Life and Health Missed Long Practice Exam Questions

What percentage of individually-owned disability income benefits is taxable? a)0% b)50% c)100% d)Amount paid by insured

a)0% Premiums are paid with after tax dollars. Benefits are not income taxable.

Which of the following is NOT allowed in credit life insurance? a)Creditor requiring that a debtor buys insurance from a certain insurer b)Creditor having a collateral assignment on the policy c)Creditor requiring that a debtor has life insurance d)Creditor becoming a policy beneficiary

a)Creditor requiring that a debtor buys insurance from a certain insurer In credit life insurance, a creditor may require that the debtor have life insurance, but may not require the debtor to purchase insurance from a specific insurer.

All of the following are true of key person insurance EXCEPT a)The key employee is the insured. b)The plan is funded by permanent insurance only. c)There is no limitation on the number of key employee plans in force at any one time. d)The employer is the owner, payor and beneficiary of the policy.

b)The plan is funded by permanent insurance only. Key Person coverage may be funded by any type of life insurance.

Which of the following entities can legally bind coverage? a)Federal Insurance Board b)Agent c)Insurer d)The insured

c)Insurer Only insurers, not agents, can bind coverage.

If the annuitant dies during the accumulation period, who will receive the annuity benefits? a)The insurance company b)The annuitant's estate c)The beneficiary d)The annuity owner

c)The beneficiary If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value - whichever is greater.

Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit? a)Equity Indexed Universal Life b)Variable Universal Life c)Universal Life - Option A d)Universal Life - Option B

c)Universal Life - Option A Universal Life Option A (Level Death Benefit option) policy must maintain a specified "corridor" or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.

Which of the following determines whether disability insurance benefits are taxed? a)Contract provisions b)If the total of benefits paid meets the minimum state taxation standard c)Whether the premiums were tax deductible d)State statutes

c)Whether the premiums were tax deductible The taxation status of benefits is often determined by whether the premium has been tax deducted.

Which of the following provisions states the insurer's right to change premium amounts? a)Premium Provision b)Insurer's Rights c)Coverage Limitations d)Continuation Provision

d)Continuation Provision The Renewal Provision, also known as a "Continuation Provision", must be included on the first page of Medicare supplement policies. This provision explains the right of the insurer to alter premium amounts.

All of the following statements about Medicare Part B are correct EXCEPT a)It is a compulsory program. b)It covers services and supplies not covered by Part A. c)It is financed by monthly premium d)It is financed by tax revenues.

a)It is a compulsory program. Part B is elective. Individuals become eligible for Part B at the same time they become eligible for Part A, however Part B requires that a monthly premium be paid.

The regulations regarding replacement apply to which of the following? a)Renewable term b)Replacement of existing policy by the same insurer c)Credit life d)Group life

a)Renewable term Replacement rules apply to all life insurance policies except group life policies, group annuities, credit life or nonconvertible term which will expire in 5 years or less and cannot be renewed. Purchasing additional coverage under the GIR is not a replacement of coverage, simply an addition of coverage.

What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act? a)Revocation of license b)$2,500 c)$1,000 d)$100 per violation

b)$2,500 An individual who willfully violates this Act enough to constitute a general pattern or business practice will be subject to a penalty of up to $2,500.

The validity of coverage under a life insurance policy may not be contested, except for nonpayment of premium, after the policy has been in force for at least how many years? a)1 year b)2 years c)5 years d)7 years

b)2 years The incontestability clause prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a material fact.

Which of the following terms is used to name the nontaxed return of unused premiums? a)Interest b)Surrender c)Dividend d)Premium return

c)Dividend The return of unused premiums is called a dividend. Dividends are not considered to be income for tax purposes, since they are the return of unused premiums.

If one takes Social Security retirement benefits at age 62, what needs to be done at age 65 to qualify for Medicare? a)Appear for a physical at the Social Security office b)Apply at a local Social Security office c)Nothing d)Apply for coverage through the state

c)Nothing Nothing needs to be done in this case. Medicare Part A and B will automatically be effective the month you turn 65.

