurs.

Ella is an agent for State Industry Insurance Company in Texas. After meeting with several family members, she learns that they would like to buy some life and health insurance contracts from her company. Which of the following statements is correct?

Ella can sell insurance to her family members provided at least 25 percent of the total volume of her premiums comes from non-family members. Explanation: Ella can sell insurance policies to her family members provided that at least 25 percent of the total volume of her premiums is derived from persons other than herself and from property other than that which she or family members own.

Which statement about flexible spending accounts (FSAs) is NOT correct?

Employees can use the FSA funds to pay qualified medical costs as well as costs their employer's health plan covers. Explanation: An FSA is designed specifically as a group benefit that an employer can offer to its employees.

If a doctor sees both HMO members and non-HMO patients, the doctor is in what kind of provider network?

Explanation: An open panel network allows the health care providers to render services to persons who are not members of the HMO.

Producers who sell variable annuities must be licensed by:

FINRA and their state's insurance department While the assets underlying variable contracts are regulated by the SEC, producers who want to sell variable contracts must be hold either a FINRA Series 6 or Series 7 registration and a life insurance license in the state(s) where they do business.

Explanation: Skilled nursing care is continuous, 24-hour care delivered by licensed medical professionals. It is usually delivered in a nursing home.

Falcon Loans Explanation: Under a group credit life insurance policy, the creditor is the policyowner and beneficiary while the insured is the borrower. If the borrower dies before repaying the loan, the proceeds will be paid to the creditor.

Ginger operates an accounting business as a sole proprietor. She pays $1,600 each month in premiums for a medical insurance policy covering herself and her family. Which of the following statements correctly describes the tax treatment of this policy?

Ginger can deduct 100 percent of the premiums paid for her health insurance policy, and benefit payments are tax free. Explanation: Self-employed persons can fully deduct premiums paid for medical, dental, and long-term care insurance that covers them, their spouses, and their dependents. These deductions directly reduce taxable income as 'above the line' deductions. Benefit payments are tax-free.

Which provision is NOT optional in a health insurance policy?

Grace period Explanation: Optional health insurance policy provisions generally exist for the benefit of the insurer, whereas mandatory provisions generally exist for the benefit of the policyowner. Because it benefits the policy owner, the grace period provision is mandatory in all health insurance policies.

How can a life insurance policyowner use his policy's cash value to help fund his retirement without incurring any taxes on the transaction even if the cash value exceeds his basis in the policy?

He can use the cash value to buy an annuity through a 1035 exchange. Explanation: The policyowner's goal is not to pay taxes on his investment. The use of the cash value may be taxable if it exceeds his basis in the contract.

Insurers must account for the possibility that most applications they receive for individual health insurance represent people who are more at risk. This concept is known as adverse selection.

He must be diagnosed as chronically ill. Employment is not a prerequisite for owning long-term care insurance. However, to receive LTC benefit amounts tax free, the person must be diagnosed as chronically ill.

Tom owns several life insurance policies (none of which are modified endowment contracts). In which of the following events associated with his policies will there be a tax consequence?

He sells one of the policies to his brother (who is not the insured). Explanation: If a life insurance policy is 'transferred for value' (i.e., sold) to another party, a portion of the death benefit proceeds is taxable to the beneficiary.

Glen files a notice of claim with his health insurance provider. Of what, specifically, is he notifying his insurer?

He will be making a claim against the policy and that the insurer should send Glen the required claim forms. Explanation: It simply means that Glen will be filing a claim against the insured and needs claim forms from the insurer.

Which of the following correctly describes a lender's rights to require that a borrower buy credit life insurance when taking a loan?

In most states, lenders can encourage but cannot require borrowers to purchase credit life insurance of an amount not to exceed the value of the loan. Most states prevent creditors from forcing borrowers to buy credit life insurance. Upon issue, credit life insurance may not exceed the value of the loan

Which statement about health savings accounts (HSAs) is correct?

Instead of paying higher premiums for health insurance, the HSA owner and family can use the HSA to pay for qualified health-care expenses. Explanation: They are designed to finance, not avoid, the cost of health care.

With life insurance, for how long must insurable interest exist?

Insurable interest must exist only at the time the applicant enters into a life insurance contract. With life insurance, insurable interest need exist only at the time the applicant enters into the life insurance contract.

How does HIPAA protect the right of a small employer to buy group health insurance?

Insurers must permit groups of fewer than ten people to buy health insurance. Under HIPAA, health insurers must accept every employer that applies and qualifies for small employer coverage.

Which describes the basic concept of the health savings account (HSA)?

It combines a high-deductible, high out-of-pocket cost insurance plan with a tax-favored savings account. Explanation: An HSA combines a high-deductible, high out-of-pocket cost insurance plan with a tax-favored savings account.

Which of the following options best describes the basis upon which a fixed annuity's income payment amount is determined?

It is based on the annuitant's annuity purchase rate (APR) at the time of annuitization, which is the amount of periodic income provided for every $1,000 of annuitized principal. Explanation: Different for every age, gender, and settlement option, the annuity purchase rate (APR) is the amount of periodic income provided for every $1,000 of annuitized principal.

How does a health insurance policy's illegal occupation provision protect the insurer?

It lets the insurer deny liability when the insured's claim arises from an illegal activity in which he or she participated. Explanation: The illegal occupation provision lets the insurer deny a claim that arises from the insured's participation in an illegal activity.

Which statement is correct about benefit payments under a Blue Cross Blue Shield plan?

It pays the provider directly, with no claim form. Explanation: Under Blue Cross Blue Shield, the insurer pays the health-care service provider directly without requiring the insured to provide a claim form.

Nicole, age ten, is the insured in a traditional "jumping juvenile" policy with a $5,000 face amount. When she reaches age 21, what will most likely happen to the policy's face amount?

It will increase to $25,000. A jumping juvenile policy is typically issued in units of $1,000 of death benefit. When the insured child reaches age 21, the death benefit jumps to $5,000 per unit.

If a variable annuity's monthly payment amount is based on a 3 percent assumed interest rate (AIR), and the current NAV rate rises 4 percent, what impact will this have on the monthly annuity payment amount?

It will increase. Explanation: If the NAV rises greater than the AIR (meaning actual investment performance exceeds assumed performance), the annuity income amount will increase.

Ed and his spouse are 67 years old and retired. Their hospital and medical insurance is typically provided by:

Medicare Explanation: Medicare is a federal government program that provides hospital and medical insurance to people aged 65 and older.

Martha was covered by a $50,000 group life insurance policy through her employer. After losing her job and deciding to take an early retirement, she talked to her agent about converting the group policy to individual coverage. Her agent informs her correctly that

Martha can be issued a conversion policy with no more than $50,000 in coverage. Explanation: The individual policy can, at Martha's option, be any type of policy customarily issued by the insurer, except term insurance.

Mary pays for her life insurance with an annual premium. However, she is thinking of switching to a monthly premium plan. Which of the following best describes the consequence that will result if she changes her mode of premium in this manner?

Mary will end up paying more over time than if she continued paying annual premiums. Explanation: Insurers have to add lost interest, plus a processing expense factor, to any premium payable more frequently than annual.

A patient who has permanent kidney failure would be a candidate for which Medicare program?

Medicare Part A Explanation: Medicare Part A coverage is available for free to those under age 65 who have qualified for Social Security disability benefits for at least two years, have been diagnosed with permanent kidney failure (end-stage renal disease, or ESRD), or have been diagnosed with ALS.

Which of the following statements accurately describes the Medicare program?

Medicare is a federal health insurance program designed for people age 65 and over and for certain disabled people. Explanation: Medicare is a federal health insurance program designed specifically for people age 65 and over and for certain disabled people.

Nick enrolls in Medicare Parts A and B and is eligible for his state's Medicaid program. He incurs $500 in doctors' fees this month. How will this expense be paid?

Medicare will pay benefits first. Explanation: For Medicare beneficiaries who are eligible for their state's Medicaid program, Medicaid serves as the secondary insurer. Medicare is the primary insurer.

Which statement is correct about the coordination of benefits provision in group health insurance policies?

No insurer is required to reimburse benefits or coverages beyond those specified in the contract. Explanation: No insurer is required to reimburse for any benefit or coverages in excess of those specified in the contract.

Sue names Bill as the irrevocable beneficiary of her policy. Can Sue use the change of beneficiary provision to name another beneficiary within three years of the issue date?

No. She cannot make the change because an irrevocable beneficiary designation cannot be changed. Explanation: The change of beneficiary provision gives the policyowner the right to change beneficiaries at any time. However, a beneficiary can be changed only if the beneficiary designation is revocable.

State workers' compensation plans offer a variety of benefits to covered workers or their dependents and typically provide benefits for wage replacement benefits for disability, medical treatment, and vocational rehabilitation.

None of the proceeds are subject to income tax. The death benefits paid to the employee's beneficiary under a group life insurance plan are exempt from income taxes if they are paid in a lump sum. If paid under a settlement option, the interest portion of each periodic payment is taxable to the beneficiary.

Which statement about the any occupation definition of total disability and the own occupation definition is correct?

Policies with an own occupation definition of total disability are more expensive. Explanation: An own occupation definition of total disability is the most advantageous definition for an insured but is also the most costly. It is most costly because the insured is only required to be unable to perform the duties of his or her own profession rather than any profession.

All of the following statements regarding life insurance or annuity replacement are correct EXCEPT:

Policy replacement is illegal. Explanation: Replacement includes situations where an applicant buys a new life insurance policy or annuity and, at the same time, an existing life insurance policy or annuity is reduced in value using nonforfeiture benefits or other policy values.

Deloris is planning to buy a deferred annuity. When can she select a settlement option?

She can choose the settlement option when the deferred contract annuitizes or when she buys the annuity. Explanation: Deloris can choose from among all the available settlement options at the time she buys the annuity, or later.

Janet is a licensed life insurance agent in Texas and was so busy with her insurance practice that she forgot to complete all of her continuing education credits. How long is the grace period she has to make up the missing credits?

She cannot make up the missing credits. Explanation: Janet does not have six months in which to make up her missing continuing education credits.

