Insurance and Life Insurance: Types, Contracts, and Policies, Exams of Insurance law

Download Insurance and Life Insurance: Types, Contracts, and Policies and more Exams Insurance law in PDF only on Docsity! WFG Final Exam ( Questions and 100% Correct Answers). John owns an insurance policy that gives him the right to share in the insurer's surplus. What kind of policy is this? -Non-participating -Contributory -Participating -Surplus - Correct answer "Participating". Participating policies give the policyowner the right to share in the insurer's surplus. Which of the following is NOT a benefit of insurance? -Reduces the uncertainty of loss exposures -Losses due to fraud are eliminated -Makes a loss whole again -Source of investment funds - Correct answer "Losses due to fraud are eliminated" is NOT a benefit of insurance. What is a participating life insurance policy? -Contract that allows the policyowner to receive a share of surplus in the form of policy dividends -Agreement that allows two or more beneficiaries to share in the death benefit -Agreement that insures two or more lives -Contract that gives beneficiaries the right to participate in any dividends - Correct answer "Contract that allows the policyowner to receive a share of surplus in the form of policy dividends" A participating life insurance policy is defined as a contract that allows the policyowner to receive a share of surplus in the form of policy dividends. Which of the following is a type of insurance where an insurer transfers loss exposures from policies written for its insureds? -Treaty insurance -Mutual insurance -Reinsurance -Captive insurance - Correct answer "Reinsurance". Reinsurance is an arrangement by which an insurance company transfers a portion of a risk it has assumed to another insurer. A participating company is also referred to as which type of insurer? -Mutual insurer -Reciprocal insurer -Domestic insurer -Re-insurer - Correct answer "Mutual insurer" A mutual insurer is also referred to as a participating company. When a mutual insurer becomes a stock company, the process is called -Demutualization -Reinsurance -Mutualization -Reorganization - Correct answer "Demutualization". The process whereby a mutual insurer becomes a stock company is called demutualization. Which of the following is a contract that involves one party which indemnifies another when a loss arises from an unknown event? -Insurance policy -Indemnification arrangement Reinsurance is an arrangement by which an insurance company transfers a portion of a risk it has assumed to another insurer. Which of the following is NOT a characteristic of reinsurance? -Enables insurer to meet certain objectives -A specialized branch of the insurance industry -Increases the unearned premium reserve -Protects against a very large claim - Correct answer "increase the unearned premium reserve." All of these are reinsurance features except "Increase the unaccrued Premium reserve". Moral hazard is described as the ~ increased chance of loss because of an insured's recklessness -increased ability to predict loss because of a higher exposure to loss -increased risk of adverse selection -increased chance of a loss because of an insured's dishonest tendencies - Correct answer "increased chance of a loss because of an insured's dishonest tendencies". Moral hazard can be defined as the increased chance of a loss occurring due to the insured's dishonest tendencies. Which of these statements correctly describes risk? -Pure risk is the only insurable risk -Speculative risk is the only insurable risk -An example of pure risk would be a legal wager -Pure and speculative risks are both insurable - Correct answer "Pure risk is the only insurable risk" Only pure risks are insurable. Which of the following is NOT considered a definition of risk? -The potential for loss -The cause of a loss -Exposure to danger -Uncertainty - Correct answer "The cause of a loss". Something that can cause a loss, such as an earthquake or tornado, is referred to as a peril, not a risk. Which type of risk is gambling? -Pure risk -Risk transfer -Risk pooling -Speculative risk - Correct answer "Speculative risk". Gambling is considered to be speculative risk. Which of the following is NOT considered to be a definition of the term "loss"? -Probability that an event will occur -An insurable event that takes place which results in a payment made by the insurance company -Unintentional decrease in the value of an asset due to a peril -The amount an insurance company must pay because of an insurable event - Correct answer "Probability that an event will occur" The term "loss" can be defined as all of these EXCEPT "Probability that an event will occur". Which of the following best describes the statement "The more times an event is repeated, the more predictable the outcome becomes"? -Law of large numbers -Adverse selection -Average variance -Speculative retention - Correct answer "Law of large numbers" "The more times an event is repeated, the more predictable the outcome becomes" is an example of the law of large numbers. Which of the following describes the increase in the probability of a loss due to an insured's dishonest tendencies? -Morale hazard -Physical hazard -Moral hazard -Speculative hazard - Correct answer "Moral hazard". The increase in the probability of a loss resulting from an insured's dishonest tendencies is known as moral hazard. Restoring an insured to the same condition as before a loss is known as -Law of large numbers -Fiduciary retention -Adverse selection -Principle of indemnity - Correct answer "Principle of indemnity". The principle of indemnity involves making an insured whole by restoring them to the same condition as before a loss. . Which of the following would NOT be accomplished with the purchase of an insurance policy? -Greater peace of mind -Risk is eliminated -Payments made for covered losses -Uncertainty is reduced - Correct answer "Risk is eliminated". All of these would be accomplished with the purchase of an insurance policy EXCEPT "risk is eliminated". A situation in which there is ONLY a chance of loss or no loss is a -pure risk -particular risk -speculative risk -a condition that may increase the likelihood of a loss occuring -a risk that has the potential for both loss and gain - Correct answer "a condition that may increase the likelihood of a loss occurring". A condition or situation that creates or increases a chance of loss is called a hazard. Examples include icy roads, driving while intoxicated, and improperly stored toxic waste. Moral hazard is described as the -increased chance of loss because of an insured's recklessness -increased ability to predict loss because of a higher exposure to loss -increased risk of adverse selection -increased chance of a loss because of an insured's dishonest tendencies - Correct answer "increased chance of a loss because of an insured's dishonest tendencies". Moral hazard can be defined as the increased chance of a loss occurring due to the insured's dishonest tendencies. All of the following circumstances must be met for loss retention to be an effective risk management technique, EXCEPT -Loss cannot be catastrophic -Probability of loss is unknown -Highly predictable losses -Loss must be measurable - Correct answer "Probability of loss is unknown". Loss retention is an effective risk management technique with all of these cond itions exist EXCEPT when the probability of loss is unknown. The loss MUST be predictable. Which course of action is the insurer entitled to when deliberate concealment is committed by the insured? -Rescinding the contract -Charge a higher premium -Charge a penalty -Nothing - Correct answer "Rescinding the contract" Intentional concealment committed by the insured entitles the insurance company to void the policy. Which of the following is NOT required in the content of a policy? -Parties involved in the contract -Period to which the coverage exists -Probability of loss -Risk insured against - Correct answer "Probability of loss". The probability of loss is not required in the content of a policy. Which of the following is NOT a requirement of a contract? -Parties involved must be competent -Equal consideration is required between the involved parties -Contract must have a legal purpose -Offer and acceptance must be involved - Correct answer "Equal consideration is required between the involved parties". Equal consideration between parties is NOT a requirement of a contract. What does the insurance term "indemnity" refer to? -Make whole -Unequal consideration -Law of large numbers -Competent parties - Correct answer "Make whole" Contracts of indemnity attempt to return the insured to their original financial position, or "made whole". Which of the following statements correctly describes a contract of indemnity? -One party is restored to the same f inancial position the party was in before the loss occurred -The unequal exchange of value or consideration for both parties -One party (the insurance company) prepares the contract with no negotiation between the applicant and insurer -Only one party (the insurer) makes any kind of enforceable promise - Correct answer "One party is restored to the same f inancial position the party was in before the loss occurred" A contract of indemnity is a contract in which one party is restored to the same financial position the party was In before the loss occurred. Which of the following contracts is defined as "one that restores an injured party to the condition that was present before the loss"? -Unilateral contract -Contract of adhesion -Indemnity