Practice State Exam #2

Hector had been employed by TBT Corporation for one year when his entire department was laid off. Hector and his coworkers can continue coverage under the group's health insuring corporation plan for up to how many months? 1) 3 months 2) 6 months 3) 12 months 4) 18 months

12 months

Under the proof of loss provision, how many days does the insured have to provide the insurer with written proof of loss? 1) 10 days 2) 30 days 3) 90 days 4) 120 days

90 days

Which of the following specialty health-care services can a health insuring corporation provide on an outpatient-only basis? 1) dental care 2) preventive care 3) respite care 4) pediatric care

Dental care

Newborn children are automatically covered under an insured's health insuring corporation policy for how long? 1) from birth to the first birthday 2) from birth to 31 days 3) from birth to the end of the first calendar year 4) from birth to the policy renewal date

From birth to 31 days

Grace owns a fixed annuity and wants to exchange it for a variable annuity. What must she use to be sure no taxes are imposed? 1) a free exchange 2) an annuity exchange 3) a qualified conversion 4) Section 1035 exchange

Section 1035 exchange -Provided the transaction complies with Section 1035 of the IRC, the exchange will avoid taxation.

Which of the following optional provisions limits the total coverage that the insurer assumes with respect to an insured individual? 1) the other insurance in this insurer provision 2) the other insurance with other insurer provision 3) the other insurance with other insurers provision 4) the relation of earnings to insurance provision

The other insurance in this insurer provision

A health insuring corporation must keep copies of complaints it receives for at least how long? 1) one year 2) two years 3) three years 4) six years

Three years

An employer contributes $500 in premiums annually for each employee under its group medical plan. How much of the contribution is taxable to the employee? 1) $500 2) $0 3) $250 4) $300

$0 -Employees are not taxed on premiums that an employer pays for group health insurance, because health insurance benefits are not considered wages. For this reason, health insurance premiums are not subject to Social Security taxes (FICA) or Medicare taxes.

The value of employer-paid group term life insurance in excess of what amount is imputed to a covered employee? 1) $25,000 2) $50,000 3) $100,000 4) $500,000

$50,000 -Under Section 79 of the Internal Revenue Code, the value of employer-paid group term life insurance in excess of the first $50,000 is imputed to the covered employee. The covered employee must include the imputed amount in his or her income for tax purposes.

A health insuring corporation policy that provides maternity benefits must cover a hospital stay of at least how long? 1) 24 hours after a vaginal delivery 2) 48 hours after a vaginal delivery 3) 72 hours after a Cesarean section 4) 48 hours after a Cesarean section

48 hours after a vaginal delivery

For insurance purposes, which of the following statements applies to a group? 1) A group is defined by federal law. 2) A group must have at least 100 members. 3) A group means employees only. 4) A group must consist of members who have a common association other than insurance.

A group must consist of members who have a common association other than insurance.

People who are members of associations, such as school districts or towns, can be insured under an association group life insurance plan. Which of the following statements regarding association group life is correct? 1) The association must pay all of the premiums. 2) The insured members are the policyowners. 3) The association and its members must share premiums. 4) All members must be eligible to participate in the plan.

All members must be eligible to participate in the plan

A health insuring corporation provides or arranges basic health-care services for enrollees through what method? 1) a health maintenance organization 2) a preferred provider organization 3) an open-panel or a closed-panel plan 4) the state Medicaid program

An open-panel or a closed-panel plan

HTM Industries has 100 employees and is offering a group life insurance plan. Premiums for the insurance coverage will be split between HTM and the enrolled employees. Which one of the following statements is most correct? 1) At least 50 percent of eligible employees must enroll in the plan. 2) At least 75 percent of eligible employees must enroll in the plan. 3) Exactly 100 percent of eligible employees must enroll in the plan. 4) No minimum requirement exists for the percentage of eligible 5) employees who must enroll in the plan.

