Life and Health

Your client has a $200,000 term life insurance policy with a return of premium rider. If the insured dies within the term life coverage period after having paid $15,000 in premiums, how much will the beneficiary receive?

$200,000

What rates the financial strength of insurance companies?

-A.M. Best -Duff and Phelps -Moody's -Standard and poor's

What is included in the first part of an insurance application?

-name and address -occupation -beneficiary information

If an insurer decides to cancel a health insurance policy because the policyowner did not pay a premium, how much notice must it give the policyowner before doing so?

10 days

How many hours of continuing education courses must a producer complete every two years?

24 hours

An insured parent can include dependent child under a group health insurance plan up to what age?

26 years

Within how many days may a member insurer appeal an action of the Alabama Life and Disability Insurance Guaranty Association to the Commissioner?

30 days

Eric fails to pay the annual premium on his major medical insurance policy. The grace period provision allows him to pay the premium within how many days after the due date?

31

If a health insurance policy is cancelable, the insurer can cancel the policy at any time provided it gives the policyowner at least:

45 days' notice

A flat benefit amount in a disability income policy is usually what percent of the full disability benefit?

50 percent

Regarding qualified plan required minimum distributions (RMDs), the penalty tax that is assessed on any shortfall (i.e., the difference between the annual RMD amount and actual amount) is

50 percent

If a retired worker's total combined income including one-half of his or her Social Security benefit exceeds a threshold amount, then up to what percentage of benefits exceeding the threshold are taxable?

85 percent

ABC Insurance Company is domiciled in Delaware and does business in Ohio. Which of the following is correct about ABC?

ABC is a domestic insurer in Delaware and a foreign insurer in Ohio.

Bruce cannot get covered health-care services outside of his HMO's provider network. What must he do if he wants to get these services outside the network without having to pay the full rate for them?

Buy a point-of-service (POS) option.

What companies sell insurance to consumers without the use of a licensed producer.

Direct response

Fran applied for an individual health insurance policy on July 1 and was issued a binding receipt. If she injured her back on July 4 before the policy was issued, what will happen?

Fran's medical claims for her injury will be covered by the policy.

How can a life insurance policyowner use his policy's cash value to help fund his retirement without incurring any taxes on the transaction even if the cash value exceeds his basis in the policy?

He can use the cash value to buy an annuity through a 1035 exchange

Grant's Medicare SELECT plan offers the same benefits as the coverage provided under a standard Medicare supplement. Why are his premiums lower than those for a standard Medicare supplement?

He must obtain covered services through the plan's network.

The senior vice president of Salem Computers is covered by a salary continuation plan, which stipulates that he cannot work for a competitor. What will happen if he decides to leave his position and work for another computer company?

He will forfeit his benefits under the plan since he failed to meet the conditions in the agreement.

Funds collect within an annuity on a tax-deferred basis. What does this mean?

Interest earnings and growth are not taxable to the owner while they accumulate in the contract.

What is the purpose of paying deductibles and coinsurance for the HMO point-of-service (POS) option?

It discourages members from going outside the network to receive health care.

What is true about any sale of a Medicare supplement policy that results in the insured having more than one such policy?

It is prohibited in all cases.

What presents a situation of pure risk?

Knowing that his family depends on his income, Franklin wants to insure his life.

A patient who has permanent kidney failure would be a candidate for which Medicare program?

Medicare Part A

Abby lives in Ohio, where she is licensed as an insurance producer. She wants to apply for a nonresident license in Alabama. Which of the following conditions must she satisfy?

She must show that her Ohio license is in good standing.

Abby receives $15,000 of benefits this year from her employer's managed care plan. Which statement is correct about the taxation of these benefits?

The benefits are not taxable income.

In an annuitant-driven deferred annuity contract, what happens upon the death of the annuitant prior to annuitization if the owner is still alive?

The contract terminates and the death benefit is paid to the beneficiary.

James wants to convert his $150,000 traditional IRA to a Roth IRA. What best describes the tax treatment for the Roth conversion?

The converted funds are taxed, but Roth IRA earnings and distribution will be tax free.

Harry is 67 years old and covered by his employer's group health plan. When Harry files a claim, how will it be paid?

The group plan is the primary payor, and Medicare is the secondary payor.

After Sandra submitted the initial premium with her application for an individual health insurance policy, the producer gave her a conditional receipt. The next week, Sandra suffered a serious injury in a car accident. If Sandra was found to be uninsurable as of the date of application, what is the insurer's responsibility?

The insurer is not liable for coverage but must refund the premium.

With respect to the interest-only life insurance settlement option, what happens to the death benefit proceeds that the insurer was holding upon request by the beneficiary?

