Pennsylvania Insurance Laws and Rules (Life Code)

A life insurance company that issues variable insurance policies and annuities must establish WHICH of the following? - A guaranteed minimum rate of interest that must be applied to the policy cash value. - Special accounts that can only hold permanent life insurance cash value reserves. - A separate account for funds arising from variable policies that is maintained apart from other assets. - Guidelines that instruct policyowners how to invest their premiums so that the owners do not lose their cash value due to bad investment choices.

- A separate account for funds arising from variable policies that is maintained apart from other assets. A life insurance company issuing variable insurance contracts must establish separate accounts for funds placed into any reserve (cash value) accounts to ensure their segregation from the company's general funds, which are used for fixed life insurance policies.

In a fit of rage, an insured purposely drove his car into a bridge, was seriously injured and needed medical attention or he would die. WHICH of the following would apply to any Accelerated Death Benefits payable? - The insured is eligible for the benefit because without the emergency medical treatment he would die within 12 months. - No accelerated death payment would be made as the insured intentionally inflicted his injuries. - The insured would only be eligible for 25% of his death benefit due to the cause of loss. - The payment will be made as the insured is likely to be disabled for at least one year.

- No accelerated death payment would be made as the insured intentionally inflicted his injuries. A life insurance policy may deny payment under the Accelerated Death Benefit provision as the injury was intentionally self-inflicted. Answer "C" has no basis in fact, and answers A and D would apply if it were not for the injuries being intentionally self-inflicted.

When a person leaves their group health insurance plan, state law gives the employee the right to convert the group coverage to an individual policy. WHICH of the following statements regarding conversion is true? - The employee will be given at least 15 days before the group coverage expires to convert to an individual policy without evidence of insurability. - Only those employees who have been continuously insured for at least five years will be given a conversion opportunity. - The group insurance carrier must allow the group employee to stay in the group plan for up to 4 years and then convert to an individual policy. - Only groups with at least 100 employees are allowed conversion.

- The employee will be given at least 15 days before the group coverage expires to convert to an individual policy without evidence of insurability. The insurer is required to give notice to the group insured at least 15 days prior to the expiration date of the conversion right. If notice is not properly given, the expiration date is extended to 15 days from delivery of the notice, but not beyond 60 days from the original expiration date. No proof of insurability is required.

Which of the following must be disclosed by the viatical settlement provider to the viator no later than the time of signing the application? - His right to inspect copies of the escrow documents. - Any affiliation the settlement provider has with the issuer of the policy. - The fact that the settlement proceeds may be taxed. - The possible loss of coverage on any other lives insured by the policy.

- The fact that the settlement proceeds may be taxed. The fact that the settlement proceeds may be taxed by the federal or state government must be disclosed by the viatical settlement provider to the viator no later than the time of signing the application. All other options must be disclosed no later than the time of signing the settlement contract.

The Pennsylvania Life and Health Guaranty Association will guarantee payment of benefits in the event of an insurer's insolvency. WHICH of the following is true regarding any amounts payable? - All life insurance death benefits will be paid regardless of their face amount. - The maximum payable for life insurance death benefits, cash value and annuities is limited to $300,000. - Annuities are covered up to $100,000 maximum per annuity. - The amounts paid are considered taxable income to the insured.

- The maximum payable for life insurance death benefits, cash value and annuities is limited to $300,000. The Life and Health Guaranty Association will guarantee payments of up to $300,000 for life insurance death benefits, cash values, annuity benefits and health insurance claims. The amounts paid are subject to any income tax requirements that would be in place for any payment from an insurer and are not necessarily taxable in each situation.

Annuities and life insurance policies include "free-look" provisions. WHICH of these statements would be correct regarding this provision? - The free-look gives the policyowner a period of time in which no premium is charged for the insurance and is considered a "trial" policy. - The policyowner is given a period of time, after the policy has been delivered to him, in which to look over the policy and decide whether to keep it. - The issuer of the policy is allowed to keep a pro-rata portion of the premium based on how long the coverage was in force prior to any return of the policy. - Free-look periods are only available for policies that were purchased through a direct-response insurer but not available if the policy was purchased through an agent.

- The policyowner is given a period of time, after the policy has been delivered to him, in which to look over the policy and decide whether to keep it. The contract purchaser (the policyowner) may review the contract and, if not satisfied, return it to the insurer for a full refund of any premium paid: within 10 days after delivery, or 45 days if it replaces an existing policy with the same insurer, and 20 days if it replaces a policy from a different insurer. The company can keep no part of the premium. The policy has been issued and coverage is in force, the free-look provision simply gives the owner a period of time to decide whether to keep it; an unconditional refund provision.

