Life and Health Insurance Exam Study

Annuities can be used to fund which of the following?a)Estate creation b)Retirement plans c)Variable life insurance d)Group life insurance

b)Retirement plans

Long-term care policies MUST cover a)A pre-existing condition. b)Alzheimer's disease. c)Treatment payable by Medicare. d)Alcoholism.

b)Alzheimer's disease.

HIPAA applies to groups of a)More than 2, fewer than 50. b)2 or more. c)At least 10. d)At least 100.

b)2 or more.

Every small employer carrier must actively offer to small employers at least how many health benefit plans? a)One plan b)2 plans c)3 plans d)There is no minimum.

b)2 plans

Which of the following produces evaluations of insurers' financial status often used by state departments of insurance? a)AM Best b)NAIC c)Consumer's guide d)SEC

a)AM Best AM Best & Company assigns ratings to life, property and casualty insurance companies based upon the financial stability of the insurer.

If the insured under a disability income insurance policy changes to a more hazardous occupation after the policy has been issued, and a claim is filed, the insurance company should do which of the following? a)Adjust the benefit in accordance with the increased risk b)Cancel the policy c)Increase the premium d)Exclude coverage for on-the-job injury

a)Adjust the benefit in accordance with the increased risk

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? a)Guaranteed insurability option b)Dividend options c)Guaranteed renewable option d)Nonforfeiture options

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

If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a a)Guaranteed insurability rider. b)Paid-up additions option. c)Cost of living provision. d)Nonforfeiture option.

a)Guaranteed insurability rider. The Guaranteed Insurability rider allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability. Rates for the additions are based upon attained age.

Which of the following is the closest term to an authorized insurer? a)Legal b)Admitted c)Certified d)Licensed

b)Admitted *Both start with A

Which of the following types of agent authority is also called "perceived authority"? a)Fiduciary b)Apparent c)Express d)Implied

b)Apparent Apparent authority (also known as perceived authority) is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

An insurance company receives an application with some information missing and issues the policy anyway. What is this called? a)Aleatory b)Waiver c)Estoppel d)Subrogation

b)Waiver

Which of the following statements concerning buy-sell agreements is true? a)Benefits received are considered income taxable. b)Buy-sell agreements pay in the event of a medical emergency. c)Buy-sell agreements are normally funded with a life insurance policy. d)Premiums paid are deductible as a business expense.

c)Buy-sell agreements are normally funded with a life insurance policy.

The rider that may be added to a Disability Income policy that allows for an increase in the benefit amount under certain conditions is called a)Double Indemnity. b)Residual Benefits. c)Cost of Living (COLA). d)Waiver of Premium.

c)Cost of Living (COLA).

What is the purpose of establishing the target premium for a universal life policy? a)To pay up the policy faster b)To cover all policy expenses c)To keep the policy in force d)To accumulate cash value faster

c)To keep the policy in force Because you need to hit targets in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit? a)Universal Life - Option B b)Equity Indexed Universal Life c)Variable Universal Life d)Universal Life - Option A

d)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.

Which of the following is NOT the consideration in a policy? a)The application given to a prospective insured b)Something of value exchanged between parties c)The premium amount paid at the time of application d)The promise to pay covered losses

a)The application given to a prospective insured Consideration is something of value that is transferred between the two parties to form a legal contract.

Which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount? a)Universal life b)Flexible life c)Variable life d)Adjustable life

a)Universal life The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.

Which of the following is NOT a characteristic or a service of an HMO plan? a)Providing care on an outpatient basis b)Contracting with insurance companies c)Providing free annual checkups d)Encouraging early treatment

b)Contracting with insurance companies

A certified insurance consultant can a)Work as a consultant for the Commissioner. b)Examine insurance contracts and make recommendations for a fee. c)Decide whether a claim is valid. d)Solicit insurance contracts.

b)Examine insurance contracts and make recommendations for a fee

Under a typical health insurance policy, claims that result from injuries while the insured was intoxicated or under the influence of drugs are generally a)Covered with a 90 days' waiting period. b)Excluded. c)Covered. d)Covered, but an extra premium is charged when a claim is filed.

b)Excluded.

