Life and Health

Which of the following is NOT a "person" for legal purposes?

A family The individuals within a family are each a "person," but the family as a unit is not.

All of the following are true regarding a decreasing term policy EXCEPT

The payable premium amount steadily declines throughout the duration of the contract. Premiums remain level with a decreasing term policy; only the face amount decreases.

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT

The policy is owned by the company. The policy is owned by the employee.

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?

Conditional A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.

Which of the following is considered a qualifying event under COBRA?

Divorce Other qualifying events include the voluntary termination of employment; an employee's change from full time to part time; or the death of the employee.

The two types of assignments are

Absolute and collateral. Absolute assigns the entire policy. Collateral assigns a part or all of the benefits.

Under HIPAA, which of the following is INCORRECT regarding eligibility requirements for conversion to an individual policy?

An individual who was previously covered by group health insurance for 6 months is eligible. All of these eligibility requirements are correct, except an individual who was previously covered for at least 6 months. HIPAA requires that the individual have a previous continuous creditable health coverage for at least 18 months.

Which of the following would qualify as an implied warranty in an insurance contract?

An oral representation by the applicant A warranty is a statement considered to be guaranteed to be true and becomes part of the contract. Representations in insurance contracts qualify as implied warranties.

What is another term for the general enrollment period for Medicare Part B?

Annual enrollment period General enrollment period, also known as the annual enrollment period, runs from January 1st through March 31st of each year.

Which concept is associated with "exclusion ratio"?

Annuity payments A portion of an annuity payment is taxable, while another portion is not. The return of the principal paid in is nontaxable. The portion that is taxable is the actual amount of payment, less the expected return of the principal paid in. This relationship is called the "exclusion ratio."

During a pre-selection interview, an agent is allowed to do all of the following EXCEPT

Ask questions that are not on the application but that are important for underwriting. The producer is not allowed to collect information that is not asked for on the application, but can seek details for those items which do appear. This can include dosages and frequency of use of medications, extent of involvement in hazardous activities, and specifics regarding employment duties among others.

Graded-Premium Whole Life policy premiums are typically lower initially, but gradually increase for a period of 5 to 10 years. After the period of increase the premiums will

Be level thereafter. When a Graded-Premium Whole Life policy begins, the premium amounts are typically 50% lower than premiums for straight life policies. The premium then gradually increases each year for a period of usually 5 or 10 years and then remains level thereafter.

Which of the following is true regarding inpatient hospital care for HMO members?

Care can be provided outside of the service area. The HMO provides the member with inpatient hospital care, in or out of the service area. The services may be limited for treatment of mental, emotional or nervous disorders, including alcohol or drug rehabilitation or treatment.

An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?

Decreasing term A decreasing term policy's face amount decreases as the amount of debt is reduced.

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?

Interest only option With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

Which of the following is NOT true regarding a flexible spending account?

It does not have limits on contributions. A Flexible Spending Account (FSA) is a form of cafeteria plan benefit funded by salary reduction. The employees are allowed to deposit a certain amount of their paycheck into an account before paying income taxes. FSA benefits are subject to annual maximum and "use-or-lose" rule.

Which of the following is true concerning an Exclusive Provider Organization (EPO)?

It has a very limited number of providers. EPO is a type of PPO, in which the members do not choose health care providers. Instead, they use specific providers who are paid on a fee-for-service basis. Number of providers is very limited; however, they offer deeper discounts on their rates.

Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured?

Option B Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value.

The price of insurance for each exposure unit is known as

Rate Rate is the price of insurance for each exposure unit. The rate helps determine the premium by multiplying it by the number of units of insurance purchased.

The Health Insurance Counseling and Advocacy Program is administered by

The California Department of Aging. The Department of Aging is responsible for overseeing the operations of each local HICAP agency in California.

Insured Z's health insurance policy year begins in January. His policy contains a carry-over provision. In November, he has a small claim which is less than his deductible. Which of the following is true?

The insured may carry over the amount of this year's expenses to next year, which will help satisfy next year's deductible. Under the carry over provision, if the insured did not incur sufficient medical costs during the year to meet the deductible, any medical expenses incurred during the last three months may be carried forward to the next year, offsetting the total deductible costs for that year.

What happens if a deferred annuity is surrendered before the annuitization period?

The owner will receive the surrender value of the annuity. If a deferred annuity is surrendered prior to annuitization, the surrender value of the annuity is guaranteed according to the nonforfeiture provision.

If an insurer issued a policy based on the application that had unanswered questions, which of the following will be TRUE?

The policy will be interpreted as if the insurer waived its right to have an answer on the application. Any unanswered questions need to be answered before the policy is issued. If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived its right to have an answer for the question, and will not be able to deny coverage later because of unanswered questions.

The termination of marital property rights may be reversed for all of the following reasons EXCEPT

The spouse named as beneficiary has obtained or consented to a final decree or judgment of an annulment, divorce or separation. The termination of marital property rights may not be reversed if the spouse named as beneficiary has obtained or consented to a final decree or judgment of annulment, divorce or separation.

An insured makes regular contributions to his Health Savings Account. How are those contributions treated in regards to taxation?

They are tax deductible. An individual covered by a high deductible health plan can make a tax-deductible contribution to an HSA and use it to pay for out-of-pocket medical expenses.

What is the typical deductible for basic surgical expense insurance?

$0 As with the other types of basic medical expense coverage, there is no deductible, but coverage is limited.

A noncontributory group disability income plan has a 30-day waiting period and offers benefits of $2,000 a month. If an employee is unable to work for 7 months due to a covered disability, the employee will receive

$12,000, all of which is taxable. In noncontributory group health plans, the employer pays the entire cost, so the income benefits are included in the employee's gross income and taxed as ordinary income.

The premium for an insured's group disability income policy is $250 per month. Her employer contributes $125 of the premium. If the insured becomes disabled and receives $350 per week in benefits, she will pay income tax on what amount of the benefit?

$175 Since the insured's employer pays half of the cost of the insurance ($125 in premiums), half of the benefit ($175) is taxable as income to the insured.

An insurer has been found guilty of a Code violation regarding replacement. The insurer then repeats the violation. What will be the minimum penalty?