The insurer pays the proceeds, either in a lump sum or under one of the other settlement options.

If the policy loan amount plus interest owed is greater than the policy's cash value, what will happen?

The insurer will cancel the policy.

Policyowners can withdraw the interest earnings on their dividends or allow the interest to continue to accumulate. In either case, how is the interest treated for income tax purposes?

The interest earned on the dividend is reported as taxable income in the year credited.

Jim owns an individual disability income policy. He is also covered by a group disability income policy. If he suffers a disabling injury and his personal disability income policy contains a relation-to-earnings provision, what will happen?

The total amount he can receive from both policies cannot exceed his current wages.

What does underwriting a health insurance policy mean?

Underwriting means assessing risk based upon a person's health and medical history.

Alex sold an insurance policy before his license lapsed and earned a commission on the sale. Is he entitled to a commission if the policy is renewed?

Yes, because he was licensed when the policy was sold.

While taking an insurance application, Betty recommends backdating it so that the proposed insured will appear to be a year younger on the form. Can Betty do this?

Yes. Backdating is permitted if it is for six months or less and authorized by the insurer.

What best describes a life insurance policy's contingent beneficiary?

a beneficiary who is paid the death benefit if the primary beneficiary is removed or dies before the insured

What is the penalty for insurers and producers who violate LTC regulations?

a fine of up to three times the amount of commissions paid or $10,000, whichever is greater

The most comprehensive coverage of health-related risks can be obtained by buying:

a variety of insurance policies

When taking an insurance application, what should an agent try to accomplish?

accuracy, thoroughness, and clarity

Unlike those who own a non-tax-qualified long-term care insurance (LTC) policy, people who own a tax-qualified LTC plan can:

add their premium (within limits) to other out-of-pocket medical expenses in qualifying for a medical expense deduction

Jeremy has had an individual health insurance policy for many years because of his family's history of cancer. The tendency of someone like Jeremy to buy and maintain insurance is known as:

adverse selection

Samantha spends 182 days in the hospital. At what point in her hospital stay will Medicare Part A no longer pay any benefits unless she draws from her lifetime reserve?

after 90 days

As Medicare adjusts its deductibles and co-payments, what must Medicare supplement policies do?

align benefits to match the adjustments

When an insurer makes a material revision to the terms under which it will limit its right to change any nonguaranteed factor of an existing policy, who must be notified?

all affected policyowners residing in Alabama

When qualifying for Medicaid, the concept of "spending down" assets means that an applicant must:

almost exhaust his or her savings

Medical expense insurance may or may not define who the insured can use to provide the medical care. What is this distinction called?

any provider vs. limited choice of providers

Groups whose members are not static but constantly changing, such as vacation cruise lines or commercial bus companies, are called:

blanket customer groups

What must an insurer give to its group policyholders for delivery to each insured person, as proof that the person is insured?

certificates of coverage

Which of the following is not an optional provision of health insurance policies issued in Alabama?

change of beneficiary

Mallory has a major medical policy that requires her to pay a deductible and then 20 percent of the first $10,000 of medical expenses she incurs. What is this percentage called?

coinsurance

Carol applies for a $250,000 life insurance policy. Her agent gives her a document that provides limited coverage during the underwriting period. What is this document?

conditional receipt

Six months ago, Bill surrendered his life insurance policy for its cash value. He now realizes his mistake and asks to reinstate his coverage. What is the insurance company is obligated to do

do nothing as the company has no contractual obligation to the policy owner at this point

Which of the following terms categorize insurers by their location or domicile?

domestic, foreign, and alien

Jim's policy expired due to nonpayment of premium. His agent sends him a statement the following month without noting the lapse. If Jim pays the premium and later suffers a loss for which he files a claim, what will prevent the insurer from denying the claim?

estoppel

Acme Insurance Company wants to employ Anthony as a producer. To do so, what must Acme do?

file a notice of appointment with the Department

The Commissioner is not required to examine the records and books of which of the following?

foreign or alien insurer

In a back-end loaded universal life contract, when and from where does an insurer deduct administration fees?

from full or partial surrenders during the first 10 or so policy years.