Which is NOT true about beneficiary designations? a)The policy does not have to have a beneficiary named in order to be valid. b)Trusts can be valid beneficiaries. c)The beneficiary must have insurable interest in the insured. d)The beneficiary may be a natural person.

c)The beneficiary must have insurable interest in the insured. A beneficiary is the person or interest to whom the policy proceeds will be paid upon the death of the insured. Beneficiaries do not have to have an insurable interest in the policyholder.

Which of the following is TRUE about nonforfeiture values? a)A table showing nonforfeiture values for the next 10 years must be included in the policy. b)Policyowners do not have the authority to decide how to exercise nonforfeiture values. c)They are required by state law to be included in the policy. d)They are optional provisions.

c)They are required by state law to be included in the policy. Nonforfeiture values are required by state law to be included in the policy, and cannot be altered by the policyowner. A table showing the nonforfeiture values for the next 20 years must be included in the policy.

Which of the following is NOT an example of a valid insurable interest? a)Business partners in each other's lives b)Employer in key employee's life c)Child in parents' lives d)Debtor in the life of the creditor

d)Debtor in the life of the creditor The three recognized areas in which insurable interest exists are as follows: a policyowner insuring their own life, the life of a family member (relative or spouse), or the life of a business partner, key employee, or someone who has a financial obligation to the policyowner. A debtor does not have an insurable interest in the creditor.

In a group health policy, a probationary period is intended for people who a)Have a pre-existing condition at the time they join the group. b)Have additional coverage through a spouse. c)Want lower premiums. d)Join the group after the effective date.

d)Join the group after the effective date. The probationary period is the waiting period new employees must satisfy before becoming eligible for benefits.

Why should the producer personally deliver the policy when the first premium has already been paid? a)To ensure the producer gets paid commission b)To find out how the family has been doing since the initial presentation c)To make sure the policy is not stolen or lost d)To help the insured understand all aspects of the contract

d)To help the insured understand all aspects of the contract It is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.

How is emergency care covered for a member of an HMO? a)An HMO emergency specialist will cover the patient. b)A member of an HMO can receive care in or out of the HMO service area, but care is preferred in the service area. c)A member of an HMO may receive care at any emergency facility, at the same cost as if in his or her own service area. d)HMOs have salaried member physicians, but they do not cover emergency care.

b)A member of an HMO can receive care in or out of the HMO service area, but care is preferred in the service area. Emergency care must be provided for the member in or out of the HMO's service area. If emergency care is being provided for a member outside the service area, the HMO will make an effort to get the member back into the service area so that care can be provided by salaried member physicians.

What is a material misrepresentation? a)Concealment b)A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company c)Any misstatement made by an applicant for insurance d)Any misstatement by the producer

b)A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.

In which Medicare supplemental policies are the core benefits found? a)Plans A-D only b)All plans c)Plans A and B only d)Plan A only

b)All plans The benefits in Plan A are considered to be core benefits and must be included in the other types. Therefore, all types contain the core benefits offered by Plan A.

When must insurable interest exist in a life insurance policy? a)At the time of loss b)At the time of application c)At the time of policy delivery d)When there is a change of the beneficiary

b)At the time of application In life insurance, insurable interest must exist at the time of application.

Which entity has the authority to grant a temporary insurance agent's license? a)A licensed agent b)Commissioner of Insurance c)Federal Board of Insurance Licensing d)The appointing insurer

b)Commissioner of Insurance The Commissioner of Insurance can issue a temporary life insurance agent's license for 180 days.

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 changed? a)The minimum number of employees has increased. b)Employers are no longer forced to offer HMO plans. c)The source of funding has changed. d)The minimum number of employees has decreased.

b)Employers are no longer forced to offer HMO plans. The HMO Act of 1973 forced employers with more than 25 employees to offer an HMO plan as an alternative to their regular health plans. The part of the act requiring dual choice has expired and has not been reinstated.

Which of the following best describes the aleatory nature of an insurance contract? a)Policies are submitted to the insurer on a take-it-or-leave-it basis b)Exchange of unequal values c)Only one of the parties being legally bound by the contract d)Ambiguities are interpreted in favor of the insured

b)Exchange of unequal values 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.

