1-State Exam Stimulator-200 Question Practice Exam

S is employed by a large corporation that provides group health coverage for its employees and their dependents. If S dies, the company must allow his surviving spouse and dependents to continue their group health coverage for a maximum of how many months under COBRA regulations?

36

Q purchases a $500,000 life insurance policy and pays $900 in premiums over the first six months. Q dies suddenly and the beneficiary is paid $500,000. This exchange of unequal values reflects which of the following insurance contract features?

Aleatory, insurance contracts are aleatory in that the amount the insured will pay in premiums is unequal to the amount that the insurer will pay in the event of a loss

N is a student pilot with a large life insurance policy. Which of these features would limit the insurer's obligation in the event N was killed while flying as a student pilot?

Exclusions. They are specified hazards listed in a policy for which benefits will not be paid

Term insurance has which of the following characteristics?

Expires at the end of the policy period

What is considered a valid reason for a small business to insure the lives of its major shareholders?

Fund a buy-sell agreement. Life insurance is purchased to fund a buy-sell agreement in the event of the death of a major shareholder in a business

The type of annuity that can be purchased with one monetary deposit is called

Immediate annuity

Life Insurance that covers an insurance whole life with level premiums paid over a limited time is called:

Limited pay life

An applicant must receive an outline of coverage when an application is taken for a

Medicare supplement policy

Which of these life products is NOT considered interest-sensitive?

Modified Whole Life

A Disability income policy that only the policyowner can terminate and which the rates will never go up is considered to be

Noncancellable

Which of the following is considered to be the time period of a health policy is issued, during which no benefits are provided for illness?

Probation period

How are surrender chargers deducted in a life policy with a rear-end loaded provision?

deducted when the policy is discontinued

M completes an application for life insurance but does not pay the initial premium. All of these actions must occur before M's policy goes into effect EXCEPT

free-look period has expired. In this situation, the policy will go into effect after all these actions occur EXCEPT the expiration of the free-look period.

Pre-hospitalization authorization is considered an example of

managed care

A non-contributory plan requires ____ participation of all eligible employees

100%

Every 12-months after initial enrollment period, an HMO must hold an open enrollment period of

31 days

V is insured under an individual Disability Income policy with a 30-day Elimination period. On July 1, he is involved in an accident and temporarily disabled. He returns to work on December 1. How many months of benefit are payable?

4 months, after the 30-day Elimination period has been satisfied, there will be 4 months of benefit payments

One becomes eligible for Social Security disability benefits after having been disabled for

5 months

________ of continuing education must be completed in the classroom or classroom equivalent

50% of continuing education requirement must be spent in a classroom setting

A temporary agent's license issued by the commissioner of insurance is valid for up to

90 days

Which of these is an element of a variable life policy?

A fixed, level premium

P is blinded in an industrial accident. Which provision of his life insurance policy will pay a stated benefit amount?

Accidental Death and Dismemberment clause

The option that provides an additional death benefit for limited amount at the lowest possible cost is called

Accidental Death and Dismemberment rider (AD&D)

Which of the following actions does the Commissioner of Insurance not have the power to conduct?

Active insurance companies' finical reserves

In health insurance policies, a wavier of premium provisions keeps the coverage in force without premium payments:

After an insured has become totally disabled as defined in the policy

An incomplete life insurance application submitted to an insurer will result in which of these actions?

Application will be returned to the writing agent

A(n) _______ of benefits of a health policy transfers payments to someone other than the policyowner

Assignment

F needs life insurance that provides coverage for only a limited amount of time with a death benefit that changes regularly according to a schedule. What kind of policy is needed?

Decreasing term policy

Which contract permits the remaining partners to buy-out the interest of a disabled business partner?

Disability Buy-Sell. A disability buy-sell plan allows the remaining partners to buy out the interest of the disabled business partner.

Under what system do a group of doctors and hospitals in a designated area contract with an insurer to provide services at a prearranged cost to the insured?

PPO

Which of these statements concerning on individual straight life annuity is accurate?

Payments are made to an annuitant for life

Which of the following provisions guarantees that premiums will be waived of a Juvenile Life policyownner becomes disabled?