$30,000 Additional violations of the replacement article by an insurer will result in increased fines ($30,000 to $300,000). The Commissioner may suspend or revoke the license of any person or entity that violates this article.

An agent has how many days in which to receive an appointment after the issuance of an insurance contract?

14 days According to CIC 1704-1705, the insurer must forward to the Commissioner a notice of appointment no more than 14 days after the life agent submits an application for insurance to the insurer.

Every small employer carrier must actively offer to small employers at least how many health benefit plans?

2 plans As a condition of transacting business in this state with small employers, every small employer carrier is required to actively offer to small employers at least 2 health benefit plans. One plan offered by each small employer carrier must be a basic health benefit plan, and one plan must be a standard health benefit plan.

What is a penalty tax for nonqualified distributions from a medical savings account?

20% If a distribution is made for a reason other than to pay for qualified medical expenses, the amount withdrawn will be subject to an income tax and an additional 20% tax.

In addition to penalties, fines, and possible imprisonment for violating the provision relating to misrepresentation, the Commissioner may suspend the license of such person for a period up to

3 years. According to CIC 783, after a hearing, the Commissioner may suspend the license of any such person for violating provision relating to misrepresentation for a period not to exceed 3 years.

An insurer, by filing a notice of appointment on behalf of an applicant, shall be deemed to have declared that the applicant has had experience or instruction in insurance or that the necessary instruction will be given within

30 days after issuance of license. An insurer must provide instruction in insurance within 30 days after the filing a notice of appointment.

All records relating to insurance application and delivery must be maintained by the insurer for a period of

5 years after policy delivery or initial application if no policy was issued. As required by CIC 10508, all records relating to insurance application must be maintained for 5 years after policy delivery or initial application.

An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay?

50% tax on the amount not distributed as required When immediate annuities are used to pay IRA benefits, distributions must begin no later than age 70½ in order for the annuitant to avoid penalties. The penalty is 50% of the shortfall from the required annual amount.

What is the maximum amount that can be contributed to an MSA of the high-deductible plan for individuals?

65% The maximum amount than can be contributed to an MSA is 65% of the high-deductible plan for individuals or 75% of the family deductible for those with family coverage. Nonqualified distributions have a 20% penalty tax.

Which of the following best describes the waiting period?

A period of time the insured has to wait before payments of benefits begin after a disability. The waiting or elimination period is a period of time the insured has to wait after a disability occurs and before benefit payments begin.

Which of the following would automatically qualify for Medi-Cal benefits?

A person receiving Supplementary Security Income assistance California residents in a variety of situations may qualify for benefits from Medi-Cal; however, individuals who receive cash assistance from one of the following programs are automatically eligible for Medi-Cal: SSI/SSP, CalWORKS, Refugee Assistance and Foster Care or Adoption Assistance Program.

The term "illustration" in a life insurance policy refers to

A presentation of nonguaranteed elements of a policy. The term "illustration" means a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years.

Which of the following is NOT covered under a long-term care policy?

Acute care in a hospital A long-term care policy may provide coverage for home health care, adult day care, hospice care or respite care. Acute care is not covered under a long-term care policy

What source pays for individual disability income premiums?

After-tax dollars Individual Disability Income plan premiums are funded by after-tax dollars. Paid benefits are not subject to income taxation.

In which Medicare supplemental policies are the core benefits found?

All plans The benefits in Plan A are considered to be core benefits and must be included in the other types. Therefore, all types contain the core benefits offered by Plan A.

Employer contributions made to a qualified plan

Are subject to vesting requirements. Qualified plans must have a vesting requirement.

The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective?

As of the application date If the full premium was submitted with the application and the policy was issued as requested, the policy coverage effective date would generally coincide with the date of application.

What size companies are eligible for health reimbursement accounts (HRAs)?

Companies of all sizes

All of the following are requirements of eligibility for Social Security disability income benefits EXCEPT

Being age 65. The term fully insured refers to someone who has earned 40 quarters of coverage (the equivalent of 10 years of work), and is therefore entitled to receive Social Security retirement, Medicare, and survivor benefits. The waiting, or elimination period for Social Security disability benefits is 5 months.

To be eligible for tax credits under the ACA, individuals must have income that is what percent of the Federal Poverty Level?

Between 100% and 400% Legal residents and citizens who have incomes between 100% and 400% of the Federal Poverty Level (FPL) are eligible for the tax credits.

After being hired to deliver newspapers to his neighbors, a man is provided with $10,000 of life insurance by the newspaper. He would be covered under which kind of life insurance?

Blanket life Blanket life insurance is available to newspapers hiring persons as "independent contractors" to deliver newspapers. (CIC 10222).

Joe, Larry, and Curly own a small business. They have made a legal arrangement which states that if one of them dies or becomes disabled, the other two will be able to buy the partner's shares. Which term best describes this arrangement?

Business Continuation In a Business Continuation arrangement, the partners of a business can buy shares belonging to a recently deceased or disabled partner.

When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit without specifically naming the individuals, this is called

Class designation. A designation such as the child of the insured, or all children of the insured, or all current members of a group, is called a "class designation." The individuals need not be specifically named, since each who meet the qualifications of being included in the class will share in the benefit.

A producer who fails to segregate premium monies from his own personal funds is guilty of

Commingling. It is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds.

A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called

Cost of living rider. A "cost of living" rider adjusts the face amount of a policy to maintain the relationship of the face amount and increases in the cost of living.

Who can provide skilled nursing care?

Doctor Skilled nursing care is daily nursing and rehabilitative care that can only be provided by medical personnel, under the direction of a physician. Skilled care is almost always provided in an institutional setting.

All of the following are advantages of an HMO or PPO for a Medicare recipient EXCEPT

Elective cosmetic procedures are covered. The advantages of an HMO or PPO for a Medicare recipient may be that there are no claims forms required, almost any medical problem is covered for a set fee so health care costs can be budgeted, and the HMO or PPO may pay for services not usually covered by Medicare or Medicare supplement policies, such as prescriptions, eye exams, hearing aids, or dental care.

