Florida 2-15 Insurance

If a life insurance applicant is given a binding receipt, when does the applicant's coverage become effective? A. the date the policy is issued B. the date the applicant proves to be insurable C. the date the receipt is given D. the date the policy is delivered

C. Under a binding receipt (or temporary insurance agreement), coverage is guaranteed at the time of application for the amount of insurance applied for. The temporary coverage continues until the policy is issued as requested, until the company offers a different policy or until the company rejects the application, but in no event for more than 60 days from the date the agreement was signed.

A basic surgical expense policy that covers surgeon's fees per a schedule approach A. bases its benefits on what is customary for a particular area B. assigns a set of points to each surgical procedure C. assigns a dollar amount to each surgical procedure D. bases its benefits on a percentage of hospital room and board expenses

C. Under the surgical schedule method, every surgical procedure is assigned a dollar amount by the insurer. When a claim is submitted to the insurer, the claims examiner reviews the policy to determine what amount is payable; if the surgeon's bill is more than the allowed charge set by the insurer, it is up to the insured to pay the surgeon the difference. If the surgeon's bill is less than the allowed charge, the insurer will pay only the full amount billed; the claim payment will never exceed the amount charged.

A universal life policy expires when A. an outstanding loan equals the death benefit B. a regularly scheduled premium payment is missed C. the cash value becomes too small to pay the cost of insurance D. the cash value equals the death benefit

C. Universal life premiums are flexible and deposited into the policy cash value account along with interest credited by the insurer. Increasing monthly mortality charges are deducted from the cash value account. If the cash value account is insufficient to pay the monthly mortality charges at any point, the policy lapses.

Which of the following statements regarding policy assignments is CORRECT? A. the policyowner must notify the insurer of the assignment and receive the insurer's permission B. the procedure required for policy assignment is explained in the policy's insuring clause C. a policy that has named an irrevocable beneficiary cannot be assigned without that beneficiary's agreement D. insurable interest must exist between the insured and the assignee at the time of assignment

C. When beneficiaries are designated irrevocable, the policyowner gives up the right to change them. Irrevocable beneficiaries have a vested right in the policy, and the policyowner cannot exercise rights of ownership without the beneficiary's consent.

Beth's health insurance policy contains a provision that allows her to renew coverage up to age 65. However, the policy also states that should Beth lose her job, the insurance company will cancel the policy, regardless of Beth's age. In terms of renewability, what type of policy does Beth have? A. cancelable B. optionally renewable C. guaranteed renewable D. conditionally renewable

D. A conditionally renewable policy allows an insurer to terminate the coverage, but only in the event of one or more conditions stated in the contract. These conditions cannot apply to the insured's health. Most frequently, they are related to the insured reaching a certain age or losing gainful employment.

Basic surgical expense policies generally provide coverage for all of the following EXCEPT A. anesthesiologist services B. surgeon services C. postoperative care D. miscellaneous expenses, such as lab fees and x-rays

D. Miscellaneous expenses are covered under basic hospital expense policies. These "extras" include drugs, x-rays, anesthesia, lab fees, dressings, use of the operating room, and supplies.

John stopped paying premiums on his permanent life insurance policy 8 years ago though he never surrendered it. He is still insurable and has no outstanding loan against the policy. The company probably will decline to reinstate the policy because the time limit for reinstatement has expired. The limit usually is A. 6 months B. 1 year C. 2 years D. 3 years or as long as 7 years

D. There is a limited period of time in which policies may be reinstated after lapse. This period is usually 3 years, but may be as long as 7 years, in some cases.

Statements made by an applicant for life insurance that are guaranteed to be true are A. warranties B. material statements C. representations D. declarations

A. A warranty in insurance is a statement made by the applicant that is guaranteed to be true. It becomes part of the contract and, if found to be untrue, can be grounds for revoking the contract. Warranties are presumed to be material because they affect the insurer's decision to accept or reject an applicant.

Harry, the owner of a convenience store, is the insured under a business overhead policy. Were Harry to become disabled, the policy would cover all of the following EXCEPT A. Harry's salary B. the store manager's salary C. the rent D. utility bills

A. Business overhead expense policies do not include any compensation for the disabled owner.

All of the following are mandatory health insurance policy provisions EXCEPT A. change of occupation B. entire contract C. grace period D. reinstatement

A. Change of occupation is an optional provision.

What constitutes "consideration" for a life insurance policy? A. application and initial premium B. agent's commission C. adhesion feature of the contract D. policy's benefits

A. Consideration is the value given in exchange for the promises sought. In an insurance contract, consideration is given by the applicant in exchange for the insurer's promise to pay benefits, and it consists of the application and the initial premium.