Payor clause

The underwriting process involves credit report, risk classification, and application but what does it not include

Policy loan

Which of these Nonforfeiture Options continue a build-up of cash value?

Reduced Paid-Up

Which of these provisions require proof of insurability after a policy has lapsed?

Reinstatement, most insures require evidence of insurability be provided upon reinstatement of a lapse policy

Which of these is not a reason for a business to buy key person life insurance?

a pension deficiency if the key employee dies

Group life insurance policies are generally written as

annually renewable term

Which product would best serve a retired individual looking to invest a lump-sum of money through an insurance company?

annuity

Who is NOT required to sign a life insurance application?

beneficiary

The guarantee of insurability option provides a long-term care policyowner the ability to

buy additional coverage at a later date

Major Medical policies typically:

contain a deductible and coinsurance

A variable insurance policy

does not guarantee a return on its investment accounts

A policy of adhesion can only be modified by whom?

insurance company

Credit Life insurance is

insurance issued on a debtor to cover outstanding loan balances

An accident policy will most likely pay a benefit for a(n)

off-the-job accident

M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take?

pay face amount minus the past due premium. In this situation, the insurer would pay the death benefit less the past-due premium because death occurred within the grace period.

Which of the following statements About the classification of applicants is incorrect?

substandard applicants are never declined by underwriters

Why would the insurance commissioner examine the records of an insurance company?

to determine the solvency of the company

A business disability buyout plan policy is designed

to pay benefits to the Corporation or other shareholders

Which of the following is considered an element of a Variable Life Policy?

underlying equity investment

How long does an insurance company appointment remain in force?

until terminated

ABC Insurance company has excepted the life insurance application which contains unanswered questions. The company then makes the application part of the life contract. In this situation, the insurer has:

waived one of its legal rights

Which of the following may not charge fees for insurance advice?

Legal reserve agents

Which of these life insurance riders allows the applicant to have excess coverage?

Term riders

Which of the following is not included in the policy face?

Exclusions, not included in the policy face (first page of the insurance policy)

What is being delivered during a policy delivery?

Insurance contract to the proposed insured

Medicare part C

Available to those who are enrolled in Medicare part A and part B

T is receiving $3,000/month from a Disability Income policy in which T's employer had paid the premiums. How are the $3,000 benefit payments taxable?

Benefits are taxable to T, when a disability income insurance plan is paid for entirely by the employer, the premiums are deductible to the employer. The benefits, in turn, are taxable to the recipient

G is an accountant who has 10 employees in his concern about how the business would survive financially if G becomes disabled. The type of policy which best addresses this concern is:

Business Overhead Expense

T applies for a life insurance policy and is told by the producer that the insurer is bound to the coverage as of the date of the application or medical examination, whichever is later, provided that T is an acceptable risk. What item is given to T?

Conditional receipt. They bind the insurer to coverage as of the date of the application or medical exam, provided the proposed insured is determined to be an acceptable risk

A qualified profit-sharing plan is designed to

allow employees to participate in the profits of the company

Under a Renewable Term policy,

the renewal premium is calculated on the basis of the insured's attained age. Under a renewable term policy, the renewable premium is calculated on the basis of the insured's attained age

M has a Major Medical insurance policy with a $200 flat deductible and an 80% Coinsurance clause. If M incurs a $2,200 claim for an eligible medical expense, how much will M receive in payment for this claim?

"$1,600". In this situation, $2,200 - $200 deductible x 80% = $1,600.

An insured owns an individual Disability Income policy with a 30-day Elimination Period for sickness and accidents and a monthly indemnity benefit of $500. If the insured is disabled for 3 1/2 months, what is the MAXIMUM amount he would receive for an approved claim?

$1,250, 3.5 months - 1 month elimination period = 2.5 months x $500 monthly indemnity=$1,250

Q is hospitalized for 3 days and receives a bill for $10,100. Q has a Major Medical policy with a $100 deductible and 80/20 coinsurance. How much will Q be responsible for paying on this claim?

$2,100. In this situation, $10,000 x 20% coinsurance + $100 deductible = $2,100.

An employee is covered under a company group life plan with a $50,000 death benefit. What is the maximum amount a spouse may be insured for under this program?

