Simulated Exam

Which of the following is incorrect regarding a 100,000 20 year level term policy?

At the end of the 20 years the policy will have a cash value of 100,000 dollars. This is incorrect because term policies do not have cash values.

When must an insurance company present an outline of coverage to an applicant for a medicare supplement policy?

At the time of the application.

Which of the following is NOT the purpose of HIPAA?

To provide immediate coverage to new employees who had been previously covered for 18 months. HIPAA does not eliminate waiting periods or pre-existing conditions exclusions, so coverage to new employees would not be immediate.

Premiums paid by self-employed sole proprietors or partners for medical expense insurance are:

Totally tax deductible: Sole proprietors and partners may deduct 100% of the cost of a medical expense plan provided to them and their families because they are considered self employed individuals, not employees.

Which of the following would be a typical maximum benefit offered by major medical plans?

1 million dollars or 2 million dollars. Maximum benefits are usually lifetime maximums.

An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a traditional IRA, how much will be transferred from one plan administer to another and what is the tax consequence of a direct transfer?

10,000, no tax consequence. During an IRA direct transfer or direct rollover, the full amount gets reinvested from one plan to another.

A producers license may be renewed every

2 years

An insured has a medical expense policy with a deductible of $500 and a co insurance of 80/20. If he incurs medical expenses of $4,000, the insurer would pay...

2,800. The insurer would pay 80 percent of covered expenses after the 500 dollar deductible is satisfied.

Long0term care policies outlines of coverage should include graphics comparing benefit levels over at least

20 years

Each insurer must maintain complete file containing every printed, published or prepared advertisement of its policies for a period of a least:

3 years after its use

The coordination benefits provision in Utah requires that both primary and secondary plans pay the benefit in equal shares if the plans cannot agree on the order of payment within how many days after receiving the claim information?

30 days

If the insurer wants to raise its premium rates, the new rates must be sent to the commissioner for the review and will take how many days to go into effect?

30 days, make sure the insurer premium rates are not excessive or inadequate to meet future obligations.

If a producer changes his or her residential address, the commissioner must be notified of the change within how many days?

30 days: must be notified about change of residence, business address, and telephone number

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?

5 days.

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?

50% tax on the amount not distributed as required. When immediate annuities are used to pay IRA benefits, distributions may begin no later than 70 and a half in order for the annuitant to avoid penalties. The penalty is 50% of the shortfall from the required annual amount.

Before he died, an annuitant had received $12,500 in monthly benefits from his $25,000 straight life annuity. He was also the insured under a $50,000 paid-up whole life policy that named his wife as primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits

50,000 : The life policy would pay the face amount, but because of the settlement option selected on the annuity, payments would cease upon the annuitants death. Straight life annuity payments stop at the death of the annuitant regardless of the principal amount left in the account.

If the head of the department of Insurance has ruled a group can apply for group health insurance, it is considered...

A discretionary group.

If the insurance company makes a statement that its policies are guaranteed by the existence of the insurance Guaranty Association, that would be considered:

An unfair trade practice

Because an agent is using stationery with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of that insurer. What type of agent authority does this describe?

Apparent: Apparent authority also known as perceived authority is the appearance or assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal has created.

What is the term used for an applicants written request to an insurer for the company to issue a contract, based on the information provided?

Application

An applicant for an individuals health policy failed to complete the application properly. Before being able to complete the application, and pay the initial premium, she is confined to a hospital. This will not be covered by insurance because she has not met the conditions specified in the...

Consideration clause: This clause specifies that both parties to the contract must give some valuable consideration. The payment of the premium is the consideration given by the applicant. Because the applicant had not paid the initial premium, she is not covered by insurance.

Which of the following will not be an appropriate use of defferred annuity?

Create an estate. Unlike life insurance policies, annuities do not create estates, they liquidate it.

The term "fixed" in a fixed annuity refers to all of the following EXCEPT

Death Benefit: a fixed annuity is fixed in the sense that it provides a guaranteed minimum rate of interest and income payments that do not vary from one to the next. The company also guarantees the specified dollar amount for each payment and the length of the payout period. Annuities do not provide a death benefit.

What is the goal of the HMO?

Early detection through regular checkups. Members are encouraged to participate in regular checkups. In this way the HMO hopes to catch disease in its earliest stages when treatment has the greatest chance for success.

All of the following are advantages of an HMO or PPO for a medicare recipient except...

Elective cosmetic procedures are covered. Almost any medical problem is covered for a set fee so health care costs can be budgeted.

The HMO Act of 1973 required employers to offer an HMO plan as an alternative to regular health plans if the company had more than 25 employees. How has this plan since chnaged?

Employers are no longer forced to offer HMO plans. The part of the act requiring dual choice has expired and has not been reinstated.

Which of the following are the authorities an agent can hold?

Express and Implied.

Under which installments option does the annuitant select the amount of each payment and the insurer determines how long they will pay benefits?

Fixed amount: This option pays a specific amount until the funds are exhausted. There are no life contingencies.

Life income joint and survivorship settlement options guarantees...

Income for 2 or more recipients until they die.

Which of the following ultimately determines the interest paid to the owner of a fixed annuity?

Insurers guaranteed minimum rate of interest. With fixed annuities, the company is required to pay at least the guaranteed minimum rate of interest to the owners. If the company preforms well, the company will pay a higher interest rate, but since the interest rate can never fall below the guaranteed minimum, thats what ultimately determines what the company will pay.

Elijah and Mary are to receive the proceeds of a life insurance policy jointly until the first one dies. If either one should die within a specified time, the other will receive benefits until the end of the specified time. This settlement option is known as:

Joint life with Term Certain

Which of the following is NOT true regarding the needs approach method of determining the value of an individuals life?

