test 1
What limits the amount that a policy owner may borrow from a whole life insurance policy
- Cash value - The amount available to the policyowner for a loan is the policy's cash value. If there are any outstanding loans, that amount will be reduced by the amount of the unpaid loans and interest.
What insurance principles state 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 the amount of their loss, in the event that their policy would allow for a greater benefit to be collected. For example, if a health insurance policy allows for $2.5k for a given surgery, and only $2k is spent, the insured can only collect $2k
If the commissioner issues a cease and desist order, but the producer continues the same activities, the producer can face a fine up to what amount
- $50k - The max civil penalty for willful violation of a cease and desist order is 50k for each act or violation
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
What is the maximum benefit offered by major medical plan?
- $1 million - Major Medical plans have high maximum benefit such as $1 Mm or $2 Mm benefit are usually life time maximum
The policyowner of an adjustable life policy wants to increase the death benefit. What is correct?
- The death benefit can be increased by providing evidence of insurability - The policyowner would need to prove insurability for the amount of the increase
A long strectch of national economic hardship casuses a 7% rate of inflation. Devonne notices that the face value of her policy has been rasised 7% as a result. What caused this?
- Cost of living rider - Cost of living rider annual adjust the policy face value in accordance with the national rate of inflation or deflation. This provision allows for the relative value of the policy to remain constant over time, despite changes in the economy. The cost of living rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.
Which component increases in the increasing term insurance?
- Death benefit - Increasing term features level annual premiums and a death benefit that increases each year over the duration of the policy
In an individual long term care insurance plan, the insured is able to deduct the premiums from taxes. What income taxation will be imposed on the benefit received?
- No tax - Disability income benefits, including those for medical expense and LTC policies, are received income tax free by the individual
An insured submitted a notice of claim to the insurer, but never received claims forms. He later submits proof of loss and explains the nature and extend of loss in a hand-written letter to the insurer. What is true
- The insured was in compliance with the policy requirements regarding claims - If claim forms are not furnished to the insured, the claimant is deemed to have complied with the requirements of the policy if he or she submits written proof of the occurrence, nature of loss and extend of loss to the insurer
What is the advantage of reinstating a policy instead of applying for a new one?
- The original age is used for premium determination - The reinstatement provision allows the policyowner an opportunity to put a lapsed policy back in force, subject to proving continued insurability. If the policy owner elects to reinstate the policy, as opposed to purchasing a new policy, the reinstated policy is restored to its original status
What is not eligible for a health insurance policy from the Indiana Comprehensive Health Insurance Association
- A person who applied for Medicaid 90 days prior to applying for the Association policy - Normaly a person cannot be eligible for an ICHIA policy if the person is eligible for Medicaid unless the person has applied for Medicaid no more than 60 days prior to applying for the Association policy
Workers compensation benefits are regulated by which entity?
- State government - The state government offers and regulates workers compensation benefit, which vary slightly from state to state
Which of the following is true about the commissioner of insurance?
- The commissioner is authorized to participate in the NAIC - The commissioner is appointed by the governor and may also be removed from the office by the governor, if such action is required. The commissioner must present a bond in the sum of $50k with surety, and is authorized to participate in the National Association of Insurance Commissioners
The most the insurance Guaranty Association will pay for a net cash surrender value is
- $100k - The insurance guaranty association will not pay more than $100k for net cash surrender and net cash withdrawal value
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
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?
- Adjust the benefit in accordance with the increased risk - A part of the premium rating concerns the hazard of occupation
What would be unique benefit life insurance has over other types of insurance
- It may perform the function of cash accumulation - Life insurance has a unique advantage over other types of insurance; it allow cash accumulation and living benefits (permanent life insurance only)
How is the amount of social security disability benefit calculated?
- Its based upon the worker's Primary insurance Amount, which is calculated from their average Indexed monthly earnings over their highest 35 years - The amount of SSD benefit is based upon the worker's PIA, which is calculated from their average indexed monthly earnings over their highest 35 years. The lowest 5 years of income may be deleted from calculation
Paul is the policyowner of a life insurance policy which will increase significantly in the face amount (death benefit) when the insured reaches an age specified in the policy. This policy is referred to as
- Jumping juvenile Policy - While many policies provide a level death benefit, jumping juvenile policies provides a low face amount in the early years and then increase, usually by 5 times the amount, when the insured reaches an age specified in the policy, usually 21
Bill 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. What type of policies will be best for bill?
- 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 individual who have limited financial resources but will be able to afford higher premiums in the near future.
Another name for a substandard risk classification is
- Rate - Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium
If a employee wants to enter the group outside the open enrollment period, to reduce adverse selection, the insurer may
- Require evidence of insurability - In group underwriting the evidence of insurability is usually not required for each participant unless they are enrolling for coverage outside the normal enrollment period
Which type of life insurance policy generates immediate cash value?