$25,00, group life insurance on an employee's spouse may not exceed 1/2 of the amount of the insurance on the life of the insured employee under the group policy

An employee with $25,000 group term life coverage was recently fired. This employee's group coverage may be converted to a

$25,000 individual whole life policy

S buys a $50,000 whole life policy with a $50,000 Accidental Death and Dismemberment rider. S dies 1 year later of natural causes. How much will the insurer pay the beneficiary?

$50,000

P purchases a $50,000 term life insurance policy in 2005. One of the questions on the application ask if P engages in scuba diving, to which P answers "No". The policy is then issued with no scuba exclusions. In 2010, P takes up scuba diving and dies in a scuba-related accident in 2011. What will the insurer pay to P's beneficiary?

$50,000 minus any outstanding policy loans

An insured may assign up to ______\ of policy ownership under an individual life insurance policy

100%

What is the minimum benefit period that must be offered by a long term care policy?

12 months

An individual participant personally received eligible rollover funds from a profit-sharing plan. What is the income tax withholding requirements for this transaction?

20% is withheld for income taxes

What type of policy would offer a 40-year old the quickest accumulation of cash value?

20-pay life

In Texas, as an individual life insurance policy is REQUIRED to have a grace period of

31 days, an individual Life insurance policy issued in Texas must have a grace period for premium payment of 31 days

Qualified Long-Term Care policies may take into consideration an applicant's pre-existing conditions for a maximum of not more than __ month(s) prior to the effective date of coverage.

6

Which premium schedule results in the lowest cost to the policyowner?

Annual, if the policyowner chooses to pay the premium more than once per year (example monthly, quarterly, semi-annually) there normally will be an additional charge because the company will have additional charges in billing and collecting the premium payments

When does a Probationary Period provision become effective in a health insurance contract?

At the policy's inception

A certificate of _______ permits an insurance company to transact in Texas

Authority

B the insurance agent tells his clients that their rights may be impaired if they fail to compelled a release form within a given period of time. B may be found guilty of

Coercion

B the insurance agent tells his clients that their rights may be impaired if they fail to complete a release form within a given period of time. B may be found guilty of

Coercion

A major medical policy typically contains a provision that requires the insurer to pay only part of a loss, while the balance is paid by the insured. This provision is called

Coinsurance

Which of the following is not included in a life insurance illustration?

Company's mortalities rate

Which of the following features of a group term life policy enables an individual to leave the group and continue his or her insurance without providing evidence of insurability?

Conversion privileges

Dividends payable to a policyowner are

Declared by the insurance company

A _______ term life policy is normally used when covering an insureds mortgage balance

Decreasing

P age 50 purchase an annuity that P will fund with $500/month for 15 years. The annuity will then pay P retirement payments after 15 years. Which type of annuity did P purchase?

Deferred

How are Roth IRA distributions normally taxed?

Distributions are received tax-free

S is close to retiring and would like to purchase a policy that will yield greater gains than bonds, but will still protect the principal with a minimum level or risk. Which product would S be advised to purchase?

Equity index insurance

Which of these statement describes a Modified Endowment Contract (MEC)?

Exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract. Policies that do not need the 7-pay test are considered MEC's and will lose favorable tax treatment. The test is designed to discourage premium schedules that would result in a paid up policy before the end of a seven year period

Which of the following nonforfeiture options offers the highest death benefit?

Extended Term option. Allows the policy owner to use the cash value to purchase a term insurance policy with a death benefit to that of the original whole-life policy

D owns a whole life policy that was purchased 10 years ago. If the premium payments suddenly stop and D takes no additional action, which nonforfeiture option will the insurer likely proceed with?

Extended Term. Choosing the nonforfeiture extended term option allows the policyowner to use the cash value to purchase a term insurance policy with a death benefit equal to that of the original whole life policy. Extended term insurance is often the default nonforfeiture option in the event of a nonpayment of premiums

An insurance applicant MUST be informed of an investigation regarding his/her reputation and character according to the

Fair Credit Reporting Act

What is the name of the law that requires Insurers to disclose information gathering practices and where the information was obtained?