The insurance policy, together with the policy application and any added riders form what is known as

Entire contract. When a policy is issued, a copy of the application, any riders and amendments are attached to the back of the policy and become part of the entire contract.

A young father would like a life insurance policy to provide coverage for all five family members at the lowest cost. Which type of policy would he most likely buy?

Family Protection Policy Family protection insurance combines protection for all members of a family into one policy. It usually provides a permanent plan of insurance on the base insured, and term riders on other members of the family. Because they are all covered under a single policy, there is only one policy fee.

The insurance solicitor is only found in which field of insurance?

Fire and Casualty An insurance solicitor is a person employed to aid insurance agents and insurance brokers in transacting insurance and is only found in the Fire & Casualty field.

If an insured is not required to pay a deductible, what kind of coverage does he/she have?

First dollar First-dollar coverages do not require the insured to pay a deductible.

If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select?

Fixed period Under the fixed-period installments option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. The payments will continue for the specified period even if the recipient dies before the end of that period.

An insured is involved in an accident that renders him permanently deaf, although he does not sustain any other major injuries. The insured is still able to perform his current job. To what extent will he receive Presumptive Disability benefits?

Full benefits Presumptive Disability plans offer full benefits for specified conditions. These policies typically require the loss of at least two limbs (Loss of use does not qualify in some policies.), total and permanent blindness, or loss of speech or hearing. Benefits are paid, even if the insured is able to work.

Which of the following is NOT considered personally identifiable information?

Government records Personally identifiable information includes loan, credit card, or other financial applications, credit or debit card balances or history, consumer reports, internet cookies or web servers, and information from current or previous financial institutions.

What kind of policy does NOT typically require proof of insurability?

Group insurance Individual life insurance is written on a single life. The rate and coverage is based upon the underwriting of that individual. Group life insurance is written as a master policy, issued to the sponsoring organization, covering the lives of more than one individual member of that group. In group insurance, individual participants typically do not need to provide proof of insurability.

Which of the following annuity riders ensures that the owner will receive from an annuity at least the amount paid for the annuity?

Guaranteed Lifetime Withdrawal The Guaranteed Lifetime Withdrawal Benefit protects annuity owners from losing their investments if the annuity value drops.

First Dollar Coverage refers to a type of insurance which

Has no deductible. First dollar coverage is provided with no deductible. The insurer pays the full amount of the loss, up to the policy limit.

Harry has just received his life insurance policy. In reviewing the title page, Harry was able to ascertain the following information EXCEPT

His spouse had been assigned the primary beneficiary. Harry would not be able to ascertain from the title page who is the primary beneficiary of his life insurance policy.

Which type of a hospital policy pays a fixed amount each day that the insured is in a hospital?

Indemnity A Hospital Indemnity policy pays a fixed amount each day the insured is hospitalized, unrelated to medical expenses.

Which of the following must be disclosed in all advertisements and policies of term life insurance for individuals 55 years of age or older?

Insurance monetary value index When a term life insurance monetary value index is adopted by the Commissioner, it must be disclosed in all advertisements and policies of term life insurance for individuals age 55 and older.

Which of the following refers to "own occupation" disability?

Insured is unable to perform duties of the occupation for which he/she was educated and trained. Under an Own Occupation plan, if the insured cannot perform duties of his/her current job or the job that he/she was educated and trained for, disability benefits will be paid, even if the insured would be capable of earning income at a different occupation.

Which statement regarding insurable risks is NOT correct?

Insureds cannot be randomly selected. Granting insurance must not be mandatory, selecting insureds randomly will help the insurer to have a fair proportion of good risks to poor risks. All other statements are true.

What are the consequences of a failure to comply with the Commissioner's office while it is executing a seizure order?

It is a misdemeanor punishable by a fine of $1,000, one-year imprisonment, or both. Failure to comply with a seizure order is a misdemeanor crime punishable by a fine of $1,000, one-year imprisonment, or both. (CIC 1013)

If a deferred annuity is surrendered prematurely, a surrender charge is imposed. How is the surrender charge determined?

It is a percentage of the cash value and decreases over time. If a deferred annuity is surrendered prematurely, a surrender charge is imposed. The charge is generally a percentage that reduces over time until it ends.

What is the purpose of a conditional receipt?

It is intended to provide coverage on a date prior to the policy issue. Coverage commences on the date of the application or the date of a medical examination, whichever is later, on the condition that the applicant is determined to be insurable at the rate applied for.

Which of the following is true regarding a term health policy?

It is nonrenewable. In term health policies, the owner has no rights of renewal.

Which of the following statements concerning Medicare Part B is correct?

It pays for physician services, diagnostic tests, and physical therapy. For those who have purchased the coverage, Part B pays 80% of out-patient medical cost after a deductible has been met. Part B covers physician and outpatient hospital services, and other medical and health services, such as diagnostic tests, and physical therapy.

A couple near retirement is planning for their golden years. They want to make sure that their retirement annuity provides monthly benefits for the rest of their lives. Should one of them die, the other would still like to continue receiving benefits. Which settlement option should they choose?

Joint and Survivor Joint & Survivor option guarantees an income for two or more recipients that none of them can outlive.

A married couple's retirement annuity pays them $250 per month. The husband dies and his wife continues to receive $125.50 per month for as long as she lives. When the wife dies, payments stop. What settlement option did they select?

Joint and survivor Under a joint settlement option, payments would stop at the first death, but under the joint and survivor, payment would continue until both recipients die. Usually, the surviving beneficiary receives 1/2 or 2/3 of the amount received when both beneficiaries were alive.

A woman's health insurance policy dictates which doctors she is allowed to see. Her health providers share an assumed risk for their patients and encourage preventive care. What best describes the health system that the woman is using?

Managed care There are 5 distinguishing features of managed care: controlled access to providers, comprehensive case management, risk sharing, preventative care, and high-quality care.

An insured is covered under a Medicare policy that provides a list of network healthcare providers that the insured must use to receive coverage. In exchange for this limitation, the insured is offered a lower premium. Which type of Medicare policy does the insured own?

Medicare SELECT Medicare SELECT policies require insureds to use specific healthcare providers and hospitals, except in emergency situations. In return, the insured pays lower premium amounts.