With respect to the health insurance policy claims, which of the following statements is correct?

Some medical plans require preauthorization from the insurer before the insurer will cover the costs of a medical procedure. Explanation: When claiming benefits under a disability income policy, the insured will likely have to submit ongoing proof that he or she remains disabled to keep getting benefit payments.

In an owner-driven deferred annuity contract, what happens upon the death of the contract owner prior to annuitization if the annuitant is still alive?

The contract terminates and the death benefit is paid to the beneficiary. Explanation: An owner-driven contract terminates upon the death of the owner, triggering payment of the contract death benefit to the beneficiary, even if the annuitant is still alive.

Which of the following best describes how group life insurance premiums are treated for tax purposes?

The employer can deduct its premiums as a business expense, but employees cannot deduct their premium contributions. Explanation: While employer contributions are deductible as a business expense, employee contributions are not tax deductible, though they can help reduce the tax impact of employer contributions.

All of the following statements about annuities are generally correct, EXCEPT:

The historic purpose of annuities is to create estates over a certain period. Explanation: Annuities are not life insurance.

Eric's managed care plan states that he and his family must receive care from an approved network provider. If they receive care from an unapproved provider, what will happen?

The insurer may not cover the costs at all or may only partially cover them. Explanation: Rather than not cover the costs at all, the insurer may partially cover them.

As a collateral assignee, Ned has first claim on the policy for the amount of the assignment. In these cases, what happens to the death benefit if the policyowner dies?

The insurer pays the assignee the balance of the loan still owed out of the death benefit, and the rest of the death benefit goes to the beneficiary. If the policyowner dies, the insurer pays the assignee the balance of the loan still owed out of the death benefit. The rest of the death benefit is paid to the beneficiary.

With respect to the interest-only life insurance settlement option, what happens to the death benefit proceeds that the insurer was holding upon request by the beneficiary?

The insurer pays the proceeds, either in a lump sum or under one of the other settlement options. The insurer pays the proceeds either in a lump sum OR under one of the other settlement options.

Which of the following is an exception to the rule that a health insurer may deny a claim arising from the use of narcotics under a health insurance policy's intoxicants and narcotics provision?

The loss was sustained because the insured was under the influence of a narcotic administered on the advice of a physician. Explanation: The insurer is not liable for a loss sustained or contracted while the insured was intoxicated or under the influence of a narcotic unless it was administered on the advice of a physician.

Angela is the beneficiary of her mother's group life insurance policy. At her mother's death, Angela decides to receive the proceeds under a life with term certain settlement option. Which portion of the benefit payments, if any, will be subject to taxation?

The portion representing the interest on the death proceeds is taxable. The death benefits paid to the employee's beneficiary under a group life insurance plan are exempt from income taxes if they are paid in a lump sum. If they are paid under a settlement option, the interest portion of each periodic payment is taxable to the beneficiary.

Gina owns a $200,000 five-year renewable term insurance policy and wants to renew the policy at the end of the term. In this case, which of the following statements is correct?

The premium for this policy is higher than it would be for a non-renewable term life policy of the same face amount. Explanation: Renewable term premiums are higher than nonrenewable term life premiums to account for the guaranteed right to renew even if the insured has become uninsurable.

If a worker chooses to retire early under Social Security, what will happen to his or her benefits?

The worker will receive lower benefits than those retiring at full retirement age (FRA). Explanation: Regardless of their FRA, workers may start receiving benefit payments as early as age 62, but doing so will result in a permanent reduction of as much as 30 percent from the worker's PIA.

Which of the following statements about state and federal involvement in group health insurance is correct?

There are government-sponsored health insurance programs at both the state and federal level. Explanation: Health insurance is still regulated mainly at the state level.

All of the following statements regarding viatical settlement brokers are correct, EXCEPT:

They fund a viatical settlement on behalf of the viatical settlement provider. Explanation: Most states require viatical settlement brokers to be licensed.

What is another name for Medicare supplement policies?

What is another name for Medicare supplement policies? \Medicaid is a separate program, distinct from Medicare, which provides health care and health-related services to people with low incomes.

Which of the following statements about the delivery of newly issued health insurance policies to the customer is correct?

When delivering the policy, the producer should review the policy to ensure that its terms and conditions match those the client applied for. Explanation: Producers should personally deliver newly issued policies to their customers. They should (and, in some states, must) review the policy with the customer to be sure that its terms and conditions match those the client applied for. If the policy is rated or denied, the producer explains why.

A disability income policy's benefit period is the maximum period during which monthly benefits are paid for an insured's ongoing disability. Which of the following statements about benefit periods is NOT correct?

While benefit periods can vary, they cannot last for the duration of the insured's life. Explanation: A physician must care for the insured during the course of a disability and throughout the benefit period

XYZ Insurance has been charged with unfairly discriminating among insureds. Which of the following practices is unfair discrimination?

XYZ charged two individual insureds of the same class and risk different premiums for life insurance policies based on where they lived and their ethnicities. Explanation: Readjusting the premium rate retroactively for a group insurance policy based on the loss or expense experience at the end of a policy year is not unfair discrimination.

Medicare coinsurance starts after 60 days of hospitalization. In this case, the patient would need to pay coinsurance for the 61st through the 71st days.

a corridor of insurance protection that depends on the insured's age To qualify as life insurance, all UL policies must have a corridor of pure insurance protection, separating the cash value from the death benefit, so that the policy doesn't mature before age 95. Practically speaking, this only applies to death benefit option 1, since option 2 (increasing death benefit) always includes pure insurance protection in the death benefit.

An expense that the IRS considers a deductible medical expense is eligible for reimbursement from:

a flexible spending account Explanation: Any expense that the IRS considers a deductible medical expense is eligible for reimbursement from an FSA.

All of the following are eligible for group health insurance in the small employer market EXCEPT

a manufacturing business that employs 75 employees Explanation: While most states require at least ten employees for an employer to qualify for standard group health insurance, HIPAA requires every state to permit groups with fewer than ten people to buy group health insurance in the small employer market. Some states define a small group as 2 to 50 employees, while others define it as 1 to 50 employees.

When Matthew met with a potential client, he used a life insurance illustration to show how the policy's cash value would grow over the client's lifetime. Matthew could include all of the following in the illustration without violating Texas regulations EXCEPT

a statement that the policy is a type of investment and savings plan. When using an illustration to sell a life insurance policy, the agent cannot represent the policy as anything other than a life insurance policy.

The most comprehensive coverage of health-related risks can be obtained by buying:

a variety of insurance policies No one policy covers all possible risks. Instead, a single policy, or single plan, likely covers only a single risk, such as disability, medical expenses, long-term care, or dental care. Most people, therefore, own or are covered by several health insurance policies or plans.

The formal name for what is commonly called a 'double indemnity' rider is:

accidental death benefit rider Explanation: An accidental death benefit (ADB) rider provides an additional amount of insurance if the insured dies as a result of an accident. The additional amount is typically double or triple the amount of the base policy's face value, which is why these riders are sometimes called "double indemnity" or "triple indemnity" riders.

Under the misstatement of age provision in John's individual health insurance policy, what can the insurer do if it discovers that John inadvertently listed the wrong age in his application?

adjust the benefits

Which of the following types of life insurance products lets the policyowner request a change in the fixed premium (within limits) which, upon insurer approval, changes the policy's death benefit?

adjustable life insurance Explanation: Variable life is a form of whole life insurance. Its premiums remain fixed.

Federal law requires that minimum distributions be made from an IRA no later than April 1 of the year following the year the owner reaches:

age 70' IRA distributions must begin no later than April 1 of the year following the year the owner turns age 70' and they must be of a minimum amount designed to distribute the participant's full account value by the end of his or her life expectancy, thus explaining their name: required minimum distributions (RMDs).

Michael, a 10-year employee with $50,000 in a 401(k) plan at Alpha Company, takes a job with Beta Company. What would a rollover IRA accomplish for Michael in this situation?

allow him to transfer the $50,000 without tax penalty Explanation: Rather than have the $50,000 distributed to him and taxed, Michael transfers or "rolls over"' the $50,000 from his 401(k) into the IRA where it can continue to grow tax deferred.

The Texas commissioner of insurance may deny a license application or discipline a license holder if it determines that the applicant has done any of the following EXCEPT

assisted a customer in replacing an existing life insurance policy when selling her a new policy While there are rules describing what a producer must do if a sale involves the replacement of an existing policy, the act of replacing a policy is not illegal.

In general, newborn children are covered under a parent's medical expense insurance policy beginning:

at birth Explanation: Newborn children are covered under a parent's medical plan from birth (although an additional premium may be required).

An insurance policy that reimburses medical expenses directly to the insured is a:

basic medical or indemnity plan Explanation: Indemnity plans reimburse the insured for the cost of covered medical care received.

Sandy's insurance company has assigned a price or dollar amount to a surgical procedure that she will undergo. The insurer will pay Sandy a percentage of this assigned price. Coverage is based on the:

benefits schedule Medical expense insurance can provide coverage or benefits on a benefit schedule. Under this approach, the insurer assigns a price, or certain dollar amount or unit value, to each specific procedure or charge. The insurer than pays some percentage of this assigned price. Or, the insurer may pay the full amount.

Lucy receives 24-hour skilled nursing care at a long-term care facility, which is paid for by Medicaid. When she dies, her estate consists of a car, $1,000 in cash, and a home valued at $150,000. If Medicaid has paid $160,000 for Lucy's long-term care, Medicaid:

can seek recovery from all of Lucy's assets Explanation: If a Medicaid recipient's estate contains assets, Medicaid can seek reimbursement for benefits it paid by filing a lien or claim against the estate. Assets that were previously exempt when applying for Medicaid (such as a person's home) will be considered part of the estate against which Medicaid may recover.

The main purpose of key person life insurance is to:

compensate the business for the loss of its key employee Explanation: Key person life insurance is used to compensate a business for the loss of its key employee through death. At the insured employee's death, the business receives the policy's death benefit.

Besides surrendering the policy for its cash value, what is the only other nonforfeiture option available to a policyowner when a universal life (UL) insurance policy lapses or is surrendered?

continue coverage as long as the cash value will support it Explanation: Unlike other permanent policies, universal life policies normally do not contain the standard nonforfeiture options for policy lapses.

