DREW NEEDS TO STUDY
#45. The free-look provision allows for which of the following? a) A right to return the policy for a full premium refund b) Immediate coverage when the application is submitted c) A guarantee that the policy will not lapse if the premium is overdue d) A guarantee that the policy will be issued
a) A right to return the policy for a full premium refund The free-look period is a mandatory provision found in health insurance policies that allows the applicant to examine the policy and if dissatisfied for any reason, return the policy for a full refund.
#87. Premium payments for personally-owned disability income policies are a) Not tax deductible. b) Eligible for tax credits. c) Tax deductible. d) Tax deductible to the extent that they exceed 10% of the adjusted gross income of those itemizing deductions.
a) Not tax deductible. Premiums for personally-owned individual disability income policies are not deductible.
#29. All other factors being equal, the least expensive first-year premium payment is found in a) Annually Renewable Term. b) Increasing Term. c) Decreasing Term. d) Level Term. Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.
a) Annually Renewable Term. Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.
#43. A waiver of premium provision may be included with which kind of health insurance policy? a) Disability income b) Basic medical c) Hospital indemnity d) Dread disease
a) Disability income A waiver of premium rider generally is included with guaranteed renewable and noncancellable individual disability income policies. It is a valuable provision because it exempts the insured from paying the policy's premium during periods of total disability.
#50. A Health insurance policy lapses but is reinstated within an acceptable timeframe. How soon from the reinstatement date will coverage for accidents become effective? a) Immediately b) After 14 days c) After 21 days d) After 31 days
a) Immediately Coverage for accidents is immediate when reinstatement occurs, but coverage for sickness may have a waiting period of about 10 days.
#58. In health insurance, if a doctor charges $50 more than what the insurance company considers usual, customary and reasonable, the extra cost a) Is not covered. b) Must be covered by the insurer. c) Counts toward deductible. d) Counts toward coinsurance.
a) Is not covered. An insurance company will pay the usual, reasonable, or customary amount for a given procedure based upon the average charge for that procedure.
#37. Which of the following is NOT provided by an HMO? a) Reimbursement b) Services c) Financing d) Patient care
a) 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.
#12. A policy with a 31-day grace period implies a) The policy will not lapse for 31 days if the premium is not paid when due. b) The policyholder may return the policy for a full refund within 31 days. c) The policy is incontestable after 31 days of delivery. d) The policy benefits must be paid within 31 days after a claim is submitted.
a) 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 premiums may still be paid before the policy lapses for nonpayment of the premium.
#17. A brain surgeon has an accident and develops tremors in her right arm. Which disability income policy definition of total disability will cover her for all losses? a) "Any occupation" - more restrictive than other definitions b) "Own occupation" - less restrictive than other definitions c) "Own occupation" - more restrictive than other definitions d) "Any occupation" - less restrictive than other definitions
b) "Own occupation" - less restrictive than other definitions In theory, the brain surgeon could find other work, but because her disability income policy specifies that she is covered for her own occupation, she would be wholly covered.
#24. To sell variable life insurance policies, an agent must receive all of the following EXCEPT a) A life insurance license. b) A SEC registration. c) A FINRA registration. d) A securities license.
b) A 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.
#52. An insured misstates her age at the time the life insurance application is taken. This misstatement may result in a) Recession of the policy. b) Adjustment in the amount of death benefit. c) No change whatsoever. d) Automatic lapse.
b) Adjustment in the amount of death benefit. If the applicant has misstated his or her age or gender on the application, the insurer, in the event of a claim, is allowed under this provision to adjust the benefits to an amount that the premium at the correct age or gender would have otherwise purchased.
#19. A Universal Life Insurance policy is best described as a/an a) Flexible Premium Variable Life policy. b) Annually Renewable Term policy with a cash value account. c) Variable Life with a cash value account. d) Whole Life policy with two premiums: target and minimum.
b) Annually Renewable Term policy with a cash value account. A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.
#38. In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT a) Applicant's present occupation. b) Applicant's past income. c) Applicant's past medical history. d) Applicant's present physical condition.
b) Applicant's past income. In classifying a risk, the Home Office underwriting department will look at the applicant's past medical history, present physical condition, occupation, habits and morals.
