Insurance Exam Practice

An illustration may not be altered by an agent and must clearly state

That it is not part of the contract. It is legal to list nonguaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values.

What are the 2 types of Flexible Spending Accounts?

The 2 types of Flexible Spending Accounts are: Health Care Account for out-of-pocket health care expenses Dependent Care Account to help pay for dependent care expenses which make it possible for an employee and his or her spouse, if applicable, to work.

A mass-marketed life insurance policy is put into effect. What is a reasonable assumption about the policy?

The Commissioner found that the total charges for the insurance were reasonable in relation to the benefits provided.

How much notice is required for a hearing concerning unfair trade practices?

The Commissioner must give notice of the time and place for a hearing at least 15 days in advance, and the notice states the matters to be considered.

What is the purpose of COBRA?

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires any employer with 20 or more employees to extend group health coverage to terminated employees and their families after a qualifying event.

Before a customer's agent delivers his policy, the insurer makes a last-minute change to the policy. The agent informs the customer of this change, and he accepts it. What must the agent do now?

The agent should ask the customer to sign a statement acknowledging that he is aware of the change.

In a replacement situation, all of the following must be considered

The benefits, limitations and exclusions found in the current and the proposed replacement policy.

Paid Up Additions

The dividends are used to buy additional policies that increase the face amount of the original policy.

What accurately describes group disability income insurance?

The extent of benefits is determined by the insured's income. Group plans usually specify the benefits based on a percentage of the worker's income. Group long-term plans provide monthly benefits usually limited to 60% of the individual's income.

A life insurance policy does not have a war clause. If the insured is killed during a time of war, what will the beneficiary receive from the policy?

The full death benefit War or Military Service Clause specifically excludes or limits the insurer's liability for losses caused by war or active military service. If a life insurance policy does not have that exclusion, the benefits are paid to the beneficiary, as if the insured died of any other cause.

Which of the following riders would NOT increase the premium for a policyowner?

The impairment rider excludes a specified condition from coverage, therefore, reducing benefits. An insurance company will not charge extra for a rider that reduces benefits.

An employee quits his job on May 15 and doesn't convert his Group Life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. What will happen?

The insurer will pay the full death benefit from the group policy to the beneficiary.

Total disability is defined differently under some disability income policies.

The more liberal "own occupation" definition of disability makes it easier to qualify for benefits.

A general requirement of a qualified plan is

The plan must provide an offset for social security benefits. Plans must meet the general requirements established by IRS.

Universal Life

The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.

Workers Compensation benefits are regulated by which entity?

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

Renewability Rider for Cancellable Policies

This rider allows the insurer to cancel the policy at any time, or at the end of the policy period. Any unearned premium must be returned to the policyholder. If the insurer cancels, the unearned premium will be returned on a pro rata basis.

What is the purpose of the Fair Credit Reporting Act

To protect consumers against the circulation of inaccurate or obsolete information and to ensure that consumer reporting agencies are fair and equitable in their treatment of consumers.

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.

When would a 20-pay whole life policy endow?

When the insured reaches age 100

Paid Up Option

With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned.

Extended Term Nonforfeiture Option

With this option, the cash value is used as a single premium to purchase the same face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.

An employee insured under a group health policy is injured in a car wreck while performing her duties for her employer. This results in a long hospitalization period. Which of the following is true?

a)The group plan will pay depending on the employee's recovery. b)The group plan will not pay because the employee was injured at work. c)The group plan will pay. d)The group plan will pay a portion of the employee's expenses .(B) Because the employee's injuries were work related, the group health policy would not respond. The insured would have to rely on worker's compensation for coverage.

A noncontributory group disability income plan has a 30-day waiting period and offers benefits of $2,000 a month. If an employee is unable to work for 7 months due to a covered disability, the employee will receive?

$12,000, all of which is taxable. In noncontributory group health plans, the employer pays the entire cost, so the income benefits are included in the employee's gross income and taxed as ordinary income.

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?

$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 had a $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy?

$9,800 If a policy has an irrevocable beneficiary designation the beneficiary can only be changed with written permission of the beneficiary.

An insured owns a general disability policy and is injured during a war, rendering him disabled. What will be the extent of benefits that he will receive?

