Life & Health Exam Questions Flashcards

Question

An insurance contract must contain all of the following to be considered legally binding EXCEPT: A. Competent parties. B. Beneficiary's consent. C. Offer and acceptance. D. Consideration.

Answer 1

B. Beneficiary's consent. The four essential elements of all legal contracts are offer and acceptance, consideration, competent parties, and legal purpose.

Answer 2

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

Answer 3

B. Counteroffer In order for insurance contracts to be legally binding, they must have four essential elements: agreement (offer and acceptance), consideration, competent parties, and legal purpose. Counteroffer is not required.

Answer 4

C. Return to the applicant for completion. Any unanswered questions need to be answered before the policy is issued. If the insurer receives incomplete applications, they need to be returned to the applicants for completion.

Answer 5

B. Return the application to the applicant for completion Any unanswered questions need to be answered before the policy is issued. If the insurer receives incomplete applications, they need to be returned to the applicants for completion.

Answer 6

C. Regulates consumer reports. The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports.

Answer 7

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

Answer 8

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

Answer 9

B. Selection, classification, and rating of risks. The underwriting process is accomplished by reviewing and evaluating information about an applicant and applying what is known of the individual against the insurer's standards and guidelines for insurability and premium rates.

Answer 10

B. At the time of application In life insurance, insurable interest must exist at the time of application.

Answer 11

A. 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.

Answer 12

C. $2,500 An individual who willfully violates this Act enough to constitute a general pattern or business practice will be subject to a penalty of up to $2,500.

Answer 13

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

Answer 14

D. When the application is signed and a check is given to the agent. The policy can be effective as early as the date of the application, if the premium is submitted with the application and the policy is issued as applied for.

Answer 15

D. The beneficiary will receive the full death benefit if it is determined that the application qualified for the policy. The conditional receipt provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable either on the date the application was signed or the date of the medical examination, if one is required.

Answer 16

C. Other insurance coverages. Part 2 of the application contains questions regarding the applicants' health history. Part 1 of the application includes questions regarding current coverage being applied for as well as any other insurance coverage with the same or other insurers.

Answer 17

A. Disclose commissions earned from the sale of the policy. A producer must explain policy provisions, exclusions, and riders at the time of delivery, as well as the rating procedures, especially if the policy is rated differently than applied for. The producer must also collect any due premium and have the insured sign the statement of continued good health.

Answer 18

B. When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health. If the initial premium is not paid with the application, the agent will be required to collect the premium at the time of policy delivery. In this case, the applicant will most likely need to fill out a Statement of Good Health.

Answer 19

B. Debtor in creditor The three recognized areas in which insurable interest exists are as follows: a policyowner insuring his or her own life, the life of a family member (relative or spouse), or the life of a business partner, key employee, or someone who has a financial obligation to them. A debtor does not have an insurable interest in the creditor.

Answer 20

A. Consideration Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.

Answer 21

B. If it is intentional and material. A misrepresentation would be considered fraud if it is intentional and material. Fraud would be grounds for voiding the contract.

Answer 22

D. One-sided: only one party makes an enforceable promise. An insurance contract is unilateral in that only one of the parties to the contract is legally bound to do anything.

Answer 23

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

Answer 24

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

Answer 25

B. Considered true to the best of the applicant's knowledge.

Answer 26

D. Consumer report Consumer reports include written and/or oral information regarding a customer's credit, character, and habits collected by a reporting agency from employment records, credit reports, and other public sources.

Answer 27

D. Application The application is the basic source of information an insurer uses in the risk selection process.

Answer 28

A. 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.

Answer 29

B. Material misrepresentation A material misrepresentation will affect whether or not a policy is issued. If the insured had been truthful, it is very likely that the policy would not be issued.

Answer 30

B. Standard The three ratings classifications that denote the risk level of insureds are standard, substandard, and preferred. This classification system helps insurers to decide if an insured should pay a higher premium.

Answer 31

A. Inspection Report Inspection reports cover moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies. Companies that use inspection reports are subject to the rules outlined in the Fair Credit Reporting Act.

Answer 32

B. Rated. Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium.

Answer 33

C. Their premiums are lower. The preferred risk classification indicates that an insured is in excellent physical condition and employs healthy lifestyles and habits. These individuals qualify for lower premiums than those in the other categories.