Fair Credit Reporting Act

P is looking to purchase a life insurance policy that will pay a stated monthly income to his beneficiaries for 20 years after he dies and a lump sum of $20,000 at the end of that 20 year period. What type of policy should P purchase?

Family Maintenance Policy, it pays a monthly income from the date of death of the insured to the end of the preselected period. The payment of the face amount of the policy is payable at the end of such preselected period

Which of these is not a source of funding for Social Security benefits?

Federal Government

After an insured gives notice of loss, what must he/she do if the insurer does not furnish forms?

File written proof of loss

A physician opens up a new practice and qualifies for a $7000/month disability income policy. What rider with the physician add if he wants the ability to increase his policy benefit as his practice and income grow?

Guaranteed Insurability Option rider. If a physician wants to ensure he can increase the benefit for his disability policy as his practice and income grow, he would want to include a Guaranteed Insurability Option rider

Bryce purchased a disability income policy with a rider that guarantees him the option of purchasing additional amounts of coverage at predetermined times without requiring to provide evidence of insurability. What kind of rider is this?

Guaranteed insurability rider

K has a health policy that must be renewed by the insurer and the premiums can only be increased if applied to the entire class of insureds. This type of policy is considered

Guaranteed renewable. It is best described as a policy that must be renewed and premium rate increases can only be applied if for an entire class of insureds

All of these are characteristics of a health reimbursement arrangement (HRA) execpt

HRA is entirely funded by the employee

Which of the following statements about health reimbursement arrangements (HRA) is correct?

If the employee paid for qualified medical expenses, the reimbursements may be tax-free

How would a contingent beneficiary receive the policy proceeds in an Accidental Death and Dismemberment (AD&D) policy?

If the primary beneficiary dies before the insured

When must insurable interest exist for a life insurance contract to be valid?

Inception of the contract

At the age of 45, an individual withdraws $50,000 from his qualified profit-sharing plan and then deposits this amount into a personal savings account. This action would result in:

Income tax and a 10% penalty assessed upon funds withdrawn from the qualified plan. The IRS says that withdrawls of funds from a profit sharing plan may be subjected to a 10% tax penalty in addition to income taxes if they are made before the age 59 1/2. This same early withdrawl penalty applies out of 401k plans and traditional individual retirement accounts

Which of these actions should a producer take when submitting an insurance application to an insurer?

Inform insurer of relevant information not included on the application. One of the actions a producer should take when submitting an application is to advise the insurer of any other relevant information not contained in the application.

K is in annuitant currently receiving payments. If she were to die before receiving payments equal to the correct value, a beneficiary will continue receiving payments until an amount equal to the contract value has been paid. This is called a(n)

Installment Refund annuity, promise that if the annuitant dies before receiving payments equal to the correct value, the payments will be continue to a beneficiary until an amount equal to the contract value has been paid

Who has the option to renew a renewable term policy?

Insured

Quartet premium payments increase the annual cost of insurance because

Interest to the insurer is decreased while the administrative cost are increased

A life insurance arrangement which circumvents insurable interest statues is called:

Investor-Originated Life Insurance. It is used to circumvent state insurable statues. This is done when an investor (or stranger) persuades an individual to take out life insurance specifically for the purpose of selling the policy to the investor. The investor compensates the insured and makes the premiums, then collects the death benefit when the insured dies

A policyowner's rights are limited under which beneficiary designation?

Irrevocable. An irrevocable beneficiary designation requires the consent and signature of that named beneficiary before a change of beneficiary occurs.

Dividends paid from a life insurance policy are

Issued by the insurer

Which of the following combination plans is designed to protect an insured from an unpaid mortgage balance upon premature death?

Joint Life, covers two or more people. Using some type of permanent insurance, it pays death benefit at the first insured's death

An architecture firm would stand to lose a lot of money in the event of the death of its project manager. Which type of policy should the firm purchase on its project manager?

Key person insurance

Which of the following best describes how a policy that uses the "accidental bodily injury" definition of an accident differs from one that uses the "accidental means" definition?

Less restrictive

Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary?

Life Income

An insured's inability to preform two or more activities of daily living may trigger which type of life policy rider?