- Single Premium - Like other types of whole life policies, Single premium whole life endows for the face amount of the policy if the insured lives until the age of 100. The distinguishing feature of a SPWL is the fact that it generates immediate cash value, due to the lump-sum payment made to the insurer.
If a member of a blue cross/blue shield obtains medical treatment from a non-participating provider, the insurer will pay
- The amount that would have been to a participating provider - If a subscriber/member insurs medical expenses from a nonparticipating provider, the bc/bs is responsible for only that amount that it would have paid to a participating provider
What is not a feature of a noncancellable policy?
- The insurer may terminate the contract only at renewal for certain conditions - 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
A policy with a 31 day grace period implies
- The policy will not lapse for 31 days if the premium is not paid when due - A mandatory provision of life insurance policies requires that a grace period be provided. The grace period is the period of time after the premium due date in which premium may still be paid before the policy lapses for nonpayment of the premium
If a producer allowed his or her license to lapse, what is not true?
- The producer must take a written examination within 12 months of the lapse for the license to be reinstated - If a producer has completed all of the required continuing education hours but allows their license to lapse, the license can be reinstated within 12 months without a written examination.
A policy provision conflicts with state statues. What will happen?
- The provision may be altered to conform to the state statue if the conformity with state statue provision is included in the policy - If a policy provision conflicts with state statues, it may be altered to conform to the statues. The conformity with state statues provision states that any conflicting provisions must be changed. Although this is technically an optional provision, many states require its inclusion in insurance policies
What is true for both equity indexed annuities and fixed annuities?
- They have a guaranteed minimum interest rate - While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate
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
What is the purpose of coinsurance provisions?
- To help the insurance company to prevent overutilization of the policy - The purpose of the coinsurance provision is for the insurance company to control costs and discourage overutilization of the policy
What is not the purpose of HIPPA
- To provide immediate coverage to new employees who has been previously covered for 18 months - HIPPA does not prohibit employers or providers from establishing waiting periods or pre existing conditions exclusions, in which case the coverage to new employees would not be immediate
Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract
- Warranty - A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties, but representations. Representations are statements that are true to the best of the applicant's knowledge
If a person is disabled at age 27 and meets social security definition of total disability, how many work credits must they have earned in receive benefit?
- 12 credits - Person between age 24 to 31 can qualify for benefits if they have credits for having worked half of the time between age 21 and the start of the disability. for example, if joe becomes disabled at age 27, he would need 12 credits or 3 years worth, out of the prior 6 years between 21 and 27
The commissioner must be notified in all of expect
- A change in the producer's business phone number - Licensees must inform the commissioner of a change of address, both business and residential within 30 days of change. Since the commissioner's notices are sent by mail, the producer's phone number is not a critical update. An insurer must notify the commissioner of a producer's appointment termination
According to the law of Agency, a principal is represented by
- Agent - By definition, an agent is a person who acts for another person or entity known as the principal with regard to contractual arrangements with third parties.
Under HIPPA, what is incorrect regarding eligibility requirement for conversion to an individual policy?
- An individual who was previously covered by group health insurance for 6 month is eligible - The individual who was previously covered for at 6 months, HIPPA requires that the individual have a previous continuous creditable health coverage for at least 18 months.
If an insurance company makes a statement that its policies are guaranteed by the existence of the insurance guaranty Association that would be considered
- An unfair trade practice - It is an unfair trade practice to make any statement that an insurer's policies are guaranteed by the existence of the insurance guaranty association
Which of the following is not true regarding a business entity?
- Business entity does not need an insurance license - A business entity acting as an insurance producer is required to obtain an insurance producer license. The commissioner will approve a business entity's license if the required fees are paid and the business entity has designated an individual producer to be responsible for the compliance with the insurance laws and rules in Indiana.
An insured receives an annual life insurance divided check. What term best describes this arrangement
- Cash option - The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check
When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is
- Conditional - The contract is formed on the basis that certain conditions are met.
What is the statement that's correct for concerning taxation of long term care insurance?
- Excessive benefits may be taxable - Regardless of whether or not the insured can deduct individual long-term care premiums, the benefits are received income tax free by the individual. Excessive benefits as determined by statue are taxable as ordinary income.
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
According to rule 38.1 coordination of benefits
- Group health insurance plans must include a coordination of benefit provision - Allows group health insurance plans to include a coordination of benefit provisions; however is not required.
What is true about a defined benefit plan?