Answer 34

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.

Answer 35

D. Premium receipt. When collecting the initial premium, the agent should issue the applicant a premium receipt.

Answer 36

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

Answer 37

D. Whether an insurable interest exists between the individuals. An insurable interest must exist at the time the policy is issued. Some relationships are automatically presumed to qualify as an insurable interest, e.g., spouses, parents, children, and certain business relationships.

Answer 38

B. The producer It is the responsibility of the producer (agent) to make sure an application for insurance is filled out correctly.

Answer 39

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.

Answer 40

D. Return the application to the applicant for a signature. All applications must have the appropriate authorized signatures.

Answer 41

D. When an insurer's underwriter approves coverage. In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

Answer 42

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.

Answer 43

C. Insurers The Medical Information Bureau (MIB) is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have discovered.

Answer 44

A. Substandard risk The "substandard" rating indicates that an individual represents an under-average insurance risk because of physical condition, personal or family history of disease, occupation, habits, or hobbies. This rating incurs the highest premium if policy is issued.

Answer 45

A. 5 days Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information.

Answer 46

B. Consideration The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

Answer 47

D. A policy summary A policy summary usually includes all the listed information, and must be delivered along with a new policy.

Answer 48

B. Ancestry. The Fair Credit Reporting Act regulates what information may be collected and how the information may be used. Consumer Reports include written and/or oral information regarding a consumer's credit, character, reputation, and habits collected by a reporting agency from employment records, credit reports, and other public sources. Ancestry is not a relevant factor assessed in these reports.

Answer 49

A. Inspection report. An inspection report may be ordered about an applicant from an independent investigating firm or credit agency. It is a general report of the applicant's finances, character, work, hobbies, and habits.

Answer 50

C. Conditional. The contract is formed on the basis that certain conditions are met.

Answer 51

D. Insurable interest. Because the purchaser of a stranger-originated life insurance policy doesn't know the insured, or have any interest in the insured's longevity, STOLI policies violate the principle of insurable interest.

Answer 52

A. 3 days Investigative consumer reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested.

Answer 53

D. A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.

Answer 54

C. A debtor has an insurable interest in the life of a lender. A lender has an insurable interest in the life of a debtor, but only to the extent of the debt. The debtor does not have an insurable interest in the life of the lender.

Answer 55

B. Disputes regarding consumer report information. As defined by the Act, negative information includes information regarding a customer's delinquencies, late payments, insolvency, or any other form of default. Customer disputes are not considered negative information, and, in fact, must be included in consumer reports.

Answer 56

B. Fair Credit Reporting Act The Fair Credit Reporting Act governs what information can be collected and how the information can be used.

Answer 57

D. The person must have at least completed secondary education. The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.

Answer 58

B. The Fair Credit Reporting Act The purpose of the Fair Credit Reporting Act is to protect consumers against the circulation of inaccurate or obsolete information and to ensure that consumer reporting agencies are fair and equitable in their treatment of consumers.

Answer 59

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

Answer 60

B. Respond to the consumer's complaint. The consumer has the right to request the information on the report, the reasons for turn down and any adverse underwriting decisions. The reporting agency is required to respond to the consumer's complaint, and, if necessary, to reinvestigate the report.

Answer 61

B. Application The application contains most of the information used for underwriting purposes. This is why its completeness and accuracy are so crucial.

Answer 62

B. Unilateral In a unilateral contract, only one of the parties to the contract is legally bound to do anything.

Answer 63

A. Charge a higher premium. The premium rate will be adjusted to reflect the insurer's increased risk.

Answer 64

C. It will likely be higher because the applicant is a substandard risk. Applicants are considered substandard risks because of physical condition, personal or family history of disease, occupation, or dangerous habits. Substandard risks are usually issued a higher premium than standard risks.

Answer 65

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

Answer 66

B. To explain features and benefits of a proposed policy to the consumer Disclosure statements will help the applicants to make more informed and educated decisions about their choice of insurance.

Answer 67

D. A STOLI policy. Stranger-originated life insurance (STOLI) policies are usually purchased by people who have no relationship with the insured with the intention of selling them for life settlements.

Answer 68

D. Insurable interest and consent To ensure legal purpose of a life insurance policy, it must have both insurable interest and consent.