At least 75 percent of eligible employees must enroll in the plan -Because HTM Industries and its employees will split the group life insurance premiums, the plan is a contributory plan. As a result, 75 percent of the group must enroll in the plan.

Cecil, concerned about the rising cost of health care, fears that his medical expense insurance policy may not provide enough coverage in the event of a catastrophic illness. Which is Cecil's best course of action? 1) buy more than one policy 2) buy an extended stay rider 3) cancel his policy, put his assets in another name, and be declared indigent so the government will pay for his medical expenses, if necessary 4) buy a long-term care rider

Buy an extended stay rider -An extended stay rider extends the number of days the policy will cover when the insured is hospitalized. The rider may extend coverage 30 days or longer, depending on the premium the insured is willing to pay.

Which of the following provides funds to buy out the business interest of a business owner or partner who becomes disabled? 1) business disability income insurance 2) business overhead expense insurance 3) disability buy-sell insurance 4) key person disability income insurance

Disability buy-sell insurance

Which of the following statements correctly describes taxes on partnership disability buy-sell insurance? 1) Disability insurance is bought on the lives of the business owners or partners. If they become disabled, then the benefit is paid (usually in a lump sum) to the business. 2) The business uses the proceeds from the insurance to pay income to the disabled owner or partner. 3) The premiums paid for the coverage are tax deductible. 4) The benefits are taxed as they are received.

Disability insurance is bought on the lives of the business owners or partners. If they become disabled, then the benefit is paid (usually in a lump sum) to the business.

Which of the following documents, which sets forth the benefits the subscribers are entitled to receive, must a health insuring corporation give to its subscribers? 1) certificate of authority 2) evidence of coverage 3) subscriber agreement 4) certificate of insurability

Evidence of coverage -Subscribers are entitled to an evidence of coverage, which describes the health-care services and benefits to which they are entitled. The evidence of coverage also lists the premium rate, the insurer's complaint procedures, and any limits or exclusions impacting benefits.

According to the rules governing how annuitized income is taxed, the interest portion is taxed and the principal is not. Which phrase explains how this division is achieved? 1) exclusion deduction 2) standard deduction 3) standard ratio 4) exclusion ratio

Exclusion ratio -According to the rules governing how annuitized income is taxed, the interest portion is taxed and the principal is not. This division is achieved through the exclusion ratio.

On July 1, an employer makes the maximum annual contribution to its employees' health savings accounts. On July 15, Franklin, the firm's accountant, quits. Which of the following is a correct statement about the contribution in Franklin's HSA account? 1) Franklin will forfeit the funds. 2) Franklin will forfeit half of the funds. 3) Franklin will retain the funds. 4) The disposition of the funds depends on the written HSA agreement.

Franklin will retain the funds -Funds in the HSA belong to the account owner. Franklin keeps the funds.

Gene is seriously injured in a car accident while on vacation. His employer-sponsored group disability plan pays benefits for over two years but reduces the amount paid by the benefits he receives under an individual disability policy. Which type of policy is Gene most likely covered by? 1) group short-term disability plan 2) group occupational plan 3) group long-term disability plan 4) group partial disability plan

Group long-term disability plan -Long-term group disability plans (which pay benefits for two years or more) are usually both occupational and nonoccupational. Such policies provide benefits regardless of whether the disability was related to the job. However, the benefit is usually reduced by income from other sources, such as individual disability policies and government benefits.

Jim is a skilled laborer with a stable job. In recent years he has experienced health complications resulting from a chronic illness. What type of disability income policy would be best for Jim? 1) group plan 2) individual plan 3) individual short-term plan 4) individual long-term plan

Group plan -In a group disability income policy, the group is underwritten as a whole. The insurability of each member of the group is not considered. For people with less-than-perfect health, group disability is easier to obtain.