#70. When must insurable interest exist in a life insurance policy? a) At the time of loss b) At the time of application c) At the time of policy delivery d) When there is a change of the beneficiary
b) At the time of application In life insurance, insurable interest must exist at the time of application.
#33. Which of the following provides coverage on a first-dollar basis? a) Limited major medical b) Basic expense c) Accident expense d) Supplementary major medical
b) Basic expense A basic expense policy will provide coverage on a first-dollar basis (no deductible). After the limits of the basic policy are exhausted, the insured must pay a corridor deductible before the major medical coverage will pay benefits.
#84. Which of the following best describes the MIB? a) It is a rating organization for health insurance. b) It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance. c) It is a government agency that collects medical information on the insured from the insurance companies. d) It is a member organization that protects insured against insolvent insurers.
b) It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance. The Medical Information Bureau (MIB) is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.
#69. Which provision concerns the insured's duty to provide the insurer with reasonable notice in the event of a loss? a) Consideration b) Notice of Claim c) Loss Notification d) Claims Initiation
b) Notice of Claim The Notice of Claim Provision spells out the insured's duty to provide the insurer with reasonable notice in the event of a loss.
#57. Which of the following explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy? a) Assignment Rights b) Owner's Rights c) The Entire Contract Provision d) The Consideration Clause
b) Owner's Rights Policyowners can learn about their ownership rights by referring to the policy.
#16. Which of the following riders would NOT cause the Death Benefit to increase? a) Accidental Death Rider b) Payor Benefit Rider c) Guaranteed Insurability Rider d) Cost of Living Rider
b) 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.
#78. Underwriting is a major consideration when an insured wishes to replace her current policy for all of the following reasons EXCEPT a) Benefits may change. b) Premiums always stay the same. c) Due to age or health, the policy may change dramatically. d) Pre-existing conditions that were previously covered may not be covered under the replacing policy.
b) Premiums always stay the same. Underwriting is important when replacement is involved. It is an underwriter's duty to evaluate risk and decide whether or not a person is eligible for coverage. When replacement is involved, the insured may be under the assumption that a replacing policy is in his/her best interests, but after being evaluated by an underwriter, where premium and risk are exchanged, an insured may not be paying the same premium or receiving the same benefits.
#2. Insurers may change which of the following on a guaranteed renewable health insurance policy? a) No changes are permitted. b) Rates by class c) Coverage d) Individual rates
b) Rates by class On a guaranteed renewable health insurance policy, the insurer may increase premiums on a class basis only and not on an individual policy.
#76. A domestic insurer issuing variable contracts must establish one or more a) General accounts. b) Separate accounts. c) Liability accounts. d) Annuity accounts.
b) Separate accounts. Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account
#85. Which of the following special policies covers unusual risks that are NOT normally included under Accidental Death and Dismemberment coverage? a) Credit Disability b) Special Risk Policy c) Limited Risk Policy d) Specified Disease Policy
b) Special Risk Policy The Special Risk Policy will cover unusual types of risks that are not normally covered under AD&D policies. It covers only the specific hazard or risk identified in the policy, such as a racecar driver test-driving a new car.
#1. Which of the following is NOT a feature of a noncancellable policy? a) The insured has the right to renew the policy for the life of the contract. b) The insurer may terminate the contract only at renewal for certain conditions. c) The premiums cannot be increased beyond the amount stated in the policy. d) The guarantee to renew coverage usually applies until the insured reaches certain age.
b) 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.
#56. An insured is upset that her new health insurance policy was delivered to her by certified mail and not through her agent. Which of the following is true? a) The policy will not be legal until it is delivered by an agent. b) There is nothing wrong with this form of policy delivery. c) The insured should complain to the insurer. d) The insured should ask for a new policy to be delivered.
b) There is nothing wrong with this form of policy delivery. Although it is advisable for an agent to personally deliver a policy, in order to answer any questions and insure delivery, it is legal for a policy to be effectively delivered without the presence of an agent. It is legal to deliver a policy through some types of mail.
#32. Which of the following is TRUE about nonforfeiture values? a) Policyowners do not have the authority to decide how to exercise nonforfeiture values. b) They are required by state law to be included in the policy. c) They are optional provisions. d) A table showing nonforfeiture values for the next 10 years must be included in the policy.
b) They are required by state law to be included in the policy. Nonforfeiture values are required by state law to be included in the policy, and cannot be altered by the policyowner. A table showing the nonforfeiture values for the next 20 years must be included in the policy.