Steven was having lunch with a group of agents when he made some false statements about a competitor's financial condition in order to hurt their reputation. In this case, Steven has committed:

defamation Explanation: False information and advertising involves publishing or otherwise disseminating to the public an advertisement or statements containing untrue, deceptive, or misleading information about the insurance business.

John is thinking about buying major medical expense coverage for himself and his family. He has determined that his family will require all of the services listed below. Which of the following will NOT be covered by his policy?

dental check-ups for his teenage son A major medical expense policy must provide coverage for artificial limbs or eyes, casts, splints, trusses, and braces.

A terminally ill person can cover medical expenses through the use of a viatical settlement.

designate an irrevocable trust to be the owner of the policy A common reason for third-party ownership of a life insurance policy is to prevent the policy's death benefit from being included in the insured's estate. Designating an irrevocable life insurance trust (ILIT) to be the owner is a common way to achieve this.

Mike is a licensed agent but forgot to renew his license this year. If his license has been expired for 30 days, what must Mike do to renew his license?

file a renewal application and pay the renewal fee plus an additional fee Explanation: Because Mike's license has been expired for 90 days or less, he can renew that license by filing a renewal application and paying the renewal fee of $50 plus an additional fee of half of the renewal fee.

The Texas insurance commissioner must examine the business affairs and financial condition of every authorized insurer in the state as often as necessary, but at least once every

five years Explanation: TDI will examine the business affairs and financial condition of every authorized insurer in the state as often as necessary, but at least once every five years.

Which finances health-care costs without being tied to a high-deductible insurance plan?

flexible spending accounts (FSAs) Explanation: Health savings accounts are tax-exempt accounts set up and operated with high-deductible, high-cost insurance policies.

An insurance company sends a proposed insurance policy to an applicant with instructions to accept the policy in writing by December 15 or it will be withdrawn. What must the applicant do to accept the policy?

give written notice on or before December 15 Explanation: Under common law, an offeree who wants to accept an offer must abide by every condition in the offer. If written notice must be provided by a certain date, that condition must be met.

How do most people get coverage for health care in the United States?

group plans Most people who have health insurance coverage have it through a group plan. Group coverage is available for employer groups, franchises and associations, governmental units, and municipalities.

Bob submits a claim and proof of loss for medical expenses covered by his individual health insurance policy. Under the time of payment of claims provision in his policy, the insurer must pay the claim

immediately. According to the time of payment of claims provision, claims are not payable within 15 days after receiving proof of loss.

The Texas Department of Insurance regulates the state's insurance industry. Which of the following is NOT one of its responsibilities?

imposing civil and criminal penalties on producers who violate the state's insurance laws The Department of Insurance issues certificates of authority to insurers wishing to market insurance products in Texas.

ABC Insurers determined through the underwriting process that an applicant is more likely to file a future disability insurance claim than other applicants. What will ABC NOT do as a result?

issue the policy at a standard rate Explanation: If the underwriter finds that an applicant poses a higher disability risk than other applicants, the insurer may classify the applicant as a special or substandard risk or may refuse to issue a policy. An insurer may also issue a policy but with special exclusions or conditions or may charge a higher premium or add a longer elimination period.

Under the settlement option that Gary and Fran chose as beneficiaries of their father's life insurance policy, they receive monthly payments until the second payee dies. What option have Gary and Fran chosen?

joint and survivor life income Explanation: Under the straight life income option, the policy's proceeds are converted into payments that are made for the life of the payee. The payments stop upon his or her death.

Many payees worry about choosing the straight life income option because they know that if they die after receiving only a single income payment, the insurer makes no further payment. To address this concern, the insurance industry created which of the following?

life income settlement options guaranteeing that a certain minimum number of payments will be made or a specified minimum amount will be paid Explanation: Disability riders, if ever available, do not address the matter at hand.

Jana applies for a life insurance policy and submits the initial premium with her application to Acme Insurers. Acme offers her a modified policy at a higher premium. By doing so, Acme Insurers has:

made a counteroffer to Jana Explanation: If Jana had submitted her application without the first premium, she would be inviting the insurer to make an offer.

Amanda bought a $50,000 ten-year renewable term policy. The premiums she pays for the policy will be:

more than for a $50,000 ten-year nonrenewable policy Explanation: Renewable term premiums are higher than nonrenewable term life premiums to account for the guaranteed right to renew even if the insured has become uninsurable.

The most common method used in determining a prospective client's life insurance needs today is the:

needs approach Explanation: The human life value approach is rarely used today because it doesn't factor in what it really takes to secure a family's financial future.

Barbara buys a business overhead expense policy to help ensure that her business will continue if she is disabled. This coverage will pay for:

office supplies Explanation: Business overhead expense insurance covers routine expenses' for example, utilities, rent, leased equipment, office supplies, and salaries of nonowners. It does not cover the salaries of the owner, of the owner's replacement, or of family members who were not working in the business before the disability.

Most of the combination, or "5th," dividend options involve which of the following?

one-year term life insurance Combination dividend options do not involve extended term insurance.

Jeff graduated from college two years ago and wants to work in the insurance industry as a life and health insurance counselor. His mentor advises him that he must:

pass an exam covering the basics of life and health insurance, business insurance, and estate planning, among other topics Explanation: To receive a life and health insurance counselor license, Jeff must pass an examination that covers topics such as the fundamentals of life and health insurance, finance and economics, and business insurance and estate planning.

Al names his three sons as primary beneficiaries of his life insurance policy without specifying the percentage each should receive. If all three sons are alive when Al dies, the insurance company will:

pay an equal one-third share to each son Life insurance avoids probate. Regardless of what a person's will may say, life insurance proceeds are distributed in accordance with the policy's beneficiary designation. If specific percentages are not provided, the insurer will divide the proceeds equally among eligible beneficiaries.

Jack, an insurance agent, offers free season football tickets to anyone who buys a life insurance policy from him. This sales practice is called:

rebating Explanation: Replacement occurs when a policyholder replaces one insurance policy with another. It is not illegal to replace a policy.

Which entity spreads the cost of losses among its members by having each member pay a pro-rata share of these losses?

reciprocal insurer Explanation: A reciprocal insurer is a group of people or businesses that exchange this promise: each member agrees to pay a pro-rata share of any loss suffered by any other member. A reciprocal insurer is essentially a formal risk-sharing arrangement.

Life insurance policies are generally prohibited from including provisions that would do any of the following EXCEPT:

require the policyowner to notify the insurer if he or she assigns the policy to a third party Explanation: The only provision among these options that could be included in a policy is one requiring the policyowner to notify the insurer if he or she assigns the policy to a third party. The other provisions are typically prohibited by state law.

When using illustrations to sell a life insurance policy, an agent must:

show the policy's guaranteed death benefits before non-guaranteed values Agents and insurers cannot represent a life insurance policy as anything other than a life insurance policy.

What is the maximum amount of time most states allow insurers to delay paying cash surrender values when a life insurance policy is canceled?

six months Explanation: Most states allow insurers to delay paying the cash surrender value for up to six months, though few companies wait this long.

Which level of long-term care is almost always delivered in a nursing home?

skilled nursing care Explanation: Long-term care does not include remedial care.

Health insurance is primarily regulated at the:

state level Explanation: Health insurance is primarily regulated at the state level, though there are some federal laws impacting this.

Most people who have health insurance coverage have it through a group plan. Group coverage is available for employer groups, franchises and associations, governmental units, and municipalities.

stock company Stock insurance companies are owned by stockholders, just like many other major public companies. They pay dividends, when declared, to their stockholders.

Which type of insurance company pays dividends to its stockholders?

stock company Explanation: Stock insurance companies are owned by stockholders, just like many other major public companies. They pay dividends, when declared, to their stockholders.

Which of the following correctly describes a comparison between a supplemental major medical policy and a comprehensive major medical policy?

supplemental policies generally have a higher deductible than comprehensive policies Because the underlying basic medical policy provides first dollar coverage, supplemental major medical policies have a high deductible. The basic policy will pay much of the initial costs of the medical care before the supplemental major medical policy pays expenses beyond the basic policy's limits. The high deductible avoids duplicate coverage and helps keep premiums low.

Distributions from a deferred annuity before age 59' are exempt from the 10 percent penalty tax in all the following situations EXCEPT:

the annuity owner uses the money to purchase a home Explanation: There are three situations in which distributions from an annuity before age 59' will not be subject to the 10 percent penalty tax: the annuity owner dies, becomes disabled, or takes the money in substantially equal payments over the owner's life.

All the following are factors in determining an individual's life insurance needs using the needs approach EXCEPT:

the applicant's economic value Explanation: In contrast to the human life value approach, the needs approach determines personal life insurance needs based on a detailed review of each person's specific situation.

In a participating policy, the insurance company pays the policyowner a dividend out of which of the following?

the company's divisible surplus Explanation: Dividends, which cannot be guaranteed, are paid from the insurer's divisible surplus. They essentially represent a return of premiums that exceed all company expenses and liabilities.

Jason is a new agent and will be meeting with a potential client to discuss life insurance policies. He is not sure what type of questions he can ask the applicant about his sexual orientation or exposure to HIV, and has come to you for advice. You advise Jason correctly that

the insurer can require the applicant to take an HIV-related test. Explanation: Questions relating to an applicant having been diagnosed with AIDS are allowed if they are factual and designed to establish the existence of the condition, not the applicant's sexual orientation.

Which of the following provisions requires the insured to notify the insurer within a certain number of days after he or she has a covered loss?

the notice of claim provision Explanation: The reinstatement provision allows a policyowner to reinstate a policy that has lapsed.

Which of the following provisions details how claims are paid?

the payment of claims provision The payment of claims provision details how claims are paid.

John owns a life insurance policy. The policy insures Mary, his wife. This is possible through what kind of policy ownership?

third-party In cases where the insured and policyowner are different, a third-party ownership situation exists.

