LAH Exam 1 Q&A

An outline of coverage must be provided to a prospective buyer when he or she is attempting to purchase which of the following? a. a medicare supplement or a long term care policy b. life insurance or a limited policy c. medicaid or a disability income policy d. dental insurance or a long term care plan

A. A medicare supplement or a long term care policy A producer or insurer must provide an outline of coverage to prospective purchasers of Medicare Supplement Insurance or Long Term Care plan prior to application or no later than the time of policy delivery. Most states do not require that an outline of coverage be provided for every type of insurance purchased. Some insurers, however will provide one voluntarily.

A group life insurance plan whose premium is shared by the employer and employees best describes: a. a noncontributory plan b. a contributory plan c. an employer-pay-all plan d. a self funded plan

B. A contributory plan A contributory group plan is one where the employer and the employee share the premium. An insurer will not write coverage for a contributory plan unless 75% of all eligible employees participate.

Which of the following is a dividend option? a. surrender for cash b. extended term insurance c. one year term insurance d. fixed amount

C. One year term insurance The one year term insurance option allows the policy owner to buy temporary life insurance protection for a year by funding coverage with the dividend payable.

An annuity may be referred to as a systematic reimbursement of the estate. A type of annuity which provides lifetime benefits for the annuitant and upon the annuitants death, a lump-sum settlement of any undistributed cost of the annuity is referred to as a: a. joint life annuity b. life annuity with 15 years certain c. life annuity with installment refund d. cash refund annuity

D. Cash refund annuity A cash refund annuity provides a lump-sum settlement to the beneficiary of a deceased annuitant.

There are several types of insurance licenses available in this state. Which of the following licenses allow the holder to provide insurance advice for a fee as long as the fee is in writing prior to the work being performed? a. managing general agent b. resident producer c. nonresident producer d. insurance consultant or adviser

D. Insurance consultant or advisor A licensed advisor or consultant may charge clients a fee for providing professional insurance advice.

Which of the following is not considered a rebate? a. any valuable consideration used as an inducement to contract insurance, not specified in the policy b. stocks and bonds given as an inducement to contract c. a favorable payment plan provided to a policyholder d. a personal service offered as an inducement to contract insurance, not specified in the policy

C. A favorable payment plan provided to a policyholder Various payment or budget plans are not considered rebating. Rebating is an illegal activity.

Insurers offer several types of specialized life insurance plans. A type of life insurance plan that couples cash value life insurance with reducing term life is known as: a. family policy b. family maintenance policy c. family income policy d. family endowment

C. Family income policy A family income policy provides coverage for one individual. The policy consists of whole life and decreasing term insurance. Decreasing term life may also be referred to as reducing term or non-level term coverage.

Which of the following best describes self-insurance? a. purchasing coverage from an insurer b. transferring risk to another party c. identifying and funding ones losses d. incorporating

C. Identifying and funding ones losses An individual who embarks on a self insurance program means that he or she identifies the risks to which they are exposed, evaluates the exposures, determines steps to take which control losses, monitors these exposures and funds losses experienced.

What type of dental procedure provides care for the tissue and gums that surround the teeth? a. restorative b. endodontics c. periodontics d. prosthodontics

C. Periodontics Periodontics provides coverage for the surrounding tissue of the teeth (periodontics = perimeter). Endodontics provides coverage for the pulp/roots of the teeth and prosthodontics provides benefits related to corrective devices such as dentures.

Which of the following is a power or duty of the Superintendent or Commissioner of Insurance? a. examines domestic companies once every two years b. prosecutes producers who break insurance laws c. sets life insurance premium rates d. computes the reserves of life insurance policies

D. Computes the reserves of life insurance policies An insurer has the power to determine what amount of surplus it will share annually with a policyowner/insured

Medical treatment provided for an individual who is injured as a result of attempted suicide is generally: a. included in a major medical plan b. subject to limitations in the policy c. covered in full d. excluded

D. Correct Medical plans contain several exclusions including treatment in a government facility, elective cosmetic surgery, attempted suicide or intentionally inflicted injuries and war.

Each of the following is excluded by Blue Cross/Blue Shield coverage EXCEPT: a. routine examination costs b. injury to an insured while committing a felony c. intentionally self-inflicted injuries d. dental care resulting from an accident

D. Dental care resulting from an accident Routine examinations, injuries resulting from illegal activities and intentionally self-inflicted injuries are always excluded. Dental care resulting from an accident would be covered.