Answer 69

B. Insurance companies from adverse selection by high risk persons. The MIB makes information available to underwriters to assist them in the underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

Answer 70

B. Education. Education is not an underwriting factor nor is it information included on the application.

Answer 71

A. Application The application contains most of the information used for the underwriting purposes. This is why its completeness and accuracy are so crucial.

Answer 72

D. Within 30 days of initial discovery Relevant SAR reports must be filed with FinCEN within 30 days of initial discovery of a suspicious transaction.

Answer 73

C. To allow the consumer to compare the costs of different policies The buyer's guide provides generic information about life insurance policies and allows the consumer to compare the costs of different policies. The policy summary provides specific information about the issued policy, as well as the insurer's information.

Answer 74

D. Issue the policy that is requested. The producer does not issue the policy but delivers the policy. The producer has a duty to solicit business that will fall within the underwriting guidelines and represent profitable business to the insurer (help prevent adverse selection).

Answer 75

B. The Medical Information Bureau An agent's report and inspection report provide personal information. Medical exams provide information on current health. Only the MIB will provide information about an applicant's medical history.

Answer 76

C. $100,000 In joint life policies, the death benefit is paid upon the first death only.

Answer 77

C. Equity Indexed Annuity. The interest rates of Equity Indexed Annuities are tied to the S&P Index.

Answer 78

D. Depends on the performance of the separate account. The death benefit is not fixed, and may increase or decrease over the life of the policy depending on the investment performance of the underlying sub-account. It cannot, however, decrease below the initial face amount of the policy.

Answer 79

B. The beneficiary will receive the greater of the money paid into the annuity or the cash value. If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value, whichever is greater.

Answer 80

D. They earn lower interest rates than fixed annuities. Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities.

Answer 81

B. Joint Life A Joint Life policy covering two lives would be the least expensive because the premiums are based on average age, and it would pay a death benefit only at the first death.

Answer 82

B. Annuitization period The "annuitization period" (annuity period) is the time during which accumulated money is converted into an income stream.

Answer 83

D. Immediate With an immediate annuity, distribution starts within 1 year of purchase.

Answer 84

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

Answer 85

B. It has a guaranteed minimum interest rate. While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

Answer 86

A. The annuitant receives a fixed amount of return. Equity indexed annuities have a guaranteed minimum interest rate, so while they are aggressive in nature, the annuitant will not have to worry about receiving less than what the minimum interest rate would yield.

Answer 87

A. Limited-pay Life In limited-pay policies, the premiums for coverage will be completed paid-up well before age 100, usually after a specified number of years.

Answer 88

D. When the income payments begin. The main difference between immediate and deferred annuities is when the income payments begin. Immediate annuities will begin payments within the first year, while deferred annuities will not begin payments until sometime after the first year.

Answer 89

D. An index like the Standard & Poor's 500. Equity indexed annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity, the equity indexed annuity has a guaranteed minimum interest rate. Interest rates on equity indexed annuities are often tied to a familiar index, such as the Standard and Poor's 500.

Answer 90

C. Death benefit A fixed annuity is fixed in the sense that it provides a guaranteed minimum rate of interest and income payments that do not vary from one to the next. The company also guaranteed the specified dollar amount for each payment and the length of the payout period. Annuities do not provide a death benefit.

Answer 91

D. Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount If an annuitant dies before annuitization, the beneficiary will receive either the amount paid into the plan or the cash value of the plan, whichever is greater.

Answer 92

C. Joint Life Policy Joint life policies cover the lives of two insureds; rates are blended. Upon the death of the first insured, the policy ends.

Answer 93

C. Adjusted to the insured's age at the time of renewal. If a level term product is renewed at the end of the term period the premium will be based upon the attained age of the insured.

Answer 94

C. Interest During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation.

Answer 95

D. Single premium whole life. Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception.

Answer 96

B. It is a period during which the payments into the annuity grow tax deferred. The "accumulation period" is the period of time over which the annuitant makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred.

Answer 97

A. Required a premium increase each renewal. Annually Renewable Term policies' premiums are adjusted each year to the insured's attained age; however, the policy may be guaranteed renewable. Death benefits remain level, and as with any term policy, there are no cash values.

Answer 98

D. Interest-sensitive Whole Life Because the cash values are generated by investments, interest rates will affect the amount of the cash value.