All of the following are riders associated with health insurance policies, EXCEPT: 1) impairment riders 2) guaranteed renewal riders 3) guaranteed insurability riders 4) multiple indemnity riders

Guaranteed insurability riders

Gwen is youthful, energetic, healthy, and 37 years old. On her insurance application, she states that she is 30 years old. Which of the following is a likely consequence of this? 1) Gwen (or her beneficiary) is no longer entitled to benefits under the policy until the premium is adjusted for Gwen's correct age. 2) Gwen (or her beneficiary) won't be entitled to benefits until Gwen reapplies for the coverage using her correct age and providing current proof of insurability. 3) Gwen (or her beneficiary) is no longer entitled to benefits. The policy becomes null and void. 4) Gwen (or her beneficiary) is still entitled to benefits. However, the benefits payable will be those that Gwen's premium would have bought at her actual age.

Gwen (or her beneficiary) is still entitled to benefits. However, the benefits payable will be those that Gwen's premium would have bought at her actual age.

Nelson is covered by ABC Corporation's group disability plan. He has no other disability income protection and wants to continue the coverage after he terminates his employment with ABC Corporation. What is the most likely outcome? 1) He will be able to continue the policy for up to 18 months. 2) He will be able to convert the policy to an individual disability income policy. 3) He will be able to continue the policy for up to 18 months after which he has the option of converting the policy. 4) He will not be able to continue or convert the policy.

He will not be able to continue or convert the policy -Most group disability plans are not portable. This means that when an insured leaves a job, his or her coverage under that employer's disability plan ends. In contrast, individual DI policies "follow" the insured from job to job.

Dee has her first job and is insured under her employer-provided health-care plan. Which of the following are characteristics of such a plan? 1) The plan benefits are taxable to her. 2) Her plan is backed by the federal government. 3) There will be no limit on how much the plan will pay in benefits. 4) Her contributory cost toward coverage is less than if she had purchased an individual policy.

Her contributory cost toward coverage is less than if she had purchased an individual policy.

Tandy Enterprises pays $25,000 in premiums each year for its group term life insurance plan, which covers all of its rank-and-file employees. When filing its income tax return, what can (or cannot) Tandy Enterprises do? 1) It can take a partial deduction for the premiums. 2) It can take a deduction for the entire premium paid. 3) It cannot take a deduction for the premium. 4) It can take a deduction only if it also pays the premium for a group plan covering highly compensated employees.

It cannot take a deduction for the entire premium paid -An employer can deduct premiums it pays on a group term life insurance plan. However, the plan cannot discriminate against rank-and-file employees.

Jackie owns a health savings account and has contributed to the account for the past two years. This year, she cancels her high-deductible health plan coverage. Which of the following statements is correct? 1) Jackie can no longer contribute to her HSA. 2) Jackie will immediately forfeit any funds that are in the HSA. 3) Jackie must include in her income this year an amount equal to the balance in her HSA. 4) Jackie has until the end of this year to spend her HSA funds, or she will face a 10 percent penalty on the amount that remains in the account as of the year's end.

Jackie can no longer contribute to her HSA -Once coverage in the high-deductible health plan ceases, no further contributions may be made to the HSA. The funds inside the account can be spent at any time.

Jaycee's employer pays the $1,500 yearly premium on her disability insurance policy. After becoming disabled, Jaycee's policy pays her a $700 monthly benefit. Which statement is correct? 1) Jaycee must pay income tax on the disability income benefits. 2) Jaycee must include the premium payments in her taxable income. 3) The employer cannot take an income tax deduction for the premiums it pays. 4) Jaycee is not required to pay income tax on the disability income benefits.

Jaycee must pay income tax on the disability income benefits -In cases where a person owns a disability income policy but the employer pays the premiums, the business can deduct the premiums, and the premium payments are not considered taxable income to the employee. However, any benefits paid to the employee under such a policy are taxable income to him or her.