An insured submits a claim form that is intentionally and falsely altered in order to receive a benefit. Which term best describes this submission? a. material misrepresentation b. misrepresentation c. theft d. fraud

D. Fraud The best response is fraud because it involves intentional deception. Material misrepresentation may or may not be intentional. Being convicted of theft may result, but falsely filed claims are generally deemed to be fraud.

Bill is covered by a comprehensive major medical policy with base coverage of $5,000. The policy includes a $500 corridor deductible and 80/20 coinsurance. If the insured suffers an excluded $10,000 hospitalization loss, how much will the insurer pay? a. $1,400 b. $0 c. $7,600 d. $8,600

B. $0 If the loss or claim is excluded, the policy does not pay any benefit.

A 10% penalty is assessed the owner of an annuity contract on the taxable portion of a deferred annuity if a surrender occurs prior to: a. age 100 b. age 65 c. age 59 1/2 d. age 65 1/2

C. Age 59 1/2 A surrender or premature distribution of an annuity, modified endowment contract or a qualified plan will be subject to a 10% penalty if the surrender or distribution is accomplished prior to age 59 1/2. Possible income tax considerations may also be present.

Jennifer pays a $75 premium each month for life insurance coverage. Her insurer promises to pay a much greater benefit to a beneficiary if she dies prematurely. This is an indication that the life insurance contract possesses which of the following features? a. it is an aleatory contract b. it is a contract of adhesion c. it is a conditional contract d. it is a bilateral contract

A. It is an aleatory contract An aleatory feature of an insurance contract means that the contract contains unequal values with regard to premiums paid and benefits received. For example, the premium paid for coverage is less than the (potential) benefit(s) payable.

Which of the following provides the core benefits to consumers when they purchase a Medicare Supplement plan? a. Plan A b. Plan B c. Plan C d. Plan J

A. Plan A Plan A includes what are known as "core" benefits in a Medicare Supplement policy. Insurance producers must offer these core benefits to a consumer when he or she is considering whether or not to purchase such a plan. The coverage provided by core benefits is standardized.

A survivorship life insurance plan is a specialty type of contract. This type of policy is generally purchased in order to cover how many individuals? a. 3 b. 2 c. 5 d. 7

B. 2 Survivorship life policies are generally used to insure spouses.

In the event a long term care policy is replaced a notice regarding replacement form must be provided to and signed by the applicant at what time? a. anytime during the underwriting process b. at time of policy application c. the notice regarding replacement only applies to disability income policies d. within 30 days following policy delivery

B. At time of policy application Anytime a policy is to be replaced by a new policy, a Notice Regarding Replacement form must be provided to the applicant before or during the initial application process.

Al purchases a disability income policy. The application is approved on March 4th. The contract is issued on March 10th. It is delivered by the producer on March 13th. When will the ten day free-look period end? a. March 13th b. March 23rd c. March 22nd d. March 24th

B. March 23rd Then ten day free-look period begins when the policy is delivered to the policyowner. During this period, if the policyowner returns the contract to the producer or insurer, he or she will receive a full premium refund.

What provision found in a life insurance policy allows an insurer to assess an extra charge if the policyowner makes payments on a quarterly basis? a. owners rights provision b. premium paying provision c. consideration provision d. automatic premium provision

B. Premium paying provision The premium payment provision allows an insurer to assess an extra charge when a policy owner pays a premium other than annually. This provision also permits the owner to select the premium mode.

If an insured wishes to guarantee his or her insurability, what provision or option may be added to a disability income policy? a. a waiver of disability b. cost of living rider c. return of premium provision d. guaranteed purchase option

D. Guaranteed purchase option The guaranteed purchase option (GPO) may also be called the guaranteed insurability benefit (GIB). This rider allows the insured to purchase additional amounts of disability insurance at specified option dates without proving insurability.

The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides for the continuation of group health insurance coverage for an individual or dependents under specific circumstances. All of the following are considered to be applicable special circumstances, EXCEPT: a. promotion b. death c. termination of employee d. divorce

A. promotion COBRA mandates that employers must provide an employee and any qualified beneficiaries with group health coverage followed by a "qualified event". These qualified events or "special circumstances" include termination of the employee, death or divorce, and a child ceasing to be available for group coverage.