If an annuitant selects the straight life annuity settlement option, in order to receive all of the money out of the contract, it would be necessary to a)Name another annuitant. b)Live at least to his life expectancy. c)Die before his life expectancy. d)Name a beneficiary.

b)Live at least to his life expectancy.

With respect to the Consideration Clause, which of the following would be considered consideration on the part of the applicant for insurance? a)Notice of policy cancellation b)Payment of premium c)Promise to renew the policy at the end of the policy period d)Providing warranties on the application

b)Payment of premium

Which of the following factors would be an underwriting consideration for a small employer carrier? a)Medical history of the employees b)Percentage of participation c)Claims experience d)Health status

b)Percentage of participation Needs minimum of 75%

Which nonforfeiture option provides coverage for the longest period of time? a)Accumulated at interest b)Reduced paid-up c)Extended term d)Paid-up option

b)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.

Disability income policies can provide coverage for a loss of income when returning to work only part-time after recovering from total disability. What is the benefit that is based on the insured's loss of earnings after recovery from a disability? a)Income replacement b)Residual disability c)Recurrent disability d)Partial disability

b)Residual disability A residual disability will pay an amount to make up the difference between what the insured would have earned before the loss.

Which of the following is true regarding limited health insurance policies? a)They cover every need of a health insurance policy holder. b)They only cover specific accidents or diseases. c)They cover all sickness or accidents that are not specifically excluded. d)They are limited to those enrolled in a group health plan.

b)They only cover specific accidents or diseases.

All of the following could be considered rebates if offered to an insured in the sale of insurance EXCEPT a)Stocks, securities, or bonds. b)An offer to share in commissions generated by the sale. c)Dividends from a mutual insurer. d)An offer of employment. Dividends paid to policyholders of a mutual insurer are not considered to be a rebate because the policy specifies that they might be paid.

c)Dividends from a mutual insurer. Dividends paid to policyholders of a mutual insurer are not considered to be a rebate because the policy specifies that they might be paid.

All of the following are business uses of life insurance EXCEPT a)Funding against financial loss caused by the death of a key employee. b)Funding business continuation agreements. c)Funding against company's general financial loss. d)Compensating executives.

c)Funding against company's general financial loss.

All of the following statements are true of a Combination Dental Plan EXCEPT a)It covers diagnostic and preventive care on the usual, customary, and reasonable basis. b)It uses a fee schedule for other dental services. c)It is also known as the Superimposed Plan. d)It is basically a combination of a scheduled and nonscheduled dental plan.

c)It is also known as the Superimposed Plan. A combination plan is basically a combination of the scheduled and nonscheduled plan. The combination plan covers diagnostic and preventive services on the usual, customary and reasonable basis but uses a fee schedule for other dental services.

Which of the following would be the best option that would help the surviving spouse of the insured to put her child through daycare after the insured's death? a)Vatical settlement b)Estate conservation c)Life insurance proceeds d)State Education Waiver

c)Life insurance proceeds

Which of the following riders would NOT cause the Death Benefit to increase? a)Cost of Living Rider b)Accidental Death Rider c)Payor Benefit Rider d)Guaranteed Insurability Rider

c)Payor Benefit Rider This rider waives premium, has nothing to do with benefit

Why should the producer personally deliver the policy when the first premium has already been paid? a)To find out how the family has been doing since the initial presentation b)To make sure the policy is not stolen or lost c)To help the insured understand all aspects of the contract d)To ensure the producer gets paid commission

c)To help the insured understand all aspects of the contract It is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.