Long term care

During a sales presentation for a practicing life insurance policy, an agent must

Make a prospect understand that dividends are not guaranteed

If a retiree on Medicare required five hospital stays in one year, which policy would provide the best insurance for excess hospital expenses?

Medicare Supplement

An applicant must receive an outline of coverage when an applicant is taken for a(n)

Medicare supplement policy

A policyowner is allowed to pay premiums more than once a year under which provision?

Mode of Premium

When a life insurance policy exceeds certain IRS table values, the result would create which of the following?

Modified Endowment Contract (MEC)

Which type of policy is considered to be overfunded, as stated by IRS guidelines?

Modified Endowment Contract. A policy that is overfunded to where it does not meet the 7-pay test is considered a Modified Endowment Contract.

All of these insurance products require an agent to have proper FINRA securities registration in order to sell them EXCEPT for

Modified Whole Life

Which of the following characteristics is associated with a large group disability income policy?

No medical underwriting

Which statement is true regarding a minor beneficiary?

Normally, a guardian is required to be appointed in the Beneficiary clause of the contract. In most cases, insurer required that a guardian be appointed in the beneficiary clause of the policy or that a guardian designed in the will

Which of these statements is incorrect regarding a Preferred Provider Organization (PPO)?

PPO's are NOT a type of managed care systems

Whole life insurance policies are contractually guaranteed to provide each of the following, execpt

Partial withdrawl features beyond a surrender charge period

A policy owner is able to choose the frequency of premium payments through what policy feature?

Premium Mode

What benefit does the payor clause on a juvenile life policy provide?

Premiums are waived if payor becomes disabled

D is an architect receiving Disability Income benefits who is not able to return to work full time, but can work on a part-time basis. Which of these features would allow D to continue receiving benefits?

Residual Benefit clause. It is based on the proportion of income annually lost due to the partial disability, taking into account the fact that the insured is able to work and earn some income

Which of the following is not a required provision in group life policies?

Right to Loan

Post-tax dollar contributions are found in

Roth IRA investments. No income tax deductions can be taken for contributions made to a Roth, but the earnings on those contributions are entirely tax-free when they are withdrawn.

P is an employee who quits her job and wants to convert her group health coverage to an individual policy. After the expiration of COBRA laws, which of the following statements is TRUE?

She DOES need to provide evidence of insurability

Which of the following types of permanent life insurance policies offers the highest initial cash value?

Single premium, it allows the insured to pay the entire premium in one lump-sum and have coverage for his/her entire life

K is shopping for a permanent life insurance policy that will offer he the most protection per dollar of annual premium. Which of these policies best fits her needs?

Straight life

What type of life insurance gives the greatest amount of coverage for a limited period of time?

Term life

What kind of life insurance product covers children under their parents policy?

Term rider

Which of the following is true if the owner of an IRA names their spouse as beneficiary, but then dies before any distributions are made?

The account can be rolled into the surviving spouse's IRA

The investment gains from a universal life policy usually go toward

The cash value

Upon policy delivery, a signed good health statement is requested from the applicant. Why would this be necessary?

The initial premium was not submitted with the application

Which of the following benefits is not required under a group health plan for drug and alcohol treatment?

Transportation to and from a treatment facility

ABC insurance company is actively engaging in boycott, coercion, and intimidation that results in the unreasonable restraint of trade. ABC is committing a prohibited act under Texas insurance laws covering

Unfair methods of competition

Which of the following phrases refers to the fees charged by a healthcare professional?

Usual, customary, and reasonable expenses

In order to sell a(n) __________ life policy, a producer is required to register with the financial industry regulator authority (FINRA)

Variable

Which policy requires an agent to register with the National Association of Securities Dealers (NASD) before selling?

Variable Life

A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached

Waiver of Premium

What type of rider would be added to an accident and health policy if the policy owner wants to ensure the policy will continue if he/she ever becomes totally disabled?

Waiver of premium rider

What does the ownership clause in a life insurance policy state?

Who the policyowner is and what rights the policyowner is entitled to

Y purchased $100,000 worth of permanent protection on himself and $50,000 worth of 10-year term coverage for his wife on the same policy. Which of these policies did Y purchase?