Which of the following would qualify someone for medical care benefits under Medicaid? a. insufficient income b. lost wages c. total disability d. blindness

A. Insufficient income Medicaid provides health care for low-income persons those with limited assets or insufficient income, those receiving welfare benefits and others in need who are blind, aged, disabled, or under age twenty-one.

The waiver of premium benefit is usually included in a disability policy without an added premium. The benefit states that the insurer will waive premiums if an insured has been totally disabled for what length of time? a. one month b. three months c. six months d. twelve months

B. Three months The waiver of premium benefit is automatically included in a disability income policy. The waiting period that must be satisfied before premiums are waived is three months.

When an insured covered by an accident and health policy suffers an accident or illness, he or she must notify the issuer of the loss within: a. 30 days b. 15 days c. 20 days d. 45 days

C. 20 days The Notice of Claim provision stipulates that the insured must notify the insurer of an accident or illness within 20 days of the loss.

Employer paid group medical premiums are deductible to the employer. How are group medical benefits received by the employee taxed? a. they are taxed as ordinary income b. they are taxed at a marginal withholding rate of the employee c. only 50% of the benefit is subject to taxation d. medical benefits are not taxable to the employee because they are not considered an income

D. Medical benefits are not taxable to the employee because they are not considered an income.

Which of the following provides benefits for artificial devices such as bridgework? a. prosthodontics b. endodontics c. periodontics d. orthodontics

A. Prosthodontics This benefit provides for the replacement of missing teeth or artificial devices such as bridgework or dentures.

An insurer that is licensed to sell insurance in Michigan but has its principal office in Illinois is considered to be which to the following in the former? a. authorized insurer b. foreign insurer c. alien insurer d. surplus lines insurer

B. Foreign insurer A foreign company is one that is licensed in a particular state but is chartered in another.

Qualified plans are those that are approved by the IRS. In order to receive "qualified" status, the plan must meet all of the following conditions EXCEPT: a. must be in writing b. must not be discriminatory c. must comply with the exclusion ratio formula d. must satisfy minimum age and service requirements

C. Must comply with the exclusion ratio formula In order to be considered "qualified" a plan must satisfy IRS requirements including: (1) it must be in writing (2) it must not be discriminatory (3) it must be communicated to all employees (4) it must be provided for the benefit employees and their dependents (5) it must satisfy minimum age and service requirements (6) must provide survivor benefits

An outline of coverage must be provided to the applicant no later than the time of: a. policy application b. policy submission c. policy delivery d. the conclusion of the 10-day free look

C. Policy delivery The outline is generally provided at the time of policy application, but is required to be provided to the applicant no later than the time the policy is delivered to the owner.

Which of the following life insurance policies is a type of limited payment life insurance plan and provides a greater tax advantage than other permanent plans? a. modified whole life b. graded premium whole life c. single premium whole life d. variable universal life

C. Single premium whole life A single premium life policy is characterized by equity buildup and a lump-sum premium. Since this contract is paid up in a lump sum, the cash value is fully funded (plus future interest). Therefore, the owner may borrow against the tax-deferred cash buildup.

Which of the following indicates the person upon whose life the annuity income amount is determined in an immediate annuity? a. contract owner b. annuitant c. beneficiary d. policy owner

B. Annuitant The periodic annuity payments are made to an annuitant. The monthly amount to be paid is based on life expectancy of the annuitant.

Family policies usually provide death benefit coverage: a. for the primary insured only b. for all family members although the benefits differ c. for the working spouses only d. that may be assigned to the tertiary beneficiary

B. For all family members although the benefits differ A family policy provides whole life insurance protection on a primary insured and level term life on the spouse and each of the children. Children are covered by level term insurance from the moment of birth.

Which of the following policies is characterized by the lowest initial annual premium? a. ten-pay life b. whole life policy c. modified whole life d. thirty pay whole life

C. Modified whole life A modified whole life policy has a lower initial premium than other forms of permanent insurance. It is characterized by a lower premium than a traditional whole life plan in the first few years. It later increases to an amount higher than the whole life policy and remains constant for life.

An underwriter may accept a risk but charge an extra premium for a: a. preferred risk b. standard risk c. substandard risk d. declined risk

C. Substandard risk Substandard risk means the underwriter has accepted the risk BUT only if the proposed policyholder pays a higher premium.