#75. 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? a) Conditional b) Unilateral c) Unidirectional d) Aleatory
b) Unilateral In a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy.
#82. An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer? a) $8,000, tax on growth only b) $10,000, tax on growth only c) $10,000, no tax consequence d) $8,000, no tax consequence
c) $10,000, no tax consequence During an IRA direct transfer (or direct rollover), the full amount gets reinvested from one plan to the other.
#36. An insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement? a) $0 b) $100,000 c) $200,000 d) $100,000 plus the total of paid premiums
c) $200,000 The beneficiary would most likely receive twice the face value of the policy, since his fatal injuries were caused by an accident and he died within the 90-day benefit limit stipulated in most policies.
#41. 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) Aleatory b) Unilateral c) Conditional d) Contingent
c) 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.
#73. What does "level" refer to in level term insurance? a) Cash value b) Interest rate c) Face amount d) Premium
c) Face amount Level term policies maintain level death benefit (or face amount) throughout the term of the policy. In level term insurance, the premium also remains consistent over the years, unlike the premiums of many policies, which increase as the policyholder ages.
#34. Which of the following is considered a presumptive disability under a disability income policy? a) Loss of hearing in one ear b) Loss of one hand or one foot c) Loss of two limbs d) Loss of one eye
c) Loss of two limbs Presumptive disability is a provision that is found in most disability income policies that specifies conditions that will automatically qualify the insured for full disability benefits, such as the loss of two limbs.
#31. Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early? a) Paid-up additions b) Dividend Accumulation option c) Paid-up option d) Accumulation at Interest
c) Paid-up option With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.
#48. With respect to the Consideration Clause, which of the following would be considered consideration on the part of the applicant for insurance? a) Providing warranties on the application b) Notice of policy cancellation c) Payment of premium d) Promise to renew the policy at the end of the policy period
c) Payment of premium The two types of consideration on the part of an insurance applicant are payment of premiums and representations on the application.
#77. When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to a) Pay back all premiums owed plus interest. b) Receive payments for a fixed amount. c) Purchase a single premium policy for a reduced face amount. d) Purchase a term rider to attach to the policy.
c) Purchase a single premium policy for a reduced face amount. When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy.
#23. 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) Partial disability b) Income replacement c) Residual disability d) Recurrent disability
c) Residual disability A residual disability will pay an amount to make up the difference between what the insured would have earned before the loss.
#18. If an agent wishes to sell variable life policies, what license must the agent obtain? a) Surplus Lines b) Personal Lines c) Securities d) Adjuster
c) Securities Variable products are governed in part by the Securities and Exchange Commission; therefore, agents selling variable life policies must also secure a securities license.
#42. Which is true regarding obtaining underwriting sources? a) The insurer only needs to inform the applicant of how the information is being gathered; it is not necessary to disclose the sources. b) It is illegal to obtain information from outside sources in order to determine an applicant's insurability. c) The applicant must be informed of the sources contacted and how the information is being gathered. d) The insurer does not need to inform the applicant of how the information is gathered; informing only of the source is sufficient.
c) The applicant must be informed of the sources contacted and how the information is being gathered. It is required by law that an insurer informs the applicant of all sources that will be contacted in determining the applicant's insurability, in addition to how the information will be gathered.
#9. Which of the following is NOT the consideration in a policy? a) The premium amount paid at the time of application b) The promise to pay covered losses c) The application given to a prospective insured d) Something of value exchanged between parties
c) The application given to a prospective insured Consideration is something of value that is transferred between the two parties to form a legal contract.
#59. The insured had his wife named as the beneficiary of his life insurance policy. To ensure that his wife had income for life after the insured's death, he chose the life income settlement option. The amount of payments will be determined by taking into account all of the following EXCEPT a) Projected interest rates. b) Face amount of the policy. c) The insured's age at death. d) The beneficiary's life expectancy.
c) The insured's age at death The insured's age at death will not be considered, but the longer the life expectancy of the recipient, the lower the payments will be.