When a group disability insurance plan is paid entirely by the employer, benefits paid to disabled employees are A. taxable income to the employee B. deductible income to the employee C. deductible business expenses to the employer D. taxable income to the employer

A. Disability benefit payments that are attributed to employee contributions are not taxable, but benefit payments that are attributed to employer contributions are taxable.

Which of the following types of agent authority is specifically set forth in writing in the agent's contract? A. express B. implied C. apparent D. personal

A. Express authority is the authority a principal gives to its agent. Express authority is granted by means of the agent's contract, which is the principal's appointment of the agent to act on its behalf.

Regular notices sent to policyowners for payment of their life insurance policy premiums reflect A. gross premium B. net level premium C. net single premium D. none of the above

A. Gross premium equals net single premium plus expense. The gross premium is what the policyowners are required to pay.

Health maintenance organizations are known for stressing the provision of A. preventative care B. health care and services on a fee-for-services-rendered basis C. health care and services in hospital settings D. health care and services to government employees

A. HMOs stress preventative care to reduce the number of unnecessary hospital admissions and duplication of services.

Which of the following risks is insurable? A. pure risks B. gambling C. speculative risks D. investing

A. Only pure risks are insurable because they involve only the chance of loss. They are pure in the sense that they do not mix both profits and losses. Insurance is concerned with the economic problems created by pure risks.

Paul is hospitalized with a back injury and, upon checking his disability income policy, learns that he will not be eligible for benefits for at least 60 days. This would indicate that his policy probably has a 60-day A. elimination period B. probationary period C. disability period D. blackout period

A. Similar in concept to a deductible, the elimination period is the time immediately following the start of a disability when benefits are not payable.

All of the following benefits are available under Social Security EXCEPT A. welfare benefits B. death benefits C. old-age or retirement benefits D. disability benefits

A. Social Security provides death benefits, old-age or retirement benefits, and disability benefits to eligible workers. Social Security is an entitlement program, not a welfare program.

To whom does the cash value of a life insurance policy belong? A. policyowner B. insured C. insurer D. beneficiary

A. The accumulation that builds over the life of a policy is called the "cash value," and it belongs to the policyowner, who may or may not be the insured.

The period of time immediately following a disability during which benefits are not payable is A. the elimination period B. the probationary period C. the residual period D. the short-term disability period

A. The elimination period is the time immediately following the start of a disability when benefits are not payable. Elimination periods eliminate claims for short-term disabilities for which the insured can usually manage without financial hardship and save the insurance company from the expense of processing and settling small claims.

At what point does a whole life policy mature or endow? A. when the policy's cash value equals the face amount B. when premiums paid equal the policy's face amount C. when premiums paid equal the policy's cash value D. when the policy's cash value equals the loan amount

A. Whole life insurance is designed to mature at age 100. At age 100, the cash value of the policy has accumulated to the point that it equals the face amount of the policy, as it was actually designed to do. At that point, the policy has completely matured or endowed. No more premiums are owed; the policy is completely paid up.

Leonard owns a major medical health policy which requires him to pay the first $200 of covered expenses each year before the policy pays its benefits. The $200 is the policy's A. coinsurance amount B. deductible C. stop-loss amount D. annual premium

B. A deductible is a stated initial dollar amount that the individual insured is required to pay before the insurance benefits are paid.

When an insured dies, who stands first to receive the policy's proceeds? A. policyowner B. primary beneficiary C. insured's creditors D. insured's estate

B. A primary beneficiary is the party designated to receive the proceeds of a life insurance policy when they become payable.

Mr. Ritchie, a taxidermist, is insured under a business overhead expense policy that pays maximum monthly benefits of $2,000. Mr. Ritchie becomes disabled. His actual monthly expenses are $2,700. The monthly benefit payable under his policy will be A. $1,300 B. $2,000 C. $2,350 D. $2,700

B. Business overhead expense insurance reimburses business for the covered expenses incurred or the maximum that is stated in the policy. If Mr. Ritchie's monthly expenses were $1,700, his plan would have paid a monthly benefit of $1,700. However, because Mr. Ritchie's expenses exceeded his maximum coverage, the policy pays the maximum benefit stated in the policy, $2,000.

Ron, the insured, dies during the grace period for his $100,000 life insurance policy. Considering that the premium on the policy has not been paid, what happens? A. the premium is canceled because the insured died during the grace period B. the amount of the premium is deducted from the policy proceeds paid to the beneficiary C. the premium due, plus a 10% penalty, is charged against the policy D. The beneficiary must pay the premium after the death claim is paid

B. If the premium of a policy has not been paid and the insured dies during the grace period, the policy benefit is payable. However, the premium amount due is deducted from the benefits paid to the beneficiary.