Answer 99

B. The Guaranty Association Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.

Answer 100

A. It would not occur in a deferred annuity. The "accumulation period" is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity).

Answer 101

B. The insurance company Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. Income payments do not vary from one payment to the next. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio. The company makes conservative enough investments to insure a guaranteed rate to the annuity owners.

Answer 102

B. Lower. Survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life.

Answer 103

C. They have a guaranteed minimum interest rate. While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

Answer 104

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

Answer 105

D. Pay-in period The accumulation period is also known as the pay-in period. It is the period of time over which the annuitant makes payments (premiums) into an annuity.

Answer 106

C. Benefit payment amounts are not guaranteed. Under a variable annuity, the issuing insurance company does not guarantee a minimum interest rate or the benefit payment amounts. The annuitant's payments into the annuity are invested in the insurer's separate account. Agents selling variable annuities are required to have a securities license in addition to their life agent's license.

Answer 107

D. It may last for the lifetime of the annuitant. The "annuity period" is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected.

Answer 108

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.

Answer 109

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

Answer 110

C. Upon conversion, the death benefit of the permanent policy will be reduced by 50%. Convertible term insurance is convertible without proof of insurability up to the full term death benefit. However, upon conversion, the premium for the permanent policy will be based on the insured's attained age.

Answer 111

D. Seek higher returns. Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500.

Answer 112

A. Option A Under Option A, the death benefit remains level while the cash value gradually increases. The death benefit will increase at a later date in order to maintain a gap between the cash value and the death benefit before the policy matures.

Answer 113

C. Increases annually. Annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured

Answer 114

D. A level annual premium for the life of the insured Straight Life policies charge a level annual premium for the lifetime of the insured and provide a level, guaranteed death benefit.

Answer 115

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

Answer 116

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

Answer 117

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

Answer 118

C. Depreciation period The "annuitization period" is the time during which accumulated money is converted into an income stream. It is also referred to as the annuity, liquidation, or pay-out period.

Answer 119

B. The annuitant cannot be the same person as the annuity owner. While they don't have to be, the annuitant and annuity owners are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant's life expectancy is taken into consideration, the annuitant must be a natural person.

Answer 120

C. An annuity An annuity is a contract used to accumulate funds that are to be distributed at a specified time in the future as a periodic payment of accumulated funds.

Answer 121

B. Hedge against inflation. Fixed annuities invest premium payments into a general account - a safe and conservative investment portfolio. They also provide a specified dollar amount for each annuity payment regardless of the purchasing power of the money. Variable annuities premiums are invested in securities, hopefully maintaining a constant purchasing power, and therefore providing protection against inflation.

Answer 122

B. 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.

Answer 123

A. It is level term insurance. Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.

Answer 124

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.

Answer 125

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

Answer 126

C. The owner must be the party to receive benefits. The "owner" is the person who purchases the contract and has all of the rights such as naming the beneficiary and surrendering the annuity. The owner, however, does not have to be the one who receives the benefits; it could be the annuitant (if different from the owner) or the beneficiary.

Answer 127

D. Straight Life Straight whole life policies have a level guaranteed face amount and a level premium for the life of the insured.

Answer 128

B. Its premium steadily decreases over time, in response to its growing cash value. Straight Life policies charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit.

Answer 129

D. To keep the policy in force The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

Answer 130

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

Answer 131

A. Annuitant The annuitant receives payments from an annuity and is the person whose life expectancy is considered when writing the contract. The annuitant and annuity owner are often the same person but do not have to be.

Answer 132

A. Limited pay whole life Premium payments will cease at her age 65, but coverage will continue to her death or age 100.

Answer 133

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

Answer 134

B. The period of time during which accumulated money is converted into income payments The annuity period is the time during which accumulated money is converted into an income stream.

Answer 135

B. The insured may renew the policy for another 10 years, but at a higher premium rate. Policies that are guaranteed renewable and convertible may be renewed, without evidence of insurability, for another like term, or may be converted to permanent insurance, without evidence of insurability.

Answer 136

D. The beneficiary If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value - whichever is greater.

Answer 137

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

Answer 138

D. The premiums are invested in the insurer's general account. Insurer's selling variable products invest their customer's monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk.