An insured pays her Major Medical Insurance premium annually on March 1. Last March she forgot to mail her premium to the company. On March 19, she had an accident and broke her leg. The insurance company would a)Pay half of her claim because the insured had an outstanding premium. b)Pay the claim. c)Hold the claim as pending until the end of the grace period. d)Deny the claim.

b)Pay the claim. Because the accident occurred during the grace period, the insurance company will pay the claim.

Which of the following provisions is mandatory for health insurance policies? a)Intoxicants and narcotics b)Physical examination and autopsy c)Recurrent disability d)Unpaid premiums

b)Physical examination and autopsy Physical examination and autopsy is a mandatory provision required by law. The other answer choices are optional provisions.

Which of the following would help prevent a universal life policy from lapsing? a)Corridor of insurance b)Target premium c)Face amount d)Adjustable premium

b)Target premium The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

An employee becomes insured under a PPO plan provided by his employer. If the insured decides to go to a physician who is not a PPO provider, which of the following will happen? a)The PPO will pay the same benefits as if the insured had seen a PPO physician. b)The PPO will pay reduced benefits. c)The PPO will not pay any benefits at all. d)The insured will be required to pay a higher deductible.

b)The PPO will pay reduced benefits. The group health plan will not pay the full amount charged by the non-PPO doctor.

If a business wants to buy a disability income policy on a key employee, which of the following is considered the beneficiary? a)The producer b)The employer c)The insurer d)The employee

b)The employer In key person disability insurance purchased by a business, the business is the policyowner and the beneficiary, and the key person is the insured.

Under an extended term nonforfeiture option, the policy cash value is converted to a)A higher face amount than the whole life policy. b)The same face amount as in the whole life policy. c)The face amount equal to the cash value. d)A lower face amount than the whole life policy.

b)The same face amount as in the whole life policy. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy.

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract? a)Representation b)Warranty c)Concealment d)Indemnity

b)Warranty A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties but representations. Representations are statements that are true to the best of the applicant's knowledge.

Which of the following is another term for an authorized insurer? a)Licensed b)Legal c)Admitted d)Certified

c)Admitted Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.

An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision? a)Survivor Life b)Second-to-Die c)Common Disaster d)Accidental Death

c)Common Disaster Under the Uniform Simultaneous Death Law, Common Disaster provision, the law will assume that the primary beneficiary dies first in a common disaster as long as the beneficiary dies within this specified period of time following the death of the insured (usually 30 days). This provides that the proceeds will be paid to either the contingent beneficiary or the insured's estate, if no contingent beneficiary is designated.

An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation? a)Universal life b)Whole life c)Decreasing term d)Variable life

c)Decreasing term A decreasing term policy's face amount decreases as the amount of debt is reduced.

Fixed annuities provide all of the following EXCEPT a)Minimum guaranteed rate of interest. b)Future income payments. c)Hedge against inflation. d)Equal monthly payments for life.

c)Hedge against inflation. Fixed annuities invest premium payments into a general account - a safe and conservative investment portfolio. They also provide a specified dollar amount for each annuity payment regardless of the purchasing power of the money. Variable annuities premiums are invested in securities, hopefully maintaining a constant purchasing power, and therefore providing protection against inflation.

An applicant for a health insurance policy returns a completed application to her agent, along with a check for the first premium. She receives a conditional receipt two weeks later. Which of the following has the insurer done by this point? a)Approved the application b)Issued the policy c)Neither approved the application nor issued the policy d)Both approved the application and issued the policy

c)Neither approved the application nor issued the policy When the agent receives the application and issues a conditional receipt, the insurer has not yet approved the application and issued the policy.

In long-term care insurance, what type of care is provided with intermediate care? a)Daily care, but not nursing care b)Intensive care c)Occasional nursing or rehabilitative care d)Nonmedical daily care

c)Occasional nursing or rehabilitative care Intermediate care is nursing and rehabilitative care provided by medical personnel for stable conditions that require assistance on a less frequent basis than skilled care.