The insurance company employee whose primary job is to review applications and determine if the requested policy is issued or declined is called a(n):

underwriter Though they do engage in field underwriting, a producer's chief responsibility is to solicit applications for insurance, not determine the applicant's insurability.

he insurance company employee whose primary job is to review applications and determine if the requested policy is issued or declined is called a(n):

underwriter Though they do engage in field underwriting, a producer's chief responsibility is to solicit applications for insurance, not determine the applicant's insurability.

A family life insurance policy provides:

whole life on the primary insured and term life insurance coverage on the spouse and each child to age 21 Explanation: Under a family life insurance policy, the principal insured typically is covered by a whole life policy while the spouse receives term coverage.

Your client has a $200,000 term life insurance policy with a return of premium rider. If the insured dies within the term life coverage period after having paid $15,000 in premiums, how much will the beneficiary receive?

$200,000 Explanation: The beneficiary under a life insurance policy with return of premium rider would be entitled to the death benefit if the insured died within the stated period in the rider, but not to the premiums paid. The premiums would be returned if the insured were still alive at the end of the stated period.

Nancy, currently age 45, bought a deferred annuity with a single premium payment of $20,000. The contract is now valued at $23,000, which includes $3,000 in interest earnings. If she withdraws $5,000 from the annuity, how much tax penalty, if any, will she incur?

$300 Explanation: Because she is under age 59', her withdrawal will be subject to a 10 percent penalty tax on the taxable amount of the withdrawal. Here, $3,000 of the $5,000 withdrawal will be treated as taxable interest, because this represents earnings. The 10 percent penalty tax is imposed on $3,000, so she must pay a $300 penalty tax.

Wally annuitized his nonqualified fixed annuity and now receives $1,800 each month. Of this amount, $1,500 represents his investment in the annuity, and $300 represents interest earnings. Which statement regarding the taxation of Wally's annuity payments is correct?

$300 is taxed as ordinary income Explanation: Annuitized income is taxed by applying the exclusion ratio, which calculates the proportion of income that is attributable to principal and is not taxed. In this case, $1,500 of Wally's monthly payment is a return of principal and is not taxable; the remaining $300 in interest earnings is taxed as ordinary income.

Which is not correct about the agency contract between the insurance company and the agent it appoints to represent it?

10 days The principal has express authority; the agent does not. Explanation: Under the law of agency, in an agency relationship several types of authority are automatically given by the principal to the agent. This includes express authority.

Under a health insurance policy's notice of claim provision, how many days does the insured have to notify the insurer after having a covered loss?

20 days Explanation: The notice of claim provision requires that the insured notify the insurer within 20 days after the insured has a covered loss.

An agent's commissions on Medicare supplement policies in the first year CANNOT exceed what percent of commissions in the second year?

200 percent Explanation: While Texas law limits the amount of permitted commissions on Medicare supplement policies, an agent may receive more than 50 percent of his or her commissions in the second year.

Terry is licensed in Texas as a life and health insurance agent. To maintain his licenses, how many hours of continuing education must he complete during each license period?

24 Explanation: In each two-year renewal cycle, agents must complete two hours in ethics.

If a policyholder qualifies for Medicaid, a Medicare supplement policy must suspend benefits and premiums at the policyholder's request for up to:

24 months Explanation: When a policyholder is covered by Medicaid, a Medicare supplement policy must suspend benefits and premium at the policyholder's request for up to 24 months, but only if the insurer is notified within 90 days of the date on which the policyholder becomes eligible for Medicaid.

To qualify for the accelerated benefit rider, an insured must prove he or she either has had a permanently disabling injury or a terminal illness that can be expected to result in death within:

24 months Explanation: To be classified as terminally ill, the person must be certified by a doctor as having a condition that can be expected to result in death within 24 months.

An insurable risk is not:

catastrophic Explanation: A catastrophic loss is not the determining factor. The potential loss must be ascertainable for the risk to be insurable.

The premiums paid for life insurance are tax deductible by the premium payer in all of the following situations EXCEPT:

Abby's Restaurant takes out a life insurance policy on its manager, considering him a key executive, and pays the policy premiums. Premiums that a business pays for business life insurance on the lives of a business owner or key executive are not tax deductible.

Juan just purchased an individual long-term care insurance policy from Acme Insurers. The first page of the policy states that it is guaranteed renewable, which means that

Acme must allow Juan to renew the policy every year, but it may increase premiums under certain conditions. With a guaranteed renewable policy, the insurer may not cancel or refuse to renew the policy (except for non-payment of premiums), but it may increase premiums, though only on a class (not individual) basis.

Which statement about the Medicare supplement program is NOT correct?

All Medicare supplement policies must be issued as noncancelable. Explanation: Plan A provides the basic core benefits.

Fixed annuity death benefits differ from life insurance benefits in what respect?

Annuity benefits are subject to income tax. Unlike life insurance death benefits, annuity death benefits are not received tax free. Any amount the beneficiary receives that exceeds the sum of the premiums paid into the contract is taxable to the beneficiary.

Which of the following most correctly explains why a deferred annuity would not be an appropriate college savings vehicle for a 30-year-old new dad?

Distributions are subject to penalty taxes before age 59' as well as potential surrender charges. Explanation: While deferred annuities can be used for accumulation purposes besides providing retirement income, saving for college is not one of them. At one time, annuities were used for medium-range goals like college savings. However, distributions from a deferred annuity before age 59' are now subject to a 10 percent penalty tax (in addition to ordinary income taxation), dimming their popularity for anything other than long-term accumulation and distribution.

Bob applies for an individual health insurance policy. Terri enrolls in her group health insurance plan. Which case requires the insurer to account for adverse selection?

Bob's application Explanation: With individual health insurance, insurers consider that people who need insurance are the ones who are more likely to apply for it. As a result, insurers must account for the possibility that most applications they receive for individual health insurance represent people who are more at risk. This concept is called adverse selection.

With respect to covering a family in a single medical expense insurance plan, which of the following statements is correct?

Both group and individual policies can cover the insured and family. Explanation: An individual policy covers an individual policyowner or, at most, a family. Group insurance covers multiple people and their families under a single policy.

Diana, age 56, pays $3,000 each year in premiums for her variable annuity and plans to annuitize the contract when she retires in ten years. Which of the following statements is correct while Diana's annuity is still in the accumulation phase?

Diana's premium payments will grow on a tax-deferred basis. Explanation: During the accumulation phase, an annuity's earnings will grow on a tax-deferred basis. When withdrawn, earnings are taxed as ordinary income.

Janson Automotive is a small family-owned business with 20 employees. If it offers a small employer health benefit plan, which of the following employees will be eligible for coverage?

Dora, who works 35 hours a week as a full-time office manager Explanation: Employees who are employed full-time and work 30 hours or more a week are eligible to participate in a small employer health benefit plan.

Ellen, Bob, Miguel, and Amy all turned 40 years old this year and all are in good health. Which person will pay the highest premium for a disability insurance policy?

Ellen, a heavy equipment operator Explanation: A person's occupation plays an important role in determining the type of coverage he or she can buy as well as the premium amount. Those in lower-risk occupations, such as architects, engineers, lawyers, or accountants, pose a lower risk to the insurer than those in higher-risk professions, such as construction workers or race car drivers.

With respect to the taxation of group and individual disability income (DI) insurance, which of the following statements is correct?

Employer-paid premiums for group DI insurance are deductible by the employer. Explanation: Premiums paid for individually owned disability income policies are not tax deductible.

Which service is NOT covered by Medicaid?

Explanation: Medicaid covers necessary medical services, including transportation, as well as necessary prescription drugs. Cosmetic surgery is not covered.

In a health insurance policy, which clause describes the insurer's promise to pay benefits, defines terms used in the policy, and explains the type and scope of coverage provided?

Explanation: The insuring clause is typically found on the first page of a health insurance policy. It states the insurer's promise to pay a specified amount of benefits and also describes the type and scope of coverage, provides definitions used in the policy, and states the conditions that must be met for the policy to pay a benefit.

Alicia wants to buy a disability income policy that will provide her with a $1,000 monthly benefit. If she chooses a 30-day elimination period instead of a 90-day elimination period, what impact will this have on the premium?

Her annual premium will be higher. Explanation: If Alicia chooses a 30-day elimination period instead of a 90-day period, her annual premium will not be lower.

To qualify as life insurance, all UL policies must have a corridor of pure insurance protection, separating the cash value from the death benefit, so that the policy doesn't mature before age 95. Practically speaking, this only applies to death benefit option 1, since option 2 (increasing death benefit) always includes pure insurance protection in the death benefit.

If a child converts coverage to a permanent policy, the new policy's face amount can be greater than the term rider coverage. At the time coverage ends for any covered child, the child can convert the coverage to any permanent life insurance policy the insurer is then issuing without further proof of insurability.

Which statement does NOT describe the conditions, limitations, and restrictions imposed upon the care received through an HMO?

If a member is outside the HMO's service area, the member must contact the HMO within one hour of receiving treatment. The HMO controls when, where, and how the member can receive treatment.

Which describes the tax treatment of funds in a health savings account (HSA)?

If the account holder withdraws money from the fund but does not use it to pay qualified medical expenses, the withdrawal may be taxed. Explanation: If the account holder takes money out of the fund but does not use it to pay qualified medical expenses, the withdrawal may be taxed.

What does a viatical settlement allow?

It allows a chronically or terminally ill insured to gain a sum of money that is needed to pay medical expenses or to enhance the quality of life. The purpose of a viatical settlement is not to gain a sum of money to be left as an inheritance to the heirs of a chronically or terminally ill insured.

Beverly owns a small manufacturing business. Her sister, Rose, is her assistant. Beverly could not run the business without Rose. Beverly wants key employee disability insurance because:

It will pay cash benefits to the employer if a key employee is disabled. Explanation: Key employee disability insurance is short term because it is assumed that a capable replacement can be found within one to two years. The benefit amount considers the income of the key person, the replacement costs associated with hiring and training a capable replacement, and the key person's contribution to the company's earnings.

All the following statements regarding the tax treatment of disability income and medical expense insurance are correct, EXCEPT:

Major medical insurance policy premiums may be deductible but premiums for HMO and PPO plans are not deductible under any circumstances. Explanation: Medical expenses that are not covered or reimbursed by insurance may be deductible, including medical insurance premiums, whether for an indemnity or managed care plan.