contract -Personal contract - Correct answer "Indemnity contract". A contract that restores an injured party to the condition that was present before the loss is an indemnity contract. Express power given to an agent in an agency agreement is -the appearance of authority an insurer gives to its agent -the unwritten authority that the agent is assumed to have -the authority to represent the insurer -the authority to add provisions to a contract - Correct answer "the authority to represent the insurer". Express authority is granted by means of the agent's contract, which is the insurer's appointment of the agent to act on its behalf. Which statement is CORRECT when describing a contract of adhesion? -Contract may be accepted or rejected by the insured -the contract has been prepared by one party (the insurance company) with no negotiation between the applicant and insurer -both the policyowner and the insurer must know all material facts and relevant information - Correct answer "only one party (the insurer) makes any kind of legally enforceable promise". Insurance contracts are unilateral. This means that only one party (the insurer) makes any kind of enforceable promise. Restoring an insured to the same condition as before a loss is an example of the principle of -Utmost good faith -Adhesion -Legal purpose -Indemnity - Correct answer "Indemnity". Making an insured whole restoring them to the same condition as before a loss is an example of the principle of indemnity. When handling premiums for an insured, an agent is acting in which capacity? -Adhesion -Fiduciary -Conditional -Aleatory - Correct answer "Fiduciary". An agent who is acting as an insurance agent, broker, solicitor, life agent accident and health, or bail agent acts in fiduciary capacity when handling premiums or return premiums for an insured. A contract requires -implied authority -only an offer -negotiation between the involved parties -an offer and acceptance of the contract terms - Correct answer "an offer and acceptance of the contract terms". A contract requires an offer and acceptance of the contract terms. Which of the following is NOT true regarding a family policy that covers children? -Additional children can be added at no cost -Adopted children can be covered -Conversion of child's coverage to permanent insurance requires evidence of insurability -Term insurance is used for the children's rider - Correct answer "Conversion of child's" coverage to permanent insurance requires evidence of insurability". Conversion of child's coverage to permanent insurance does NOT require evidence of insurability. Which of the following is NOT a true description of non-medical life insurance? -Quicker processing of life insurance application -Less cost involved with underwritjng the application -Applicants are not required to answer medical questions on the application -Demand on the medical profession reduced - Correct answer "Applicants are not required to answer medical questions on the application". Medical questions can still be asked on an application of non-medical life insurance. A life insurance policy where the insured can choose where the cash value can be invested is called -whole life -variable life -modified life -universal life - Correct answer "variable life". Variable life allows the insured to choose where the assets backing the cash value are invested. An insurance policy written after 1988 that fails to pass the seven-pay test is known as -an endowment policy -a modified life policy -a single premium contract -a modified endowment contract - Correct answer "a modified endowment contract". An insurance policy written after 1988 that fails to pass the seven-pay test is known as a modified endowment contract. Lynn owns a life policy that guarantees the right to renew the policy each year, regardless of health, but at an increased premium. What kind of policy is this? -Universal life -Renewable whole -Renewable term -Endowment - Correct answer "Renewable term". A renewable term life insurance policy guarantees a policyowner the right to renew the policy, without evidence of insurability, but at an increased premium. In a modified endowment contract, the penalty tax imposed on premature withdrawals is -10% -20% -30% -40% - Correct answer "10%" The penalty tax imposed on amounts received from a modified endowment contract is 1 0% Which of the following statements do NOT apply to child coverage in a family policy? -Child coverage is convertible to permanent insurance -Child coverage comes in the form of term insurance -Children are covered up to an age stated in the policy -Only children born prior to policy's issue date may be included - Correct answer "Only children born prior to policy's issue date may be included". Children born AFTER the policy's issue date may be covered in a family policy. john and Mary have a handicapped child that is financially dependent upon them. The death of one of the parents would not be financially disastrous, however the death of both likely would be. Which policy would be best suited for them? -Payor protection policy -Family income policy -Second-to-die policy -First-to-die policy - Correct answer "Second-to-die policy". A second-to-die policy covers two lives, but the benefit is paid upon the death of the last surviving insured. What is the proper order of initial life insurance premiums, from lowest to highest? -Ordinary life, single premium, modified premium -Modified premium, ordinary life, single premium -Single premium, modified premium, ordinary life -Ordinary life, modified premium, single premium. - Correct answer "Modified premium, ordinary life, single premium". The order of initial premiums for life insurance policies, from lowest to highest, is the following: modified premium, ordinary life, single premium. In a renewable term life insurance policy, the contract will usually -require a higher premium payable at each renewal -require a lower premium payable at each renewal -keep the same premium level at each renewal -stipulate a higher cash value at each renewal - Correct answer "require a higher premium payable at each renewal" If a term life insurance policy is renewable, the renewal period usually states that a higher premium is payable at each renewal. Which of the following is a life insurance policy that does NOT require a physical exam? -Non-medical -Graded -Substandard -Noncancelable - Correct answer "Non-medical" Non-medical life insurance policies are written without a physical exam. A life insurance policy that has premiums fully paid up within a stated time period is called -stated payment insurance -limited universal insurance -stated modified insurance -limited payment insurance - Correct answer "limited payment insurance". Limited payment insurance is characterized by premiums that are fully paid up within a stated period, after which no further premiums are required. A limited payment whole life policy provides -protection for 20 years -lifetime protection -protection for more than one person -discounted premiums - Correct answer "Lifetime protection". Premiums on limited payment whole life insurance are paid for a limited number of years, but the benefits last a lifetime. The premium for a Modified whole life policy is -higher than the typical whole life policy during the first few years and then lower than typical for the remainder -lower than the typical whole life policy during the first few years and then higher than typical for the remainder -normally graded over a period of 20 years -level for the first 5 years then decreases for the remainder of the policy - Correct answer "lower than the typical whole life policy during the first few years and then higher than typical for the remainder" Modified whole life policies are distinguished by premiums that are lower than typical whole life premiums during the first few years and then higher than typical thereafter. Which of these would be the best example of a limited pay life insurance policy? -Whole life policy that pays out its cash value over a 20 year period -Whole life policy with premiums paid up after 20 years -Term life policy that returns cash value after 20 years -Term life policy with premiums paid up after 20 years - Correct answer "Whole life policy with premiums paid up after 20 years". A whole life insurance policy where the premiums are paid up after 20 years would be considered a limited pay life insurance policy Rob purchased a standard whole life policy with a $500,000 death benefit when he was age 30. His insurance agent told him the policy would be paid up if he reached age 100. The present cash value of the policy equals $250,000. Rob recently died at age 60. The death benefit would be -$250,000 -$750,000 -$375,000 -$500,000 - Correct answer "$500,000" In this situation, the death benefit would be the $500,000 face amount. -Ike may eventually take out a policy loan -Ike will have a level premium -Mike has the option of using his cash value to purchase a reduced amount of paid-up whole life insurance - Correct answer "Mike has the option of using his cash value to purchase a reduced amount of paid-up whole life insurance". Since a term policy provides for no cash value, there are no nonforfeiture benefit options available to Mike. When a life insurance policy is surrendered, how does the cost recovery rule apply? -The policy's cost basis is taxable -The insurer withholds the cost basis -The entire cash value is taxable -The policy's cost basis is exempt from taxation - Correct answer "The policy's cost basis is exempt from taxation". The cost basis of the policy is exempt from