Premiums paid by self-employed sole proprietors or partners for medical expense insurance are a)Not tax deductible. b)Partially tax deductible. c)Totally tax deductible. d)Taxable. Sole proprietors and partners may deduct 100% of the cost of a medical expense plan provided to them and their families because they are considered self-employed individuals, not employees.

c)Totally tax deductible. Sole proprietors and partners may deduct 100% of the cost of a medical expense plan provided to them and their families because they are considered self-employed individuals, not employees.

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 a)Benefit schedule. b)Gatekeepers. c)Usual, customary and reasonable. d)Relative-value schedule.

c)Usual, customary and reasonable.

The insured's health policy only pays for medical costs related to accidents. Which of the following types of policies does the insured have? a)Restrictive b)Accidental Death c)Comprehensive d)Accident-only

d)Accident-only

What documentation grants express authority to an agent? a)Agent's insurance license b)Fiduciary contract c)State provisions d)Agent's contract with the principal

d)Agent's contract with the principal

In insurance, an offer is usually made when a)The insurer approves the application and receives the initial premium. b)The agent hands the policy to the policyholder. c)An agent explains a policy to a potential applicant. d)An applicant submits an application to the insurer.

d)An applicant submits an application to the insurer.

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement? a)Term insurance only b)Permanent insurance only c)Universal life insurance only d)Any form of life insurance

d)Any form of life insurance

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT a)Consideration. b)Legal purpose. c)Offer and acceptance. d)Conditions.

d)Conditions.

An insured does not have to pay coinsurance or deductibles on a full-series mouth x-ray, but does have to pay a deductible to get his cavities filled. Which dental plan does he have? a)Limited b)Procedure-based c)Scheduled d)Nonscheduled

d)Nonscheduled Diagnostic and preventative services are generally not subject to coinsurance or deductibles in nonscheduled plans, but basic and major services are.

Regarding the return of premium option for LTC policies, what happens to the premium if the policy lapses? a)The insurer will not return any premiums in the case the policy is allowed to lapse. b)The premium will only be returned if the insured dies. c)The insurer will return all of the premiums paid. d)The insurer will return a percentage of the premiums paid.

d)The insurer will return a percentage of the premiums paid.

In a life settlement contract, whom does the life settlement broker represent? a)The insurer b)The beneficiary c)The life settlement intermediary d)The owner

d)The owner Because brokers represent their clients- like lawyers

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT a)Any type of insurance policy may be used. b)The employer pays a bonus to a selected employee to fund the policy. c)It is considered a nonqualified employee benefit. d)The policy is owned by the company.

d)The policy is owned by the company.

When appointing a producer, an insurer must file a notice of appointment to the Department of Insurance within a)15 days. b)20 days. c)30 days. d)31 days.

a)15 days.

When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a(n) a)Executive bonus. b)Key person policy. c)Fraternal association. d)Aleatory contract.

a)Executive bonus

An insured is covered under 2 group health plans - under his own and his spouse's. He had suffered a loss of $2,000. After the insured paid the total of $500 in deductibles and coinsurance, the primary insurer covered $1,500 of medical expenses. What amount, if any, would be paid by the secondary insurer? a)$0 b)$500 c)$1,000 d)$2,000

b)$500 Because secondary insurer pays for deductibles and out of pocket costs

How many continuing education hours related to regulations or ethics are producers required to complete per reporting period? a)2 hours b)3 hours c)6 hours d)10 hours

b)3 hours

Which of the following describes the tax advantage of a qualified retirement plan? a)Employer contributions are not taxed when paid out to the employee. b)The earnings in the plan accumulate tax deferred. c)Distributions prior to age 59½ are tax deductible. d)Employer contributions are deductible as a business expense when the employee receives benefits.

b)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.