On September 1, Cheryl applied for a life insurance policy when her nearest birthday age is 50. To take advantage of a younger age, the insurer can backdate the policy no earlier than

March 1. Explanation: Under Texas law, an insurer can backdate a policy no more than six months before the original application was made to take advantage of a younger age. In this case, the policy could be backdated no earlier than March 1.

Marcy buys an individual health insurance policy on May 1. Five days later, she decides to return the policy to the insurer. What is the result?

Marcy can return the policy for a full refund of premium. Explanation: Under the free-look provision, a policyowner can return the policy to the insurer within a limited time and receive a full refund of his or her premium. Health insurance policies normally allow the policyowner a ten-day free-look period. But, depending on the type of coverage and the age and state of residence of the policyowner, that free-look period can be 20 or 30 days.

Janet has been continuously licensed as an agent in Texas for the past 25 years. Her friend, Steven, is a nonresident licensee in Texas and every year completes his state's continuing education requirements. When they ask you for advice on meeting the Texas continuing education requirements, you inform them that

Neither Steven nor Janet needs to comply with Texas's continuing education requirements. Explanation: Janet is exempt from Texas' continuing education requirements because she has continuously held a license for at least 20 years. Steven is also exempt, provided that he has complied with his resident state's continuing education requirements.

Which is an optional provision in a health insurance policy?

Nell's policy provides that if there are unpaid premiums owed at the time of a claim, the insurer can deduct that amount from the total benefit owed. Nell's policy provides that if there are unpaid premiums owed at the time of a claim, the insurer can deduct that amount from the total benefit owed.

Sarah applies for a $1 million life insurance policy from ABC Insurance Company. ABC counters by offering to insure her for $200,000 and asks her for a written response. Sarah tells her agent that she accepts the counteroffer. Which statement is correct?

No binding contract is formed until ABC gets Sarah's written acceptance. Explanation: For an insurance contract to be binding, Sarah, as the offeree, must abide by all terms of the counteroffer. If the terms call for a written acceptance, then Sarah's verbal acceptance does not result in a binding contract. In addition, the contract would also require payment of the first premium.

Question 86 of 150 All the following statements regarding about joint life insurance are correct, EXCEPT:

Only married couples may buy it. Explanation: Joint life insurance is permanent coverage that insures two persons under one policy. The insureds need not be married couples.

Medicare supplement Plan A provides the co-payment for hospitalization from day 61 through day 90. Which of the other Medicare supplement plans also provide this coverage?

Plans A through N Explanation: All plans pay the 61st through 90th days' co-payment for hospitalization, as well as the 91st through 150th days' co-payment for each lifetime reserve day, and hospital costs up to 365 days.

Which of the following best describes how the insured's money is handled in a variable life insurance policy?

Premiums are placed in investment subaccounts maintained in the insurer's separate account. Explanation: Variable contract insurance premiums are invested in subaccounts, selected by the policyowner, that have different investment objectives. These subaccounts are maintained in the insurer's separate account.

Explanation: Under Texas law, Ed has more than 15 days after being laid off in which to apply for a conversion policy and pay the first premium.

Premiums can increase or decrease to suit the policyowner's changing needs. Explanation: The policyowner can increase or decrease premium payments, but premium payments do not end.

As a part-time employee of the Acme Supply Co., is Tom eligible for group health insurance coverage from Acme?

Probably not Explanation: Part-time employees are usually not eligible for group health insurance coverage. However, an employer may extend its group health plan to include such employees.

Reinstatement is normally effective when the insurer notifies the insured.

Ralph, Jerry, and Paula are primary and equal beneficiaries of the $600,000 insurance policy on the life of their mother, Judy. Ralph dies before his mother. He leaves two children, Tim and Hal. Judy's life insurance policy designates the death benefit per capita. How will the insurer distribute the policy benefits? If the death benefit was designated per capita, Ralph's share of the benefit will go to the surviving beneficiaries-his brother and sister-when his mother dies.

With its flexible terms, universal life insurance (especially death benefit option 2 with its increasing death benefit) is not a good candidate for the addition of a COL rider.

Receive at least $1 million annually in premiums. Obtain a fidelity bond of at least $100,000 on its officers and employees.

Premier Health Company is an HMO that is operating in several states. It wants to offer coverage in Texas but is not sure what is required under Texas law, and has asked you for advice. You inform Premier that it must meet all of the following requirements before it can operate in Texas EXCEPT:

Receive at least $1 million annually in premiums. Explanation: Obtain a fidelity bond of at least $100,000 on its officers and employees.

Which of the following statements about universal life insurance (UL) cash value withdrawals is correct?

Regardless of withdrawn amounts, a UL policy will continue in force as long as the remaining cash value can cover the monthly deductions. Explanation: Traditional policy loans are not available with universal life insurance policies. Instead, UL policy cash values are accessible only through withdrawals called partial surrenders.

Grace owns a fixed annuity and wants to exchange it for a variable annuity. What must she use to be sure no taxes are imposed?

Section 1035 exchange Explanation: Provided the transaction complies with Section 1035 of the IRC, the exchange will avoid taxation.

Joanna has a $500,000 permanent life insurance policy that she no longer wants to keep in force. In order to enter into a viatical settlement, what must Joanna prove?

She is terminally or chronically ill. Explanation: To enter into a viatical settlement, the insured need not show a financial need to sell the policy.

Fallon is self-employed and has an medical savings account (MSA). Which is correct about the account?

She must maintain a high-deductible health insurance plan. To be eligible for an MSA, participants must have a high-deductible health plan.

An insurance applicant submits a completed application with a check for the first premium to her agent. The insurance company accepts the application and issues the policy. Which describes this process?

The applicant offered to buy the policy, and the insurance company accepted. Explanation: In an insurance transaction, typically the applicant makes the offer by submitting a completed application and paying the first premium. Upon approval of the application, the insurance company formally accepts the offer by issuing the insurance policy.

All the following statements regarding the designation of a life insurance policy beneficiary are correct EXCEPT:

The beneficiary must have an insurable interest in the insured person. Explanation: This is not a correct statement. The policyowner can designate any person or entity to be the policy's beneficiary. It is not necessary for the beneficiary to have an insurable interest in the insured or the policyowner.

Abby receives $15,000 of benefits this year from her employer's managed care plan. Which statement is correct about the taxation of these benefits?

The benefits are not taxable income. Explanation: An insured is not taxed on benefits received from a group managed care plan.

In an annuitant-driven deferred annuity contract, what happens upon the death of the annuitant prior to annuitization if the owner is still alive?

The contract terminates and the death benefit is paid to the beneficiary. Explanation: An annuitant-driven contract terminates upon the death of the annuitant, triggering payment of the contract death benefit to the beneficiary, even if the owner is still alive.

All of the following statements accurately describe group health insurance, EXCEPT:

The federal government is not involved in regulating group health insurance. Explanation: Employers or associations usually offer group plans.

Sally's $750,000 life insurance policy was payable to her son when she died. Based only on this information, which of the following correctly describes how that money will be treated for income tax purposes?

The full amount is income tax-free. Explanation: Life insurance death benefit proceeds are generally income tax free. This income tax exclusion makes life insurance an attractive financial and estate planning tool.

Which one of the following statements about the tax treatment of viatical settlements is most correct?

The insured pays no federal income tax on the money from a viatical settlement, but may have to pay state taxes depending on his or her state. Explanation: The insured owes no federal income tax on the money from a viatical settlement as long as he or she sells the policy to a qualified viatical settlement provider. At the state level, the tax treatment of viatical settlements varies. Some states treat them as tax-free transactions while others do not.

All the following statements about children's term riders on life insurance policies are correct, EXCEPT:

The modest amount of coverage in a children's term rider reflects the small amount parents are willing to pay for children's insurance. Explanation: A children's term insurance rider provides a modest amount of coverage.

Which of the following statements about participating whole life insurance policies and policy dividends is NOT correct?

The owner can only take the dividend as cash. Explanation: With a participating whole life policy, commonly issued by mutual insurance companies, the policyowner is eligible for policy dividends declared by the insurance company. They can be taken in a variety of ways, either as cash or additional insurance coverage.

How does the owner of a flexible spending account (FSA) access its funds to pay for a covered medical expense?

The owner submits a claim and proof of payment to the FSA administrator, and is then reimbursed from the FSA. Explanation: The owner submits a claim to the FSA administrator with proof of payment. The owner is then reimbursed from the FSA.

What does the fact that a person is eligible for Medicare coverage under Part A mean?

The person is at least 65 years old and eligible for Social Security retirement benefits, or has received Social Security disability benefits. Explanation: A person must be at least 65 years old and eligible for Social Security retirement benefits or have received Social Security disability benefits.

What happens when a universal life insurance policy's cash value no longer covers the monthly deductions to cover the policy's insurance and operational costs?

The policy lapses. Unlike other permanent policies, universal life policies normally do not contain the standard nonforfeiture options for policy lapses.

Which of the following best describes a "level premium" payment plan?

The policyowner pays the same amount each time the premium is due for the full duration of the premium-paying period. Explanation: Under a level premium payment plan, the premium is fixed and remains level over the policy's term. Policies that use the level premium method include whole life insurance, variable life insurance and term life insurance.

With respect to the duties of a producer in the sale of a health insurance policy, which of the following statements is correct?

The producer must determine the suitability of the recommended product for the applicant's needs and circumstances. Explanation: The underwriter, not the producer, determines the premium rate to be charged for the policy.

What happens if the amount of retirement benefits that a family receives based on the earnings of a single worker exceeds the maximum family retirement benefit?

The total benefits payable to a spouse and children are reduced proportionately. Explanation: Social Security limits the amount of Social Security benefits (of any type) any one family can receive based on the earnings of a single worker. If the total benefits payable to a spouse and children exceed this limit, then their benefits are reduced proportionately.

The group term life insurance premiums an employer pays are fully tax deductible to the employer. Which of the following statements is true for a covered employee?