Permanent insurance plans include various options available to the policy owner. What whole life insurance policy options protect a policy-owner against an unintentional coverage lapse? a. non-forfeiture option b. settlement option c. dividend option d. endowment option

A. Non-forfeiture option A policy that includes cash value can not lapse. Other provisions that protect the policy-owner against an unintentional lapse include the automatic premium loan and grace period provisions.

It is the fiduciary responsibility of a producer to account for all funds collected from a customer. If a producer does not remit a renewal premium to the issuer, which of the following will occur? a. coverage will lapse since the premium was not made b. coverage will not lapse since payment to a producer is payment to the issuer c. the producer will be prosecuted by the Insurance Commissioner d. the producer will have to attend an ethics course

B. Coverage will not lapse since payment to a producer is payment to the issuer. A premium collected by the producer must be turned in to the insurer. It may not be misappropriated or converted for his or her own use.

Walter Bruce purchases a Medigap plan. This type of plan must always include which of the following? a. policy loan provision b. free-look provision c. non-cancellable provision d. beneficiary provision

B. Free-look provision Medigap plans are also called Medicare supplement policies. These plans must always include a free-look provision of 30 days. A free-look provision is also called a "right to examine" provision.

If a statement of continued good health must be submitted to an insurer, it must be completed by which of the following? a. MIB b. the applicant c. consumer reporting agency d. the beneficiary

B. The applicant The applicant for insurance is also, generally, the proposed insured as well. If a statement of good health is required of the applicant/proposed insured it is he or she who must complete it.

A producer selling Medicare Supplement Plans must determine the suitability of purchase with regard to the consumer contemplating the purchase. Which of the following must the producer consider when determining such suitability? a. the health history of the consumer considering purchase b. the appropriateness of recommended purchase c. the compensation arrangement between the insurer and producer d. whether or not a replacement will be involved

B. The appropriateness of recommended purchase

A hazard is a condition present that increases the chance of loss. Which of the following would be considered a hazard? a. residing in a gated community b. using tobacco products c. increasing the replacement cost of property d. a garage suffers fire damage

B. Using tobacco products There are three types of hazards including physical, moral, and morale. Using tobacco products is an example of a physical hazard.

Which of the following statements is true with regard to the conversion privilege that is available in group life insurance policies? a. group life coverage may be converted to an individual plan of whole life within thirty days of termination of employment. b. group life coverage may be converted to an individual term life plan upon termination of employment c. group life coverage may be converted to an individual whole life plan within thirty-one days of employment termination without proof of insurability d. group life coverage may be converted to an individual whole life plan within thirty-one days of employment termination as long as proof of insurability is provided

C. Group life coverage may be converted to an individual whole life plan within thirty-one days of employment termination without proof of insurability. Group term life policies include a 31-day conversion period for employees who leave an employer. They can take the face amount of coverage with them as long as they convert it to whole life during the conversion period. No proof of insurability is required.

A producer licensed in life or health insurance who fails to complete state required Continuing Education requirements is subject to which of the following? a. license suspension b. license renewal c. a monetary penalty of up to $25,000 d. a monetary penalty of not more than $5,000

A. License suspension Any licensee who neglects or fails to satisfy continuing education requirements will be subject to license suspension until compliance.

Which of the following is a vehicle that provides health insurance benefits for small benefits with common employments? a. multiple employer welfare arrangement b. employer administered plan c. residual market pools d. joinder groups

A. Multiple employer welfare arrangement Multiple employer welfare arrangement, also known as multiple employer trusts, allow small employers in common or similar industries to band together in order to receive more cost-effective health insurance coverage. This allows the MEWA or MET to be part of a larger group and thus receive a more advantageous premium rate.

Medicare is a federally sponsored program providing health care for individuals age 65 and older. The original two primary parts of the Medicare program include: a. hospital insurance or hospice care b. inpatient hospital services and home health care c. hospital insurance and supplementary medical expenses d. disability benefits and home health care services

C. Hospital insurance and supplementary medical expenses Medicare consists of Part A---Hospital insurance and Part B--Supplementary medical insurance. Part A is subject to a deductible and provides inpatient hospital care, home health care, skilled nursing care and hospice benefits. Part B is subject to coinsurance amounts and a deductible and covers outpatient benefits and physicians costs.

What is the purpose of a credit disability insurance policy? a. to provide an individual with protection for loss of income b. to cover an outstanding debt c. to protect a financial institution in the event of solvency d. to provide an insured with protection against superannuation

B. To cover an outstanding debt Credit disability insurance is used to cover the amount of an indebtedness. Benefits purchased generally are not in excess of this outstanding loan.

