Final Exam

T and S are named co-primary beneficiaries on a $500,000 Accidental Death and Dismemberment policy insuring their father. Their mother was named contingent beneficiary. Five years later, S dies of natural causes and the father is killed in a scuba accident shortly afterwards. How much of the death benefit will the mother receive?

$0 - The mother receives $0 because T is still alive and the sole primary beneficiary, while the mother is still contingent beneficiary.

N is covered under an individual Disability policy with a 30-day Elimination period and a monthly benefit of $500. N is totally disabled for 3 1/2 months. N's total benefit received on this claim is

$1,250 After the 30-day elimination period has been satisfied, the total benefit paid on this claim is $1,250 ($500+$500+$250)

All of the following statements about traditional individual retirement accounts are false EXCEPT

10% penalty is applied to withdrawals before age 59 1/2 - because an IRA is a qualified plan, it has the same rules for early withdrawal

What is the MINIMUM benefit period that must be offered by a Long-Term Care policy?

12 months

An insured must notify an insurer of a medical claim within _____ days after an accident

20 days

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

25k Group life insurance on an employee's spouse may not exceed half of the amount of insurance on the life of the insured employee under the group policy

According to the Mandatory Uniform Policy Provisions, what is the maximum amount of time after the premium due date during which the policy remains in force even though the premium has not been paid.

31 days

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

5 months

How long can a cash surrender value payment be deferred by the insurance company under the Nonforfeiture Law?

6 months

What kind of life insurance policy pays a specified monthly income to a beneficiary for 30 years and then pays a lump sum benefit at the end of that 30 years?

A Family Maintenance Policy 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 the following statements about noncontributory employee group life insurance is FALSE?

A minimum number of employees is required to participate - Noncontributory employee group life insurance plans must cover ALL eligible employees at all times

C is a key employee at ABC Incorporated. If a Key Employee life policy is purchased on her life, which of these statements would be true?

ABC is the policyowner, C is the insured, ABC is the beneficiary

The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called a(n):

Accidental Death and Dismemberment rider (AD&D) - provides an additional death benefit for a limited period of time at the lowest possible cost

A contract where one party either accepts or rejects the terms of a contract written by another party is called a contract of

Adhesion A contract of adhesion is a contract offered intact to one party by another under circumstances requiring the second party to accept or reject the contract in total without having the opportunity to bargain over the wording. Insurance policies are contracts of adhesion and, as such, are construed strictly against the party writing them (i.e. insurer)

Under which of the following circumstances will the benefits under COBRA continuation coverage end?

All group health plans are terminated by the employer - one of the disqualifying events that can result in the termination of continuing coverage under COBRA is when the employer terminates all group health plans

Which of the following statements is CORRECT regarding the tax treatment of a lump-sum payment paid to a life insurance policy's primary beneficiary?

All proceeds are income tax free in the year they are received - if a life insurance policy has a stated beneficiary, all proceeds are income tax free in the year which they are received

An applicant MUST receive an Outline of Coverage when an application is taken for a(n):

An agent MUST give a prospective insured an Outline of Coverage when taking an application for a Medicare Supplement policy

With whom may an agent legally share commissions?

Another agent with the same line of insurance

A plan through the Marketplace may be purchased by

Any legal resident (except those imprisoned)

A student pilot can pay regular premium costs for her life insurance policy with the addition of which of the following?

Aviation exclusion

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

Buy additional coverage at a later date. In long-term care insurance, the guarantee of insurability option provides the insured with the ability to purchase additional insurance at a later date without evidence of insurability.

A policy loan is made possible by which of these life insurance policy features?

Cash value provision makes a policy loan possible

What type of employee welfare plans are subject to ERISA regulations?

Church plans

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

Which of the following organizations would make reimbursement payments directly to the insured individual for covered medical expenditures?

Commercial insurer Commercial health insurance companies use the reimbursement approach, which allows policyowners to seek medical treatment then submit the changes to the insurer for reimbursement

An Evidence of Coverage form may be issued by a Health Maintenance Organization (HMO) after being approved by the

Commissioner A HMO may issue an Evidence of Coverage form after it has been approved by the Commissioner of Insurance

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. Assuming that T is an acceptable risk, what item is given to T?