taxation as it pertains to the cost recovery rule. An insurer can be protected from adverse selection with which policy provision? -Insuring clause -Grace period -Suicide clause -Reinstatement - Correct answer "Suicide clause". The suicide clause protects the insurer against possible adverse selection. Which of the following is NOT a common life insurance policy rider? -extended term -automatic premium loan -waiver of premium -accidental death - Correct answer "Extended term" is not considered a life insurance rider. After a policy has lapsed, which provision allows the insured to continue coverage? -Entire contract provision -Reinstatement provision -Nonforfeiture provision -Grace period provision - Correct answer "Reinstatement provision". The reinstatement provision allows an insured to continue coverage under a previously lapsed policy If an insured dies because of an accident, which type of life insurance rider will provide additional coverage? -Accidental death rider -Payor rider -Accelerated rider -Extended term rider - Correct answer "Accidental death rider" An accidental death rider provides additional coverage in the event of accidental death What time period allows an insured's life insurance policy to remain in force even if the premium was not paid on the due date? -Entire contract period -Free-look period -Reinstatement period -Grace period - Correct answer "Grace period". The grace period allows an insured's life insurance policy to remain in force even if the premium was not paid on the due date. Which provision will pay a portion of the death benefit prior to the insured's death due to a serious illness? -Cash surrender -Nonforfeiture -Return of premium -Accelerated death benefit - Correct answer "Accelerated death benefit". The accelerated death benefit provision will pay a portion of the death benefit prior to the insured's death due to a serious illness. How are acts of war and aviation treated under a group life insurance policy? -Optional rider -Policy exclusion -Covered hazard -Mandatory provision - Correct answer "Policy exclusions". Under a group life insurance policy, acts of war are considered a policy exclusion. What are collateral assignments normally associated with? -Bank loans -Policy loans -Insuring clause -Automatic premium loans - Correct answer "Bank loans" Collateral loans are normally associated with bank loans. How is a life insurance policy dividend legally defined? -A return of excess premium and partially taxable -A return of excess of premium and fully taxable -A return of excess premium and not taxable -A return of excess premium subject to capital gains tax - Correct answer "A return of excess premium and not taxable". Life insurance policy dividends are a return of part of the premiums paid. As such, policy dividends are generally not taxable income. Which of these is NOT a valid policy dividend option? -frequency tables -mortality tables -morbidity tables - Correct answer "Mortality tables". Mortality tables give a measure of the number of deaths in a given population over a certain period of time. A creditor would be allowed rights to life insurance policy proceeds if which of the following beneficiaries is chosen? -The insured's mother -The insured's estate -The insured's children -The insured's spouse - Correct answer "The insured's estate". Creditors have rights to life insurance policy proceeds when the beneficiary is the insured's estate. Which of the following is NOT an insurer policy expense? -Rent -Salaries -Commissions -Premiums - Correct answer "Premiums". Insurance companies are like any other business. They have operating expenses which need to be factored into the premiums. This includes expenses such as salaries, agent compensation, rent, legal fees, postage etc. When calculating life insurance premium rates, which component is affected by an insured's age and gender? -Insurer's expense -Morbidity -Investments -Mortality - Correct answer "Mortality". Mortality is the component of a life insurance premium that age and gender affects. Which of the following describes the number of deaths in a year compared to the number of people in a select group? -Law of large number ratio -Mortality rate -Morbidity rate -Risk ratio - Correct answer "Mortality rate". The number of deaths during a year compared with the total number of persons exposed in the class is known as the mortality rate. Which of the following is NOT a component of determining policy premiums? -Dividends -Mortality -Interest -Expenses - Correct answer "Dividends" Dividends are not a component when determining policy premiums When calculating life insurance premium rates, which component would an agent's commission fall under? -Morbidity -Mortality -Insurer's expenses -Occupation - Correct answer "Insurer's expenses". The agent's commission is considered part of the insurer's expenses and is a component of the premium. Which of these is the automatic mode of settlement for life insurance policy proceeds? -Fixed period -Interest only -Extended term -Lump-sum - Correct answer "Lump-sum". The lump-sum cash settlement is considered the automatic (or "default") option for most life insurance contracts. Premiums are best described as -money paid by the insurer for settling a claim -money paid by the insured to acquire a policy's benefits -the amount an insured pays per unit of coverage -commissions payable to the writing agent - Correct answer "the amount an insured pays per unit of coverage". Premiums can be best defined as the amount an insured pays per unit of coverage. What is the price of insurance for each exposure unit? -Rate -Premium -Rating -Expense - Correct answer "Rate" The price of insurance for each exposure unit is called the rate. Pam is the primary beneficiary of a life insurance policy and wants to let the death benefit accumulate and receive only the monthly investment proceeds. Which settlement option should she choose? -Lump sum option -Interest Option -Life income option -Fixed amount option - Correct answer "Interest Option". In this situation, the beneficiary should select the interest option. Which of the following is NOT a life insurance settlement option? -Lump sum option -Fixed amount option -protection clause -creditor clause -spendthrift trust clause -beneficiary trust clause - Correct answer "spendthrift trust clause". The clause in a life insurance policy protecting its proceeds from the beneficiary's creditors is referred to as the spendthrift trust clause. When an applicant applies for insurance, the process by which the insurer determines whether to issue a policy is called -issuance -underwriting -regulation -adverse selection - Correct answer "underwriting". When an applicant applies for insurance, the process by which the insurer determines whether to issue a policy is called underwriting. How does a conditional receipt differ from a binding receipt? -Conditional receipts always provide insurance which starts from the date of receipt -Binding receipts always require an initial premium payment -Binding receipts always provide insurance which starts from the date of receipt -Conditional receipts always require an initial premium payment - Correct answer "Binding receipts always provide insurance which starts from the date of receipt". Only a binding receipt always provides insurance that is effective from the date the receipt is given. Most U.S. life insurance companies belong to the -Medical Information Bureau -National Association of Insurance Commissioners -Underwriting Information Bureau -FINRA - Correct answer "Medical Information Bureau" Nearly every life insurer in the United States belongs to the Medical Information Bureau. Which of the following risk classifications charges the lowest premium? -Preferred -Standard -Level -Substandard - Correct answer "Preferred" A preferred classification charges the lowest premium. Which of the following is NOT a risk classification that an underwriter would use? -Dividend risk -Standard risk -Preferred risk -Substandard risk - Correct answer "Dividend risk" Underwriters classify insurance risks as all of these EXCEPT "Dividend risk". Which of the following is NOT an important reason for a life insurance application? -The application identifies who is the applicant, insured, owner, payor, and beneficiary -If the proposed insured is someone other than the applicant, both the proposed insured and the applicant must sign the application -The beneficiary must sign the application before the insurer will issue the policy -Statements made in the application are considered to be representations - Correct answer "The beneficiary must sign the application before the insurer will issue the policy". A life insurance application is important for all of these reasons EXCEPT "The beneficiary must sign the application before the insurer will issue the policy". What are members of the Medical Information Bureau (MIB) required to report? -The face amount of the policy applied for -The premium of the policy applied for -The underwriting methods used to acquire personal information -Medical ailments discovered during the underwriting process - Correct answer "Medical ailments discovered during the underwriting process". Members of the Medical Information Bureau are required to report medical impairments found during the underwriting process. An applicant has revealed conditions that require more information. Which of the following is needed next? -Physical examination -Attending physician's statement -Agent's report -Credit report - Correct answer "Attending physician's statement". An attending physician's statement (APS) is needed in cases in which the individual application and/or medical reports reveal conditions of which more info is required. The applicant must sign a written release to enable a release of the APS The risk selection process is primarily given to which insurance company department? -Administration -Legal -Marketing -Underwriting - Correct answer "Underwriting". How does underwriting differ between group life and individual life insurance? -Group life insurance normally charges a higher premium -Individual life insurance is normally written as an annually renewable term policy. -Individual life insurance can normally be converted to group life insurance -Medical questions must be answered on individual life insurance - Correct answer "Medical questions must be answered on individual life insurance". One difference between group and individual life insurance underwriting is that medical questions must be answered on ind ividual life insurance. Employer-provided group term life insurance is exempt from income taxation up to -$10,000 -$25,000 -$40,000 -$50,000 - Correct answer "$50,000". The IRS requires the cost of employer-provided group life insurance above $50,000 to be taxable as income to the employee. A terminated employee that has exercised the conversion privilege is able to convert -only after providing evidence of insurability -without paying for the premiums -permanent insurance into term insurance -term insurance into permanent insurance - Correct answer "term insurance into permanent insurance". The conversion privilege allows a terminated employee to convert term insurance into permanent insurance. Who is issued a certificate of insurance with a group insurance policy? -Policyholder -Insurance company -Participant -Third-party administrator - Correct answer "Participant". The participant is issued a certificate of insurance with a group insurance policy. Employee participation in a noncontributory group life plan must be -25% -50% -75% -100% - Correct answer "100%". 100% of all eligible employees must participate in a noncontributory group life insurance plan. Tim was recently terminated from his employment and opted to change his existing group term life insurance to individual permanent life insurance. What is this process called? -Replacement -Conversion -Transformation -Reinstatement - Correct answer "Conversion". Changing group term insurance into an equal amount of individual permanent coverage is called a conversion. Which of the following is NOT a requirement for a terminated employee that has exercised the conversion privilege? -Convert within 31 days -Convert up to the previous amount of group coverage -Provide proof of insurability -Premium must be paid - Correct answer "Provide proof of insurability" A terminating employee who wants to exercise the conversion privilege must meet all of these requirements EXCEPT supply evidence of insurability. Who are the parties to the master contract in a group life insurance policy? -Insurer and employee -Employer and employee -Insurer and employer -Employer and beneficiary - Correct answer "Insurer and employer". The actual policy for group life insurance, which is called the master policy, is issued by the insurer to the employer. How is the cost of employer-provided group life insurance with coverage amounts above $50,000 treated for tax purposes? -Tax deductible to the employee -Partially taxable to the employer -Fully taxable to the employer -Taxable income to the employee - Correct answer "Taxable income to the employee". The IRS requires the cost of employer provided group life insurance above $50,000 to be taxable as income to the employee. Which of the following describes a contributory group insurance plan? -All of the premium is paid by the employer -Part of the premium is paid by the employee -Employees are eligible for policy dividends -Federal government contributes a portion of the employee's premium - Correct answer "Part of the premium is paid by the employee". A contributory group insurance plan is one in which employees share the cost of the premiums with the employer. Which of the following is NOT a characteristic of the conversion privilege? -Ex-employee pays the premium for the converted policy -Proof of insurability is not required -Employer pays the premium for the converted policy For a life annuity with 1 0-year certain, monthly payments are paid to the annuitant for life. If the annuitant dies, the designated beneficiary would receive any monthly payments for the remainder of the certain period- in this case, 10 years. The systematic liquidation of a sum of money is provided by a(n) -life insurance policy -1035 contract exchange -annuity -endowment contract - Correct answer "annuity" An annuity contract provides for the systematic liqu idation of a fund. Cindy buys a 10-year certain annuity with an installment refund. After receiving monthly payments for 5 years, Cindy dies. How many remaining payments will the insurer make to her beneficiary? -60 payments -30 payments -No payments -120 payments - Correct answer "60 payments" The installment refund option guarantees that the total annuity fund will be paid to the annuitant or to the annuitant's beneficiary. In this situation, the annuitant dies 5 years into a 1 0-year certain annuity. This leaves the remaining 5 years (60 monthly payments) payable to her beneficiary. What distinguishes a deferred annuity from an immediate annuity? -The age at which the annuity can be purchased -The taxation of benefit payments -The time at which benefit payments start -The benefit payment amount - Correct answer "The time at which benefit payments start". The difference between deferred and immediate annuities is when annuity benefit payments begin. An annuity which is backed by a life insurer's separate account is called a(n) -403(b) plan -variable annuity -equity indexed annuity -immediate annuity - Correct answer "variable annuity". An annuity which is backed by a life insurer's separate account is called a variable annuity. An annuitant would like to determine the amount of an annuity distribution that is exempt from taxation. What is used to calculate this? -Mortality rate -Debt-to-Equity ratio -Exclusion ratio -Morbidity rate - Correct answer "Exclusion ratio". Annuity benefit payments are a combination of principal and interest. A formula called the exclusion ratio is used to determine the amount of annual annuity income that is exempt from federal income taxes. Which of the following is NOT a feature of equity-indexed annuities? -Offers a maximum interest rate that increases annually -Offers protection during a decline in the stock market -Offers long term inflation protection -Offers a minimum guaranteed rate - Correct answer "Offers a maximum interest rate that increases annually" Equity-indexed annuities offer all of these features EXCEPT "an annually increasing maximum rate of interese'. Which Social Security status does a worker with 6 quarters of coverage during the last 13-quarter period have? -Partially insured -Fully insured -Currently insured -Not insured - Correct answer "Currently insured". To be considered "currently insured" you must have 6 quarters of coverage during the last 13-quarter perio At what age is a surviving spouse without dependents eligible for Social Security survivor benefits? -50 -60 -62 -65 - Correct answer "60" Reduced widow or widower benefits can be received as early as age 60. A worker is entitled to Social Security disability benefits if all of the following are true, EXCEPT for: -worker is under age 65 -worker is insured for disability benefits -disability is expected to continue for 12 months or result in death -worker cannot perform his or her current job, but is actively seeking other employment - Correct answer "worker cannot perform his or her current job, but is actively seeking other employment". A worker is entitled to Social Security disability benefits if all of these are true EXCEPT for "worker cannot perform his or her current job, but is actively seeking other employment". The reason for social insurance is to -provide more products for agents to sell -create dependents of government -grow the U.S. economy -protect certain vulnerable segments of the population - Correct answer "protect certain vulnerable segments of the population". To reach currently insured status under the Social Security system, an individual must be credited with a MINIMUM 6 quarters of coverage during the last 13-quarter period. Who is NOT eligible for Social Security survivor benefits? -A widow at any age who is caring for children younger than 16 -A widow at full retirement age -Full-time students under the age of 19 -A deceased worker's dependent parents of any age - Correct answer "A deceased worker's dependent parents of any age". This is inaccurate. Only dependent parents age 62 or older can receive survivorship benefits if they were dependent upon the deceased worker for at least half of their support How long is a person expected to be disabled in order to receive Social Security disability benefits? -4 months -6 months -12 months -18 months - Correct answer "12 months" Social Security disabi lity benefits are paid to persons expected to die or be disabled for AT LEAST 12 months. An insured's status under Social Security can be described as -partially insured -actively insured -fully insured -completely insured - Correct answer "fully insured". There are two types of insured statuses that qualify individuals for Social Security benefits: fully insured and currently insured. Most Social Security benefits are paid to fully