Which type of Medicare policy requires insureds to use specific healthcare providers and hospitals (network providers), EXCEPT in emergency situations?

Medicare SELECT Medicare SELECT policies require insureds to use specific healthcare providers and hospitals, except in emergency situations. In return, the insured pays lower premium amounts.

A person who does not lock the doors or does not repair leaks shows an indifferent attitude. This person presents what type of hazard?

Morale A morale hazard is someone who has an indifferent attitude towards an insurance company. He is careless or irresponsible because he knows his loss will be covered by insurance.

Which of the following terms most precisely fits the definition of "the incidence or probability of sicknesses or accidents within a given group of people?"

Morbidity "Morbidity" is the incidence or probability of sicknesses or accidents within a given group of people.

Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report

Must be informed of the source of the report. Under the Fair Credit Reporting Act, if an insurance policy is declined or modified because of information contained in a consumer report, the consumer must be advised and provided with the name and address of the reporting agency.

What other term is used to refer to unintentional torts?

Negligence An unintentional tort is the result of acting without proper care. This is generally referred to as negligence.

The classification Small Employer means any person actively engaged in a business that on at least 50% of its working days during the preceding year employed

No more than 100 employees. Classification rules established by the Insurance Code state that Small Employer means any person actively engaged in a business that on at least 50% of its working days during the preceding year employed not more than 100 eligible employees.

Which renewal provision(s) must be included in a long-term care policy issued to an individual?

Noncancellable and guaranteed renewable No long-term care policy issued to an individual may contain renewal provisions other than guaranteed renewable or noncancellable.

Henry has a disability income policy. As the result of a traffic accident, he lost his left arm. Henry's gross earned income before the disability was $3,000 a month. How much will his disability income insurance pay per month?

Not to exceed $2,100. Usually, the benefits for disability income insurance policies are $50-$100 as a minimum, and as high as $10,000 as a maximum. However, the benefits may not exceed 50-70% of gross earned income ($2,100 in this example).

Under a straight life annuity, if the annuitant dies before the principal amount is paid out, the beneficiary will receive

Nothing; the payments will cease. Straight or pure life annuity will pay a specific amount of income for the remainder of the annuitant's life. This payment will cease at death, regardless of the amount of principal that hasn't been paid out. There is no refund or payments to survivors.

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the

One-year term option. The dividend is utilized to purchase one-year term insurance.

Under a pure life annuity, an income is payable by the company

Only for the life of the annuitant. With pure life annuity, income payments cease at the annuitant's death and there is no refund or payments to survivors. This type of annuity is also referred to as Life Only or Straight Life.

Which renewability provision allows an insurer to terminate a policy for any reason, and to increase the premiums for any class of insureds?

Optionally renewable The renewability provision in an optionally renewable policy gives the insurer the option to terminate the policy for any reason on the date specified in the contract (usually a renewal date). Furthermore, this provision allows the insurer to increase the premium for any class of optionally renewable insureds.

Under which of the following organizations are the practicing providers compensated on a fee-for-service basis?

PPO PPOs contract on a Fee-for-service basis.

Which of the following applies to partial disability benefits?

Payment is limited to a certain period of time. The partial disability benefit is typically 50% of the total disability benefit, and is limited to a certain period of time.

Which of the following riders would NOT cause the Death Benefit to increase?

Payor Benefit Rider Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.

Which of the following levels of care in long-term care policies specifically includes assistance with activities of daily living?

Personal care Personal Care includes hands-on services to assist an individual with activities of daily living, and can be provided by a skilled or unskilled person.

All of the following are covered by Part A of Medicare EXCEPT

Physician's and surgeon's services. Physician's and surgeon's services are covered under Part B.

HSAs are owned by the individual, not the employer, which means the individual is not dependent on a particular employer to enjoy the advantages of having an HSA. What term best describes this?

Portable HSAs are portable, which means the individual is not dependent on a particular employer to enjoy the advantages of having an HSA, because it is owned by the individual.

Which of the following will be included in a policy summary?

Premium amounts and surrender values A policy summary must be delivered along with the policy and will provide the producer's name and address, the insurance company's home office address, the generic name of the policy issued, and premium, cash value, surrender value and death benefit figures for specific policy years.

Under the Accidental Death and Dismemberment (AD&D) coverage, what type of benefit will be paid to the beneficiary in the event of the insured's accidental death?

Principal sum Accidental Death and Dismemberment coverage only pays for accidental losses and is thus considered a pure form of accident insurance. The principal sum is paid for accidental death. In case of loss of sight or accidental dismemberment, a percentage of that principal sum will be paid by the policy, often referred to as the capital sum.

A Medicare SELECT policy does all of the following EXCEPT

Prohibit payment for regularly covered services if provided by non-network providers. A Medicare SELECT policy issued in this state must not restrict payment for covered services provided by non-network providers if the services are for symptoms requiring emergency care and it is not reasonable to obtain such services through a network provider.

What is the purpose of errors and omissions insurance?

Protect agents against charges that they didn't properly serve a client Nonmedical professionals, such as insurance agents, use errors and omissions insurance to protect themselves against lawsuits that might be filed against them.

Which of the following plans allows small employers who do not offer health insurance to assist in the payment of employee medical expenses and insurance premiums?

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is an ACA compliant health plan, designed for small employers who do not offer health insurance. QSEHRAs allow employers to pay for employee medical expenses and the cost of premiums associated with medical plans purchased through the individual market.

Susan has a short-term disability income policy with an "integration of benefits" provision. If she becomes disabled and is also eligible to receive benefits from the state disability insurance program, her policy will

Reduce its benefits by an amount equal to her state disability payments. The "integration of benefits" provision is designed to prevent a duplication of benefits or "overinsurance."

Which nonforfeiture option provides coverage for the longest period of time?

Reduced paid-up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.

The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?

Reduction of premium The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

Which of the following is NOT provided by an HMO?

Reimbursement Traditionally the insurance companies have provided the financing while the doctors and hospitals have provided the care. The HMO concept is unique in that the HMO provides both the financing and the patient care for its members. The HMO provides benefits in the form of services rather than in the form of reimbursement for the services of the physician or hospital.