0% General disability policies do not cover losses caused by war, military service, intentionally self-inflicted injuries, overseas residence, or injuries suffered while committing or attempting to commit a felony.

If a person is disabled at age 27 and meets Social Security's definition of total disability, how many work credits must he/she have earned to receive benefits?

12 Credits Persons disable between ages 24 and 31 can qualify for benefits if they have credit for having worked half of the time between age 21 and the start of the disability. For example, if Joe becomes disabled at age 27, he would need 12 credits (or 3 years' worth) out of the prior 6 years (between ages 21 and 27).

To appoint an individual producer as its agent, from the date the agency contract is executed, the appointing insurer must file a notice of appointment within

15 Days

The relation of earnings to insurance provision allows the insurance company to limit the insured's benefits to his/her average income over the last

24 months. The relation of earnings to insurance provision allows the insurance company to limit the insured's benefits to his/her average income over the last 24 months.

If an administrative action is taken against a producer, the producer must report this action to the Commissioner within how many days of the final disposition?

30 Days

The Commissioner has just determined that an applicant is ineligible for appointment with the insurer. How many days does the Commissioner have to notify the insurer of this determination?

5 Days

In order to qualify for conversion from a group life policy that has been terminated to an individual policy of the same coverage, a person must have been insured under the group plan for how many years?

5 years

How long is an open enrollment period for Medicare supplement policies?

6 Months

To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarters?

6 credits In this scenario, the death occurred within the mandatory 30-day grace period. Past due premium would be subtracted from the face amount of the policy.

This provides coverage on a first-dollar basis?

A basic expense policy will provide coverage on a first-dollar basis (no deductible). After the limits of the basic policy are exhausted, the insured must pay a corridor deductible before the major medical coverage will pay benefits.

The beneficiary can only be changed with written permission of the beneficiary if...

A life insurance policy has an irrevocable beneficiary designation

To be eligible for a Keogh Plan

A person must have worked at least 1,000 hours per year

The term "illustration" in a life insurance policy refers to

A presentation of nonguaranteed elements of a policy.

A client has a new individual disability income policy with a 20-day probationary period and a 30-day elimination period. Ten days later, the client breaks their leg and is off work for 45 days. How many days of disability benefits will the policy pay?

A probationary period refers to the amount of time that coverage is not available for illness-related disabilities, so it would not apply to a broken leg. The elimination period, however, is the time that must elapse between the onset of the disability and when benefits will start being paid. In this case, the individual is considered disabled for 45 days, and the benefits will start to be paid after 30 days. So, the client will receive benefits for 15 days.

Rebating

A rebate is an illegal act which involves returning something of value to the client as an inducement to buy, such as the commission. ***Rebates are only allowed if specifically stated in the policy or in the best interest of the client. Insurance dividends are not considered rebates as the IRS considers it as a return of overpaid premium.

What are the two components of a universal policy?

A universal policy has two components: an insurance component and a cash account. The insurance component of a universal life policy is always annual renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the current rate, whichever is higher.

Which of the following long-term care benefits would provide coverage for care for functionally impaired adults on a less than 24-hour basis?

Adult day care

Life Income Option

Also known as straight life It provides the recipient with an income that he or she cannot outlive. It pays the benefit while the beneficiary is alive; however, the payments stop at the beneficiary's death.

Buy-Sell agreement

Also referred to as a business continuation agreement It is a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled.

Which of the following best describes the aleatory nature of an insurance contract?

An unequal exchange. An aleatory contract is a contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.

The death protection component of Universal Life Insurance is always

Annually Renewable Term 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

Annually Renewable Term policy with a cash value account.

Employers do not receive a current tax deduction for

Any contributions made to a nonqualified plan. The plans are legal; however, they do not qualify for any favorable tax treatment under the IRS rules.

Whenever the policyowner of a policy has reserved the right to change the beneficiary, the policyowner has the right to

Assign the policy as collateral security for a loan, or for any other purpose, without any beneficiary joining or consenting. The assignment subordinates the rights and interests of any beneficiary in the proceeds of the policy to the rights and interests of the assignee as created and defined by the assignment.

In the event of loss, what does business overhead insurance pay for?