Bill's medical expense policy states that it will pay him a flat $50 a day for each day he is hospitalized. The policy pays benefits based on which basis? A. reimbursement B. indemnity C. service D. partial

B. Indemnity medical expense policies do not pay expenses or bills; they merely provide the insured with a stated benefit amount for each day the insured is confined to a hospital as an in-patient. The money may be used by the insured for any purpose.

Which of the following constitutes an insurable interest? A. the policyowner must expect to benefit from the insured's death B. the policyowner must expect to suffer a loss when the insured dies or becomes disabled C. the beneficiary, by definition, has an insurable interest in the insured D. the insured must have a personal or business relationship with the beneficiary

B. Insurable interest requires the policyowner to benefit from the insured's continuing to live or enjoy good health or to suffer a loss when the insured dies or is disabled.

Which of the following legal terms indicates that a life insurance contract contains the enforceable promises of only one party? A. adhesion B. unilateral C. conditional D. aleatory

B. Insurance contracts are unilateral in that only one party - the insurer - makes any kind of enforceable promise.

Medicaid provides A. funds to states for the provision of medical care to the aged B. funds to states to assist their medical public assistance programs C. funds to charitable organizations for providing medical benefits to poor people D. medical benefits to those who contributed to Medicare funding through payroll taxes

B. Medicaid provides matching federal funds to states for their medical public assistance programs to help needy persons, regardless of age.

All of the following statements about Medicare supplement (Medigap) policies are correct EXCEPT A. Medigap policies supplement Medicare benefits B. Medigap policies cover the cost of extended nursing home care C. Medigap policies pay most, if not all, Medicare deductibles and copayments D. Medigap policies pay for some health care services not covered by Medicare

B. Medigap policies do not cover the cost of extended nursing home care.

Individual health insurance policies are typically written on which basis? A. participating B. nonparticipating C. experience-rated D. claims-related

B. Most individual health insurance is issued on a nonparticipating basis

All of the following statements regarding assignment of a life insurance policy are correct EXCEPT A. to secure a loan, the policy can be transferred temporarily to the lender as security for the loan B. the policyowner must obtain approval from the insurance company before a policy can be assigned C. the life insurance company assume no responsibility for the validity of an assignment D. the life insurance company must be notified in writing by the policyowner of any new assignment

B. Policyowners actually own their policies and may do with them as they please. They can even give them away, just as they can give away any other kind of property they own. Nevertheless, they must notify the insurance company in writing of any transfers of ownership (assignments). The company must then accept the validity of the assignments without question.

in which of the following situations would the premium payor of a life insurance policy be able to deduct the premium payments for tax purposes? A. Joe, the sole proprietor of a grocery store, purchases and pays premiums on a $75,000 term life policy on his life and names his wife as beneficiary B. Leland, a local board member of the United Way, assigns his $25,000 whole life policy to that organization, but continues to make the premium payments C. Michelle, the legal guardian of 5-year-old Angela, makes the premium payments on Angela's $5,000 juvenile life insurance policy D. Bob takes over the premium payments on his son's $30,000 whole life policy after his son declares bankruptcy

B. Premiums paid for life insurance owned by a qualified charitable organization are deductible.

Which of the following best describes the function of insurance? A. it is a form of legalized gambling. B. it spreads financial risk over a large group to minimize the loss to any one individual C. it protects against living too long D. it creates and protects risks

B. The function of insurance is to safeguard against financial loss by having the losses of few paid by the contributions of many who are exposed to the same risk.

On August 1, Roger completed an application for a major medical policy, gave his agent a check for the initial premium, and received an insurability receipt from the agent. No medical examination was required. On August 3, the agent submitted Roger's application and premium to the insurance company. On August 6, Roger was involved in an accident and admitted to a hospital. On August 12, the agent received Roger's policy from the insurance company. Which of the following statements concerning this situation is CORRECT? A. Roger's coverage will begin when he receives the policy from the agent B. Roger's coverage began when he received the insurability receipt C. Roger's coverage began the day the insurance company received the application and premium from the agent D. Roger's coverage began the day the agent sent the application and premium to the insurance company

B. The insurability type of conditional receipt provides that when an appllicant pays the initial premium, coverage is effective - on the condition that the applicant proves to be insurable - either on the date the application was signed or the date of the medical examination, if one was required.

The time of payment of claims provision requires that A. claims must be paid after the insurer is notified of a loss B. claims must be paid after the insurer is notified and receives a proof of loss C. the insured must submit proof of loss within a specified time, or the claim may be denied D. the insured must periodically submit proof of loss in order to receive the claim

B. The time of payment of claims provision provides for immediate payment of the claim after the insurer receives notification and proof of loss.