Annuity contracts may be funded with any several methods of payment. Which of the following is not a recognized method of funding this contract? a. flexible premium b. level premium c. lump-sum premium d. certain premium

D. Certain premium Annuity contracts may be funded on a single or lump-sum basis, by level, fixed or contract premiums, or with a flexible premium each year.

In which of the following circumstances is cosmetic surgery covered by a health insurance policy? a. it results from an accident b. it is elective c. it is necessary d. it is usual, customary and reasonable

A. It results from an accident Cosmetic surgery that is elective is excluded from health insurance plans. However, if such surgery is the result of an accident, coverage is provided since health insurance plans cover both illness and accidents.

According to a permanent insurance policy's non-forfeiture options, a policy may not lapse when cash value is present. All of the following are types of these non-forfeiture options, EXCEPT: a. one-year term insurance b. cash surrender c. extended level term coverage d. reduced paid up insurance

A. One-year term insurance One-year term insurance is a dividend option. Non-forfeiture options are available to a policy owner who wishes to surrender his or her whole life policy. Once surrendered, a policy cannot be reinstated.

Each of the following is a form of risk classification utilized by life or health insurance underwriters, EXCEPT: a. tabular risk b. preferred risk c. standard risk d. substandard risk

A. Tabular risk There are three common types of risk classes including preferred, standard and substandard. The preferred risk carries with it the lowest premium. Substandard risk may be declined or written with an extra premium.

A variable life policy provides a combination of death protection with a variety of investment options. Which of the following are guaranteed in a Variable Life insurance policy? a. the death benefit and premium b. the cash value and death benefit c. the premium and the cash value d. the death benefit and investment performance

A. The death benefit and premium Variable whole life insurance policies are characterized by a guaranteed minimum death benefit and a predetermined premium. The cash value of this form of life insurance is invested in the stock market where there are no guarantees.

A social device used for the transfer of risk through the pooling or accumulation of premiums best describes which of the following? a. the definition of insurance b. the concept of risk c. a hazard d. risk

A. The definition of insurance Insurance transfers risk from one to many.

Insurance companies use age 100 to calculate life insurance death benefits because: a. they assume everyone will have died by that age b. it allows them to charge higher premiums c. it makes sure they never have to pay a death benefit d. they assume that mortality rates will decrease by then

A. They assume everyone will have died by that age Insurers use standard mortality tables to determine the probability of death. The reason that age 100 is utilized is because it is assumed everyone will be deceased by that time. In addition, it makes premiums more affordable since costs are not based upon the actual life expectancy of a male or female.

Which of the following is true regarding an irrevocable beneficiary? a. this beneficiary has the right to receive a copy of the policy b. this designation may be changed at any time by the policy-owner c. this beneficiary has no rights in the policy d. this designation may be charged by the owner at his or her discretion

A. This beneficiary has the right to receive a copy of the policy When an individual is named an irrevocable beneficiary, he or she may receive a copy of the policy to determine the policyowner rights. The owner may not exercise any rights unless he or she receives the consent of the irrevocable beneficiary.

An optional health insurance policy provision which allows the insurer to adjust benefit payments under certain situations or permits the insured to receive a reduced premium in other circumstances, best describes: a. payment of claims b. change of occupation c. relation of earnings to insurance provision d. time limit on certain defenses

B. Change of occupation The change of occupation provision is commonly found in a disability income policy. If the insured changes his or her occupation after a policy is purchased, the policy may be kept but something will be reduced. If the occupation change involves going to a more hazardous occupation, there will be a benefit reduction. If the occupation change involves going to a less hazardous occupation, there will be a premium reduction.

A life insurance policy is a legal contract. All of the following must be present in order for this type of contract to be legal and enforceable in a court of law, EXCEPT: a. a paid premium and representations of the applicant b. conditional receipt c. offer and acceptance d. legal capactiy

B. Conditional receipt Four elements must be present in order for a contract to be legal: (1) an agreement (2) a consideration (3) legal capacity (4) legal purpose

Which of the following is not a minimum standard requirement for Medigap insurance? a. Medigap plans must be guaranteed renewable for life b. Medigap plans must have a 20-day free look c. Medigap plans must cover preexisting conditions after six months d. Medigap plans must have annual automatic adjustments to reflect changes in Medicare deductibles and copayments

B. Medigap plans must have a 20-day free look Medicare supplement or Medigap insurance must include at least a 30-day free look period. These policies must also include a "guaranteed renewable for life" provision.