#28. Which provision states that the insurance company must pay Medical Expense claims immediately? a) Legal Actions b) Relation of Earnings to Insurance c) Time of Payment of Claims d) Payment of Claims
c) Time of Payment of Claims The Time Payment of Claims provision requires that claims will be paid immediately upon receipt of proofs of loss except for periodic payments, which are to be paid as specified in the policy.
#10. 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 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.
#67. What is the waiting period on a Waiver of Premium rider in life insurance policies? a) 30 days b) 3 months c) 5 months d) 6 months
d) 6 months Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.
#71. What is the term used for an applicant's written request to an insurer for the company to issue a contract, based on the information provided? a) Policy Request b) Insurance Request Form c) Request for Insurance d) Application
d) Application An individual can submit an application to an insurer, which requests that the insurer review the information and issue an insurance contract.
#60. What document describes an insured's medical history, including diagnoses and treatments? a) Physician's Review b) Individual Medical Summary c) Comprehensive Medical History d) Attending Physician's Statement
d) Attending Physician's Statement An Attending Physician's Statement (APS) is the best way for an underwriter to evaluate an insured's medical history. The report includes past diagnoses, treatments, length of recovery time, and prognoses.
#46. 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. Business Overhead Expense (BOE) insurance is sold to small business owners for the purpose of reimbursing the policyholder for business overhead expenses during a period of total disability. Premiums are tax-deductible for a business, but any benefits received are taxable as income. Overhead expenses, including equipment and employee salaries, are covered by the plan. Salaries and profits of the employer are not protected.
#27. The provision in a health insurance policy that ensures that the insurer cannot refer to any document that is not contained in the contract is the a) Time limit on certain defenses clause. b) Incontestability clause. c) Legal action against us clause. d) Entire contract clause.
d) Entire contract clause. Entire contract is a mandatory provision that is required by law.
#81. An agent selling variable annuities must be registered with a) Department of Insurance. b) The Guaranty Association. c) SEC. d) FINRA.
d) FINRA. Because variable annuities are considered to be securities, a person must be registered with the FINRA (formerly NASD) and hold a securities license in addition to a life agent's license in order to sell variable annuities.
#20. Two attorneys at law and operate their practice as a partnership. They want to start a program through their practice that will provide retirement benefits for themselves and three employees. They would likely choose a) Section 457 Deferred Compensation Plan. b) 403(b) plan. c) 401(k) plan. d) HR-10 (Keogh Plan).
d) HR-10 (Keogh Plan). HR-10 (Keogh Plans) are plans specifically for self-employed and their employees.
#7. 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? a) Medicare Part A b) Medicare Supplement c) Medicare Advantage d) Medicare SELECT
d) 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.
#62. Methods used to pay the death benefits to a beneficiary upon the insured's death are called a) Designation options. b) Beneficiary provisions. c) Death benefit options. d) Settlement options.
d) Settlement options. Settlement options are methods used to pay death benefits to a beneficiary upon the insured's death.
#74. Which two terms are associated directly with the way an annuity is funded? a) Increasing or decreasing b) Immediate or deferred c) Renewable or convertible d) Single payment or periodic payments
d) Single payment or periodic payments Annuities are characterized by how they can be paid for: either a single payment (lump sum) or through periodic payments in which the premiums are paid in installments over a period of time. Periodic payment annuities can be either level, in which the annuitant/owner pays a fixed installment, or the payments can be flexible, in which the amount and frequency of each installment varies.
#5. Hospital indemnity/hospital confinement indemnity policy will provide payment based on a) The type of illness. b) The premiums paid into the policy. c) The medical expense incurred. d) The number of days confined in a hospital.
d) The number of days confined in a hospital Hospital indemnity/hospital confinement indemnity policy provides payment based only on the number of days confined in a hospital.
#79. An insured notifies the insurance company that he has become disabled. What provision states that claims must be paid immediately upon written proof of loss? a) Incontestability b) Physical Exam and Autopsy c) Legal Actions d) Time of Payment of Claims
d) Time of Payment of Claims The Time of Payment of Claims provision specifies that claims are to be paid immediately upon written proof of loss.
#14. Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client? a) Interest-sensitive whole life b) Life annuity with period certain c) Increasing term d) Limited pay whole life
d)Limited pay whole life Premium payments will cease at her age 65, but coverage will continue to her death or age 100.