All of the following approaches are used by insurers to determine benefits payable under basic surgical expense insurance EXCEPT A. relative value scale approach B. traditional net cost method C. reasonable and customary approach D. surgical schedule method

B. The traditional net cost method is a way of comparing costs of similar policies.

Alice has a major medical policy with a $500 deductible and an 80/20 coinsurance provision. If she receives a hospital bill for $7,500 of covered expenses, how much of that bill will she have to pay? A. $1,400 B. $1,900 C. $2,000 D. $2,400

B. Total expenses $7,500 Deductible Alice pays - 500 _______ Basis for insurer's payment $7,000 x .80 ________ Amount insurer pays $5,600 Coinsurance amount Alice pays $1,400 Deductible + 500 ________ Total Alice pays $1,900

All of the following statements are true of preferred provider organizations EXCEPT A a PPO is a group of health care providers, such as doctors, hospitals, and ambulatory health care organizations, that contract with a group to provide their services B. PPOs operate on a prepaid basis C. PPO members selet from among the preferred providers for needed services D. groups that contract with PPOs are employees, insurance companies, or other health insurance benefits providers

B. Unlike HMOs, preferred provider organizations usually operate on a fee-for-service-rendered basis, not on a prepaid basis.

Which of the following statements regarding morbidity tables is CORRECT? A. they indicate the average number of individuals from a given group who will die in a given year B. they indicate the average number of individuals from a given group who will become disabled C. they indicate the number of males and females from a given group who will die in a given year D. they indicate the number of males and females from a given group who will become disabled in a given year

B. Whereas mortality rates show the average number of persons within a larger group of people who can be expected to die within a given year at a given age, morbidity tables indicate the average number of individuals at various ages who can be expected to become disabled each year due to accident or sickness. They also reveal the average duration of disability.

Major risk factors in health insurance underwriting include all of the following ECEPT A. physical condition B. habits or lifestyle C. marital status D. occupation

C. Physical condition, habits or lifestyle (moral hazards), and occupation are major risk factors in health insurance. Marital status is not a risk factor.

Jerry has just purchased a life insurance policy and is taking time to review the policy's provisions. He will find that his policy excludes death by all of the following means EXCEPT A. suicide B. accident C. aviation D. war

B. Most life insurance policies exclude the following risks: war, aviation, hazardous occupation or hobbies, commission of a felony, and suicide.

Who designates the beneficiary of a life insurance policy? A. insured B. policyowner C. underwriter D. fiduciary

B. One of the rights of owning a life insurance policy is the right to designate and change the beneficiary of the policy proceeds.

The amount of money an insurer sets aside to pay future claims is called A. a premium B. a reserve C. a dividend D. an accumulated interest

B. Reserves can be defined as the amounts that are set aside to fulfill the insurance company's obligation to pay future claims. The reserve is compiled from past premium payments and interest.

All of the following statements correctly describe the purpose of Social Security EXCEPT A. to provide basic protection against financial problems accompanying death, disability, and retirement B. to augment a sound personal insurance plan C. to provide a source of income for a meaningful standard of living D. to protect workers, their spouses, and dependent children

C. The purpose of the Social Security system is to provide a basic floor of protection to augment - not protect - a sound personal insurance plan. Many expect Social Security to fulfill all their financial needs and to provide a meaningful standard of living. The consequences of this misunderstanding have been disillusionment by many Americans who found they were inadequately covered when they needed life insurance, disability income, or retirement income.

The minimum number of persons to be insured under a group health insurance plan is established by A. the NAIC B. state law C. federal law D. the employer

B. State laws specify the minimum number of persons to be covered under a group policy. One state may stipulate 15 persons as a minimum number, while another state may require a minimum number of 10. (The most typical minimum requirement is 10 lives.)

Bill names his church as the beneficiary of his $300,000 life insurance policy. When Bill dies, who is responsible for the income taxes payable on the lump-sum proceeds received by the church? A. Bill's estate is responsible B. Bill's church is responsible C. No income tax is payable on the death proceeds D. Bill's estate and Bill's church split the tax

C. Lump-sum proceeds payable upon the death of the insured are not subject to income tax, no matter who the beneficiary is.

All statements made by an applicant in an application for life insurance are considered to be A. warranties B. affirmations C. representations D. declarations

C. Most states require that life insurance policies contain a provision that all statements made in application be deemed representation not warranties. A representation is a statement made by the applicant that the applicant believes to be true. A warranty is a statement made by the applicant that is guaranteed to be true. If an insurance company rejects a claim on the basis of a representation, the company bears the burden of proving materiality.

All of the following are elements of an insurable risk EXCEPT A. the loss must be due to chance B. the loss must be predictable C. the loss must be catastrophic D. the loss must have a determinable value

C. One of the criteria for an insurable risk is that it NOT be catastrophic. A principle of insurance holds that only a small portion of a given group will experience loss at any one time. Risks that would adversely affect large numbers of people or large amounts of property - wars or floods, for example - are typically not insurable.