Conditional receipt A conditional receipt binds 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

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 privilege - allows an individual the leave the group term plan and continue his or her insurance without providing evidence of insurability.

Which of the following statements about health coverage for newborns is NOT true?

Coverage is limited to only congenital defects

The combination of Whole Life and ________ Term insurance is referred to as a Family Income Policy

Decreasing

Credit life insurance is typically issued with which of the following types of coverage?

Decreasing Term The type of insurance used for credit life is typically decreasing term, with the term matched to the length of the loan period.

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 before making a decision about whether to insure the applicant

What contract permits the remain partners to buy-out the interest of a disable business partner?

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

In the event of an illness, a(n), ________ ________ policy would reimburse an insured for loss of earnings

Disability Income

T purchases a $100k single premium, Straight Life annuity 5 years ago. He has received monthly payments since the inception of the annuity. If T dies, the insurance company

Does NOT have to make any further payments after the person dies

How often must an insurance agent license normally be renewed?

Every 2 years

D is the policyowner and insured for a $50k life insurance policy. The beneficiary is D's wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to?

Ex-wife - because the ex-wife is still the beneficiary of this policy, even though policy ownership has changed to his current spouse.

A(n) ________ contained in a life insurance policy states that the policy will NOT cover certain risks

Exclusion

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 - which are specific hazards listed in a policy for which benefits will not be paid

Taking receipt of premiums and holding them for the insurance company is an example of

Fiduciary responsibility

A life insurance application may be rejected on the basis of all of these factors EXCEPT

Gender An insurance company may NOT reject a prospective insured's life application on the basis of gender

Which of the following provisions specifies how long a policyowner's health coverage will remain in effect if the policyowner does not pay the premium when it is due?

Grace period - which is the additional period of time after a premium payment is due that will allow the policy to remain in force in the event of nonpayment

Which of the following types of organizations are prepaid group health plans, where members pay in advance for the services of participating physicians and hospitals that have agreements?

HMO (Health Maintenance Organization) is a prepaid group health plan, where members pay in advance for the services of participating physicians and hospitals that have agreements

A medical care provider which typically delivers health services at its own local medical facility is known as a:

Health Maintenance Organization (HMO) traditionally provide services to its members at its own local health care facilities

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

A long-term care rider in a life insurance policy pays a daily benefit in the event of which of the following?

Inability of the insured to perform more than 2 Activities of Daily Living (ADL's) - A long term care rider in a life insurance policy may trigger a benefit in the event of the inability of the insured to perform more than 2 Activities of Daily Living (ADL's)

All of the following statements regarding a Tax Sheltered Annuity (TSA) are true EXCEPT

Income derived from the TSA is received income tax-free. Upon retirement, payments received by employees from the accumulated savings in tax-sheltered annuities are treated as ordinary income.

When third-party ownership is involved, applicants who also happen to be the stated primary beneficiary are required to have

Insurable interest in the proposed insured

If a contract of adhesion contains questionable language, to whom would the interpretation be in favor of?

Insured

The agreement in a life insurance contract that states a specific sum of money will be paid to a designated person upon an insured's death is called a(n):

Insuring agreement - The insuring clause of provision sets forth the company's basic promise to pay benefits upon the insured's death

The clause in an Accident and Health policy which defines the benefit amounts the insurer will pay is called the:

Insuring clause state the amount of benefits to be paid in an Accident and Health policy

Quarterly premium payments increase the annual cost of insurance because

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

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

What kind of Accidental Death and Dismemberment (AD&D) insurance beneficiary requires his/her consent when a change of beneficiary is made?

Irrevocable designation may not be changed without the written consent of the beneficiary

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

Legal reserve agents

Which of the following is NOT a limited benefit plan?

Life insurance policy Limited benefit plan could include dental, critical illness and cancer policy

Which of these is an element of a Single Premium annuity?

Lump-sum payment

During a sales presentation for a participating life insurance policy, an agent MUST

Make a prospect understand that dividends are NOT guaranteed

Which of the following claims are typically excluded from Medical expense policies?

Medical expense policies usually EXCLUDE coverage for claims resulting from treatment of intentionally self-inflicted injuries

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

Which Unfair Trade Practice involves an agent telling a prospective client that a policy's dividends are guaranteed?

