Practice Exam 2

$120 a day (Most LTC policies will pay the benefit amount in a specific fixed dollar amount per day, regardless of the actual cost of care.)

An insured's long-term care policy is scheduled to pay a fixed amount of coverage of $120 per day. The long-term care facility only charged $100 per day. How much will the insurance company pay?

To avoid an increase in premium rate for the insured (Agents may backdate policies up to 6 months in order to obtain a better premium rate for the insured.)

For what reason may a life insurance producer backdate a life insurance policy?

Income for 2 or more recipients until they die. (The Life Income Joint and Survivor option guarantees an income for two or more recipients for the duration of their lives. Most contracts stipulate that the surviving partner will receive a reduced payment after the other dies, although some will continue to pay the same amount. There is no guarantee that all the life insurance proceeds will be paid out.)

Life income joint and survivor settlement option guarantees

The insured's premiums will be waived until she is 21. (If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.)

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?

60% (Under the bronze plan, the health plan is expected to cover 60% of the cost for an average population, and the participants would cover the remaining 40%.)

According to the PPACA rules, what percentage of health care costs will be covered under a bronze plan?

50% tax on the amount not distributed as required (When immediate annuities are used to pay IRA benefits, distributions must begin no later than age 70½ in order for the annuitant to avoid penalties. The penalty is 50% of the shortfall from the required annual amount.)

An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay?

First premium has been paid and the application has been approved. (If the premium has been paid, coverage becomes effective when the company underwriter approves the application.)

Health coverage becomes effective when the

Payor Benefit (If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.)

Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?

Premiums are not tax deductible, and benefits are not taxable. (In individual disability income, benefits are not taxable, and premiums are not tax deductible)

Which of the following describes taxation of individual disability income insurance premiums and benefits?

All small employers (All small employers qualify for this coverage.)

Which of the following entities is automatically qualified to enroll in a health insurer's mandatory, guaranteed issue policy?

Every policy must offer nonforfeiture benefits to the applicant. (Long-term care policies or certificates issued or delivered in this state must offer to the applicant nonforfeiture benefits. Reduced paid-up insurance is one of the possible nonforfeiture options, but it is not necessarily required. LTC policies must offer a free-look period - a specified number of days during which the policyowner may return the policy for a full refund.)

Which of the following statements is true regarding LTC insurance?

Prohibit payment for regularly covered services if provided by non-network providers. (A Medicare SELECT policy issued in this state must not restrict payment for covered services provided by non-network providers if the services are for symptoms requiring emergency care and it is not reasonable to obtain such services through a network provider.)

A Medicare SELECT policy does all of the following EXCEPT

Annually Renewable Term policy with a cash value account. (A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.)

A Universal Life Insurance policy is best described as a/an

Guaranteed and Current. (The insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest.)

A Universal Life insurance policy has two types of interest rates that are called

Cost of Living Rider (The Cost of Living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.)

A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change?

Usual, customary and reasonable. (The usual, customary and reasonable approach for determining insurance benefits is based upon the fees normally charged for specific procedures in the geographic location where the services are provided.)

A medical expense policy that establishes the amount of benefit paid based upon the prevailing charges which fall within the standard range of fees normally charged for a specific procedure by a doctor of similar training and experience in that geographic area is known as

Cervical cancer exams for all women starting at age 40. (Cervical cancer exams as a preventive service will only be available for women at higher risk. All the other services are required preventive care services.)

According to the provisions of the Patient Protection and Affordable Care Act, all of the following are required preventive care services EXCEPT

By law, the new, individual policy must provide the same benefits as the group insurance policy. (Terminated employees have 31 days to convert to an individual health insurance policy, without having to provide proof of insurability. The insurer can adjust the new, individual health policy's premium as it sees fit, as long as coverage is provided. The new policy could offer lesser benefits than the original group health policy.)

After a person's employment is terminated, it is possible to obtain individual health insurance after losing the group health coverage provided by the employer. Which of the following is NOT true?

The interest is not taxable since it remains inside the insurance policy. (The interest credited under this option is TAXABLE, whether or not the policyowner receives it.)

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT

Funding against company's general financial loss. (Both life and health insurance can be used for a variety of purposes in a business setting, including the funding of business continuation agreements, compensating executives, and protecting the firm against financial loss resulting from the death or disability of key employees.)

All of the following are business uses of life insurance EXCEPT

Benefits are considered taxable income to the business. (Key person disability benefits are not considered taxable income to the business.)

All of the following are true of the Key Person disability income policy EXCEPT

Beneficiary's age. (To ensure suitability of annuity products, producers must obtain relevant information about the consumer's age, income, financial status, tax status, financial experience and objectives. Beneficiary's age is not a suitability factor.)

All of the following information about a customer must be used in determining annuity suitability EXCEPT

The policy is owned by the company. (The policy is owned by the employee.)