Basic hospital expense insurance provides coverage for all of the following EXCEPT A. hospital room and board B. anesthesia and use of the operating room and supplies C. physician services D. drugs and x-rays

C. Physicians' services are not covered under a basic hospital expense policy, even in the case of surgery. The cost for a physician is covered under a basic surgical expense or basic physician's (nonsurgical) expense policy.

Which provision of a life insurance policy states that the application is part of the contract? A. consideration clause B. insuring clause C. entire contract clause D. incontestable clause

C. The entire contract clause states that the policy document; the application, which is attached to the policy; and any attached riders constitute the entire contract. The policy cannot refer to any outside documents as being part of the contract.

All of the following are primary health insurance premium factors EXCEPT A. interest B. expense C. policy benefits D. morbidity

C. There are three primary factors that affect health insurance premiums: morbidity, interest, and expenses.

Each of the following statements about the incontestable clause in a life insurance policy is correct EXCEPT A. the clause gives people assurance that when their policies become claims, they will be paid without delays or protest B. the incontestable clause means that after a certain period, an insurer cannot refuse to pay the proceeds of a policy or void the contract C. incontestable clauses usually become effective from the issue date of the policy D. insurers can void a contract even after the specified period provided they can prove the policy was purchased fraudulently

D. After the policy has been in force for the specified period, the company cannot contest a death claim or refuse payment of the proceeds even on the basis of a material misstatement, concealment, or fraud.

A retirement plan that is not employer-sponsored allows single workers who earn up to $25,000 a year to contribute up to $5,000 every year and deduct the contribution from their taxes. The plan described is A. a 401(k) plan B. a SEP plan C. an HR-10 plan D. an IRA plan

D. Anyone under the age of 70 1/2 who has earned income may open an IRA and contribute each year an amount up to $5,000 or 100% of compensation, whichever is less. Contributions grow tax free until they are withdrawn.

By most insurers' definitions, "partial disability" is A. the loss of one or more limbs B. the ability of a disabled insured to work at any job for which the insured is reasonably suited C. the inability of the insured to work at the insured's own job D. the inability of the insured to perform certain important duties of the insured's own job

D. By most definitions, partial disability is the inability of the insured to perform one or more important duties of the insured's job.

Which of the following would NOT apply when a life insurance policy is reinstated after a lapse? A. all back premiums must be paid B. all outstanding loans must be paid C. a new contestable period goes into effect D. a new suicide exclusion period goes into effect

D. There is no new suicide exclusion period when a policy is reinstated.

A stop-loss feature in a major medical policy specifies the maximum A. benefit amount the policy provides each year B. benefit amount the policy provides in a lifetime C. amount the insured must pay in premiums D. amount the insured must pay toward covered expenses

D. To provide a safeguard for insureds, many major medical policies contain a stop-loss feature that limits the insured's out-of-pocket expenses. This means that once the insured has paid a specified amount toward the insured's covered expenses - usually $1,000 to $2,000 - the company pays 100% of covered expenses after that point.

Who performs the function of risk selection in determining an individual's insurability for policy issue? A. actuary B. agent C. fiduciary D underwriter

D. Who is qualified to purchase life insurance and who is not? The process of answering this question is called risk selection, a function that is performed by insurance company underwriters.

Workers' compensation covers income loss resulting from A. work-related disabilities B. plant and office closings C. job layoffs D. job terminations

A. All states have workers' compensation laws, which were enacted to provide mandatory benefits to employees for work-related injuries, illness, or death.

A licensed agent legally represents A. the insurer B. the applicant/insured C. the state insurance department D. himself or herself

A. An agent is an individual who has been authorized by an insurer to be its representative to the public and to offer for sale its goods and services.

A life insurance company is organized in Orlando where it maintains its home office. In Florida, the company is classified as A. a domestic company B. a local company C. a foreign company D. a preferred company

A. An insurer is termed "domestic" in a state when it is incorporated in that state.

Frank is the insured in a $40,000, 5-year level term policy issued in 2003. He died in 2009. His beneficiary received A. nothing B. $20,000 C. $40,000 D. the cash value of the policy

A. In this case, the insured died after his term policy had expired. As a result, his beneficiary received nothing.

Leland elects to surrender his whole life policy for a reduced paid-up policy. The cash value of his new policy will A. continue to increase B. decrease gradually C. remain the same as in the old policy D. decrease by 50% immediately

A. When Leland surrenders his whole life policy for a reduced paid-up policy, the face value is reduced but the cash value continues to increase.