Misrepresentation - An agent who tells a client that dividends are guaranteed may be guilty of misrepresentation

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

Modified Whole Life An agent must have proper FINRA securities registration to sell all of these products EXCEPT Modified Whole Life

What type of renewability guarantees premium rates and renewability?

Noncancellable policies provides guaranteed renewability and premium rates

Which of the following BEST describes a short-term medical expense policy?

Nonrenewable A typical short-term medical expense policy is best described as nonrenewable

Whole Life insurance policies are contractually guaranteed to provide each of the following EXCEPT:

Partial withdrawal features beyond a surrender charge period (to provide: cash value that will ultimately replace the death benefit, nonforfeiture benefit options, premiums that remain fixed for the life of the policy)

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

Who benefits in Investor-Originated Life Insurance (IOLI) when the insured dies?

Policyowner benefits upon the death of the insured

Which of these options can an individual use their medical flexible spending account to pay for?

Prescription drugs

The individual who provides general medical care for a patient as well as the referral for specialized care is known as a:

Primary care physician

What must the policyowner provide to the insurer for validation that a loss has occurred?

Proof of Loss statements must be provided to an insurance company to show that a loss actually occurred

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

Reduced Paid-up

T is covered by an Accidental Death and Dismemberment (AD&D) policy that has an irrevocable beneficiary. What action will the insurance company take if T requests a change of beneficiary?

Request of the change will be refused. An irrevocable designation may not be changed without the written consent of the beneficiary

Which factors are taken into consideration when an insurance company determines the premium rate for a Whole Life policy on an applicant?

Risk classification

Which of these is NOT an example of doing insurance business?

Selling shares of stock All of these are examples of doing insurance business EXCEPT selling shares of stock (receiving insurance application, collecting insurance premium, delivering an insurance policy)

Upon delivery of a rated life insurance policy, the Producer must obtain each of the following EXCEPT

Signed HIPAA disclosure - The HIPAA disclosure should be taken at the time of sale with the application

The percentage of an individual's Primary Insurance Amount (PIA) determines the benefits paid in which of the following programs?

Social Security Disability Income pays benefits that are based on a percentage of an individual's primary insurance amount (PIA)

An individual Disability Income insurance applicant may be required to submit all of the following information, EXCEPT

Spouse's occupation

Which of the following BEST describes a warranty?

Statement guaranteed to be true

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

Straight life insurance policies provide an insured the greatest amount of permanent protection per dollar of annual premium

In Texas, which of these statements regarding the Suicide clause is TRUE?

Suicide may not be a defense against payment after the second year

Which of the following statements about accumulated interest earned on dividends from an insurance policy is TRUE?

Taxed as ordinary income - Accumulated interest earned on dividends from an insurance policy is taxed as ordinary income

Which of the following statements is CORRECT about an agent who is taking an insurance application?

The agent should have the applicant initial any changes made on the application

Which statement regarding a Key Employee Life policy is NOT true?

The beneficiary is named by the key employee

K is an agent who takes an application for individual life insurance and accepts a check from the client. He submits the application and check to the insurance company, however the check was never signed by the applicant. If the application is approved, when will coverage be effective?

The date the agent delivered the policy, collected the initial premium and obtained a good health statement from the insured

Which statement is TRUE regarding a group accident and health policy issued to an employer?

The employer receives the policy and each employee is issued a certificate. With a group accident and health plan, a master policy is issued to the employer and each employee receives a certificate of insurance.

J, an Accidental Death and Dismemberment (AD&D) policy holder, dies after injuries sustained in an accident. J's age as stated on the application five years ago was found to be understated by ten years. Which of the following actions will the insurance company take?

The insurer will adjust the benefit to what the premiums paid would have purchased at the insured's actual age - In this situation the insurance company will adjust the death benefit to what the premium paid would have purchased at the insured's actual age

Which statement regarding the Change of Beneficiary provision is true?

The policyowner can change the beneficiary. However, consent may be needed by the current beneficiary if designated as irrevocable

A Medicare Supplement policy may be cancelled for which of the following reasons?