A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the

Revocable beneficiary. The policyowner may change a revocable designation at any time and without the consent of the beneficiary. Irrevocable beneficiaries, on the other hand, have a vested interest in the policy, so the policyowner may not be able to exercise certain rights without their consent.

To sell variable life insurance policies, an agent must receive all of the following EXCEPT

SEC registration. Agents selling variable life products must be registered with FINRA, have a securities license, and must be licensed within the state to sell life insurance. SEC registration is for securities, not agents.

The Ownership provision entitles the policyowner to do all of the following EXCEPT

Set premium rates. The insurer sets premium rates based upon underwriting considerations.

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT

Signed waiver of premium. The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a Statement of Good Health from the applicant at the time of policy delivery. Waiver of premium is a rider that can be added to a life insurance policy, and not something to be obtained from the applicant.

Which of the following is called a "second-to-die" policy?

Survivorship life Survivorship life (also referred to as "second-to-die" or "last survivor" policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age.

During the accumulation period in a nonqualified annuity, what are the tax consequences of a withdrawal?

Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 ½. When money is withdrawn from the annuity during the accumulation phase, the amounts are taxed on a last in first out basis (LIFO). Therefore, all withdrawals will be taxable until the owner's cost basis is reached.

The annual contribution limit of a Dependent Care Flexible Spending Account is set by

The IRS. The IRS sets limits for the annual contribution for Dependent Care Accounts.

Which of the following is NOT covered under Plan A in Medigap insurance?

The Medicare Part A deductible Medicare Supplement Plan A provides the core, or basic, benefits established by law. All of the above are part of the basic benefits, except for the Medicare Part A deductible, which is a benefit offered through nine other plans.

When a client replaces an existing LTC or Medicare Supplement insurance policy with another from the same company, California law requires that

The agent must advise the client about HICAP and its services. This is the requirement under California law.

The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true?

The annuitant must be a natural person. Owners of annuities can be individuals or entities like corporations and trusts, but the annuitant must be a natural person, whose life expectancy is taken into consideration for the annuity.

Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean?

The beneficiary will only receive payments of the interest earned on the death benefit.

Which of the following describes the client which will benefit from Extension of Benefits?

The client who was disabled prior to a policy discontinuance and remains disabled. In order for extension of benefits to be provided, the insured must have been disabled before the policy was discontinued and must continue to be disabled. Extension of Benefits protects the disabled from becoming uninsured due to a loss of coverage for any reason.

What determines the penalty for surrendering a market value adjusted annuity prematurely?

The current interest rate at the time of surrender If the owner surrenders a market value adjusted annuity prematurely, a penalty is imposed. The penalty amount depends directly upon the current interest rates at the time of surrender.

In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports?

The customer's associates, friends, and neighbors provide the report's data. Both consumer reports and investigative consumer reports provide additional information from an outside source about a customer's character and reputation, and both types of reports are used under the Fair Credit Reporting Act. The main difference is that the information for investigative consumer reports is obtained through an investigation and interviews with associates, friends and neighbors of the consumer.

The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change?

The death benefit can be increased by providing evidence of insurability. The policyowner (insured) would need to prove insurability for the amount of the increase.

Which of the following describes the tax advantage of a qualified retirement plan?

The earnings in the plan accumulate tax deferred. Contributions are tax deferred, and earnings on the money in the plan accrue on a tax-deferred basis.

Which statement accurately describes group disability income insurance?

The extent of benefits is determined by the insured's income. Group plans usually specify the benefits based on a percentage of the worker's income. Group long-term plans provide monthly benefits usually limited to 60% of the individual's income.

Which of the following best describes the "first-dollar coverage" principle in basic medical insurance?

The insured is not required to pay a deductible. The three basic types of coverage (hospital, surgical and medical) are often referred to as first-dollar coverage because they usually do not require the insured to pay a deductible.

Which of the following is NOT a feature of a guaranteed renewable provision?

The insurer can increase the policy premium on an individual basis. Guaranteed renewable provision has all the same features that the noncancellable provision does, with the exception that the insurer can increase the policy premium on the policy anniversary date. However, the premiums can only be increased on a class basis, not on an individual policy.

Which of the following is true regarding elimination periods and the cost of coverage?

The longer the elimination period, the lower the cost of coverage The "elimination period" is a period of days which must expire after the onset of an illness or occurrence of an accident before benefits will be payable. The longer the elimination period is, the lower the cost of coverage will be.

Which of the following is true regarding a market value adjusted annuity?

The owner is guaranteed a fixed interest rate for a specific period of time. Under a market value adjusted (modified guaranteed) annuity, the insurer guarantees a competitive interest rate for a specific period (the longer the period, the better the guaranteed rate). At the end of the period, the owner has the option of taking the accumulated value or reinvesting the values at a new interest rate.

Which of the following statements regarding conditional receipts is true?

They are temporary insuring agreements. With a conditional receipt, insurance coverage is effective as of the date of the receipt, so long as the application is approved.

Which of the following statements regarding deferred compensation funds is INCORRECT?

They are usually qualified plans. Deferred Compensation Funding refers to any employer retirement, savings, or other deferred compensation plan that is not a qualified retirement plan. Funding involves a contractual commitment between the employer and employee to pay compensation in future years. These plans are typically made with selected employees to provide additional retirement benefits.

Medi-Cal may be available to persons over age 65 if

They have medical or long-term care claims not paid by Medicare. Unpaid Medicare claims and long term care benefits are payable under Medi-Cal provided the individual and his/her spouse meet the required asset tests.

All of the following are true regarding the guaranteed insurability rider EXCEPT

This rider is available to all insureds with no additional premium. The guaranteed insurability rider may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40.

Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated?

Those who have been insured under the plan for at least 5 years If the master contract is terminated, every individual who has been on the plan for at least 5 years will be allowed to convert to individual insurance of the same coverage.

How can insurers obtain information on an applicant's avocations and the way they will affect a risk?

Through the use of a questionnaire. To determine a person's avocations, the insurer will have an applicant fill out a questionnaire to obtain information regarding hobbies and personal interests.