All of the following statements pertaining to reinstatement of a life insurance policy are correct EXCEPT A. a suicide exclusion period is renewed with a reinstated policy B. when reinstating a policy, the insurer may charge the policyowner for past due premiums C. when reinstating a policy, the insurer may charge the policyowner for interest on past due premiums D. a new contestable period usually becomes effective in a reinstated policy

A. When reinstating a life policy, no new suicide exclusion period goes into effect.

Buying insurance is one of the most effective ways of A. avoiding risk B. transferring risk C. reducing risk D. retaining risk

B. Buying insurance is one of the most effective ways of transferring risk. Through the insurance contract, the burden of carrying the risk and indemnifying the financial loss is transferred from the individual to the insurance company.

Which of the following factors determines whether policy dividends will be paid on a participating policy? A. reserves and experience B. expenses and claims costs C. interest and benefits D. premiums and renewability

B. If expenses and claims costs are less than expected, dividends are likely to be paid.

Mrs. Williamson purchases a five year, $50,000 term policy with an option to renew. Which of the following statements about the policy's renewability is CORRECT A. the premium for the renewal period will be the same as the initial period B. the premium for the renewal period will be higher than the initial period C. the premium for the renewal period will be the same as the initial period, but a one-time service charge will be assessed upon renewal D. the premium for the renewal period will be lower than the initial period

B. Premiums for the renewal period will be higher because of the insured's advanced age and, thus, increased risk.

After a family's breadwinner dies, the "blackout period" generally can be defined as the period A. during which children are living at home B. that begins when the youngest child turns 16 and ends when the surviving parent retires C. during which children are in school D. from the surviving parent's retirement to death

B. The "blackout period" is the time during which no Social Security benefits are payable to a surviving spouse. This period begins when the youngest child reaches age 16 and continues until the spouse retires.

All of the following are characteristics of group health insurance plans EXCEPT A. their benefits are more extensive than those under individual plans B. the parties to a group health contract are the employer and the employees C. employers may require employees to contribute to the premium payments D. the cost of insuring an individual is less than what would be charged for comparable benefits under an individual plan

B. The contract for coverage is between the insurance company and the employer, and a master policy is issued to the employer.

Joanna and her husband, Tom, have a $40,000 annuity that pays them $200 a month. Tom dies and Joanna continues receiving the $200 monthly check as long as she lives. When Joanna dies, the company ceases payment. This is an example of A. an installment refund annuity B. a joint and full survivor annuity C. a life annuity D. a cash refund annuity

B. The joint and full survivor option provides for payment of the annuity for two people. If either person dies, the same income payments continue to the survivor for life. When the surviving annuitant dies, no further payments are made to anyone.

Which renewability provision allows an insurer to terminate a health insurance policy on any date specified in the policy and to increase the premium for any class of insureds? A. conditionally renewable B. optionally renewable C. guaranteed renewable D. cancelable

B. The renewability provision in an optionally renewable policy gives the insurer the option to terminate the policy on the date specified in the contract. Furthermore, this provision allows the insurer to increase the premium for any class of optionally renewable insureds.

With regard to insurable risks, which of the following statements is NOT correct? A. only pure risks are insurable B. an insurable risk must involve loss that is within the insured's control C. insurers will not insure risks that are catastrophic in nature D. an insurable risk must be measurable

B. To be insurable, a risk must involve the chance of loss that is fortuitous and outside the insured's control.

Kevin, the insured in a $200,000 life insurance policy, and his sole beneficiary, Lynda, are killed instantly in a car accident. Under the Uniform Simultaneous Death Act, to whose estate will the policy proceeds be paid? A. the policy proceeds will be paid to Lynda's estate. B. The policy proceeds will be paid to Kevin's estate C. the policy proceeds will be paid equally to both Kevin's and Lynda's estate D. the proceeds will escheat to the state

B. Under the Uniform Simultaneous Death Act, if the insured and the primary beneficiary are killed in the same accident and there is not sufficient evidence to show who died first, the policy proceeds are to be distributed as if the insured died last. Kevin's estate would receive the proceeds because Lynda, the beneficiary, was deemed to have predeceased Kevin, and no other beneficiary was named.

Under the notice of claims provision of a health insurance policy, a policyowner must provide notification of loss within a reasonable period of time, usually A. 10 days after an occurrence or commencement of a loss B. 20 days after an occurrence or a commencement of a loss C. 1 month after an occurrence or a commencement of a loss D. no later than 3 months after an occurrence or a commencement of a loss

B. Under the notice of claims provision, an insured must provide notification of loss 20 days after an occurrence or a commencement of a loss.