Answer 139

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

Answer 140

A. Variable annuity A variable annuity is considered to be a security and is regulated by the SEC in addition to state insurance regulations. For that reason, a person must hold a securities license in addition to a life agent's license in order to sell variable annuities.

Answer 141

C. 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.

Answer 142

C. Both a life insurance and a securities license Agents are required to have both a life insurance license and a securities license to sell variable annuities.

Answer 143

D. Variable whole life has a guaranteed death benefit. Variable universal life insurance may or may not have a minimum death benefit, unlike variable whole life which guarantees a minimum death benefit.

Answer 144

B. The annuitant assumes the risks on investment. The payments that the annuitant invests into the variable annuity are invested in the insurer's separate account. The separate account under many annuities provides the annuitant with a dozen or more investment options ranging from "money market funds" to "growth stock funds" to "precious metal funds". Therefore, the annuitant assumes the risk of the investment.

Answer 145

D. Annuity An annuity is a contract that provides income for a specified period of years, or for life. An annuity protects a person against outliving his or her money.

Answer 146

C. Deferred Deferred annuities may be purchased with either a single lump sum or periodic payments, but they do not begin the income payments until sometime after 1 year from the date of purchase.

Answer 147

D. For 20 years or until death, whichever occurs first. Under a 20-pay life policy, all of the premiums necessary to cause the policy to endow at the insured's age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit.

Answer 148

A. The death benefit is fixed. In a variable universal life policy, the death benefit is adjustable, and the cash values are not guaranteed. While the death benefit may decrease and increase, it cannot go below a guaranteed minimum face amount.

Answer 149

A. The performance of the policy portfolio The cash value of a variable life policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer.

Answer 150

D. The policy contains sufficient cash value to cover the cost of insurance. In Universal Life Insurance, the policyowner may skip a premium payment without lapsing the policy as long as the policy contains sufficient cash value at the time to cover the cost of insurance for that premium period.

Answer 151

A. Face amount Decreasing term policies feature a level premium and a death benefit that decreases each year over the duration of the policy term.

Answer 152

C. Target premium The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

Answer 153

C. Universal life Universal Life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.

Answer 154

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

Answer 155

B. Single Premium Like other types of whole life policies, Single Premium Whole Life (SPWL) endows for the face amount of the policy if the insured lives until the age of 100. The distinguishing feature of a SPWL is the fact that it generates immediate cash value, due to the lump-sum payment made to the insurer.

Answer 156

B. Policyowner Convertible term insurance gives the policyowner the right to convert the policy to a permanent insurance policy without evidence of insurability.

Answer 157

C. $50,000 The cash value of a variable life insurance policy is not guaranteed. However, even if investments devalue significantly, they cannot be lower than the initial guaranteed benefit amount.

Answer 158

D. 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.

Answer 159

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

Answer 160

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

Answer 161

B. Universal life Universal Life products allow the partial withdrawal, or surrender, of the policy cash value.

Answer 162

D. Insurance and cash account A universal policy has two components: an insurance component and a cash account. The insurance component of a universal life policy is always annual renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the current rate, whichever is higher.

Answer 163

C. The recommended amount to keep the policy in force throughout its lifetime The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

Answer 164

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

Answer 165

A. A separate account. Under a variable life insurance policy, assets must be placed in a separate fund, used primarily for the investment of stocks, bonds, and other security investment options.

Answer 166

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.

Answer 167

A. 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.

Answer 168

C. Annually Renewable Term 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.

Answer 169

C. Life insurance and securities An individual must be licensed for both securities and life insurance in order to sell variable universal life.

Answer 170

D. Common Disaster Clause The Common Disaster Clause provision states that when an insured and beneficiary die in a common accident, and the beneficiary dies before or within a specific period of time after the insured, the insurer will proceed as if the insured outlived the beneficiary.

Answer 171

C. The insured's estate. Because there is no viable beneficiary at the time of death, proceeds are paid to the insured's estate.

Answer 172

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.

Answer 173

C. The rider is usually level term insurance. The spouse term rider allows a spouse to be added for coverage. It is available for a limited amount of time, typically expiring at age 65. A spouse term rider (just like any other insured rider) is usually level term insurance.

Answer 174

A. Insuring clause The insuring clause states that the insurer aggress to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate.