Need is predicted using the number of years until the insureds retirement. In the needs approach method, need is determined by the predicted needs of the family after the premature death of the insured, which must be assumed will happen immediately. The policy allows for benefits to be collected upon the insureds death.

An insured is involved in a car accident. In addition to general, less serious injuries, he permanently loss the use of his leg and is rendered completely blind. The blindness improves a month later. To what extent will he receive Presumptive disability benefits.

No benefits. Presumptive disability benefits offer full benefits for specified conditions. These policies typically require the loss of at least two limbs, total and permanent blindness or loss of speech or hearing. In this instance since he only lost the use of one leg and started to regain his ability to see, he would not receive any benefits because he does not qualify for presumptive disability.

Who is involved in completing the agents report?

Only the agent.

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

Payor benefit: If a 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.

What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? a) Joint and survivor b) Pure life c) Life with guaranteed minimum d) Installment refund

Pure Life. This type of annuity has the potential for providing the maximum income per dollar premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before his or her life expectancy, and before the total benefit has been paid out, payments cease and there is no refund or payments to survivors.

An insured pays 1200 annually for her life insurance premium. The insured applies this years $300 worth of accumulation dividends to the next years premium, thus reducing it to $900. What does this option describe?

Reduction of premium. The reduction of premium allows the policyholder to apply dividends towards the next years premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

Which of the following statements concerning a Simplified Employee Pension plan (SEP) is incorrect?

SEPs are suitable for large companies: SEPs are a benefit plan that is designed to be provided by a small employer for the benefit of the employees.

Which of the following would help prevent a universal life policy from lapsing?

Target Premium: This is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and keep the policy in force throughout its lifetime.

A 60 year old participant in a 401(k) plan takes a distribution and rolls it over to an IRA within 60 days. Which of the following is true?

The amount of the distribution is reduced by the amount of 20% withholding tax. Distribution from 401(k) plans are taxable as ordinary income in the year of distribution. However, if the distribution is rolled over to a traditional IRA, taxes are deferred until the required minimum IRA distributions begin. Which is generally no later than the age of 70 and a half. Since this client took a distribution instead of making a trustee to trustee rollover, the distribution is subject to 20% withholding tax.

Which of the following is not true about beneficiary designations?

The beneficiary must have insurable interest in the insured. A beneficiary is the one who will be receiving the death benefit, so they do not have to have an insured interest in the policyholder.

Which of the following is a characteristic of a reciprocal insurance exchange?

The chief administrator of the insurer is called an "attorney in fact". A reciprocal is administered by an attorney in fact who is empowered to bind each subscriber to assume a share of the losses of the group.

Which of the following statements about group life is correct?

The cost of coverage is based on the ratio of men and women in the group. Group life insurance can be turned into whole life, NOT term Group life premiums are usually lower than those of individual policies group sponsor receives a master contract while the participants receive certificates of insurance. The cost of a group life policy is based upon the average age of the group and the ratio of men to women.

Who chooses a primary care physician in an HMO?

The individual member. When an individual member becomes part of an HMO, they will choose the primary care physician. Once they are chosen, the primary care physician will be regularly compensated for being responsible for the care of that member.

Who bears all the investment risk in a fixed annuity?

The insurance Company

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

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

Twin brother and sister each purchase a retirement annuity. When they retire at the same time, each selected the life income option. Both have similar lifestyles and are in good health. Which of the following is true with respect to their monthly annuity payments?

The mans payments will be larger. Annuities use mortality tables to determine the amount of money needed in retirement. Because the life expectancy of a women is greater, the women's payments in this particular example will be smaller since they need to last longer.

All of the following are true regarding a decreasing term policy except:

The payable premium amount steadily declines throughout the duration of the contract. Premiums remain level with a decreasing term policy; only the face amount decreases.

Which of the following best defines target premium in a universal life policy?

The recommended amount to keep the policy in force throughout its lifetime. Covers the cost of insurance protection and keeps the policy in force.

An HSA holder who is 65 years old decides to use the money in the account for non-health expense. Which of the following is true?

There will be a tax. An HSA holder who uses the money for nonhealth expenditure pays tax on it, plus a 20 percent penalty. But if they are 65 or older, a withdrawal for a nonhealth purpose will be taxed, but it will not be penalized.

How are tax contributions to a tax-sheltered annuity treated with regards to taxation?

They are not included as income for the employee, but are taxable upon distribution.

Which type of life insurance policy allows the policy owner to pay more or less than the planned premium?

Universal life policy.

An insured receives a monthly summary for his life insurance policy. He has noticed the cash value of his policy is significantly lower this month than it was last month. What type of policy does the insured have?

Variable: Variable life policies vary in value, as the name suggests, because the value is based on stocks that support the policy. If a policyholder wants a more stable and reliable value, he/she should invest in a fixed policy.

Which of the following is NOT required for a producer to tell a prospect?

What requirements the producer needed to meet to obtain the insurance license.

Under what condition are group disability income benefits received by an employee NOT taxable as income?

When the benefits are less than or equal to the employees percentage of the contribution.

Upon policy delivery, the producer may be required to obtain any of the following except...

a signed waiver of premium. Waiver of premium is a rider that can be added to a life insurance policy and not something to be obtained from the applicant.

Under pure life annuity, an income is payable by the company...

only for the life of the annuitant. With pure life annuity, income payments cease at the annuitants death and there is no refund or payments to survivors. This can also be referred to as Life only or Straight life.

A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the

revocable beneficiary: This leaves her in charge and she can change the beneficiary whenever she wants without consent of the beneficiary.

Federal law makes it illegal for any individual convicted of a crime involving dishonesty or breach of trust to work in the business of insurance affecting interstate commerce...

without receiving written consent from an insurance regulatory authority. Title 18, US code, sections 1033-1034.