A company with 3 partners is considering a buy-sell plan. All of the following statements pertaining to buy-sell plans and this partnership are correct EXCEPT A. an insured entity buy-sell agreement designates the partnership as the beneficiary B. if they choose a cross-purchase plan, each partner would have to purchase 2 policies for a total of 6 plans C. no benefits will accrue to the partnership from the buy-sell agreement until one of the partners dies D. if they choose an entity buy-sell agreement, the business would be party to the agreement

C. A buy-sell plan offers several advantages to the partners while they are all living. The partners know they will have a legal right to buy a deceased partner's share of the business, and the family and heirs of the partners know that the partnership interest will be disposed of at a fair price. Further, the money needed to purchase the deceased partner's interest will be available when needed. All this adds up to security and peace of mind for all involved, including employees of the business.

A life insurance company organized in Illinois, with its home office in Philadelphia, is licensed to conduct business in Wisconsin. In Wisconsin, this company is classified as A. a domestic company B. an alien company C. a foreign company D. a regional company

C. A foreign company operates within a state in which it is not chartered and in which the home office is not located.

Assume a home catches fire after it is struck by lightning and the fire destroys its structure and contents. By insurance definition, the fire is A. the risk B. the hazard C. the peril D. the proximate cause

C. A peril is the immediate specific event causing loss and giving rise to risk. When a building burns, fire is the peril.

Ralph owns a $50,000 nonpar whole life policy. Its cash value has accumulated to $15,000, and he has paid a total of $9,500 in premiums. If he surrenders the policy for its cash value, how will it be taxed? A. Ralph will receive the $15,000 tax free B. Ralph will receive $5,500 tax free; the $9,500 balance is taxable as income C. Ralph will receive the $9,500 tax free; the $5,500 balance is taxable as income D. Ralph will receive the $15,000 as taxable income

C. A policyowner is allowed to receive tax free an amount equal to what the policyowner paid into the policy over the years in the form of premiums.

A waiver of premium provision may be included with which kind of health insurance policy? A. hospital indemnity B. major medical C. disability income D. basic medical

C. A waiver of premium rider generally is included with guaranteed renewable and noncancelable individual disability income policies. It is a valuable provision because it exempts the policyowner from paying the policy's premiums during periods of total disability.

As it pertains to group health insurance, COBRA stipulates that A. retiring employees must be allowed to convert their group coverage to individual policies B. terminated employees must be allowed to convert their group coverage to individual policies C. group coverage must be extended for terminated employees up to a certain period of time at the employee's expense D. group coverage must be extended for terminated employees up to a certain period of time at the employer's expense

C. COBRA requires employers with 20 or more employees to continue group medical expense coverage for terminated workers (as well as their spouses, divorced spouses, and dependent children) for up to 18 months (or 36 months, in some situations) following termination. However, the terminated employee can be required to pay the premium, which may be up to 102% of the premium that would otherwise be charged.

Which of the following reimburses its insureds for covered medical expenses? A. health maintenance organizations B. preferred provider organizations C. commercial insurers D. service providers

C. Commercial insurance companies function on the reimbursement approach. Policyowners obtain medical treatment from whatever source they feel is most appropriate and, per the terms of their policy, submit their charges to their insurer for reimbursement.

Which of the following is known for stressing preventive health care? A. administrative-services-only providers B. Lloyd's of London C. health maintenance organizations D. commercial insurers

C. Health maintenance organizations stress preventive care to promote patient health and to control the use of health care resources, particularly expensive resources like hospitals.

When a policyowner cannot exercise rights of ownership without the policy beneficiary's consent, the beneficiary is designated A. vested B. contractual C. irrevocable D. primary

C. If a beneficiary is named irrevocable, the policyowner gives up the right to change that beneficiary, and unless otherwise specified in the policy, the owner cannot take any action that would affect the right of that beneficiary to receive the full amount of the insurance at the insured's death. This includes taking out a policy loan or surrendering the policy.

On August 9, Albert made an application for life insurance that his agent submitted a day later without a premium payment. On August 21, the insurer issued the policy as applied for and on August 24, the agent delivered the policy and collected the initial premium. On what day was the contract offer made? A. August 9 B. August 10 C. August 21 D. August 24

C. If an applicant does not submit an initial premium with the application, the applicant is inviting the insurance company to make a contract offer. The insurer can respond by issuing a policy (the offer) that the applicant can accept by paying the premium when the policy is delivered.

Randy's premium payment was due on June 1, but the company did not receive it until June 28. Which policy provision kept Randy's policy from lapsing? A. reinstatement B. facility-of-payment C. grace period D. automatic premium loan

C. If policyowners forget or neglect to pay their premiums by the date they are due, the grace period allows an extra 30 days or 1 month during which premiums may be paid to keep policies in force.

Bob purchases a $50,000, five year level term policy. All of the following statements about Bob's coverage are correct EXCEPT A. the policy provides straight, level $50,000 of coverage for five years B. if the insured dies at any time during the five years, his beneficiary will receive the policy's face value C. if the insured dies after the specified five years, only the policy's cash value will be paid D. if the insured lives beyond the five years, the policy expires and no benefits are payable

C. If the insured lives beyond the five year period, the policy expires and no benefits are payable. There are no cash values in term policies.