An annuity characterized by a lone payment with income beginning years later is known as a: a. single premium immediate annuity b. single premium deferred annuity c. lump sum premium temporary annuity d. annual premium deferred annuity

B. Single premium deferred annuity A single premium deferred annuity is funded with one premium payment. If income is designed to commence at retirement or more than a month after purchase, it is a deferred annuity.

A whole life policy provides permanent insurance protection since it never needs to be converted. All of the following are types of traditional whole life insurance, EXCEPT: a. ten-pay life insurance b. mortgage redemption life insurance c. graded premium life insurance d. single premium life insurance

B. mortgage redemption life insurance Mortgage redemption life insurance is a type of decreasing term life. It is not a permanent type of insurance since it has no cash value.

A person age 54 withdraws funds from a tax-sheltered annuity (TSA). What penalty will be assessed? a. 50% b. 20% c. 10% d. 70%

C. 10% Whenever a premature distribution is made from a qualified plan, MEC, or annuity prior to age 59 1/2, a 10% penalty on the funds received will be effected.

According to the proof of loss form provision which appears in a health insurance policy, an insurer must send in a claim form to an injured insured within: a. 60 days of notification b. 20 days of notification c. 15 days of notification d. 90 days of notification

C. 15 days of notification The claim form provision is also referred to as the "proof of loss form" provision. It states that once the insurer is notified that the insured has suffered an accident or illness, it must send out the claim forms within 15 days or expose itself to an unfair claim practice.

As an insurer incorporated, chartered or formed under the laws of this State is referred to as: a. an alien insurer b. a foreign insurer c. a domestic insurer d. an unauthorized insurer

C. A domestic insurer A domestic insurer is one that is chartered or incorporated in a particular State.

An Accident and Health insurer pays a claim and later finds that the insured's injury was the result of engaging in a felony. What will the insurer do? a. deny the claim and return the premium b. deny the claim c. attempt to recover the claim payment d. assess an extra premium

C. Attempt to recover the claim payment The insurer does not have to pay a claim if an injury or illness results from an insured engaging in any illegal occupation. Therefore the insurer may attempt to recover any benefit previously paid.

Which of the following statements is true with regard to limited health policies: a. limited policies protect against gaps in coverage that exist in other plans b. limited policies provide benefits for cancer policy c. limited policies must state clearly what coverage they provide d. limited policies cover scheduled surgical expenses if not covered by major medical plans

C. Limited policies must state clearly what coverage they provide Limited policies pay benefits for an individual illness or accident. These policies must state prominently that they are limited in nature. Cancer only or dread disease plans are two common types of limited health insurance policies.

Which of the following is the owner of a key-employee disability policy: a. the employee b. the beneficiary c. the business d. the creditor

C. The business

Which of the following is the person or entity primarily responsible for determining the suitability of a long-term care product for a prospective purchaser? a. the prospective policyowner b. the insurer c. the producer or agent d. the Department of Aging

C. The producer or agent Since most buyers of long term care insurance are senior citizens, it is the responsibility of the person making the sale to determine the product is suitable for the purchaser. This is the responsibility of the insurance agent or producer.

In which of the following ways is an annuity similar to a whole life or term life insurance policy? a. they may both be used to fund a qualified plan b. they both pay a stipulated death benefit c. they are both characterized by prepaid financing d. they both pay a benefit upon the death of the contract owner

C. They are both characterized by prepaid financing Prepaid financing means that the contract owner makes premium payments on a timely basis to purchase protection with regard to a life insurance policy or fund an annuity contract. In other words, it means "funding" the contract.

When an issuer agrees in advance to assume a portion of a risk written by another insurance company, which of the following forms of reinsurance has occurred? a. reciprocal reinsurance b. facultative reinsurance c. treaty reinsurance d. replacement cost reinsurance

C. Treaty reinsurance Treaty reinsurance agreements are also referred to as automatic reinsurance agreements. In this instance, the ceding insurer places coverage with the reinsurance company according to an agreement already in existence beeper the placement occurs.