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT

Offer the supplement policy on a guaranteed issue basis (Once a person becomes eligible for Medicare supplement plans, and during the open enrollment period, coverage must be offered on a guaranteed issue basis.)

An applicant is discussing his options for Medicare supplement coverage with his agent. The applicant is 65 years old and has just enrolled in Medicare Part A and Part B. What is the insurance company obligated to do?

Refund the premiums paid. (If the insured commits suicide within 2 years following the policy effective date, the insurer's liability is limited to a refund of premium.)

An insured committed suicide one year after his life insurance policy was issued. The insurer will

25% (Once the initial benefit limit is reached, an insured is only responsible for 25% of the prescription drug cost. This percentage applies to generic and brand name drugs.)

An insured has Medicare Part D coverage. Upon reaching the initial benefit limit, what percentage of the prescription drug cost is the insured responsible for paying?

Decreases (Because the insurer would have the entire premium to invest for a full year, they would reduce the premium amount.)

If an insured changes his payment plan from monthly to annually, what happens to the total premium?

The next 5 years. (If an insurer terminates a small group disability plan's coverage, it cannot issue those plans for the next 5 years.)

If an insurer terminates a small group disability plan's coverage, it cannot issue those plans for

Group Disability Income (Disability benefit payments that are attributed to employee contributions are not taxable, but benefits payments that are attributed to employer contributions are taxable to the employee.)

In which of the following health plans are benefit payments attributed to employer contributions taxable to the employee?

Universal Life (The Waiver of Cost of Insurance rider is found in Universal Life policies. If the insured becomes disabled, the rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash value.)

The Waiver of Cost of Insurance rider is found in what type of insurance?

The IRS. (The IRS sets limits for the annual contribution for Dependent Care Accounts.)

The annual contribution limit of a Dependent Care Flexible Spending Account is set by

Express authority. (Express powers are written into the contract between the insurer and the agent.)

The authority granted to an agent through the agent's contract is referred to as

To purchase a smaller amount of the same type of insurance as the original policy. (The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.)

The paid-up addition option uses the dividend

Interest only option (With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.)

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?

Legal actions. (This mandatory provision requires that no legal action to collect benefits may be started sooner than 60 days after the proof of loss is filed with the insurer. This gives the insurer time to evaluate the claim.)

The provision which prevents the insured from bringing any legal action against the company for at least 60 days after proof of loss is known as

The requirement is met if the disclosure document and the buyer's guide were included in the mailing. (If the disclosure document and buyer's guide were included in the direct mail solicitation, the disclosure requirements will be considered met.)

What are the disclosure requirements if the application for the annuity has been received as a result of a direct mail solicitation?

Income lost by the insured's inability to work (Disability benefits are paid to those who are unable to work as they normally would, due to an accident or illness. Benefits are designed to help the insured recover income lost as a result of the disability. The amount of benefits that an insured receives is determined by the insured's earned income and is usually limited to a certain percentage of that amount.)

Which benefits would a disability plan most likely pay?

Application (The application contains most of the information used for underwriting purposes. This is why its completeness and accuracy are so crucial.)

Which is the primary source of information used for insurance underwriting?

The insurer can increase the policy premium on an individual basis. (Guaranteed renewable provision has all the same features that the noncancellable provision does, with the exception that the insurer can increase the policy premium on the policy anniversary date. However, the premiums can only be increased on a class basis, not on an individual policy.)

Which of the following is NOT a feature of a guaranteed renewable provision?

Workers Compensation (Workers Compensation is a benefit payable when a worker is injured by a work-related injury, regardless of fault or negligence. It is not considered a business use of insurance.)

Which of the following is NOT an example of a business use of Life Insurance?

Annual dental exam (Under nonscheduled plans, routine examinations and preventative care generally do not apply toward the deductible.)

Which of the following is NOT applied toward the deductible under a nonscheduled plan?

The application given to a prospective insured (Consideration is something of value that is transferred between the two parties to form a legal contract.)

Which of the following is NOT the consideration in a policy?

They have a guaranteed minimum interest rate. (While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.)

Which of the following is TRUE for both equity indexed annuities and fixed annuities?

It may last for the lifetime of the annuitant. (The "annuity period" is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected.)

Which of the following is TRUE regarding the annuity period?

Have attained fully insured status (Although Social Security offers many benefits, such as retirement, survivors and Medicare, only those who have attained fully insured status are eligible for Disability Income benefits. Contributing to Social Security for 40 quarters (10 years) attains fully insured status.)

Which of the following is an eligibility requirement for all Social Security Disability Income benefits?

Decreasing Term (Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor. It is usually written as decreasing term insurance.)

Which of the following types of insurance policies is most commonly used in credit life insurance?

State government (The state government offers and regulates Workers Compensation benefits, which vary slightly from state to state.)

Workers Compensation benefits are regulated by which entity?