Jim is a skilled laborer with a stable job. In recent years he has experienced health complications resulting from a chronic illness. He would most easily qualify for what type of disability income policy?

group plan

Greg's basic hospital plan pays for hospital room and board for up to 30 days with a maximum benefit of $3,000. If he also had a supplementary major medical policy, what would the supplementary plan cover?

hospital room and board beginning on the 31st day and costs above $3,000

Which of the following is not a remedy available to the Alabama Commissioner of Insurance for committing an unfair method of competition?

imprisonment

The type of life insurance policy delivery that requires delivery to the client in-person by the producer and an explanation of the conditions to be met is called:

legal delivery

If a person requires more than 100 days of skilled nursing care and wants to preserve family assets, what should he or she probably have:

long-term care insurance

An insurance policy provides financial protection against:

losses caused by perils

Which type of medical expense coverage pays the benefit directly to the insured?

major medical

Which group brings together a number of small, unrelated employers to provide health insurance or employee welfare benefits?

multiple employer trusts

The most common method used in determining a prospective client's life insurance needs today is the:

needs approach

What rights, if any, does an insured person have in a policy when another person owns the policy?

no rights

While reviewing a life insurance policy issued by her home office, Angela notices that the premium is much higher than she quoted her client. The policy also has features that the client did not request. What should Angela do?

not present the policy to the insured until the home office reviews the policy and recalculates the premium

When Terry applied for his life insurance policy four years ago, he omitted any information in the application related to treatment he received several years earlier for a serious chronic illness. Which of the following actions can the insurance company take when it learns of the omission?

nothing

Barbara buys a business overhead expense policy to help ensure that her business will continue if she is disabled. This coverage will pay for:

office supplies

For a life insurance policy to be valid, an insurable interest must exist:

only when the policy is issued

Marcie is insured under her employer's health plan and wants to get additional benefits. When she asks about the additional coverage, she is told that she must wait until January to access these benefits. What is Marcie waiting for?

open enrollment period

What document must an insurer provide to an applicant seeking a Medicare supplement policy?

outline of coverage

What must the insurer do if a health insurance claim involves a loss of life and the insured did not specify a beneficiary?

pay the claim to the insured's estate

Sandra, a single mom, takes out a 'jumping juvenile' life insurance policy insuring her newborn daughter Karen. Which of the following riders would pay the policy's premiums if Sandra dies or becomes totally disabled?

payor benefit rider

Employer group health plans are prohibited from offering Medicare-covered employees or spouses coverage under a Medicare supplement plan that:

pays for services covered by Medicare.

While completing an application for a health insurance policy, Dan discloses his partial blindness. The insurer will treat this blindness as a:

physical hazard

A prospective insured gives an agent a completed life insurance application with the first premium payment. What must the agent now give the applicant?

premium receipt

What is the basic purpose of health insurance?

provide financial protection against the expenses of medical care

If Jack takes a new job that is less hazardous than the job he had when he obtained health coverage, what may the insurer do?

reduce the premium

Under which nonforfeiture option does permanent life insurance continue in force with no further need for premiums?

reduced paid-up option

Johnson Industries funds its workers' compensation program. It will use these funds to pay employee's claims. What type of insurer is Johnson Industries?

self-insurer

Tammy is covered by her employer's group health plan and her husband's employer's plan. She incurs $6,000 in medical costs and submits a claim to her group plan, which pays $4,000 in benefits. What can Tammy do to pay the remaining $2,000?

submit a claim for $2,000 to her husband's group plan

A type of life insurance that covers two people and pays the death benefit only upon the second insured's death is called

survivorship life

With respect to Social Security benefits, what is a worker's PIA?

the amount of the retirement benefit the worker will receive at his or her full retirement age

Who normally owns life insurance used to meet business insurance needs?

the business

John owns a life insurance policy. The policy insures Mary, his wife. This is possible through what kind of policy ownership?

third-party

For how many years must an insurer keep documents that the insurer used to comply with life insurance disclosure regulations?

three

How long must an insurer keep copies of any illustrations used to sell its life insurance policies?

three years after the policy expires

The Alabama Health Insurance Plan is authorized to take legal action to carry out its purposes. For what purpose may the Plan not take legal action?

to avoid payment of proper claims

Why would a business self-insure instead of buying an insurance policy?

to insure against frequent low-severity losses

An insured's medical expense plan requires him to get medical care from certain providers if the cost of the care is to be covered. What type of insurance does the insured NOT have?

traditional medical expense plan

Which can qualify for group health insurance in the small employer market?

two or more persons

A health insurance policy's time limit on certain defenses limits the time in which an insurer can void a contract or deny a claim for material misrepresentations in the application to:

two to three years

How long is the standard incontestability period?

two years from the date of issue

What is a characteristic not usually found outside the context of insurance contracts?

unilateral

When may life insurance policy dividends be taxed?

when the dividends earn interest

Harry is diagnosed with a cognitive disorder. To become eligible for payments under his policy's long-term care rider, which condition must he meet?

within the past 12 months, a physician-certified that his health or safety would be at risk without supervision