What is the purpose of the rehabilitation benefit in disability insurance?

To cover the expenses of retraining the insured to return to work The rehabilitation benefit will cover a portion of the cost for the insured to enroll in a retraining program that will help the insured to return to work after a disability.

The paid-up addition option uses the dividend

To purchase a smaller amount of the same type of insurance as the original policy. The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.

When an insurer issues an individual health insurance policy that is guaranteed renewable, the insurer agrees

To renew the policy until the insured has reached age 65. The guaranteed renewable provision is similar to the noncancellable provision, with the exception that the insurer can increase the policy premium on the policy anniversary date. As with the noncancellable policy, coverage is generally not renewable beyond the insured's age 65.

Social Security was created to provide all of the following benefits EXCEPT

Unemployment income. Social Security is designed to provide protection against financial loss due to old age, disability, or death. It also provides income during retirement.

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe?

Unilateral

The Waiver of Cost of Insurance rider is found in what type of insurance?

Universal Life The Waiver of Cost of Insurance rider is found in Universal Life policies. If the insured becomes disabled, the rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash value.

How long will the beneficiary receive payments under the single life settlement option?

Until the beneficiary's death The Single Life Option can provide a single beneficiary income for the rest of his/her life. Upon the death of the beneficiary, the payments stop.

Under a credit disability policy, until what point will payments to the creditor be made for the insured?

Until the disability ends or the debt is satisfied, whichever is sooner A credit disability policy is issued only to those in debt to a specific creditor. In case of disability, payments to the creditor will be made for the insured until he or she is able to return to work.

When can a life-only agent transact disability insurance on behalf of an authorized insurer?

Upon obtaining a signed by the insurer notice of appointment A person licensed as a fire and casualty broker-agent or a life-only agent may transact disability insurance on behalf of any insurer which is authorized to transact disability insurance if he/she has filed a notice of appointment for the purpose of transacting disability insurance.

In a survivorship life policy, when does the insurer pay the death benefit?

Upon the last death Survivorship life pays on the last death rather than upon the first death.

The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as

Utmost good faith. The insurer must be able to rely on the statements given by the insured in the application. The insured must be able to rely on the insurer's promise to pay covered losses.

When is the insurability conditional receipt given?

When the premium is paid at the time of application Under the terms of the insurability conditional receipt, the insurance coverage becomes effective as of the date of the receipt, provided the application is approved. This receipt is generally provided to the applicant when the initial premium is paid at the time of application.

To which of the following products does the Replacement Regulation apply?

Whole life insurance The Replacement Regulation does not apply to credit life, group life and group annuities, or transactions with the same insurer.

Which of the following sources would provide a list of HICAPs in each county in California?

www.calmedicare.org A list of local HICAPs for each county in California is provided through www.calmedicare.org, a DOI approved Medicare information website which gives accurate and unbiased information about Medicare benefits for residents of California.

Following hospitalization because of an accident, Bill was confined in a skilled nursing facility. Medicare will pay full benefits in this facility for how many days?

20 Following hospitalization for at least three days, if medically necessary, Medicare pays for all covered services during the first 20 days in a skilled nursing facility. Days 21 through 100 require a daily copayment.

What is the penalty for IRA distributions that are below the required minimum for the year?

50% If there are no distributions at the required age, or if the distributions are not large enough, the penalty is 50% of the shortfall from the required annual amount.

What is the penalty for excessive contributions to an IRA?

6% An individual can contribute 100% of earned income up to a specified amount. The excess contribution penalty for traditional IRAs is 6%.

Unreimbursed medical expenses paid for the insured may be claimed as deductions if the expenses exceed what percentage of the adjusted gross income?

7.5% The law permits deductions for unreimbursed expenses in excess of 7.5% of the adjusted gross income (AGI).

How many eligible employees must be included in a contributory plan?

75% At least 75% percent of eligible employees can be included in a contributory plan. Both the employees and the employer contribute to premium payments.

According to the Medical Loss Ratio (MLR), what is the minimum percentage of health coverage premium that must be applied to actual medical care in a large group health plan?

85% MLR requires insurance companies to spend at least 80% (for individual and small group markets) or 85% (for large group markets) of premium dollars on medical care and health care quality improvement, rather than on administrative costs.

An individual has been diagnosed with Alzheimer's disease. He is insured under a life insurance policy with the accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits?

A portion of the benefit up to a limit is tax free; the rest is taxable income. When accelerated benefits are paid to a chronically ill insured, they are tax free up to a certain limit. Any amount received in excess of this dollar limit must be included in the insured's gross income.

Which of the following is NOT an allowable 1035 exchange?

A whole life insurance policy is exchanged for a term insurance policy. The key is that the exchange may not be from a less tax-advantaged contract to a more tax-advantaged contract. "Same to same" is acceptable.

Which of the following departments is responsible for developing mortality and morbidity tables?

Actuarial The actuarial department concerns itself with the statistics involved in insurance. It is responsible for developing mortality and morbidity tables, calculating premiums and dividends, and preparing annual reports.

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

Aleatory An insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk.

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

Aleatory In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price.

Which of the following is NOT true of Section 1035 Policy Exchanges?

Any exchange made under Section 1035 of the Internal Revenue Code must be completed within 30 days. Section 1035 of the Internal Revenue Code does not give a specific time limit to complete such an exchange.

If an insured is unhappy regarding his or her Medicare services, what may he or she do?

Appeal the decision The insured has the right to appeal any decision about his/her Medicare services. If Medicare does not pay for an item or service an insured has been given the insured may appeal that decision. The insured may also appeal if he/she does not receive an item or service he/she thinks should be given to him/her.

A tax-sheltered annuity is a special tax-favored retirement plan available to

Certain groups of employees only. A tax-sheltered annuity is a special tax-favored retirement plan available only to certain groups of employees (nonprofit charitable, educational, religious, and other 501c(3) organizations, including all employees in public education).

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as

Contracts of adhesion. Insurance policies are written by the insurer and submitted to the insured on a take- it-or-leave-it basis. The insured does not have any input into the contract, but simply adheres to the contract.