Answer 175

A. Proof of insurability is not required. If a Children's Term rider is attached to a life insurance policy, children can be covered un the policy until they reach the maximum age stated in the policy. At that point, they can convert their coverage to a new policy without having to issue proof of insurability.

Answer 176

B. Paid-up option With the paid-up option, the insurer can accumulate dividends at interest and 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.

Answer 177

C. If the father is disabled for more than 6 months Payor benefit only pays if the owner, the father in this example, is disabled for at least 6 months.

Answer 178

C. $100,000 The triple indemnity accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy's death benefit.

Answer 179

C. Family term rider A single rider that provides coverage on every family member is called a "family rider".

Answer 180

B. Cash option The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check.

Answer 181

C. Other-insured rider. The other-insureds rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance.

Answer 182

C. 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.

Answer 183

A. Incontestability clause. If an insurer wishes to contest any statements on an application, they must do so within the first two years.

Answer 184

D. If the primary beneficiary predeceased the insured. The daughter, as contingent beneficiary, would need to outlive the insured and primary beneficiary.

Answer 185

D. Income for 2 or more recipients until they die. The Life Income Joint and Survivor option guarantees an income for two or more recipients for the duration of their lives. Most contracts stipulate that the surviving partner will receive a reduced payment after the other dies, although some will continue to pay the same amount. There is no guarantee that all the life insurance proceeds will be paid out.

Answer 186

A. Term rider Term riders may be used to customize a permanent life insurance policy to meet the needs of the policyowner.

Answer 187

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

Answer 188

D. Interest only Nonforfeiture values include cash surrender, extended term, and reduced paid-up. Interest only is a settlement option.

Answer 189

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

Answer 190

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.

Answer 191

B. Policyowner Only the policyowner has the ownership rights under the policy, and not the insured or the beneficiary.

Answer 192

C. The insured's estate. In the absence of a viable beneficiary, proceeds will be paid to the estate of the insured.

Answer 193

B. Entire contract. The policy, together with the attached application, constitutes the entire contract. This provision limits the use of evidence other than the contract and the attached application in a test of the contract's validity. This is a mandatory provision in life insurance.

Answer 194

C. Exclusions clause. Exclusions are restrictions of coverage as stated in the policy.

Answer 195

D. Fixed amount When the fixed amount settlement option is chosen, the policyowner sets the amount of each installment. The insurer will determine how long the installments are to be paid.

Answer 196

A. Cash surrender Once the cash surrender value is paid, the contract is over.

Answer 197

D. The balance of the loan will be taken out of the death benefit. If the loan and interest are not repaid and the insured dies, then it will be subtracted from the death benefit.

Answer 198

B. That the cash value will not be lost Because permanent life insurance policies have cash values, there are certain guarantees built into the policy that cannot be forfeited by the policyowner. Nonforfeiture values give the insured the right to the cash value even if the policy lapses or is surrendered.

Answer 199

D. The beneficiary will only receive payments of the interest earned on the death benefit. With the Interest Only settlement option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals (monthly, quarterly, semiannually, or annually).

Answer 200

A. Automatic premium loan Automatic premium loan provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

Answer 201

B. Coverage ends and the policy cannot be reinstated. Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated.

Answer 202

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

Answer 203

A. Term Children's term riders provide term insurance with coverage expiring when the minor reaches a certain age.

Answer 204

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

Answer 205

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

Answer 206

C. Lump sum Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.

Answer 207

B. Life income with period certain The life income with period certain option guarantees payments for the life of the recipient and also specifies a guaranteed period of continued payments. If the recipient should die during this period, the payments would continue to a designated beneficiary for the remainder of the period.

Answer 208

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.

Answer 209

C. Copy of the original application An insurance contract must contain a copy of the original application.

Answer 210

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

Answer 211

D. Waiver of premium. Waiver of premium rider waives the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insured and the waiver of cost of insurance is found in Universal Life.

Answer 212

D. A minor son of the insured Because a minor does not have the legal capacity to release the insurer from further obligation, benefits normally have to be passed through a guardian or trustee.

Answer 213

D. Substitute insured rider The substitute insured rider, or change of insured rider, allows the policyowner to change the insured listed under the policy, subject to insurability. This rider is often used in business life insurance policies.