insured individuals. All of the following statements correctly describe the purpose of Social Security EXCEPT -It provides a source of income for a meaningful standard of living during retirement -It provides basic protection against financial problems accompanying death, disability, and retirement -It augments a sound personal insurance plan -It provides retirement and survivor benefits to a worker and the worker's family - Correct answer "It provides a source of income for a meaningful standard of living during retirement" Social Security enhances, but does not replace, a sound personal insurance plan. The "blackout period" affects whose benefits? -Employer -Disabled worker -Surviving spouse -Surviving children - Correct answer "Surviving spouse". The "blackout period" is the period of time when a surviving spouse will be unable to receive survivor benefits from Social Security if eligible for benefits. Currently a widow or widower with dependent children will receive survivor benefits until the youngest child reaches age 16 unless the child is disabled. Which statement is NOT true regarding Social Security benefits? -Benefit eligibility is based upon fully insured status -Benefits are designed to replace the entire amount of the worker's earnings -Disability is expected to continue for 12 months or result in death -Worker must be totally and permanently disabled for at least 5 months and unable to work again to be eligible for benefits - Correct answer "Benefits are designed to replace the entire amount of the worker's earnings". Social Security Disability benefits are NOT designed to replace 1 00% of the worker's earnings. Benefits are based on the worker's Primary Insurance Amount (PIA) and paid as a percentage of the worker's PIA. The period in which there are no Social Security benefits for the surviving spouse is called the -blackout period -elimination period -ineligible period -dependency period - Correct answer "blackout period" The blackout period begins when the youngest child turns 16 and continues until the spouse reaches age 60, at the earliest. If there are no eligible children with the surviving spouse when the breadwinner dies, the blackout period starts immediately. How long must an individual be unable to engage in any gainful activity due to physical or mental disability in order to qualify for Social Security Total Disability? -3 months -6 months -12 months -18 months - Correct answer "12 months". To qualify, the disability must be expected to last, or have lasted, at least 12 months, or it must be expected to result in death. Employer contributions to qualified plans are -tax-deductible by the employer -taxable to the employee -only available for key employees -only found in 403(b) plans - Correct answer "tax-deductible by the employer" Employer contributions to qualified plans are tax-deductible by the employer. Retirement plans are prevented from favoring highly compensated employees under which government regulation? -Roth IRA -401 (k) -Traditional IRA -SEP Plan - Correct answer "Roth IRA" No income-tax deductions can be taken for contributions made to a Roth IRA, but the earnings on those contributions are entirely tax-free when they are withdrawn. What area of group health insurance is regulated under the Employee Retirement Security Act of 1974 (ERISA)? -Underwriting procedures -Disclosure and reporting -Workers' Compensation -Long-term care - Correct answer "Disclosure and reporting". The Employee Retirement Security Act of 1974 (ERISA) regulates group health insurance in the area of disclosure and reporting. Within how many days must a rollover be completed in order to avoid being taxed as current income? -30 -60 -90 -120 - Correct answer "60" After you receive funds from your IRA, you have 60 days to complete the rollover to another IRA. An example of a tax-qualified retirement plan would be a(n) -equity compensation plan -defined contribution plan -executive index plan -1035 exchange plan - Correct answer "defined contribution plan". A defined contribution plan is considered a tax qualified plan. Which of the following pieces of information is NOT gathered during the personal financial planning process? -An individual's assets -An individual's expenses -An individual's income -An individual's civic organization memberships - Correct answer "An individual's civic organization memberships". All of these pieces of information are normally gathered during the personal financial planning process EXCEPT "An individual's civic organization memberships". All of these are common personal uses of life insurance EXCEPT -Pay final expenses -Fund a child's education -Replace an insured's income -Fund a Buy-Sell agreement - Correct answer "Fund a Buy-Sell agreement" Using life insurance to fund a Buy-Sell agreement is Life insurance creates an immediate estate. This phrase means: -cash value has accumulated in the policy -the insured's estate receives the death benefit -when the insured dies, a death benefit is paid -premiums are payable by the insured's estate - Correct answer "when the insured dies, a death benefit is paid" Life insurance creates an immediate estate by paying a death benefit whenever the insured dies. Buy-sell agreements are typically funded by which two insurance products? -Decreasing term insurance and Workers' Compensation -Life insurance and disability insurance -Endowments and Medicare -AD&D and Social Security - Correct answer "Life insurance and disability insurance". Buy-sell agreements are used to assure the ownership of the business is properly transferred upon the death or disability of an owner or partner. Buy-sell agreements are normally funded by life insurance and disability insurance. The Human Life Value concept is based on -education level -age -income -occupation - Correct answer "income". The Human Life Value approach calculates the amount of money a person is expected to earn over his lifetime to determine the face amount of life insurance needed. Bob and Tom are partners in a business. If one of them were to die, which of the following would guarantee a market for each of their share of the business? -Split Dollar plan -Buy-Sell agreement -Deferred compensation plan -Key person insurance - Correct answer "Buy-Sell agreement". Buy-Sell agreements (also known as Business Continuation agreements) are used to assure the ownership of a business is properly transferred upon the death or disability of an owner or partner Key person insurance is intended to -allow a key person to purchase the business -help retain key employees by offering added benefits -give premium-grade benefits to key employees -Charge a higher premium to the 15 unhealthy individuals -Assign the group to a re-insurer - Correct answer "Accept or reject the whole group" The approach in underwriting group health plans evaluates the group as a whole, rather than individuals within the group. Based on the group's risk profile, the group is either accepted or rejected. The problem of overinsurance is addressed in which health insurance provision? -Entire contract -Suitability -Reinstatement -Coordination of benefits - Correct answer "Coordination of benefits". The purpose of the coordination of benefits (COB) provision is to avoid duplication of benefit payments and over insurance when an individual is covered under more than one group health plan. Which of the following is NOT typically covered under vision care insurance? -Eye surgery -Eyeglasses -Examinations -Contacts - Correct answer "Eye surgery" Vision care insurance usually covers all of these except for eye surgery The Consolidated Omnibus Budget Reconciliation Act (COBRA) applies to employers who employ at least -10 employees -20 employees -30 employees -40 employees - Correct answer "20 employees". Group health plans obligated by the Consolidated Omnibus Budget Reconciliation Act (COBRA) cover groups of at least 20 employees. Who is financially liable for the payment of covered claims in a fully insured group health plan? -Insurer -Group member -Health provider -Guaranty Association - Correct answer "insurer" The insurer bears the financial risk for payment of covered claims. What percentage of eligible employees must participate in a noncontributory group health plan before it can be put in effect? -0% -25% -50% -100% - Correct answer "1 00%". Normally, 1 00% of eligible employees must participate in a noncontributory group plan before the plan can be put in force. Buy-sell plans are typically funded by which two types of insurance? -Life insurance and disability insurance -Annuities and disability insurance -Modified endowment contracts and Long-term care insurance -Life insurance and Long-term care insurance - Correct answer "Life insurance and disability insurance" Buy-sell plans are normally funded by life insurance and disability insurance Sonya applied for a health insurance policy on April1. Her agent submitted the information to the insurance company on April 6. She paid the premium on May 15 with the policy indicating the effective date being May 30. On which date would Sonya have coverage? -April 1 -April 6 -May 15 -May 30 - Correct answer "May 30". The "effective date" is the health insurance coverage start date. Which of the following would be considered a possible applicant and contract policyholder for group health benefits? -Human resource department -Employer -Insured employee -Insurance company - Correct answer "Employer". An employer would be a possible applicant and contract policyholder of a single master contract or master policy for group health benefits. According to HIPAA, when an