The value of coverage under $50,000 is not taxable. Explanation: The group term life insurance premiums an employer pays are fully tax deductible to the employer. For a covered employee, the IRS Table I value of coverage under $50,000 is not taxable.

Fred is terminally ill. He sells his $100,000 life insurance policy to a viatical settlement provider for $60,000. Six months later, Fred dies. Which of the following statements is correct?

The viatical settlement provider will receive the entire $100,000. Explanation: When Fred dies, Fred's estate will not receive $60,000 of the death benefit.

Tracy, the CEO of HML Data, Inc., is insured under an executive bonus plan. All the following statements regarding this are correct EXCEPT:

Tracy must pay all of the premiums for the policy. Tracy is the owner of the life insurance policy provided under the executive bonus plan.

All the following statements comparing variable life insurance (VLI) and variable universal life insurance (VUL) are correct EXCEPT

VLI policies generally offer a wide variety of subaccounts to choose from while VUL policies are typically based on a single investment account of mixed stocks. Explanation: VLI policies have a fixed premium payable for the life of the policy (like whole life). VUL policies generally require a minimum initial premium to cover first-year costs. After that, VUL premiums are flexible (like regular UL insurance).

It is illegal for an insurance company to transact insurance business in Texas without

a certificate of authority Explanation: It is illegal for an insurer to transact insurance business in Texas without a certificate of authority, which authorizes the insurer to engage in the business of insurance and must state the specific kinds of insurance it is authorized to sell.

An HMO that does not provide services or coverage outside its network is:

a closed-panel plan Explanation: An HMO that does not provide services or coverage outside its network is a closed panel plan.

If John buys a new life insurance policy or annuity that amends the coverage of his existing life insurance policy, the new policy will be considered which of the following?

a replacement policy Explanation: Replacement occurs when an applicant is about to buy a new life insurance policy or annuity and, as a result, an existing life insurance policy or annuity will be lapsed, terminated, amended, or compromised in some way.

In Texas, all of the following must be included in an advertisement that is considered an invitation to contract EXCEPT:

a statement that the Texas Department of Insurance has approved the advertisement Explanation: An invitation to contract advertisement must include the form number or numbers of the policy being advertised.

A health plan that offers the insured a limited choice of health care providers is:

an HMO or PPO plan Explanation: The limited choice of health care providers is common to HMO and PPO plans.

A life insurance policy dividend is:

an amount returned to a policyowner out of an insurance company's surplus funds, effectively representing unused premiums Explanation: Don't confuse a policy dividend with a stock dividend. A policy dividend is effectively a return of premium in excess of the amount needed by the insurer to meet its claims and expense obligations.

If a life insurance policyowner cancels his policy and instructs the company to send the cash value to him as a check, which of the following nonforfeiture options is he using?

cash surrender option Explanation: Under the cash surrender option, the owner surrenders the policy and the insurer pays the cash value to the policyowner in a lump sum.

Frank is a PPO member and just received information from his insurer which lists all of the covered services and benefits under his plan. As a PPO member, Frank is also entitled to all of the following information EXCEPT

an explanation of his legal remedies if he disagrees with the insurer's decision, including his right to arbitration and mediation. Explanation: As a PPO member, Frank must receive a current list of preferred providers at least annually.

Ken has a history of severe back pain. He applies for disability income coverage. Concerned about early and significant disability claims, what may the insurer add to address that special risk?

an impairment rider Explanation: Guaranteed insurability riders allow insureds to increase a policy's level of benefits or scope of coverage in the future without having to prove insurability.

A life insurance policy's automatic premium loan provision is which of the following?

an optional benefit Explanation: A rider is a clause that, when added to the policy, expands or restricts its benefits or excludes certain conditions from coverage.

How is increasing term life insurance normally sold?

as a cost-of-living rider on a permanent life insurance policy Explanation: Insurers offer increasing term insurance as a cost-of-living increase rider on a permanent life policy.

Tom is considering the purchase of an annuity that would generate $700 per month over 15 years under the fixed period option. If he wanted a higher monthly payment, what adjustment would be needed other than paying more for the annuity?

choose a shorter payout period Under a fixed period option, payments are made for a specified number of years and then end. The size of each payment depends on the amount of money that was annuitized and the length of the fixed period (with shorter periods yielding larger payments).

Susie was the intended recipient of death benefit proceeds from a life insurance policy insuring her husband, but she died a few months before him. Per the policy's beneficiary designation, the proceeds were paid to their son, Abe, who is considered the:

contingent beneficiary Explanation: Abe is considered the contingent or secondary beneficiary. The contingent beneficiary is the next person (or class of persons) in line to receive the policy proceeds if the primary beneficiary predeceases the insured.

Frank is insured by his employer's group health plan, as well as by his wife's health plan. Which provision prevents him from receiving duplicate benefits from both plans?

coordination of benefits provision Explanation: The coordination of benefits provision avoids the duplication of benefits when a group participant is covered by more than one plan.

An insured has a basic hospital plan with a supplementary major medical plan. She is hospitalized and incurs $10,000 in expenses, which are covered by her two plans. Her basic policy covers 100 percent of the first $3,000 of her costs. The supplementary plan has a $500 deductible. The basis for her supplementary plan benefit payments is $6,500. Which type of deductible does the basic hospital plan have?

corridor deductible Explanation: A flat deductible is a stated sum the insured must pay before he or she can claim policy benefits.

Which is not an element of all legal contracts?

counteroffer Explanation: The offer, consideration, and acceptance are all parts of a contract. A counteroffer may be made by one party, but it is not necessary for the formation of a legal contract.

Which of the following is NOT characteristic of a major medical plan?

coverage of cosmetic surgery Explanation: Major medical plans provide maximum lifetime benefits ranging from $250,000 to $1 million or more.

Perry lives alone and needs help with routine tasks such as bathing, eating, and dressing. Which type of long-term care does Perry need?

custodial care Custodial care is provided to help a person meet daily living requirements, like bathing, dressing, or eating. Custodial care is provided in nursing homes, adult day-care centers, respite centers, or a person's home.

Which of the following levels of long-term care is provided to help a person meet daily living requirements, like bathing, dressing, or eating?

custodial care Explanation: Long-term care does not include remedial care.

All of the following are considered qualified retirement plans EXCEPT:

deferred compensation plans Explanation: A qualified plan must not discriminate in coverage of employees. An deferred compensation plan is generally for the benefit of key or highly compensated employees and therefore is considered a nonqualified plan.

Which sets the criteria for eligibility in an employer's group health plan?

employer Explanation: The state is not involved in setting eligibility criteria

Protection from damages resulting from a lawsuit brought by an insurance customer against an insurance producer for breach of fiduciary duties would be covered under what kind of policy?

errors and omissions insurance Explanation: Under an errors and omissions policy, the insured producer is covered for the cost of damages arising from a lawsuit alleging breach of fiduciary duties. He or she will be defended by the insurer in any suit that may be brought against the producer.

John's life insurance policy guarantees a level death benefit amount and a cash value of a specified amount. What type of life insurance does John have?

fixed whole life policy Explanation: Because the investment returns are not guaranteed, variable life insurance policies cannot guarantee a cash value of a specified amount.

Carla incurs $7,000 in covered medical expenses. She must pay $500 of those expenses, and the policy will base how much benefit it pays on the remaining $6,500. What kind of deductible does Carla have?

flat deductible Explanation: A flat deductible is a stated sum the insured must pay before he or she can claim policy benefits.

A major medical expense policy must provide coverage for artificial limbs or eyes, casts, splints, trusses, and braces.

foreign An insurance company that does business in a state other than the one in which it is domiciled is a foreign company in the other state.

Besides giving the producer the opportunity to explain policy benefits, terms, and riders, policy delivery begins which of the following periods?

free-look period Explanation: A life insurance policy's reinstatement period is the period of time after a policy is lapsed during which it can be reactivated.

A health insurance policy states that the insurer can increase premium rates by class of insureds and can only cancel the policy if the insured fails to pay the premium. What type of policy is this?

guaranteed renewable Explanation: The term "guaranteed renewable" may be used only in a policy where the insured has the right to continue it in force for life by the timely payment of premiums and the insurer has no right to make unilateral changes in the policy except with respect to premium rates by class.

A supplemental major medical plan supplements a basic plan. A comprehensive major medical plan replaces a basic and a supplemental plan. Benefits under a comprehensive major medical plan are typically:

high Explanation: The benefit limits are typically high.

Matt takes out a life insurance policy on himself to protect his family. Matt's insurance company may consider all of the following when underwriting his policy EXCEPT:

his race Explanation: Sources of underwriting information include the application, physical examination, physician statements, MIB reports, the producer, credit reports, and investigative reports.

Greg's basic hospital plan pays for hospital room and board for up to 30 days with a maximum benefit of $3,000. If he also had a supplementary major medical policy, what would the supplementary plan cover?

hospital room and board beginning on the 31st day and costs above $3,000 If Greg supplements his basic hospital plan with a supplementary major medical policy, the supplementary plan would cover hospital room and board beginning on the 31st day and costs above $3,000.

To maintain their license, resident insurance producers in Texas must meet a continuing education (CE) requirement

in every two-year license renewal cycle Explanation: To maintain a license, resident producers and life and health insurance counselors must meet a continuing education (CE) in each two-year license renewal cycle.

In applying for a whole life insurance policy, Andrea disclosed that she is an avid rock climber. To account for this high-risk hobby, the insurer may do any of the following EXCEPT:

issue a term life rather than a whole life insurance policy Explanation: An insurer may exclude coverage if the insured dies as a direct result of the restricted occupation or hobby. Alternatively, some policies will cover these risks but charge an additional premium.

An insurer issues a new life insurance policy that has conditions attached to it, and instructs the producer to personally deliver it to the policyowner with an explanation of the conditions. This is an example of what kind of delivery?

legal delivery Explanation: While personal delivery of every new policy is recommend, this is not the answer to the question.

Which of the following is NOT a characteristic of ordinary (straight) whole life insurance?

limited premium payment period Explanation: With ordinary whole life, benefits and premiums remain level through the insured's entire life.