Employer health plans must provide primary coverage for individuals with end-stage renal disease before Medicare becomes primary for how many months? a)12 months b)24 months c)30 months d)36 months

c)30 months

What is the maximum number of employees that a small employer can have? a)10 b)25 c)50 d)100

c)50

What is the maximum amount of controlled business allowed, in relation to the total premiums written to the general public? a)3 times b)5 times c)9 times d)2 times

c)9 times

What happens when a policy is surrendered for its cash value? a)The policy can be reinstated by paying back all policy loans and premiums. b)The policy can be converted to term coverage. c)Coverage ends and the policy cannot be reinstated. d)Coverage ends but the policy can be reinstated at any time.

c)Coverage ends and the policy cannot be reinstated. Because when you surrender, you're done

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? a)No penalties, since the owner is older than 59 ½ b)10% for early withdrawal c)15% for early withdrawal d)50% tax on the amount not distributed as required

d)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.

Under what condition are group disability income benefits received by an employee NOT taxable as income? a)When the employer makes all the premium payments. b)When the employee is 59 ½. c)When the amount of the benefit is equal or less than the amount of contributed by the employer. d)When the benefits received are equal or less than the employee's percentage of the contribution.

d)When the benefits received are equal or less than the employee's percentage of the contribution. Because employee already paid

Federal law makes it illegal for any individual convicted of a crime involving dishonesty or breach of trust to work in the business of insurance affecting interstate commerce a)Under any circumstances. b)Unless they have served an appropriate prison sentence. c)Without receiving written consent from a Federal Judge. d)Without receiving written consent from an insurance regulatory authority.

d)Without receiving written consent from an insurance regulatory authority.

Kevin and Nancy are married; Kevin is the primary breadwinner and has a health insurance policy that covers both him and his wife. Nancy has an illness that requires significant medical attention. Kevin and Nancy decide to legally separate, which means that Nancy will no longer be eligible for health insurance coverage under Kevin. Which of the following options would be best for Nancy at this point? a)COBRA b)Apply for social security benefits c)Apply for coverage under the same group policy that covers Kevin d)Convert to an individual insurance policy with 31 days so she won't have to provide evidence of insurability

a)COBRA Dependents of employees are eligible to receive group health insurance under the employee's plan. If the employee and the dependent become legally separated or divorced, or if the employee dies, the dependent will be eligible for COBRA benefits for up to 36 months. This is best for Nancy, since she has endured a long-term illness. Otherwise, being approved for individual health insurance would be difficult.

The Patient Protection and Affordable Care Act includes all of the following provisions EXCEPT a)Individual tax deduction for premiums paid. b)Right to appeal. c)No lifetime dollar limits. d)Coverage for preventive benefits.

a)Individual tax deduction for premiums paid.

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? a)Premiums are not tax deductible as a business expense. b)Premiums are tax deductible by the key employee. c)Premiums are tax deductible as a business expense. d)Premiums are taxable to the employee.

a)Premiums are not tax deductible as a business expense. Because benefits paid to the business are usually received tax free.

A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy a)Required a premium increase each renewal. b)Built cash values. c)Required proof of insurability every year. d)Decreased death benefit at each renewal.

a)Required a premium increase each renewal.

Which of the following does NOT have to be disclosed in a long-term care (LTC) policy? a)The aggregate amount of premiums due b)The meaning of the terms "reasonable" and "customary" c)Any limitations or conditions of eligibility for LTC benefits d)Any riders or endorsements

a)The aggregate amount of premiums due All LTC policies must disclose and explain the renewability provisions. With regard to life insurance policies that provide an accelerated benefit for long-term care, the policy must include a statement to the effect that receipt of the accelerated benefits may be taxable, and that the insured should seek assistance from a personal tax advisor.

When a life insurance policy was issued, the policyowner designated a primary and a contingent beneficiary. Several years later, both the insured and the primary beneficiary died in the same car accident, and it was impossible to determine who died first. Which of the following would receive the death benefit? a)The insured's contingent beneficiary b)The insurance company c)The insured's estate d)The primary beneficiary's estate

a)The insured's contingent beneficiary Under the Uniform Simultaneous Death Law, the law will assume that the beneficiary dies first in a common disaster. This provides that the proceeds will be paid to the contingent beneficiary or to the insured's estate if none is designated.