insured individual leaves an employer and immediately begins working for a new company that offers group health insurance, the individual -is eligible for coverage upon hire -must wait 360 days to be eligible for coverage -must continue coverage with the previous employer -is eligible for only health insurance, not life or dental insurance - Correct answer "is eligible for coverage upon hire" According to HIPAA, when an insured individual leaves an employer and immediately begins working for a new company that offers group health insurance, the individual is eligible for coverage upon hire In an employer-sponsored group accident and health plan, a master contract is issued to the -TPA Taxable income Conditionally taxable income - Correct answer "Taxable income". Disability insurance benefits from a group policy paid for by an employer is considered taxable income. Under the subrogation clause, legal action can be taken by the insurer against the responsible third party beneficiary policyowner State - Correct answer "responsible third party". Under the subrogation clause, legal action can be taken by the insurer against the responsible third party. Group health plans may deny participation based upon the member's claims history member's current age member's pre-existing condition member' part-time employment status - Correct answer "member' part- time employment status" Group health plans may exclude participation based upon a member's part- time employment status. Full-time employees are typically eligible An employee for XYZ Corp is injured on the job. Where does coverage for the employee's injuries come from? -Employer's group health plan -Employer's self-insured fund -Workers' Compensation -Employee's individual health policy - Correct answer "Workers' Compensation" In this situation, coverage for the employee's injuries comes from XYZ's Workers' Compensation. Medicare Part B covers -long-term care -hospitalization -physician expenses -disability - Correct answer "physician expenses". One of the expenses paid for by Medicare Part B is physician expenses. Who acts as the gatekeeper in a Health Maintenance Organization (HMO)? -Policyowner -HMO Arbritrator -Primary care physician -Insurance company - Correct answer "Primary care physician" In a Health Maintenance Organization, the primary care physician acts as the gatekeeper. Jon's health plan pays benefits of 90% for in-network providers and 70% for out-of-network providers. What kind of plan is this? -HMO -PPO -MET -MEWA - Correct answer "PPO". A Preferred Provider Organization (PPO) pays more for care received from a network provider than it pays for care from a non-network provider. Who would be most likely to submit a Medicare Part A claim? -State -Insured -Hospital -HI CAP - Correct answer "Hospital". A health provider would be responsible for filing the claim. Which of the following services are health maintenance organizations (HMO's) NOT required to provide? -Emergency services -Hospitalization -Preventative services -Prescription drugs - Correct answer "Prescription drugs". All of these are services a health maintenance organization is required to provide EXCEPT "Prescription drugs" Which statement regarding Medicare is true? -Nursing home coverage is covered by Part B -Benefits for prescription drugs are covered exclusively by Part A -Medicare is available only to individuals age 60 and older -Benefits for diagnostic tests and X-rays performed on an outpatient basis are provided by Part B - Correct answer "Benefits for diagnostic tests and X-rays performed on an outpatient basis are provided by Part 8". Medicare Part B provides benefits for diagnostic tests and X-rays performed on an outpatient basis. Medicare Part B has an initial enrollment period. How many months after an individual's 65th birthday month does this enrollment period end? -1 months -3 months -6 months -8 months - Correct answer "3 months". The initial enrollment period for Medicare Part Bends three months after the 65th birthday month. Medicare Part A covers what type of care? -Skilled nursing facility care -Major Medical facility care -Custodial faci lity care -6 months -3 years -10 years -No limit - Correct answer "no limit" There is no time limit on how long Workers' Compensation medical expense benefits continue for disabled workers. After the annual deductible is met, a Medicare Part B patient will pay _____ of the remaining covered expenses. -0% -20% -50% -100% - Correct answer "20%" After the annual deductible is met, a Medicare Part 8 insured will pay 20% of the remaining covered expenses. Medicare Part 8 pays 80%. Which statement is TRUE regarding Workers' Compensation coverage -Negligence is a factor in determining the employer's liability -Workers' Compensation benefits are usually received in a lump sum -Employer pays the entire premium for Workers' Compensation coverage -The amount received from workers' compensation is usually greater than the employee might receive if he or she sued a negligent employer - Correct answer "Employer pays the entire premium for Workers' Compensation coverage". Employers pay the entire premium for Workers' Compensation coverage. Individual health insurance coverage typically excludes injuries at an employee's workplace because -it's covered by the state Workers' Compensation program -it's covered by Medicare -it's covered by Medicaid -it's self-funded by the employer - Correct answer "it's covered by the state Workers' Compensation program" Individual health insurance coverage typically excludes injuries at an employee's workplace because it's covered by the state Workers' Compensation program Which of the following is NOT a characteristic of a preferred provider organization (PPO)? -Usually operate on a fee-for-service basis -Primary physicians serve as gatekeepers -Patient fees are discounted -Provides a wide choice of physicians - Correct answer "Primary physicians serve as gatekeepers". Primary physicians do NOT serve as gatekeepers under a PPO plan. How is a Medicare claim submitted? -Expenses are submitted to Medicare by the Commissioner -Expenses are submitted to Medicare by the health provider -Expenses are submitted to Medicare by the patient -Expenses are submitted to Medicare by an arbitrator - Correct answer "Expenses are submitted to Medicare by the health provider" The first step in submitting a Medicare claim is the health provider must submit the covered expenses. An insured is protected from the expense of a catastrophic illness by which of the following health insurance provisions? -Self-insurance -Stop-loss -Deductible -Reimbursement - Correct answer "Stop-lose" The Stop-loss provision states that after the insured has paid a specific amount toward a covered expense, the insurer will pay 1 00% of the remaining expenses. It is a feature designed to limit the amount of an insured's out-of- pocket medical expenses and protect the insured from the expenses involved with a catastrophic illness/accident. At what point does a self-insured group qualify for stop-loss coverage? -When the insured reaches an age stated in the policy -When claims exceed a specified limit in a set period of time -When claims exceed the policy's maximum lifetime benefit limit -When the average claim amount exceeds the limit stated in the policy - Correct answer "When claims exceed a specified limit in a set period of time" A self-insured group qualifies for stop-loss coverage after claims exceed a specified limit in a set period of time. The elimination period in a disability income policy serves the same purpose as a(n) in a medical expense policy. -deductible -coinsurance -HSA -reimbursement - Correct answer "deductible". A deductible is a stated initial dollar amount that the individual insured is required to pay before insurance benefits are paid. In a disability income policy, the elimination period is the time immediately following the start of a disability when benefits are not payable. Which of the following terms is NOT associated with a Major Medical policy? -Stop-loss -Comprehensive -Deductible -Capitation - Correct answer "Capitation" -exclusion -limitation -deductible - Correct answer "deductible". Deductibles are used primarily to help control the cost of premiums and reduce over utilization of medical services. What does a Hospital Confinement indemnity policy pay for? -Pays for the entire cost of the hospital stay -Pays for the deductible and coinsurance of the hospital stay -Pays for cost of the hospital stay after the deductible and coinsurance has been met -Pays a specified daily amount while the insured is confined to a hospital - Correct answer "Pays a specified daily amount while the insured is confined to a hospital". A Hospital Confinement indemnity policy pays a specified daily amount while the insured is confined to a hospital. What is the tax liability for employer contributions in Health Savings Accounts (HSA's)? Taxable as regular income to the employee Tax-deductible expense to the employee No tax payment needed Taxable to the employee when they exceed 7 1/2 % AGI - Correct answer "No tax payment needed" Employer-paid contributions to Health Savings Accounts are tax-free to the employee. An example of elective cosmetic surgery would be -reconstructive breast surgery after a mastectomy -removing excess fat from an insured's waistline -surgery to correct a birth defect -reconstructive surgery after suffering injuries from an automobile accident - Correct answer "removing excess fat from an insured's waistline" Surgery to remove excess fat from an insured's waistline would be considered elective