The type of policy that can be changed from one that does not accumulate cash value to the one that does is a

Convertible Term Policy. A convertible term policy has a provision that allows the policyowner to convert to permanent insurance.

Which of the following will NOT be an appropriate use of a deferred annuity?

Creating an estate Deferred annuities grow tax deferred, and are best suitable for accumulating retirement income or funds for children's college education. Unlike life insurance, annuities do not create an estate, but liquidate it.

Other than for a qualified life event, when can a change be made in benefits for a Flexible Spending Account (FSA)?

During the open enrollment period FSA benefits may be changed during open enrollment, unless the circumstances are deemed a Qualified Life Event.

Which of the following is NOT a type of information that needs to be gathered in order to determine the value of someone's life when using the needs approach?

Estimated longevity There are four main types of information that an insurer needs to obtain in order to determine the value of someone's life: debt status, income, mortgage, and expenses. Longevity is not a factor in the personal financial planning process.

What is the difference between the Medicare approved amount for a service or supply and the actual charge?

Excess charge Excess Charge is the difference between the Medicare approved amount for a service or supply and the actual charge.

What type of group rating do the Blue Cross and Blue Shield organizations use as a factor in developing the rates to be charged?

Experience rating The Blue Cross and Blue Shield insurance companies use experience rating to determine rates to be charged. The actual loss experience of the group, in part, determines the rates charged by the insurer.

As it pertains to group health insurance, COBRA stipulates that

Group coverage must be extended for terminated employees up to a certain period of time at the former employee's expense. COBRA requires employers with 20 or more employees to continue group medical insurance for terminated workers and dependents for up to 18 months to 36 months. The employee can be required to pay up to 102% of the coverage's premium.

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy?

Guaranteed insurability option The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability.

What are the 2 types of Flexible Spending Accounts?

Health Care Accounts and Dependent Care Accounts There are 2 types of Flexible Spending Accounts: a Health Care Account for out-of-pocket health care expenses, and a Dependent Care Account to help pay for dependent care expenses which make it possible for an employee and his or her spouse, if applicable, to work.

Which of the following types of LTC is NOT provided in an institutional setting?

Home health care Home health care is given in the home, but skilled nursing, intermediate, and custodial care may all be provided in an institutional setting.

A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits?

Immediate annuity An annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution will be most suitable for this arrangement.

A Return of Premium term life policy is written as what type of term coverage?

Increasing Return of premium (ROP) life insurance is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid.

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?

Indemnity The principle of indemnity stipulates that the insured can only collect for the amount of the loss even if the policy is written with greater benefit limits.

Which of the following insureds have a right to cancel an individual life policy for a full refund within 30 days of policy delivery?

Insureds who are 60 years of age or older If the insured on the individual life policy or the annuitant on an annuity contract is 60 years of age or older, the insured has a right to cancel the policy for a full refund within 30 days.

Which of the following policy components contains the company's promise to pay?

Insuring clause The insuring clause contains the company's promise to pay.

What is an advantage of the Temporary Insuring Agreement to the applicant?

It gives the applicant immediate coverage. A Temporary Insuring Agreement helps bridge the gap between the applicant's request for an immediate coverage and the insurer's need for thorough underwriting. This agreement requires payment of the first premium at the time of application, but does not guarantee that a policy will be issued.

In which of the following situations is it legal to limit coverage based on marital status?

It is never legal to limit coverage based on marital status. Availability of insurance benefits or coverage may not be denied based on sex or marital status. Marital status may be considered for the purpose of defining persons eligible for dependent benefits.

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?

It is reduced to the amount of what the cash value would buy as a single premium. In a reduced paid-up policy, the original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured's death.

Which of the following statements is NOT correct concerning the COBRA Act of 1985?

It requires all employers, regardless of the number or age of employees, to provide extended group health coverage. COBRA Act applies to only employers with 20 or more employees.

Sue has an HSA and is planning to leave her current job for a new job. When she leaves her job, what will happen to her HSA?

It will continue because it is owned by Sue, not her employer HSAs, like IRAs, are portable and belong to the individual, not the employer. When Sue moves to her new job, her HSA moves with her.

Variable Whole Life insurance is based on what type of premium?

Level fixed Variable Whole Life insurance is a level fixed premium investment-based product.

Which of the following is an example of a limited-pay life policy?

Life Paid-up at Age 65 Limited Pay Whole Life premiums are all paid by the time the insured reaches age 65. The policy endows when the insured turns 100. It is the premium paying period that is limited, not the maturity.

Which of the following settlement options in life insurance is known as straight life?

Life income The life-income option, also known as straight life, provides the recipient with an income that he or she cannot outlive. It pays the benefit while the beneficiary is alive; however, the payments stop at the beneficiary's death.

Which of the following insurance coverages would be allowed with an MSA?

Long-term care MSA participants cannot have Medicare or any other health coverage that is not an HDHP. The following are exceptions: workers compensation, specific disease or illness, a fixed amount per day of hospitalization, accidents and/or disability, dental care, vision care, and long-term care.

According to California Insurance Code, the term "shall" describes what kind of actions?

Mandatory According to CIC 16, the word "shall" describes mandatory actions, and the word "may" describes permissive actions unless otherwise apparent from the context.

Which of the following statements pertaining to Medicare Part A is correct?

Medicare Part A is automatically provided when an individual qualifies for Social Security benefits at age 65. Workers who have paid FICA taxes automatically qualify for Medicare Part A at age 65. Part A has been prepaid through the FICA taxes. Workers who qualify for Part A are also eligible for Part B; however, it requires that a monthly premium is withheld from Social Security benefits.

Which of the following statements is correct?

Medicare will cover nursing home care if it is part of the treatment for a covered illness. Medicare will cover nursing home care if it is part of the treatment for a covered injury or illness, but care needed because of aging is not covered by Medicare or Medicare supplements. Medicare and Medicare supplements pay for skilled nursing care, but the coverage is limited. Medicaid does pay for nursing home care, but it provides coverage only for those that qualify with low income and low assets.

B just bought a new car, which he anticipates will be paid for 4 years from now. He also wants to buy a life insurance policy, but is financially limited until the car is paid off. Which of the following types of policies would be best for B?