Ed was injured while working at a construction site. He incurred $10,000 in medical expenses, $3,000 for vocational rehabilitation, and $25,000 in lost wages. Which of these costs will be covered by workers' compensation?

lost wages, medical expenses, and vocational rehabilitation expenses State workers' compensation plans offer a variety of benefits to covered workers or their dependents and typically provide benefits for wage replacement benefits for disability, medical treatment, and vocational rehabilitation.

Under which of the following settlement options does the insurer distribute all the proceeds upon the death of the insured or surrender of the policy, with none held by the insurer?

lump-sum cash payment A cash payment of policy proceeds is often called a lump-sum cash payment. Under this payment method, the person receives the death benefit proceeds or the cash value surrender amount in the form of a single payment.

To set up a corporation to transact insurance in Texas requires all of the following EXCEPT:

maintain a $1 million bond. To be licensed in Texas, a business entity must be authorized by its articles of incorporation or its partnership agreement to act as an insurance agent, among other requirements.

With respect to family medical expense insurance policies, new dependents can be added to the policy through:

marriage, birth or adoption only Explanation: New dependents can be added to the policy when they join the family through marriage, birth, or adoption

Which of the following health insurance plans insures against and covers the cost of care and services given for illness, sickness, accidents, and injuries?

medical expense policies Explanation: Disability income policies provide income when the insured cannot work because of a disability.

A person who is insured under a managed care plan is considered a:

member Explanation: Medical expense indemnity plans cover insureds; managed care systems have subscribers, members, or participants.

Annuity income payments are most commonly paid on what schedule?

monthly Explanation: Generally, these payments are made monthly.

Theodore's health insurance policy states that the insurer cannot change the policy or cancel it unless he stops paying premiums. What kind of policy does Theodore have?

noncancelable Explanation: The term "noncancelable" may be used only in a policy where the insured has the right to continue that policy in force for life by the timely payment of premiums and the insurer has no right to make unilateral changes in any provision of the policy.

Bob was reading an advertisement for a long-term care policy which stated that the policy had a level premium, which means the policy is:

noncancellable The term "level premium" can only be used to describe long-term care coverage that is noncancellable.

While reviewing a life insurance policy issued by her home office, Angela notices that the premium is much higher than she quoted her client. The policy also has features that the client did not request. What should Angela do?

not present the policy to the insured until the home office reviews the policy and recalculates the premium Under the concept of utmost good faith, both parties are entitled to receive all the material facts related to the circumstances under which they enter into the contract.

What can the insured under a health insurance policy do if it is not possible to notify the insurer of a covered loss within the required number of days?

notify the insurer as soon as reasonably possible Explanation: An insured must report a covered loss to the insurer within 20 days of suffering the loss. But an insured who cannot notify within the required time must notify as soon as reasonably possible.

Because they are aleatory contracts, insurance policies:

often award disproportionately large benefits due to chance events Explanation: Aleatory contracts are based on chance events occurring, such as an accident or health crisis, which would result in a high payout to a policyholder in comparison to the premium paid for the insurance coverage.

When does a waiver of premium rider release the insured from paying the policy's premium?

only when the insured is totally disabled Explanation: A waiver of premium rider releases the insured from paying the policy's premium during periods of total disability. The insured must usually pay the premium during the elimination period. If, after that period, the insured remains disabled, the waiver will be effective back to the first day of disability.

For a life insurance policy to be valid, when must there be an insurable interest between the owner and the insured?

only when the policy is issued Explanation: An insurable interest needs to exist at all times with every type of insurance except life insurance, which requires only that an insurable interest exist when the policy is applied for.

For a life insurance policy to be valid, an insurable interest must exist:

only when the policy is issued Explanation: The right to transfer policy ownership to another person without restriction is an important right of life insurance ownership, so for that reason an insurable interest is required only between the initial owner and the insured at policy issue.

At what point must an insurable interest exist in order to own a life insurance policy on someone else's life?

only when the policy is purchased Explanation: With life insurance, an insurable interest need exist only at the time the life insurance contract is purchased. It does not have to continue throughout the length of the policy contract, nor does it have to exist at the time of claim.

An insured's major medical expense policy has a deductible under which the insured must pay separate deductibles for each illness and each accident. What type of deductible is this?

per cause deductible Explanation: This is a per cause deductible, not a separate ailment deductible. With a per cause deductible, the insured must pay separate deductibles for each separate illness or each separate accident.

Which approach to paying disability benefits is most common in group policies?

percent-of-earnings approach The flat amount approach is more common in individual policies. Under this method, the policy specifies a flat income benefit amount that will be paid if the insured becomes totally disabled.

A person who smokes heavily and drinks alcohol to excess exhibits what kind of an insurance risk?

physical hazard Physical hazards are risks that arise from a person's condition, health, or habits. Moral hazards arise from a person's traits or characteristics that increase the chance of a loss.

What do medical expense policies rely upon to determine the delivery of medical services and care?

plan or policy Explanation: The way in which covered care services are delivered depends on the plan or policy, not state insurance law.

HMOs commonly use which payment with health care providers?

pre-payment Explanation: A health maintenance organization (HMO) is a corporation that delivers health care services on a prepaid basis, financed by premiums paid by those who enroll in the HMO.

Veronica changed to a less hazardous job two years after buying an accident insurance policy. If she submits proof of the change, the insurer can

refund the excess premium that she paid, effective from the date of the change. Explanation: The change of occupation provision in Veronica's policy allows the insurer to make changes to the level of coverage or premium if she changes occupations between the time the policy is issued and the time a claim is filed.

All the following are common characteristics of whole life insurance EXCEPT:

renewability A whole life insurance policy provides a level death benefit, and premiums are paid until the insured dies or reaches age 120. It does not require renewal at any point.

In return for assuming the risk of a possible rate reduction if the annuity is surrendered before the end of its term, most market-value adjusted annuities (MVAs) do which of the following?

reward contract owners with a slightly higher current interest rate than is credited to non-MVA fixed annuities In return for assuming the risk of a possible rate reduction if the annuity is surrendered before the end of its term, most MVAs reward contract owners with a slightly higher current interest rate than is credited to non-MVA fixed annuities.

What rule lets a policyowner return a policy for a refund of premiums paid for a certain period of time after the policy is issued?

right to examine (free look) Explanation: All insurance policies require a free-look provision. Grace has a set period in which to review the policy and to decide whether to keep it. The free look begins when the agent delivers the policy.

Besides being an admitted insurer, an insurer that wants to offer small group (employer) health insurance in Texas must be certified by Texas Department of Insurance as a(n)

small employer carrier Explanation: To offer small group (employer) health insurance in Texas, an insurer must be certified by Texas Department of Insurance as a "small employer carrier".

Part 1 of a life insurance application generally contains:

the applicant's personal information Part 1 of the application contains the applicant's personal information, including name, address, date of birth, occupation, and beneficiary information.

Which of the following is the primary source of underwriting information?

the application Explanation: The application is the main source of the home office underwriter's information about a proposed insured.

What is the consideration that an applicant gives an insurance company when buying life insurance?

the application and the first premium Explanation: The consideration policyowners give insurers includes more than just the first premium.

Which of the following health insurance policy provisions states that the insurer must provide claim forms to the insured within a certain number of days of receiving a notice of claim?

the claim forms provision Explanation: The reinstatement provision allows a policyowner to reinstate a policy that has lapsed.

After the insurer issues a life insurance policy, certain changes are typically allowed. Depending on the type of policy, a policyowner may change all of the following without needing a new policy, EXCEPT:

the incontestability provision Explanation: Depending on the type of policy, a policyowner may change beneficiaries without needing a new policy.

Each application for health insurance requires the signature of which party?

the proposed insured, the producer, and all adults to be covered by the policy Explanation: To be legally binding, the proposed insured must sign the application before it is submitted to the insurer, but it is not the only party whose signature is required.

Joe, age 35, has a life-paid-up-at-65 limited payment life insurance policy. Under the policy's waiver of premium rider, if Joe becomes totally and permanently disabled, premiums will be waived:

to age 65 Explanation: For limited payment life policies, the waiver of premium rider waives premiums until the policy is paid up (in this case, age 65 for Joe).

An insurable interest is presumed to exist in all of the following relationships EXCEPT:

two friends Explanation: In general, spouses have an insurable interest in each other, and parents have insurable interests in their children. Businesses also have insurable interests in their key employees. Absent a close familial or business tie, an insurable interest will not exist between two friends.

What is the standard life insurance policy suicide exclusion period?

two years Most states have a two-year suicide exclusion period, though some limit this period to one year.

For which of the following types of life insurance is a cost-of-living (COL) rider generally unnecessary and therefore unavailable?

universal life insurance With its flexible terms, universal life insurance (especially death benefit option 2 with its increasing death benefit) is not a good candidate for the addition of a COL rider.

The Texas Department of Insurance has found that ABT Insurance has consistently failed to promptly respond to policyholder communications regarding claims. This means that it typically fails to respond within:

15 days Insurers must timely acknowledge pertinent communications relating to a claim arising under the insurer's policy within 15 business days. Failing to do so can be considered an unfair claim settlement practice.

Sandy is covered by an individual health insurance policy, and Jackie is covered by a group plan. Both became pregnant within six months of their policies' effective dates. Under the Affordable Care Act, which statement is correct?

Both policies must cover the costs of the pregnancies. Health insurers cannot consider pregnancy a preexisting condition under the Affordable Care Act. Moreover, they cannot charge the insured a higher premium because of her pregnancy.

Larry, Brian, Susan, and Jennifer just started working for AllPro Insurance Company in Texas. Based on their job descriptions below, which of them is NOT an agent?

Brian, who is a vice president in AllPro's human resources department and does not receive commissions Any person who receives or transmits (other than on the person's own behalf) an application for insurance or an insurance policy to or from an insurer is acting as an agent.

Under a disability income insurance policy's 'insurance with other insurer' provision, what can Insurer A do if it finds that a disabled policyowner has similar coverage with Insurer B and had not notified Insurer A of this fact?

Company A will pay a reduced benefit so that the insured's total benefits do not exceed pre-disability income. The 'insurance with other insurer' provision lets the DI insurer prorate the amount of benefit it pays for a loss if it finds that the policyowner has similar undisclosed coverage with a different insurer, thus preventing the insured from receiving benefits that exceed his or her regular income.