cosmetic surgery. Amy has a group medical policy through her employer with a $500 deductible and a 90% coinsurance provision. She incurs $1,500 in covered health care services. How much will her group insurance carrier pay? -$500 -$900 -$1,000 -$1,350 - Correct answer "$900". In this situation, the group insurance carrier will pay 90% of the covered loss after the deductible has been applied. What does the term coinsurance refer to? -The stated initial dollar amount that the individual insured is required to pay before insurance benefits are paid -The amount the Federal government pays after the deductible is met -A situation where two insurance policies cover the same claim -After the deductible is satisfied, the percentage paid by the insured for the remaining covered expenses - Correct answer "After the deductible is satisfied, the percentage paid by the insured for the remaining covered expenses". After the insured satisfies the deductible, the insurance company pays a high percentage of the additional expenses (usually 75% or 80%) and the insured pays the remainder. Which of the following does specified disease insurance NOT cover? -costs covered by medical expense insurance -medical expenses that are non covered -incidental costs -out-of-pocket expenses - Correct answer "costs covered by medical expense insurance". Specified disease insurance covers all of these EXCEPT costs covered by medical expense insurance. A health insurance policy will typically cover -injuries obtained from war -elective cosmetic surgery -preventative health services -work related injuries - Correct answer "preventative health services" Preventative health services are normally covered under a health insurance policy. Which type of coverage pays an amount per day for hospitalization directly to the insured regardless of the insured's other health insurance? -MEWA -Mutual -Group -Hospital indemnity - Correct answer "Hospital indemnity" A hospital indemnity policy pays an amount per day for hospitalization directly to the insured regardless of the insured's other health insurance. All of the following are qualifications for establishing a health savings account(HSA) EXCEPT -Enrolled in a high deductible health plan -Be under the age of 65 (not enrolled in Medicare) -Enrolled in a health plan with a prescription drug benefit -Enrolled in a health plan that limits out of pocket expenses - Correct answer "Enrolled in a health plan with a prescription drug benefit". Establishing an HSA does not require enrollment in a prescription drug plan. Which of the following statements is NOT true regarding a Critical Illness Plan? -Pays a lump sum to the insured upon the diagnosis of a critical illness -The insurer may have a list of critical illnesses they will cover -Coverage is limited to a single devastating disease What are residual disability income insurance payments based on? -A flat benefit amount stated in the policy -50% of the full disability amount -The amount of the insured's income is reduced by the disability -The insured must be totally disabled - Correct answer "The amount of the insured's income is reduced by the disability" A residual amount benefit is based on the proportion of income actually lost due to the partial disability, taking into account the fact that the insured isable to work and earn some income. Which of the following is a characteristic of the disability elimination period? -Benefits are optionally payable -Benefits are conditionally payable -Benefits are unconditionally payable -Benefits are not payable - Correct answer "Benefits are not payable". The elimination period is the time immediately following the start of a disability when benefits are not payable. The elimination period in a disability income policy serves the same purpose as a deductible. Which of these statements is NOT true concerning recurrent disabilities? -The insurer continues coverage after a new elimination period -The recurrence of a disability must occur within a specified time period after the prior disability -Are current disability is considered to be a continuation of the prior disability -The recurrent disability must be caused from the original disability - Correct answer The insurer continues coverage after a new elimination period". The recurrent disability insurance provision is designed to make sure that a person does not have to go through more than one elimination period within a certain period of time. Allen has a disability income policy with a $2,500 monthly benefit and a 30- day elimination period. He is unable to work 90 days following an automobile accident. What will the policy pay? $0 $2,5000 $5,000 $7,500 - Correct answer "$5,000" 90 days - 30 day elimination period is 60 days (2 months). 2 months X $2,500/month benefit =$5,000 total benefit paid. Kim is insured under a disability income insurance policy with an "own- occupation" clause. She was recently injured in an automobile accident and can no longer perform the tasks of her job. Kim is now considered to be -short-term disabled -temporarily disabled -partially disabled -totally disabled - Correct answer "totally disabled" The own occupation definition of total disability requires that the insured be unable to perform the insured's current occupation as a result of an accident or sickness. Which of the following is NOT a provision in a disability income policy? -Change of occupation provision -Recurrent disability provision -Deductible and coinsurance provision -Elimination period provision - Correct answer "Deductible and coinsurance provision". Disability income policies do not contain deductible and coinsurance provisions. Jonas has disability insurance through his employer. The employer pays 75% of the premium, and Jonas pays the other 25%. What is jonas's tax liability for any benefits paid from the disability plan? -Taxes must be paid on all benefits received -No taxes are payable on any benefits received -Taxes must be paid on 25% of the benefits received -Taxes must be paid on 75% of the benefits received - Correct answer "Taxes must be paid on 75% of the benefits received". In this situation, the insured must pay taxes on 75% of the benefits received. Manuel is considered to be a disabled person as defined by the Americans with Disabilities Act (ADA). As such, he is unable to perform any of the following life activities EXCEPT -Communicating -Breathing -Driving -Hearing - Correct answer "Driving" Major life activities include, but are not limited to, caring for oneself, performing manual tasks, seeing, hearing, eating, sleeping, walking, standing, lifting, bending, speaking, breathing, learning, reading, concentrating, thinking, communicating, and working. Dyan is considered partially disabled by her insurance company. Whichof the following BEST describes her situation? -She is working part-time and receiving lost income under her long-term disability benefit -She has lost hearing in one ear because of an accident on the job -She is unable to work and receiving workers' compensation -Her employer pays half of her disability benefit - Correct answer "She is working part-time and receiving lost income under her long-term disability benefit" Partial disability is the inability of the insured to perform one or more important duties of the job or the inability to work at that job on a full-time basis, either ofwhich results in a decrease in income. A rehabilitation benefit is intended to Periodic increases in policy benefits are allowed in which long-term care policy provision? -Entire contract -Non-forfeiture -Deflation protection -Inflation protection - Correct answer "Inflation protection" An inflation protection provision allows for a periodic increase in policy benefits due to inflation. What portion does an insured pay for covered expenses under Medicare Part B after the deductible? -75% -20% -50% -100% - Correct answer "20%" After the deductible, a patient pays 20% of covered expenses under Medicare Part B. Which of the following would be considered an activity of daily living under a long term care policy? -Bathing -Running -Working -Breathing - Correct answer "Bathing" Bathing is considered an activity of daily living (ADL). Generally speaking, which three levels of care are Long-Term Carepolicies provided with? -Disability, acute care, and hospitalization -Accident, medical care, and rehabilitation -Psychological, acute care, and assisted living -Skilled nursing, intermediate, and custodial care - Correct answer "Skilled nursing, intermediate, and custodial care". Three levels of care provided by Long-Term Care policies are skilled nursing, intermediate, and custodial care. All of these statements concerning Medicare are true EXCEPT -Medicare is primarily funded by Federal payroll and self-employment taxes -Long-term care is covered by Medicare Part C -Hospice is covered by Medicare Part A -Doctors' services are covered by Medicare Part B - Correct answer "Long-term care is covered by Medicare Part C". Medicare Part C does NOT cover long-term care. The purpose of Medicare Supplement Insurance is to address gaps in Medicare coverage, which can include -Medicare in-hospital deductible -replacing HMO coverage -covering chiropractic treatment -treatment provided in a government hospital - Correct answer "Medicare in-hospital deductible" The purpose of Medicare Supplement Insurance is to address gaps in Medicare coverage, such asMedicare in-hospital deductibles. Under a health insurance policy, the provision that states the kind of benefits provided and the circumstances under which they will be paid iscalled the? -payment of