All of the following would be different between qualified and nonqualified retirement plans EXCEPT a)IRS approval requirements b)Taxation on accumulation c)Taxation of withdrawals d)Taxation of contributions

b)Taxation on accumulation

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? a)The contract can be issued without an annuitant. b)The annuitant must be a natural person. c)A corporation can be an annuitant as long as it is also the owner. d)A corporation can be an annuitant as long as the beneficiary is a natural person.

b)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.

Which of the following is NOT a goal of risk retention? a)To fund losses that cannot be insured b)To minimize the insured's level of liability in the event of loss c)To reduce expenses and improve cash flow d)To increase control of claim reserving and claims settlements

b)To minimize the insured's level of liability in the event of loss

Variable Whole Life insurance is based on what type of premium?a)Flexible b)Graded c)Level fixed d)Increasing

c)Level fixed

Which of the following will vary the length of the grace period in health insurance policies? a)The length of time the insured has been insured b)The term of the policy c)The mode of the premium payment d)The length of any elimination period

c)The mode of the premium payment

What happens if a deferred annuity is surrendered before the annuitization period? a)The insurer can only apply the surrender value toward another annuity. b)Deferred annuities cannot be surrendered prior to the annuitization period. c)The owner will receive the surrender value of the annuity. d)The owner will only receive a refund of premium.

c)The owner will receive the surrender value of the annuity.

Which of the following statements regarding Business Overhead Expense policies is NOT true? a)Premiums paid for BOE are tax-deductible. b)Any benefits received are taxable to the business. c)Leased equipment expenses are covered by the plan. d)Benefits are usually limited to six months.

d)Benefits are usually limited to six months. Because there is not a limit

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe? a)Contingent b)Aleatory c)Unilateral d)Conditional

d)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.

What is an important feature of a dental expense insurance plan that is NOT typically found in a medical expense insurance plan? a)A broad coverage area b)A low monthly premium c)Low cost deductibles d)Diagnostic and preventive care

d)Diagnostic and preventive care

Which types of insurance companies marketing long-term care insurance coverage must establish procedures to assure that any comparison of policies by its agents will be fair and accurate? a)Any company that uses any form of media to market policies that yield no less than 20% of its business. b)Mutual and stock companies. c)No companies are required to establish marketing procedures. d)Every company is required to establish marketing procedures.

d)Every company is required to establish marketing procedures.

What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax-deferred account by the beneficiary? a)Capital gains tax on distributions and no penalty. b)Capital gains tax on distributions plus 10% penalty. c)Income tax on distributions and no penalty. d)Income tax on distributions plus 10% penalty.

d)Income tax on distributions plus 10% penalty. If the beneficiary chooses to leave the money in the tax-deferred account until the calendar year in which the owner would have attained age 70½, the distributions would be subject to income taxation at the rate at the time of withdrawal.

In order to minimize adverse selection, employer group dental plans may require employees who enroll after they were initially eligible to participate to do all of the following EXCEPT a)Submit evidence of insurability. b)Satisfy a longer probationary period. c)Reduce benefits for a period such as one year. d)Increase benefits for a period of one year.

d)Increase benefits for a period of one year. Because it helps cover cost

Which of the following is true regarding health insurance? a)Disability coverage is excluded. b)It provides death benefit coverage. c)It only covers expenses related to health care. d)It could provide payments for loss of income.

d)It could provide payments for loss of income.

Which of the following is NOT true regarding a nonqualified retirement plan? a)Contributions are not currently tax deductible. b)It can discriminate in benefits and selecting participants. c)Earnings grow tax deferred. d)It needs IRS approval.

d)It needs IRS approval. Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.

Which of the following is NOT true of life settlements? a)They could be used for a key person coverage. b)They could be sold for an amount greater than the current cash value. c)They involve insurance policies with large face amounts. d)The seller must be terminally ill.

d)The seller must be terminally ill.