Jane, age 35, has just purchased a 20-pay whole life policy. When she turns 55, she will A. receive the policy's face value benefit B. have a fully matured policy C. cease paying premiums D. no longer be covered by the policy

C. Limited pay whole life policies have level premiums that are limited to a certain period (less than life), after which no more premiums are owed.

Which of the following is NOT a typical type of long-term care coverage? A. skilled nursing care B. home health care C. hospice care d. residential care

C. Long term care services are designed for senior citizens, while hospice services are for terminally ill persons and their families.

After a week in the hospital, Lola receives a bill for $9,000 of covered expenses. Her major medical policy has a $250 deductible and a 75.25 coinsurance feature. How much of the total expense will Lola's policy cover? A. $2,063 B. $6,063 C. $6,563 D. $8,753

C. Responsibility for payment would be as follows: Total expenses $9,000 Deductible Lola pays - 250 _______ Basis for insurer's payment $8,750 x .75 ________ Amount insurer pays $6,563 Coinsurance Lola pays $2,187

What is the basic source of information for life insurance underwriting and policy issue? A. consumer reports B. Medical Information Bureau C. application D. physician reports

C. The application for insurance is the basic source of insurability information. It is the first source of information to be reviewed and it is reviewed thoroughly.

In the insurance business, risk can best be defined as: A. sharing the possibility of a loss B. uncertainty regarding the future C. uncertainty regarding financial loss D. uncertainty regarding when death will occur

C. The concept of insurance developed from the need to minimize the adverse effects of risk associated with the probability of financial loss.

Which of the following is stated in the consideration clause of a life insurance policy? A. insured's risk classification B. insured's general health condition C. amount and frequency of premium payments D. benefits payable upon the insured's death

C. The consideration clause specifies the amount and frequency of premium payments that the policyowner must make to keep the insurance in force.

Assume 4 individuals, all age 30, purchase the following life insurance policies. If all policies are still in force 10 years later, who will have the largest cash value in his policy? Bob $100,000 straight whole life Dennis $100,000 life paid-up at 65 Ralph $100,000 20-pay life Jack $100,000 life paid-up at 55 A. Bob B. Dennis C. Ralph D. Jack

C. The larger the face amount of the policy, the larger the cash values; the shorter the premium-payment period, the quicker the cash values grow; and the longer the policy has been in force, the greater the build-up in cash values.

Which of the following statements describes the parol evidence rule? A. a written contract cannot be changed once it is signed B. an oral contract cannot be modified by written evidence C. a written contract cannot be changed by oral evidence D. an oral contract takes precedence over any earlier written contract

C. The parol evidence rule states that when parties put their agreement in writing, all previous verbal statements come together in that writing, and a written contract cannot be changed or modified by parol (oral) evidence.

All of the following statements about term insurance are correct EXCEPT A. it pays a benefit only if the insured dies during a specific period B. level, decreasing, and increasing are basic forms of term insurance C. cash values build during the specified period D. it provides protection for a temporary period of time

C. There are no cash values in term policies.

With regard to life insurance, all of the following statements are correct EXCEPT A. all individuals are considered to have insurable interests in themselves B. spouses are automatically considered to have insurable interests in each other C. a creditor has an insurable interest in a debtor D. insurable interest must be maintained throughout the life of the contract

D. Insurable interest is required only when a contract is issued; it does not have to be maintained throughout the life of the contract nor is it necessary at the time of claim.

Which of the following is a standard optional provision for health policies? A. grace period B. physical exam and autopsy C. change of beneficiary D. misstatement of age

D. Misstatement of age is 1 of 11 optional policy provisions. Companies may ignore them or use them in their policy forms.

All of the following are mandatory provisions in health insurance policies EXCEPT A. proof of loss B. entire contract C. change of beneficiary D. misstatement of age

D. Misstatement of age is an optional provision of health insurance policies.

Which of the following insurance companies is owned by its policyholders? A. service insurer B. stock insurer C. reinsurer D. mutual insurer

D. Mutual insurers are owned by the policyholders. Anyone purchasing insurance from a mutual insurer is both a customer and an owner.

All of the following statements regarding policy replacement are correct EXCEPT A. replacement involves convincing a policyholder to lapse or terminate an existing policy and to purchase another B. interrupting one cash value insurance plan to begin another could cause serious financial problems for the policyowner C. even if the customer wants to replace his or her existing policy, an agent can effect a policy replacement only by following the replacement regulations in the agent's state D. premiums for the replacement policies are generally lower than premiums for the existing policies they replace

D. The new policy will probably be at a higher premium rate because it will be based on the insured's then-attained age.