Business overhead insurance is designed to pay the ongoing business expenses of a small business owner while they are disabled and unable to work. It does not pay the salary of the business owner or their loss of profits. However, it will provide the funds needed to pay the salary of employees other than the owners and their other ongoing business expenses, such as rent.

Before Producer Pete delivers a contract to Consumer Cathy, a written proposal must be provided. It is NOT required to include...

Cathy's full name. There are 3 names that must be included: the name of the producer providing coverage, the insurer's full name and the name of the policy and any supplemental rider. Cathy's name is not required to be included on this written proposal.

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?

Conditional A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.

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

Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information.

The incontestability clause prevents an insurer from

Denying a claim due to statements in an application after the policy has been in force for 2 years, even on the basis of a material misstatement of facts or concealment of a material fact.

An insured is hospitalized with a back injury. Upon checking his disability income policy, he learns that he will not be eligible for benefits for at least 30 days. This indicates that his policy is written with a 30-day

Elimination period. The elimination period is the time immediately following the start of a disability when benefits are not payable. This is used to reduce the cost of providing coverage and eliminates the filing of many claims.

The provision in a health insurance policy that ensures that the insurer cannot refer to any document that is not contained in the contract is the

Entire contract clause.

An insurance company has published a brochure that inaccurately portrays the advantages of a particular insurance policy. What is this an example of?

False advertising

As it pertains to group health insurance, COBRA stipulates that

Group coverage must be extended for terminated employees up to a certain period of time at the former employee's expense.

How do employer contributions to a Health Savings Account affect the insured's taxes?

HSA contributions made by an employer are not included in the determination of an individual's taxable income.

The term used to identify a public or private organization which provides, or otherwise makes available to enrollees, health care services, including at a minimum, basic health care services?

Health maintenance organization

Life income joint and survivor settlement option guarantees

Income for 2 or more recipients until they die. 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.

What type of insurance would be used for a Return of Premium rider?

Increasing Term

Underwriting a group health insurance plan that is paid for by the employer requires all of the following EXCEPT

Individual members In group health insurance, all individuals are covered under the master policy for the same coverages.

In the event of loss, after a notice of claim is submitted to the insurer, who is responsible for providing claims forms and to which party?

Insurer to the insured

The type of dental plan which is incorporated into a major medical expense plan is a/an

Integrated dental plan.

In health insurance, if a doctor charges $50 more than what the insurance company considers usual, customary and reasonable, the extra cost

Is not covered. An insurance company will pay the usual, reasonable, or customary amount for a given procedure based upon the average charge for that procedure.

A producer's license has been nonrenewed. How long does the producer have to request a hearing?

Licensees turned down for renewal of their licenses have 10 days to request a hearing.

Long-term care insurance policies

May be purchased on an individual or group basis, or as an endorsement to a life insurance policy.

Guaranteed Insurability Rider

May be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40.

What is the name of a clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war or while serving in the military?

Military service or war There are two different types of exclusions that may be used by life insurers that limit the death benefit if the insured dies as a result of war or while serving in the military. The status clause excludes all causes of death while the insured is on active duty in the military. The results clause only excludes the death benefit if the insured is killed as a result of an act of war.

Under an individual disability policy, the MINIMUM schedule of time in which claim payments must be made to an insured is

Monthly

During replacement of life insurance, a replacing insurer must

Obtain a list of all life insurance policies that will be replaced

Which of the following entities has the authority to make changes to an insurance policy?

Only an executive officer of the company, not an agent, has authority to make any changes to the policy. The insurer must have the insured's written agreement to the change.

Name the two parts of the general Information section of the application for insurance.

Part 1 - General questions about the applicant, including name, age, address, birth date, gender, income, marital status, and occupation. Part 2 - Medical Information.

A participating insurance policy will

Pay dividends to the owner based upon actual mortality cost, interest earned and costs.

Any and all charges made by a producer in the taking of an application, the issuance of a policy, and any related services rendered are defined as

Premiums

The Federal Fair Credit Reporting Act

Regulates consumer reports

Any person who shall solicit within this state an application for insurance, in any controversy between the insured or his or her beneficiary and the insurer issuing the policy...

Shall be regarded as the representative of the insurer and not the representative of the insured.

Consideration

Something of value that is transferred between the two parties to form a legal contract.

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as

Survivor protection