The premium has not been paid by the insured - failing to pay the premium would cause a Medicare Supplement policy to be cancelled

Whole Life insurance is sometimes referred to as "Straight Life". What does the word "Straight" indicate when using this phrase?

The word "straight" denotes the duration of premium payments, usually for the rest of the owner's life

The Common Disaster clause provides that if both the insured and the sole named beneficiary were to die in a common accident, which of the following is true?

This clause provides the payment of proceeds to the insured's estate The Common Disaster clause provides that in the event of simultaneous death, the beneficiary is presumed to die first and therefore the contingent beneficiary would be next in line for proceeds. If no contingent beneficiary, then the proceeds would be paid to the insured's estate.

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

The phrase "transacting business" includes

Under Texas insurance law, the term "transacting business" includes collecting premiums

How long does an insurance company remain in force?

Until terminated or withdrawn

Which of the following BEST describes how pre-admission certification is used?

Used to prevent nonessential medical costs

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

Usual, customary and reasonable expenses - The insurance phrase which considers a particular fee charged by a physician or other health professional is usual, customary and reasonable expenses

The provision in a Group Health policy that allows the insurer to postpone coverage for a covered illness 30 days after the policy's effective date is referred to as the:

Waiting period

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

Waiver of Premium rider

Disability policies do NOT normally pay for disabilities arising from which of the following?

War

At what point does an informal contract become binding?

When one party makes an offer and the other party accepts that offer

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

If an individual is covered under an Accidental Death Policy and dies, an autopsy can be performed in all these situations, EXCEPT:

When the state prohibits this by law. Applicable state laws that prevent an autopsy take precedence

All students attending a large university could be covered by

a blanket policy Blanket health insurance is issued to cover a group who may be exposed to the same risks, but the composition of the group (the individuals within the group) are constantly changing

In order to establish a Health Reimbursement Arrangement (HRA), it MUST:

be established by the employer

Variable Whole Life insurance can be described as

both an insurance and securities product

All individuals covered under a group contract will receive a(n):

certificate

When an insurer issues a policy that refuses to cover certain risks, this is referred to as a(n):

exclusion

An insurance company organized under New York laws and licensed to do business in Texas is considered a(n)

foreign company

Under a individual Health Insurance policy, the Time Limit of Certain Defenses provision states that non-fraudulent misstatements first become incontestable two years...

from the date that the policy was issued - Under the Time Limit of Certain Defenses provision in an Individual Health Insurance Policy, nonfraudulent misstatements first become incontestable two years from the date of the policy was issued

Basic Medical Expense insurance:

has lower benefit limits than Major Medical insurance

In order for coverage on a non-medical insurance application to take effect the same day, the producer must collect a signed application and

initial premium - coverage begins on the day in which the producer collects the initial premium and has the applicant sign the life insurance contract

Who makes the legally enforceable promises in a unilateral insurance contract?

insurance company

Credit Life insurance is

insurance issued on a debtor to cover outstanding loan balances

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

is found guilty of misrepresentation in obtaining the license

A domestic insurance company in Texas is considered a company that

is incorporated and formed in Texas

Pre-hospitalization authorization is considered an example of

managed care - pre-hospitalization authorization is the insurer's approval of an insured entering a hospital. Many health policies require this as part of an effort to manage costs.

The Notice of Claims provision requires a policyowner to:

notify an insurer of a claim within a specified time - The Notice of Claims provision spells out the insured's duty to provide the insurer with reasonable notice in the event of a loss

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

off-the-job accident

An insurance agent has a fiduciary responsibility to all of the following EXCEPT

other agents

A major medical policy typically:

provides benefits for reasonable and necessary medical expenses, subject to policy limits

An example of rebating would be:

returning a portion of a premium as inducement to purchase insurance

With Optionally Renewable Health policies, the insurer may:

review the policy annually and determine whether or not to renew it

To terminate an agent's appointment, an insurance company must

send termination notice to the Texas Department of Insurance

Who is liable when an insured suffers a loss on a policy sold by an agent through an insurer not authorized to conduct business in Texas?

the agent and the company - any agent that sells an insurance policy for an unauthorized insurer runs the risk of being responsible for unpaid claims if the unauthorized insurer does not pay

Under a Graded Premium Whole Life policy,

the premium increases each year during the early years of the contract and remains the same after that time. With a graded premium whole life policy, the premium increases each year during the early years of contract (usually five years) and remains the same after that time.