What is another name for social security benefits? a)Disability and long-term care insurance b)Survivor benefits c)Old Age, Survivors, and Disability Insurance d)Medicare benefits

c)Old Age, Survivors, and Disability Insurance Social security benefits are also known as Old Age, Survivors, and Disability Insurance (OASDI).

Which of the following would basic medical expense coverage NOT cover? a)Maternity b)Hospice c)Surgeon's services d)Mental illness

c)Surgeon's services Basic medical expense coverage offers a wide range of limited benefits that typically result in high out-of-pocket costs. Basic medical expense coverage provides coverage for nonsurgical services a physician provides and can be used for emergency accident benefits, maternity benefits, mental and nervous disorders, hospice care, home health care, outpatient care, and nurses' expenses.

In disability income insurance, the time between the onset of an injury or sickness and when benefits begin is known as the a)Qualification period. b)Enrollment period. c)Probationary period. d)Elimination period.

d)Elimination period. On disability income insurance, the time between the onset of an injury or sickness and the time benefits begin is known as the waiting or elimination period.

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? a)Company is the owner, but the executive pays the premium. b)Board of directors is the owner, and the board of directors pays the premium. c)Company is the owner, and the company pays the premium. d)Executive is the owner, and the executive pays the premium.

d)Executive is the owner, and the executive pays the premium. Executive buys the policy and pays the premium, and the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income.

A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits? a)Variable annuity b)Flexible payment annuity c)Deferred interest annuity d)Immediate annuity

d)Immediate annuity An annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution will be most suitable for this arrangement.

Which of the following is NOT true regarding a nonqualified retirement plan?a)Contributions are not currently tax deductible. b)It can discriminate in benefits and selecting participants. c)Earnings grow tax deferred. d)It needs IRS approval.

d)It needs IRS approval. Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.

Which of the following types of annuities will generally provide the highest monthly income? a)Joint and survivor b)Installment refund c)Life with a 10-year period certain d)Straight life

d)Straight life Pure or straight life annuity settlement option will only pay for as long as the annuitant lives; therefore, it has the potential to provide the highest monthly income. Any time a "period certain" option is included, it will reduce the monthly payout amount because, even if the annuitant dies, the company must continue to pay benefits for the period certain.

Which of the following riders is often used in business life insurance policies when the policyowner needs to change the insured under the policy? a)Term rider b)Guaranteed insurability rider c)Payor benefit rider d)Substitute insured rider

d)Substitute insured rider The substitute insured rider, or change of insured rider, allows the policyowner to change the insured listed under the policy, subject to insurability. This rider is often used in business life insurance policies.

The interest earned on policy dividends is a)Nontaxable. b)Tax deductible. c)40% taxable, similar to a capital gain. d)Taxable.

d)Taxable. Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.

In order for an insured under Medicare Part A to receive benefits for care in a skilled nursing facility, which of the following conditions must be met? a)The insured must have a Medicare supplement insurance policy. b)There is no benefit provided under Medicare Part A for skilled nursing care. c)The insured must cover daily copayments. d)The insured must have first been hospitalized for 3 consecutive days.

d)The insured must have first been hospitalized for 3 consecutive days. Part A covers the cost of care in a skilled nursing facility as long as the patient was first hospitalized for 3 consecutive days, and the services are medically necessary and only up to amounts deemed.

A temporary license holder can receive a commission from a sale made to all of the following EXCEPT a)The license holder's spouse's best friend. b)An accountant at a rival insurance company. c)The license holder's family doctor. d)The license holder's sister-in-law.

d)The license holder's sister-in-law. A temporary license holder sale to a family member or an individual the temporary license holder has an employment or business relationship with will not pay commission.

An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history one year later. What will probably happen? a)The policy will be voided. b)The insurer will sue the insured for committing fraud. c)Because the insured is currently not a drug user, his policy will not be affected. d)The policy will not be affected.

d)The policy will not be affected. In insurance, fraud is the intentional misrepresentation of material information that is crucial when deciding whether or not to write a contract for an applicant. If an insurer finds that an applicant has committed fraud, it can void the contract, provided that the discovery occurs within the first two years of the effective policy date. In this particular instance the applicant did not commit intentional fraud.