Experience rating for group life insurance is more likely to be applied to which of the following? 1) large groups 2) small groups 3) self-employeds 4) brand-new companies

Large groups -An experience rating means that the premiums are based on the anticipated claims experience just for that group as estimated from past claims experience.

Anchor Medical has been operating as a health insuring corporation in Ohio for the past five years. By what date must it file an annual report with the Superintendent each year? 1) March 1 2) June 1 3) August 1 4) December 1

March 1st -A health insuring corporation must file an annual report with the Superintendent by March 1 each year. The report must include its financial statement and balance sheet, a summary of complaints received, and a description of enrollees, among other information required by the Superintendent.

All of the following can sponsor group life insurance plans EXCEPT: 1) individual employers 2) neighborhoods 3) labor unions 4) municipalities

Neighborhoods

Steve is the beneficiary under his mother's accidental death and dismemberment policy. At her death, he receives the policy's death benefit in a lump sum. Which statement is correct? 1) No income tax is due on the proceeds. 2) Only the capital sum is taxable. 3) The entire death benefit is taxable. 4) Income tax is only due on the amount of the proceeds attributable to interest.

No income tax is due on the proceeds -The death benefit payable to an insured's beneficiary under an AD&D policy is not taxed. Also not taxed is the capital sum payable if the insured was dismembered. However, to avoid taxes, the beneficiary of the death proceeds or an injured insured must receive these amounts in a lump-sum payment.

Which of the following is a correct statement about the coordination of benefits provision under group health insurance policies? 1) A primary insurer is not required to reimburse any other insurer. 2) A secondary plan can be a primary plan. 3) The benefits of a plan covering a dependent are determined before those of a plan covering an employee. 4) No insurer is required to reimburse for any benefit or coverages in excess of those specified in the contract.

No insurer is required to reimburse for any benefit or coverages in excess of those specified in the contract.

A health insurance corporation may cancel a subscriber's coverage for which of the following reasons? 1) claims experience 2) medical history 3) genetic information 4) nonpayment of premium

Nonpayment of premium

ABC Corporation contributes 80 percent of the premium to a group disability plan, and the employees pay the remaining 20 percent. For income tax purposes, an employee can 1) deduct the amount of premium he or she paid. 2) deduct the amount of premium he or she paid only if it exceeds 10 percent of his or her adjusted gross income. 3) deduct the amount of premium he or she paid, regardless of his or her adjusted gross income level. 4) not deduct the amount of premium he or she paid.

Not deduct the amount of premium he or she paid -In general, an employee can deduct the total sum of unreimbursed premiums and other qualified medical expenses that exceed a certain percentage of adjusted gross income (AGI). However, employee contributions to a group disability plan are not considered qualifying medical expenses when determining this excess.

When a person annuitizes a deferred annuity or buys an immediate annuity, the monthly income payments it generates consist of which of the following? 1) partly principal and partly earnings 2) tax-free income 3) fully taxed income 4) income that is taxed according to a government formula

Party principal and partly earnings

All of the following are permitted as tax-free transactions under a Section 1035 exchange EXCEPT: 1) the exchange of a life insurance contract for a life insurance contract 2) the exchange of a life insurance contract for an annuity contract 3) the exchange of an annuity contract for a life insurance contract 4) the exchange of an endowment contract for an annuity contract

The exchange of an annuity contract for a life insurance contract

To be classified as terminally ill and thus qualify for accelerated benefits from a life insurance policy on a tax-free basis, an insured must meet all of the following conditions EXCEPT: 1) The insured must be certified by a doctor as having a condition that can be expected to result in death within five years. 2) The insured must be either chronically or terminally ill. 3) The insured must have a mental or physical impairment that requires significant medical supervision. 4) The insured must be certified by any medical provider as having a condition that can be expected to result in death within 24 months.

The insured must be certified by a doctor as having a condition that can be expected to result in death within five years.