When an insured files a claim with an issuer, he or she cannot take any legal action against the insurance company until what period of time passes? a. 3 years b. 30 days c. 2 years d. 60 days

D. 60 days Most accident and health insurance contracts provide that the insurer has sixty days to pay a covered claim once all the required paperwork has been submitted to the insurer. This provision states that the insured cannot take legal action against the insurer with regard to the covered claim until this sixty-day period has elapsed.

Eleven years ago, Tom bought a life insurance policy from Jack who is an agent for Benefit Mutual Life. The policy will pay Tom's wife, Lauren, $1,000 per month for twenty years until he dies. Once the monthly income ends, the insurer will pay Lauren a death benefit of $50,000. What type of plan did Tom purchase? a. a $50,000 whole life policy with a family policy rider b. a $50,000 whole life policy c. a $50,000 whole life policy with a family income rider d. a $50,000 whole life policy with a family maintenance rider

D. A $50,000 whole life policy with a family maintenance rider A family maintenance rider provides level term insurance coverage on the primary insured. This rider is generally added to a whole life policy and provides the level term coverage for a specified period of time.

Which of the following would not be considered rebating? a. a producer offers to pay a portion of the insureds premium b. a producer provides a television set to a current customer c. a producer offers season tickets to a prospective client d. a producer offers an advantageous premium payment plan to an insured

D. A producer offers an advantageous premium payment plan to an insured

The policy owner wishes to provide for the care of her minor child in the event of premature death. To accomplish this, the owner should probably designate as beneficiary: a. a spouse as a revocable beneficiary b. the estate of the deceased c. a favorite charitable organization d. a trust

D. A trust An owner of a life insurance policy may designate anyone as beneficiary whether an individual, trust or alma mater. A trustee must be appointed who will manage the trust funds for the benefit of the minor child.

An underwriter may accept all risks EXCEPT: a. preferred risks b. standard risks c. substandard risks d. declined risks

D. Declined risks Declined means the underwriter, after reviewing all information has rejected the application or contract to offer. No contract is issued or risks accepted.

Certain elements are not required in order for a risk to be insurable. Which of the following is NOT an element of insurable risk? a. the loss must be accidental and not intentional b. the loss must cause financial harm c. the loss must be measurable and definable d. in a robust economy, premiums charged can be excessive provided the public is willing to pay higher premiums

D. In a robust economy, premiums charged can be excessive provided the public is willing to pay higher premiums. Regardless of the economy premiums cannot be excessive. Premiums must be adequate to cover the loss ratios and provide a profit to the insurer. In addition, premiums must be reasonable. If not reasonably priced, the public would simply decide not to purchase the coverage.

A beneficiary of a straight life annuity with a certain period payout option can choose to receive the remaining installments or elect to: a. receive only the interest each month b. forfeit any remaining values c. convert to a permanent whole life policy d. receive any additional monies by using the cash refund option

D. Receive any additional monies by using the cash refund option The beneficiary may choose to receive the remaining guaranteed cash value as a lump sum payment. This is called the cash refund option.

All of the following statements are true with regard to a tax-deferred annuity, EXCEPT: a. TDAs are utilized by tax-exempt organizations such as nonprofit entities b. TDAs use a salary reduction rather than a tax deduction c. TDAs are used to provide retirement income to recipients d. TDAs accumulate interest on a tax-free basis

D. TDAs accumulate interest on a tax-free basis Tax-deferred annuities are also referred to as Tax-sheltered annuities (TSAs). These qualified plans are available to employees of nonprofit or charitable organizations, employees of educational organizations and clergymen and women.

An individual who has applied for health insurance and given the producer the initial premium. The producer provides the applicant with a receipt that specifies that the individual is covered for at least 60 days from the date of application. Which type of receipt was issued. a. insurability receipt b. approval receipt c. tentative d. unconditional

D. Unconditional An unconditional receipt is also called a binding receipt. Coverage is effective as of the date on the receipt for a specified period of time (or until the insurer declines the application).

The Fair Credit Reporting Act is a federal regulation enacted in 1971. Which of the following is its purpose? a. it prevents the use of information concerning an individuals character b. it provides guidelines on premium financing c. it is not applicable to the health insurance industry d. it establishes procedures for consumer reporting agencies

D. it establishes procedures for consumer reporting agencies The fair credit reporting act established rules for insurers who wish to conduct consumer reports on proposed insureds. It also established rights of consumers when their applications were declined due to information in a consumer report.