Modified Life A Modified Life policy would be best. It charges a lower premium for the first few policy years and then a higher level premium for the remainder of the life of the policy. These policies were developed to make the purchase of whole life insurance more attractive for individuals who have limited financial resources but will be able to afford higher premiums in the near future.

Medical savings accounts are only available to groups of how many employees?

No more than 50 Medical savings accounts are only available to groups of 50 or fewer employees or a self-employed person.

In long-term care insurance, what type of care is provided with intermediate care?

Occasional nursing or rehabilitative care Intermediate care is nursing and rehabilitative care provided by medical personnel for stable conditions that require assistance on a less frequent basis than skilled care.

An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do?

Pay a reduced death benefit The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years. However, it does not apply to statements relating to age, sex and identity.

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will

Pay the policy proceeds only if it would have issued the policy. The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.

Which of the following is NOT allowed under the no-loss/no-gain provision?

Pre-existing Condition exclusion When a health policy is replaced for a client with an ongoing claim, the no-loss/no-gain provision does not allow the insurer to apply the pre-existing condition exclusion. The new policy must automatically take over payment of the claim immediately.

Which of the following answers does NOT describe the principal goal of a Preferred Provider Organization?

Provide medical services only from physicians in the network A Preferred Provider Organization attempts to provide subscribers with a choice of health care provider while effecting some cost-savings by contracting with providers for such services.

According to California Insurance Code, which of the following can be classified as an insurable event?

Pure risks Any event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him/her, may be insured against. The more predictable a loss, the more insurable it becomes. Only pure risks are insurable. Speculative losses are uninsurable.

An insured committed suicide one year after his life insurance policy was issued. The insurer will

Refund the premiums paid. If the insured commits suicide within 2 years following the policy effective date, the insurer's liability is limited to a refund of premium.

The clause that protects the proceeds of a life insurance policy from creditors after the death of the insured is known as the

Spendthrift clause. The spendthrift clause protects the policy proceeds from creditors of the policyowner or beneficiary.

When a life insurance policy stipulates that the beneficiary will receive payments in specified installments or for a specified number of years, what provision prevents the beneficiary from changing or borrowing from the planned installments?

Spendthrift provision When a life insurance policy contains a spendthrift provision, all rights of the beneficiary to change time of payment or amount of installments, surrender for cash, borrow against, or assign for any purpose, are withdrawn and those parts of the policy that may give the beneficiary such rights are declared inoperative and void.

An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date?

The date of medical exam If the company acknowledges receipt of the premium with a conditional receipt, the policy is in effect on the date of the application or the date of the medical exam (whichever is later), provided that the applicant is found insurable at the rate applied for.

In which of the following cases would an "any occupation" disability income policy pay the benefits?

The insured is unable to perform any jobs in the field related to the insured's education and experience. A policy that has an "any occupation" provision will only provide benefits when the insured is unable to perform any of the duties of the occupation for which they are suited by reason of education, training, or experience.

If a Medicare insured uses a health care provider who does not accept Medicare payments, which of the following will be true?

The insured might need to sign a private contract with the provider. If a Medicare insured uses a health care provider who does not accept Medicare payments, the insured may be asked to sign a private contract with the provider. The private contract will only apply to the services that the insured receives from that provider.

Which of the following is NOT a feature of a noncancellable policy?

The insurer may terminate the contract only at renewal for certain conditions. The insurance company cannot cancel a noncancellable policy, nor can the premium be increased beyond what is stated in the policy. The insured has the right to renew the policy for the life of the contract; however, the guarantee to renew coverage usually only applies until the insured reaches age 65.

Which of the following best describes a non-medical application?

The medical portion of an application that asks for medical information but does not require a medical exam A non-medical application does not require the prospective insured to receive a medical exam. Instead, he/she must complete a health questionnaire and sign a statement affirming that the information is true.

When the breadwinner that is insured by a Family Policy dies, what rights are provided to other family members that are covered under the policy?

They can convert their coverage to permanent life insurance without evidence of insurability. Family members may convert their term coverage to permanent insurance if requested within the time stated in the policy.

Which of the following is true about labor unions, fraternals and co-ops?

They may opt for a self-insured medical and disability plan. Labor unions, fraternals, cooperatives and other employers may opt for a self-insured medical and disability plan.

All of the following are requirements for life insurance illustrations EXCEPT

They must be part of the contract. An illustration may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list nonguaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values.

What is the purpose of annuity riders?

To allow investors to obtain additional benefit Annuity riders are features that allow annuity investors to obtain additional benefit not offered with the original annuity product.

The purpose of having an elimination period in a policy is to accomplish which of the following?

To allow the client some flexibility in determining their own premium The clients' choice of the length of their elimination period allows them to make their own value judgment in regard to balancing premium expense and benefits.

Which of the following is NOT a goal of risk retention?

To minimize the insured's level of liability in the event of loss Retention usually results from three basic desires of the insured: to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that cannot be insured.

Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit?

Universal Life - Option A Universal Life Option A (Level Death Benefit option) policy must maintain a specified "corridor" or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.

A medical expense policy that establishes the amount of benefit paid based upon the prevailing charges which fall within the standard range of fees normally charged for a specific procedure by a doctor of similar training and experience in that geographic area is known as

Usual, customary and reasonable. The usual, customary and reasonable approach for determining insurance benefits is based upon the fees normally charged for specific procedures in the geographic location where the services are provided.

During the free-look period, the premium for a variable annuity may be invested in all of the following EXCEPT

Value funds. During the 30-day cancellation (free-look) period, the premium for a variable annuity may only be invested in fixed-income investments and money-market funds, unless the investor specifically requests that the premiums be invested in the mutual funds.

When would a 20-pay whole life policy endow?

When the insured reaches age 100 A limited-pay whole life policy, just like straight life, endows for the face amount if the insured lives to age 100. The premium is, however, completely paid off in 20 years.

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant no later than

With the policy. If a life insurance policy contains a free-look period of at least 10 days, the buyer's guide can be delivered with the policy. If it doesn't, the buyer's guide must be delivered prior to accepting the initial premium.