Joan purchased an individual health insurance policy from Delta Insurers. Which statement correctly describes the consideration that the parties have given under the contract? 1) Joan's consideration is the promise to file claims in a timely manner. 2) The insurer's consideration is its promise to pay benefits when a stated future event occurs. 3) Joan's consideration is the promise to not seek legal action against the insurer for at least 60 days after a claim is paid. 4) The insurer's consideration is its promise to not cancel the policy without giving timely notice.

The insurer's consideration is its promise to pay benefits when a stated future event occurs -The applicant's consideration in the health insurance contract is the application and the first premium he or she pays. The insurance company's consideration is the promise to pay a benefit when a stated future event occurs.

Group health insurance is a plan of insurance that an eligible group sponsor, such as an employer, provides for its members. Which of the following statements about eligible group sponsors and group insureds is correct? 1) The plan sponsor owns the plan and pays its premiums. The individual group members are the insureds. 2) The plan sponsor owns the plan. The individual group members are the insureds and pay the premiums. 3) The employer sponsors the plan, the insurer owns it, and the individual insureds pay premiums for their coverage to the employer through payroll deductions. 4) The plan sponsor is the insurance carrier who owns several group plans and pays the premiums. The group is composed of the employees of those insurance carriers.

The plan sponsor owns the plan and pays its premiums. The individual group members are the insureds.

John's individual health insurance policy states that 30 days must pass between the policy's effective date and the time benefits are payable. The 30-day period is considered which of the following? 1) the probationary period 2) the trial term 3) the elimination period 4) the pre-existing interval

The probationary period -When used with an individual health insurance policy, a probationary period is the period that must pass between the policy's effective date and the time benefits are payable. Its purpose is to help the insurer avoid adverse selection.

Which of the following provisions requires the insurer to pay claims immediately after receiving proper proof of loss? 1) the time payment of claims provision 2) the proof of loss provision 3) the optional provisions 4) the change of beneficiary provision

The time payment of claims provision

Which of the following statements is correct if a labor union buys a group life insurance policy to insure its members? 1) The union members are the policyowners. 2) The union must pay all of the premiums. 3) The union owns the policy for the benefit of the members. 4) All of the union members must enroll. Explanation:

The union owns the policy for the benefit of the memebers

Tina is covered by a group short-term disability plan, while Earl is covered by a group long-term disability plan. Their employers pay the premiums for the policies, and both subsequently become disabled. What is the result? 1) Tina can expect to receive benefits for up to two years, while Earl may receive benefits for more than two years. 2) Tina's benefits will be taxable, but Earl's will not. 3) Tina will receive benefits only if injured while working, while Earl will receive benefits only if injured outside his job. 4) Neither Tina's nor Earl's benefits will be taxable.

Tina can expect to receive benefits for up to two years, while Earl may receive benefits for more than two years. -Group plans with maximum benefit periods of less than two years are short-term disability plans. Those with maximum benefit periods of two years or more are long-term disability plans. Both types of benefits are taxable as ordinary income.

Under a Section 1035 exchange, how many contracts can be exchanged for a single contract? 1) one 2) two 3) three 4) unlimited

Unlimited -The number of contracts that can be exchanged for one contract under a 1035 exchange is unlimited. However, all contracts involved must have all the same insureds and have the same owner.

Which of the following is NOT a factor in determining the tax treatment that applies to life insurance and annuity products? 1) who owns or controls the product 2) how the product is designed 3) what the owner does for a living 4) when and how the product benefits are received

What the owner does for a living

Is it possible for one person to qualify as a group and be eligible for group health insurance coverage? 1) Yes; sometimes a business group of one can qualify as a small group. 2) Yes, but only if the business is formed as something other than a sole proprietorship. 3) Yes, but the premiums will be especially high. 4) No; a group of one is not a group.

Yes; sometimes a business group of one can qualify as a small group -In some states, a business group of one is eligible for a group health insurance plan, but more often the minimum number for group eligibility is two.