claims provision -entire contract provision -insuring clause -benefit clause - Correct answer "insuring clause" a health insurance policy, the provision that states the kind of benefits provided and the circumstances under which they will be paid is called the insuring clause. Christine has a health insurance policy that has been in force beyond the incontestable period. The insurer has discovered that a fraudulent statement was made on the application. What would the insurer have to pay on a claim, assuming this wasn't a guaranteed renewable policy? -Nothing -50% of the claim's amount -75% of the claim's amount -100% of the claim's amount - Correct answer "Nothing" Nothing will be paid because fraud was committed during the application process, which is grounds for contest at any time with a health insurance policy. The insurer has the option of terminating a health insurance policy on a date stated in the contract. What type of policy is this? -Optionally renewable -Renewable -Conditionally renewable -Cancellable - Correct answer "Optionally renewable". The renewability provision in an optionally renewable policy gives the insurer the option to terminate the policy on a date specified in the contract. Furthermore, this provision allows the insurer to increase the premium for any class of optionally renewable insureds. Under the Payment of Claims provision, when are benefits typically payable after proof of loss is received? -within 60 days -Within 30 days -Immediately -By the end of the calendar year - Correct answer "Immediately" Generally, all claims other than those for periodic installments should be paid immediately after the insurer has received proof of loss. In what situation does a waiver of premium provision keep a health insurance policy in force without premium payments? The misstatement of age provision in a health policy states that if an insured gives the wrong age at the time of application, what action can the insurance company take? -Reissue the policy -Policy cancellation -Benefits can be adjusted -Premiums can be adjusted - Correct answer "Benefits can be adjusted". If the insured's age or sex is misstated in an application for insurance, the benefit payable is adjusted to reflect the actual age or sex of the insured. A health insurance policy paid on a quarterly basis has a grace period of -7 days -10 days -31 days -60 days - Correct answer "31 days" The grace period on a quarterly-paid health.insurance policy is typically 31 days. All of the following are included as part of a contract in the entire contract provision EXCEPT the -riders -application -changes made by the producer -policy - Correct answer "changes made by the producer" All of these are included as part of a contract in the entire contract provision EXCEPT the changes made by the producer. David submits a $500 claim for medical expenses. There is a past-due amount owed for insurance premiums of $200. As a result, the insurer only pays $300 for the claim. This deduction came as a result of which provision? -Unpaid provision -Consideration clause -Waiver of premium provision -Reduced benefit clause - Correct answer "Unpaid provision" The unpaid premium provision permits an insurer to deduct any unpaid premium (usually due during the grace period) from the benefit. Under a health insurance policy, the provision that states the kind of benefits provided and the circumstances under which they will be paid iscalled the? -payment of claims provision -entire contract provision -insuring clause -benefit clause - Correct answer "insuring clause". Under a health insurance policy, the provision that states the kind of benefits provided and the circumstances under which they will be paid is called the insuring clause. When an insured changes to a more hazardous occupation, which disability policy provision allows an insurer to adjust policy benefits and rates? -Relation of earnings to insurance provision -Change of occupation provision -Conformity of state statutes provision -Modified occupation provision - Correct answer "Change of occupation provision". The change of occupation provision allows an insurer to adjust policy benefits and/or rates if the insured has changed to a more hazardous occupation. Craig submits a $500 claim for medical expenses. With a past due premium of $100, the insurer pays $400. Which of the Uniform Optional Provisions covers this situation? -Payment of claims -Legal actions -Unpaid premium -Time of payment of claims - Correct answer "Unpaid premium". If there is an unpaid premium at the time a claim becomes payable, the amount of the premium is to be deducted from the sum payable to the insured or beneficiary. Jim is the insured on a health insurance policy and holds two jobs. If "occupation" is used to classify the risk, the insurer will most likely classify jim according to the occupation that -is most hazardous -pays the lowest wage -pays the highest wage -he has worked at the longest - Correct answer "is most hazardous". Where a person has more than one occupation, they should be rated for the occupation that represents the higher risk. Which of these is NOT a relevant factor in the health insurance principle of morbidity? -Age -Intelligence -Occupation -Health - Correct answer "Intelligence" All of these are relevant factors in determining morbidity EXCEPT "Intelligence". Which of the following is NOT a factor in determining the morbidity of a group of individuals? -Health -Occupation -Age -Race - Correct answer "Race" Relevant factors in determining the morbidity of a group of people include all of these EXCEPT race. -Increased premiums -Decreased premiums -Fewer claims -Lower deductibles - Correct answer "Increased premiums" Morbidity rates show the expected incidence of sickness or disability within a given group during a given period of time. A rise in morbidity rates can cause an increase in health insurance premiums. Which of the following is considered to be a point of service (POS) plan? -Preferred provider organization -Managed care plan -Protected care provider -Restricted provider organization - Correct answer "Managed care plan". A point of service (POS) plan is an example of a managed care plan. Premium mode is a term used to describe the -premium past due -method of payment -frequency of the premium payment -premium paid - Correct answer "frequency of the premium payment". The premium mode defines the frequency of the premium payment. Which of the following is NOT an example of utilization review? -monitoring length of hospital stay -ongoing inspection of accident prone individuals -monitoring the appropriateness of care -setting a hospital release date for a patient - Correct answer "ongoing inspection of accident prone individuals" All of these are examples of utilization review EXCEPT "ongoing inspection of accident prone individuals". One of the most important considerations when replacing health insurance would be the -Age of the insured -Exclusions on a new policy -Occupation of the insured -Cost - Correct answer "Exclusions on a new policy" One of the most important considerations in replacing medical insurance is the exclusions or limitations on a new policy. Which of the following does NOT have to be included on life insurance policy illustrations? -Age of the insured -Name of the agent -Statement that all values and benefits are guaranteed -Name of the insurer - Correct answer "Statement that all values and benefits are guaranteed" Not all benefits and values are guaranteed in life insurance policies. Some have non-guaranteed values which must be described in the illustration. An agent's attempt to stop the replacement of an existing life insurance policy is known as -preservation -prevention -conservation -concealment - Correct answer "conservation". An agent's attempt to stop the replacement of an existing life insurance policy is known as conservation. Life insurance surplus must be distributed to policyowners at what frequency? -Monthly -Quarterly -Semi-annually -Annually - Correct answer "Annually". Life insurance surplus must be distributed to policyowners annually in a participating policy. Why is a life insurance policy's delivery date important? -The probationary period begins on the policy delivery date -The elimination period begins on the policy delivery date -The free-look period begins on the policy delivery date -The grace period begins on the policy delivery date - Correct answer "The free-look period begins on the policy delivery date" The California Insurance Code gives an individual between 1 0 and 30 days to return a life policy for cancellation. This free-look period begins on the policy delivery date. What does the term "illustration" mean when used in the phrase "life insurance policy illustration", according to the California Insurance Code? -Publication designed to help an applicant reach an informed decision about which coverage is appropriate -A copy of the sales materials used in an insurance transaction -A copy of the terms given for the free-look period -Presentation of policy features that includes non-guaranteed elements - Correct answer "Presentation of policy features that includes non- guaranteed elements" The California Insurance Code defines "illustration" as a presentation of policy features that includes non- guaranteed elements. Paul has an existing annuity and is sold a new one, in which the new policy holds no greater financial benefit to him than the existing contract. This is considered a(n) -illegal transaction -immediate annuity -deferred annuity -unnecessary replacement - Correct answer "unnecessary replacement"