An example of an unfair claims settlement practice is

turning down a claim without providing the basis of denial under the policy is considered an unfair claim settlement practice

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 Boycott, coercion, and intimidation that result in the unreasonable restraint of trade are prohibited under the Texas Insurance Code covering unfair methods of competition

A foreign insurance company conducting insurance business in Texas

was formed under the laws of another state

What does a Guaranteed Insurability rider provide a Disability Income policyowner?

A Guaranteed Insurability rider allows the insured to periodically increase the amount of benefits payable under the policy

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 months If a pre-existing condition waiting period applies, the policy must not exclude coverage for any pre-existing conditions that occurred more than 6 months prior to the effective date of coverage. These conditions cannot be excluded beyond 6 months after the policy is issued.

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

31 days

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

31 days

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 additional charge because the company will have additional charges in billing and collecting the premium payments

When a policyowner cash surrenders a Universal Life insurance policy in it's early years, this may be considered a red flag for a(n):

Anti-money laundering violation

Any changes made on an insurance application requires the initials of whom?

Applicant - When an applicant makes a mistake in the information given to an agent in completing the application, the applicant can have the agent correct the information, but the applicant must initial the correction.

What type of policy would only provide coverage for specific types of illnesses (cancer, stroke, etc)?

Dread disease insurance - provides benefits for ONLY specific types of illnesses such as cancer or stroke

"A producer does not have the authority to change a policy or waive any of its provisions". The health provision that best describes this statement is called the

Entire Contract The entire contract provision states that the producer does NOT have the authority to change the policy or waive any of its provisions

What provision in a life insurance policy states that the application is considered part of the contract?

Entire contract provision - found at the beginning of the policy, states that the policy document, the application (which is attached to the policy) and any attached riders constitute the entire contract

Which of these statements about a Guaranteed Insurability Option rider is FALSE?

Evidence of insurability is required when the option is exercised

T owns an Accident & Health policy and notifies her insurance company that she has chosen a less hazardous occupation. Under the Change of Occupation provision, which of the following actions may her insurance company take?

Increase her policy's coverage amount - Under the Change of Occupation provision in an Accident & Health policy, if the insured notifies the insurance company of a less hazardous occupation, the insurance company may increase the policy's coverage.

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

Individuals who are related by blood A group life insurance policy may NOT insure groups consisting exclusively of persons who are related by marriage, blood or legal adoptions

What is the initial requirement for an insured to become eligible for benefits under the Waiver of Premium provision?

Insured must be under a physician's care Under Waiver of Premium, which is a rider that will pay your premium while you're disabled, you must have a doctor certify that you meet the definition of disability as contained in the rider

What is the purpose of a Policy Summary?

It highlights the critical parts of the policy issued

According to the Time Payment of Claims provision, the insurer must pay Disability Income benefits no less frequently than which of the following options?

Monthly The time of payment for claims is usually specified in different policies as 60 days, 45 days or 30 days. However, if the claim involves disability income benefits, the benefits must be paid not less frequently than monthly

When an insurance company sends a policy to the insured with an attached application, the element that makes the application part of the contract between the insured and the insurer is called the

The entire contract provision states that the application and policy contain all provisions and constitute the entire contract.

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. On delivery of a policy, a signed statement of good health is typically requested if the application was submitted without the initial premium

T files a claim on his Accident and Health policy after being treated for an illness. The insurance company believes that T misrepresented his actual health on the initial insurance application and is, therefore, disputing the claim's validity. The provision that limits the time period during which the company may dispute a claim's validity is called

Time limit on certain defenses (incontestability) provision limits the time during which the insurance company may challenge the validity of an insurance claim on the basis of a misstatement made on the insured's application

Why would the Insurance Commissioner examine the records of an insurance company?

To determine the solvency of the company The Insurance Commissioner may examine the records of an insurance company in order to determine the solvency of the company

What is the suicide provision designed to do?

To protect the insurer against the purchase of a policy in contemplation of suicide

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