Which is NOT a means by which the federal government currently encourages employers to provide health care coverage for their employees?

Medical Savings Accounts Though the Medical Savings Account was the first of the modern health care reimbursement programs and became widespread in 1996 through the Health Insurance Portability and Accountability Act (HIPAA), MSAs were available only through 2007. Individuals who owned an MSA in 2007 may continue to maintain the accounts.

Mr. Johnson has reached his full retirement age for Social Security benefit eligibility and has started receiving benefits. He has a 58-year-old spouse and a 13-year old daughter. The maximum Social Security family benefit for Mr. Johnson and his dependents is based on which of the following?

Mr. Johnson's PIA only Social Security family benefits are based on a single worker's earnings and PIA. The total varies, but generally the maximum family limit for retirement and survivors' benefits ranges from 150 to 175 percent of the worker's PIA.

All the following statements regarding insurable interest in a life insurance policy are true EXCEPT:

Neighbors have insurable interest in each other. The following types of personal relationships are automatically deemed to represent an insurable interest: individuals in themselves; spouses in each other; parents in their children; and children in their parents or grandparents (or someone else in the case of financial dependency). Beyond these relationships, the burden of proof lies with the applicant to prove there is an insurable interest in the proposed insured.

Are group medical expense insurance benefits paid to employees taxable income to the employer who pays the premium?

No, benefits paid to an employee are not taxable income to the employer. Benefits paid to employees under a group medical expense insurance policy for which the employer pays the premium are not taxable income to the employees. The employer can deduct the premiums as a business expense.

Coverage provided under Medicare is divided into four parts. All of the following accurately describe the four parts of Medicare, EXCEPT:

Part D provides coverage for long-term home health care and hospice care. Part A covers institutional care, including inpatient hospital care, skilled nursing home care, post-hospital home health care, and hospice care.

Ralph, Jerry, and Paula are primary and equal beneficiaries of the $600,000 insurance policy on the life of their mother, Judy. Ralph dies before his mother. He leaves two children, Tim and Hal. If Judy's life insurance policy designates the death benefit be paid "per stirpes," how will the insurer distribute the policy benefits?

Ralph's $200,000 share will pass equally to his two children when Judy dies. The surviving siblings, Jerry and Paula, will each receive $200,000. Under a per stirpes designation, Tim and Hal will each receive $100,000, because Ralph's $200,000 share will be split equally between them.

Which of the following characteristics of a potential customer would make an immediate fixed annuity under a straight life income option unsuitable for that person?

The customer is age 75 and in questionable health. While an immediate fixed annuity under a straight life income option is suitable for someone who wants income for life and has no need for a minimum income guarantee, it may not be suitable for someone with a limited life expectancy..

All the following statements regarding the automatic premium loan are correct, EXCEPT:

The insurer deducts the automatic premium loan on the first day of the premium payment grace period if the policyowner has not paid by that time. The insurer deducts the automatic premium loan on the last day of the premium payment grace period if the policyowner has not paid by that time.

Under a disability income insurance policy's 'other insurance with other insurer' provision, what must be done with any premiums paid by the policyowner for benefits that are not paid because they exceed the excess coverage limit?

The insurer must return them to the policyowner. The insurer does not retain them. Any premiums paid for coverage that are more than needed to cover the reduced benefits paid must be returned to the insured.

What happens if a person does not apply for Social Security retirement benefits at age 65 but still wants Medicare?

The person must enroll in Medicare Part A. (Medicare does not automatically prevent an eligible person from applying for Medicare simply because the person does not apply for Social Security. A person is dropped from Medicare only if the person notifies the Social Security Administration that he or she declines to participate.)

Comprehensive major medical plans provide a broad range of coverage. They most likely cover all of the following, EXCEPT:

cosmetic surgery, experimental procedures or treatment, and alcohol and drug abuse treatment A comprehensive major medical plan combines the coverage of basic hospital, basic surgical, basic physician, and supplemental major medical into one complete, comprehensive plan. Such plans are likely to cover hospital expenses, surgeons' and doctors' fees, and nursing care.

Nick suffered from chest pain and shortness of breath for six months before he applied for an individual health insurance policy. He did not seek medical attention. Two months after the policy was issued, he had a major heart attack. What will the insurer do about his claim?

deny it because it involves a pre-existing condition Preexisting conditions are those for which a reasonable person sought or should have sought medical care or treatment, or for which the insured did receive medical care or treatment, within six months before coverage took effect. Under the Affordable Care Act, insurers cannot deny coverage for losses resulting from pre-existing conditions. Policies with 'grandfather' status under the ACA and are exempt from this requirement, under certain conditions.

Elizabeth just became eligible for Medicare on January 1 this year and wants to make sure that she receives outpatient prescription drug coverage. When she asks her agent for advice, he correctly informs her that she must

enroll in Medicare Part D. After December 31, 2005, no Medigap policies can be sold that offer prescription drug benefits. Instead, Elizabeth must enroll in Medicare Part D.

Stacey is a captive agent for Best Rates Insurance Company. Her agency contract gives her permission to print and use business cards with the company's logo and submit applications for its policies. Which type of authority does Stacey have to take these actions?

express The agency contract between Stacey and Best Rates Insurance Company sets forth certain acts and duties that she is specifically authorized to perform, such as submitting applications and using the company's logo. This authority is called express authority.

Adam is an independent agent and solicits policies for several insurers. What kind of relationship does he have with each insurer?

fiduciary Adam has a fiduciary relationship with every insurer with whom he does business. This means that he must avoid conflicts of interest and must act in good faith and with integrity in his dealings with various insurance companies.

Which of the following annuities specifies the exact premium payment amounts (and when they must be paid) for the contract to generate the desired future income payments?

fixed premium deferred annuity An immediate annuity can only be bought with a single lump-sum premium payment.

To a consumer in Texas, an insurance company that is headquartered in Missouri but admitted to do business in Texas is a(n)

foreign insurer To Texas consumers, a domestic insurer is one that is formed under the laws of Texas, a foreign insurer is formed under the laws of another state, and an alien insurer is formed under the laws of a country other than the United States.

Access to an HMO's network of doctors and hospitals is controlled by a primary care physician who is sometimes called a:

gatekeeper A primary care physician is called a gatekeeper. This term refers to the physician's role in controlling subscribers' access to the network of health-care specialists.

An agent is using the needs approach to calculate the amount of life insurance that a person should have. What is the agent's first step?

gather and analyze personal information about the prospective customer When using the needs approach, one of the later steps in the process involves determining the type of policy that is most appropriate.

If the Alpha-Omega Corporation wants to provide life insurance for all its full-time employees, it will most likely buy which of the following?

group life insurance With group coverage, one master policy covers multiple people'from as few as ten to hundreds or more. The policy is owned by the organization that sponsors the coverage (most commonly an employer). The covered individuals (called plan participants) are not policyowners nor are they parties to the contract. Individual certificates of coverage are provided to each participant to show they are insured.

Anne, a life insurance applicant, wants to change an answer that she gave on the application. She should do which one of the following?

have the applicant cross out and initial the incorrect entry If the applicant needs to change a response on the application, he or she should cross out and initial the incorrect entry and then write the correct entry next to it. Never "white out" and write over an incorrect entry.

Long-term care insurance is NOT designed to cover:

health care services for the poor LTC insurance is designed to cover the cost of care of insureds who lose the ability to perform some or all activities of daily living (ADLs). It is not intended to cover medical care provided to the poor.

Which of the following types of healthcare reimbursement programs is currently available, used with high-deductible health insurance plans, and features tax deductible contributions that accumulate on a tax-free basis?

health savings accounts (HSAs) Health savings accounts (HSAs) are tax-exempt accounts that are set up with high deductible, high-cost insurance policies. Contributions to these accounts are tax deductible and accumulate on a tax-free basis. Distributions to pay for qualified medical expenses are tax free.

Which of the following most correctly describes the nonforfeiture option(s) available with universal life insurance?

surrender the policy for its cash value or stop paying premiums and continue coverage as long as the cash value will support it Universal life policies do not contain the standard nonforfeiture options. Instead, the policyowner can either surrender the policy for its cash value or continue coverage with no further premium payments, in which case coverage will last for as long as the cash value is able to support the policy's monthly mortality and expense charge deductions.

In calculating their mortality charges, life insurers today generally use:

the 2001 CSO table The mortality factor is drawn from mortality statistics compiled by the National Association of Insurance Commissioners (NAIC) into a set of rates called the Commissioners Standard Ordinary (CSO) table. Policies issued since 2009 are required to base their mortality charges on the 2001 CSO table.

The amount of an employer's annual contribution to a defined benefit plan is determined by which of the following?

the amount of future benefits provided to retirees through the plan The employer's annual contribution to a defined benefit plan is determined by the amount of future benefits specified in the plan. Deferred benefit plans are non-contributory. Annuity settlement options, selected at a participant's retirement, are actuarially equivalent and have no bearing on annual funding requirements.

Information that is commonly asked on a health insurance application include all of the following EXCEPT:

the applicant's opinion regarding the risk of disability or illness occurring As part of the health insurance application process, the producer will ask for the names, sex, and ages of all persons to be covered by the policy.

All of the following must sign life insurance applications, EXCEPT:

the beneficiary As the proposed owner of the policy, the applicant must sign the application. In a third-party situation, where the applicant and insured are two different people, both must sign. Producers sign the application both as witness and as agent for the insurer. Beneficiaries do not sign the application because they are not a party to the contract.

Pamela owns a fixed deferred annuity that she will annuitize next year when she retires. Which of the following is a key factor in determining the percentage of her monthly annuity payment that will be subject to tax?

the expected return To determine the amount of the annuity income that will be taxable as ordinary income, Pamela must know the amount of her investment in the contract as well as the expected return, which is the total amount that she can expect to receive as income payments under the contract.

All of the following are common types of term life insurance EXCEPT:

variable term Decreasing term life insurance provides face amount coverage that decreases over time, eventually reaching zero at the end of the term.