All of the following would be defined as having an insurable interest EXCEPT - a son in his father. - a wife in a husband. - a friend in a longtime friend. - an employer in a key employee.

- a friend in a longtime friend. An insurable interest is defined as an interest resulting from love and affection, in the case of persons related by blood or marriage; or an economic interest in having the insured's life continue, and not arising only upon the insured's death, in the case of all other persons. The friends in option C do not fit either definition.

In order to obtain a viatical broker license, an applicant must fulfill all of the following conditions EXCEPT - be a US citizen. - reside in Pennsylvania. - possess general fitness and integrity of character. - be able to read and write in English.

- be a US citizen. A person must be licensed to operate as a viatical settlement broker or provider in this state. To obtain a viatical broker license, an applicant must be at least 18 years old; reside in the state; be able to read and write English; submit an application and pay the nonrefundable $100 application fee; pass the licensing examination; provide the personal and business information required by the Department; and possess professional competence, general fitness and integrity of character. He does NOT need to be a US citizen.

All life insurance policies delivered in Pennsylvania require that the insured actually apply for the policy EXCEPT for when a(n) - business partner applies for life insurance on the life of another partner. - father applies for life insurance on the life of his minor, dependent child. - creditor wishes to purchase life insurance coverage on the life of a borrower. - insurer specifically allows the purchase to occur.

- father applies for life insurance on the life of his minor, dependent child. A life insurance policy can only be delivered in this state if the insured has applied for it, except for a person who is responsible for the support of a child (answer B), employers insuring the lives of officers, directors, principals, partners and employees and tax-exempt charitable organizations when the consent of the insured has been obtained.

After a policy has been in force for one year, an insured is entitled to 30 days or one month in which to make a premium payment. This time is known as a - free-look period. - reinstatement term. - leniency term. - grace period.

- grace period. After a policy has been in force for one year, an insured is entitled to a 30-day or one-month grace period in which to make a premium payment.

The life insurance disclosure statement that must be presented to an applicant no later than the time of application must - include an explanation of all riders that have been purchased and attached to the policy. - be maintained by the producer for at least ten years after the policy's expiration. - include the amount of coverage and the benefits offered by the policy. - contain the surrender cost index.

- include the amount of coverage and the benefits offered by the policy. Life insurance disclosure must contain the amount of coverage and benefits offered, the name, age and sex of the applicant, the source of the insurance, the basic policy information, the premiums and how they may change and other information. The document must be maintained by the insurer for a period of at least three years. The surrender cost index must be provided to the applicant upon request and is not part of the disclosure statement.

An insurer who unfairly discriminates in the amount of premiums or rates charged individuals of the same underwriting class - may have his license suspended or revoked. - may be fined $800 per violation. - is guilty of a felony. - All of the above

- may have his license suspended or revoked. An insurer who unfairly discriminates in the amount of premiums or rates charged individuals of the same underwriting class is guilty of a misdemeanor and subject to a fine of up to $500. In addition, the Commissioner may suspend or revoke the license of the violator; refuse to issue a new license for a period not to exceed one year; and impose a $500 fine for each violation.

If a deficit arises in a separate account for annuities due to greater than expected mortality or expenses of the insurer, the company - will be declared insolvent. - may merge the account with another account. - may adjust for mortality experience or expenses. - may transfer funds from its surplus or contingency reserves.

- may transfer funds from its surplus or contingency reserves. In regard to annuities, if a deficit arises in a separate account due to mortality or expense guarantees, the insurer can transfer funds from its surplus or contingency reserves so its assets will at least equal its liabilities.

The Pennsylvania Life and Health Guaranty Association's foremost purpose is to - protect policyholders in case the issuing company fails. - provide for the families of member insurers that become insolvent. - compensate members of the public who have been financially damaged by unscrupulous insurers. - make sure that full benefits are paid regardless of the face amount or coverage in force.

- protect policyholders in case the issuing company fails. The Life and Health Guaranty Association exists to detect and prevent insurer insolvency and to protect policyowners of life and health insurance and annuities if the issuing company fails. Answer "D" is incorrect as the Association will only guarantee certain amounts are payable in the event of insurer insolvency; not necessarily the entire amount payable.