- High-salaried employees with only a few years until retirement receive the highest contribution - Defined benefit plans favor owners and key employee nearing retirement. The contribution formula is weighted toward these employees
The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as
- Incontestability clause - If an insurer wishes to contests any statements on an application, they must do so within the first two years
Which type of hospital policy pays a fixed amount each day that the insured is in the a hospital
- Indemnity - A hospital indemnity policy pays a fixed amount each day the insured is hospitalized, unrelated to medical expense
The mode of premium payment
- Is defined as the frequency and amount of the premium payment - The mode refers to the frequency the policyowner pays the premium: monthly, quarterly, semiannually, or annually. The amount of premium will change accordingly
What is true regarding the taxation of the premium in group accidental death and dismemberment policies?
- Its deductible as an ordinary business expense - Premiums for group accidental death and dismemberment policies are deductible to the employer as an ordinary business expense
In a long-term care policy, pre-existing condition limitation
- Must appear as a separate paragraph and be clearly labeled - If there are any limitations in the policy with respect to pre-existing conditions these limitations must appear in a separate paragraph in the policy labeled "pre-existing conditions limitations" a long-term care policy cannot deny a claim for losses incurred more than 6 months from the effective date of coverage because of a pre-existing condition
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.
An insured pays her Major Medical Insurance premium annually on March 1. Last March she forgot to mail her premium to the company. On March 19, she had an accident and broker her leg. The insurance company would
- Pay the claim - Because the accident occurred during the grace period, the insurance company will pay the claim
Certain conditions, such as dismemberment or total and permanent blindness, will automatically qualify the insured for full disability benefits. Which disability policy provision does this describe?
- Presumptive disability - Presumptive disability is a provision that is found in most disability income policies which specifies the conditions that will automatically qualify the insured for full disability benefits.
Which of the following statements is an accurate comparison between private and government insurers?
- Private insurers may be authorized to transact insurance by state insurance departments - Private insurers offer many lines of insurance. Government insurance programs, also known as "social insurance" cover areas that private companies cannot or will not, providing programs like Medicare, Social Security and National Flood insurance. Government programs are funded with tax dollars and serve national causes, in contrast with private insurers.
What statement is not true regarding a Straight Life policy
- The premium steadily decreases over time, in response to its growing cash value - Straight Life policies charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit
Under the replacement regulation, rule 16.1, what would be best describe the producer's duties
- The producer must conduct a reasonable investigation to determine if a replacement will take place. - While the producer must provide the applicant with all the appropriate documentation and notices, the first and foremost, the producer must take an active role and conduct an investigation to determine whether the replacement will indeed take place.
What is exempt from continuing education requirements?
- A limited line credit producer - Only a limited line credit provider will be exempt from CE requirements
A new insurance company wants to begin conducting insurance in diana. What will it need to receive before it can legally open for business?
- Certificate of Authority - When an insurance company has proven that it is compliant with Indiana insurance laws, the commissioner can issue a certificate of authority so the company can start conducting business. Its illegal for an insurance company to transact insurance without this certificate
What do individuals use to transfer their risks of loss to a larger group?
- Insurance - Insurance is the mechanism whereby an insured is protected against loss by a specified future contingency or peril in return for the present payment of premium. Because many other individuals with the same or similar risk of loss are paying premiums, funds are available to indemnify those who actually suffer that loss.
According to life Insurance replacement regulation, rule 16.1, replacement of life insurance is defined as a process in which
- A new policy is bought and an old policy is converted to a reduced paid up policy - Replacement means any transaction in which new life insurance or a new annuity is to be purchased and it is known or should be known to the proposing producer that by reason of the transaction, existing life insurance or annuities have been or will be converted to reduced paid up insurance, continued as extended term insurance or otherwise reduced in value by the sue of nonforfeiture benefits or other policy value.
A policy which covers medical costs related to a specific condition is called a
- Dread disease policy - Dread disease policies cover medical expenses for a particle medical condition such as cancer or heart disease.
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
If a life insurance policy develops cash value faster than a seven pay whole life contract. It is a
- A modified endowment contract - Any cash value insurance policy that develops cash value faster than a seven pay whole life contract is called a modified endowment contract. It loses the benefits of a standard life contract
What kind of ltc benefit would provide coverage for care for functionally impaired adults on a less than 24 hours basis
- Adult day care - Adult day care is designed for those who require assistance with various ADLs on a daily basis, but not around the clock. Custodial care is usually the only service provided by ADC facilities
In a group prescription drug plan, the insured typically pays what amount of the drug cost?
- Copayment - Under a group drug prescription plan, the insured typically pays a copay, and the insurer pays the balance. There is generally a limit to the quantity of drugs that can be purchased at one time.
Policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annual to his spouse, but that the principal will be paid to their children when they reach a certain age. What 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 at regular intervals