Whole life policy with an other insured rider

Q would like to purchase $100,000 of permanent protection on his wife and $50,000 of Term coverage on himself under the same policy. What kind of policy should Q purchase?

Whole life policy with other insured rider

B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of

additional Whole Life coverage at specified times. A guaranteed insurability option in a whole life policy permits the policy owner to purchase, without evidence of insurability, stated amounts of whole life insurance at specified times

Which type of contract liquidates an estate through recurrent payments

annuity

A Health Reimbursement Arrangement must be established:

by the employer

A company that owns a life insurance policy on one of its key employees may do all of the following except

change the policy's interest rate

As a condition for a loan, a bank requires the borrower to purchase credit insurance from a specific company. What is the bank guilty of?

coercion, who requires a debtor to obtain insurance from a particular company or agent as a condition for a loan is guilty of coercion

An employee of 20 years recently retired at age 59 1/2. This employee's group life contract can be

converted to an individual permanent policy at an individual rate

An agent takes an individual Disability Income application, collects the appropriate premium, and issues the prospective insured a conditional receipt. The next step the insurance company will take is to

determine if the applicant is an acceptable risk by completing standard underwriting procedures

Which of the following is an important underwriting principle of group life insurance?

everyone must be covered in the group

The sections of an insurance contract which limit coverage are called:

exclusions

Which of the following will a long term care plan typically provide benefits for

home health care

Which of the following groups may not be insured by a group life insurance policy?

individuals who are related by blodd

An insurance company normally has 2 years to contest information provided on an accident and health application. This 2 year period begins on the date that the:

insurer dates the policy

A license may be denied, suspended, or revoked if the licensee

is found guilty of misrepresentation in obtaining the license

A trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid

mandatory income tax withholding on the transfer amount, I there is no federal tax withholding involved in a transfer of funds from one qualified plan into another. Rollovers, however, involve a 20% withholding. Once the rollover takes place to the new custodian, the remainder of the distribution is made

Rick recently died and left behind an individual IRA account in his name. His widow was forwarded the balance of the IRA. The widow qualifies for the

marital deduction. The transfer of a descendent's IRA account balance to a surviving spouse qualifies for the Unlimited Martial Deduction, which generally exempts the transfer from estate taxes

Which statement is true in regard to a policy loan?

past due interest on a policy loan is added to the total debt. Interest on a loan which is not paid when due is added to the total debt

Which action will a life insurance company most likely take if an insured dies and it is discovered that the insured's age was misstated on the application?

pay an amount the premiums would have purchased at the insured's actual age

Insurance policies are considered aleatory contracts because

performance is conditioned upon a future occurrence

Q applied for life insurance and submitted the initial premium on January 1. The policy was issued February 1, but it was not delivered by the agent until February 7. Q is dissatisfied and returns the policy February 13. How will the insurer handle this situation?

policy was returned within the free-look period, premium will be fully refunded. The free-look period begins when the policy is delivered to the policy owner

What is the purpose of the Time of Payment of Claims provision?

prevents delayed claim payments made by the insurer. The purpose of the Time of Payment of Claims provision is to prevent the insurance company from delaying claim payments.

Which type of policy pays benefits to a policyholder covered under a Hospital Expense policy?

reimbursement

Which of the following statements best describes dental care indemnity coverage?

services are reimbursed after insurer receives the invoice

The premiums paid by an employer for his employee's group life insurance are usually considered to be

tax-deductible to the employer

All of these statements about the Commission of Insurance are true except

the commissioner must be elected

A level premium indicates

the premium is fixed for the entire duration of the contract

A disability elimination period is best described as a:

time deductible

The policy provision that entitles the insurer to establish conditions the insured must meet while a claim I'd pending is

time limit on certain defenses, this provision limits the period during which an insurer can deny a claim based on a misstatement made by the insurer

In an insurance contract, the insurer is the only party who makes a legally enforceable promise. What kind of contract is this?

unilateral

A term life insurance policy matures (pay out the face amount)

upon the insured's death during the term of the policy

When does a life insurance contract become effective if the initial premium is not collected during the application process?

when producer delivers policy and collects initial premium

When must insurable interest be present in order for a life insurance policy to be valid?

when the application is made, insurable interest must exist when the application is made for it to be valid