All of the following would be considered policy replacement, EXCEPT - purchase of a new policy will cause an existing life insurance policy to be terminated. - purchase of a new policy will cause an existing life insurance policy to be amended in a way which will not reduce coverage. - purchase of a new policy will cause an existing life insurance policy to be pledged as collateral for an amount comprising 50% of the loan value of the policy. - purchase of a new policy will cause an existing life insurance policy to be reissued with a reduction in cash value.

- purchase of a new policy will cause an existing life insurance policy to be amended in a way which will not reduce coverage. Replacement occurs when a new life insurance policy or annuity is to be purchased and an existing policy or annuity terminated, reduced in value, amended to reduce coverage or pledged as collateral in an amount exceeding 25% of the loan value of the policy.

With a variable life insurance policy - the amount and duration of the insurance are fixed, with no minimum death benefit payment - the amount of the insurance varies, but its duration is fixed. - the duration of the insurance varies, but its amount is fixed. - the amount and duration of the insurance vary, with a guaranteed minimum death benefit payment.

- the amount and duration of the insurance vary, with a guaranteed minimum death benefit payment. With a variable life insurance policy, the amount and duration of the insurance vary based on the performance of the accounts into which the fixed premium payments are placed. There is a guaranteed minimum death benefit payment, but that can increase depending on the investments. The policyholder bears any investment losses, and some variable policies leave investment choices up to the policyholder. Interest and dividend income from the investment account is nontaxable until paid out in benefits.

A life insurance policy delivered in Pennsylvania cannot provide for termination for failure to repay a policy loan while the amount owed is less than - the value of three monthly premiums. - the cash value of the policy. - $5,000.00 - Either B or C, whichever is higher

- the cash value of the policy. A life insurance policy delivered in Pennsylvania cannot provide for termination for failure to repay a policy loan while the amount owed is less than the cash value of the policy.

All of the following underwriting practices are allowed EXCEPT: - the insurer using health and medical questions to help determine an insured's medical condition and premium, if issued, on the policy. - the insurer considering HIV and AIDS no differently than any other medical condition, such as heart disease or cancer. - an application asking if a prospective insured is in good health. - the insurance company asking about the applicant's church affiliation.

- the insurance company asking about the applicant's church affiliation. Insurers are allowed to utilize answers A, B and C in their underwriting practices, however an insurer cannot ask privacy-invading questions or vague questions that are not designed to elicit specific information.

All of the following are standard life insurance policy provisions, EXCEPT - the policy, including the application, constitutes the entire contract between the insurer and insured. - the policyholder has 10 days from delivery to return the policy for a full refund of the premium. - the insurer may cancel the policy at any time with 30 days notice. - premiums are payable in advance.

- the insurer may cancel the policy at any time with 30 days notice. Included among the standard provisions are: (1) the policy, including the application, constitutes the entire contract between the insurer and insured; (2) the policyholder has 10 days from delivery to return the policy for a full refund of the premium; premiums are payable in advance. There is no standard provision allowing the insurer to cancel a policy at any time with 30 days notice.

A copy of any basic or revised illustration must be maintained by the insurer at least - three years after the time it was last used. - three years after the policy is no longer in force. - five years after the time it was last used. - five years after the policy is no longer in force.

- three years after the policy is no longer in force. A copy of any basic or revised illustration must be maintained by the insurer at least three years after the policy is no longer in force.

In regard to annuities, an insurer cannot contest a policy's validity or deny a claim because of statements made as a condition of issuing the policy after the a policy has been in force for - one year from the date of issue. - two years from the date of issue. - three years from the date of issue. - five years from the date of issue.

- two years from the date of issue. In regard to annuities, after a policy has been in force for two years from the date of issue, the insurer cannot contest the policy's validity or deny a claim because of statements made as a condition of issuing the policy.

When using an illustration in an insurance policy sale, an insurer or producer may - imply that a non-guaranteed element can be guaranteed with the insurer's permission and authority. - use an incomplete illustration, as long as the producer promises to provide the applicant with a complete illustration within 90 days. - use the term "vanishing premium" to imply that at some point in time, no more premiums will be due on the policy. - use the illustration in the solicitation and sale of a life insurance policy.

- use the illustration in the solicitation and sale of a life insurance policy. Answers A, B and C are violations of rule. Non-guaranteed elements can never be guaranteed, illustrations must be complete and the term "vanishing premium" may never be used.

For the purposes of a viatical settlement, an individual is terminally ill if it can be assumed that his condition will result in death - within 12 months. - within 24 months. - within 36 months. - eventually.

- within 24 months. For the purposes of a viatical settlement, an individual is terminally ill if it can be assumed that his condition will result in death within 24 months.