Answer 214

B. They can be changed only with the written consent of that beneficiary. Once irrevocable beneficiaries are indicated for the policy, their written consent is required to change the beneficiary.

Answer 215

C. The policy will terminate when the cash value is reduced to nothing. This option, usually elected at the time of application, provides that in case of a possible policy lapse, the premium will be automatically paid from the contract's guaranteed cash value. However, once the cash value is exhausted, the policy will terminate.

Answer 216

C. The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.

Answer 217

A. 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.

Answer 218

D. Grace period The grace period is the period of time after the premium due date that the policyowner has to pay the premium before the policy lapses (usually 30 or 31 days). The purpose of the grace period provision is to protect the policyholder against an unintentional lapse of the policy.

Answer 219

D. Increasing Term The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

Answer 220

B. Payor Benefit If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

Answer 221

C. Taxable. Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.

Answer 222

D. The interest is not taxable since it remains inside the insurance policy. The interest credited under this option is TAXABLE, whether or not the policyowner receives it.

Answer 223

B. Return of premium The Return of Premium Rider pays the beneficiary not only the face amount of the policy but also the amount that had been paid in premiums. The rider stipulates that death must occur prior to a certain age in order for the premium amount to be returned. The Return of Premium Rider is funded by using increasing term insurance.

Answer 224

A. Becomes terminally ill. The accelerated benefits provisions allow the owner to be advanced a significant portion of the death benefit when the insured is terminally ill.

Answer 225

A. Annual Annual premiums are the only modes of payment that do not result in service fee, so the overall payment will be lower.

Answer 226

A. The insured's premiums will be waived until she is 21. If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

Answer 227

A. Cash value The policy loan option is found only in policies that contain cash value.

Answer 228

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

Answer 229

A. Policyowner Mandatory provisions give these rights to the policyowner.

Answer 230

A. Both the principal and interest will be liquidated over a selected period of time. Under the fixed-period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. Both the principal and interest are liquidated together over the selected period of time.

Answer 231

B. The original age is used for premium determination. The reinstatement provision allows the policyowner an opportunity to put a lapsed policy back in force, subject to proving continued insurability. If the policyowner elects to reinstate the policy, as opposed to purchasing a new policy, the reinstated policy is restored to its original status.

Answer 232

D. Collateral assignment The business owner could make a collateral assignment of his or her life insurance policy to the bank.

Answer 233

D. Joint and survivor. A joint and survivor option pays while either beneficiary is still living.

Answer 234

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

Answer 235

C. It will pay double or triple the face amount. The Accidental Death Rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.

Answer 236

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

Answer 237

C. Level or flexible A level premium is one in which the premium payment never changes. A flexible premium is found in Universal life policies where the insured changes their premium payment.

Answer 238

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

Answer 239

C. It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age. Children's rider is term insurance covering all of the children in the family, including newly born children, and is convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability.

Answer 240

A. The same face amount as in the whole life policy. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy.

Answer 241

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

Answer 242

B. Common Disaster Under the Uniform Simultaneous Death Law, Common Disaster provision, the law will assume that the primary beneficiary dies first in a common disaster as long as the beneficiary dies within this specified period of time following the death of the insured (usually 30 days). This provides that the proceeds will be paid to either the contingent beneficiary or the insured's estate, if no contingent beneficiary is designated.

Answer 243

C. The beneficiary must have insurable interest in the insured. A beneficiary is the person or interest to whom the policy proceeds will be paid upon the death of the insured. Beneficiaries do not have to have an insurable interest in the policyholder.

Answer 244

C. 6 months Insurers writing variable life insurance policies may defer loan requests for up to 6 months. This excludes loan requests used to pay policy premiums.

Answer 245

B. It transfers rights of ownership from the owner to another person. The policyowner may assign a part of the policy (collateral assignment) or the entire policy (absolute assignment).

Answer 246

B. Paid-up additions. When this option is selected, the annual dividend acts as a single premium each year to buy additional amounts of insurance, based on the insured's currently attained age.

Answer 247

D. Long-term care Long-term care rider provides for the payment of part of the death benefit (called accelerated benefits) in order to take care of the insured's health care expenses, which are incurred in a nursing or convalescent home.

Answer 248

A. Funds exceeding the premium paid are taxable as ordinary income. The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.

Answer 249

B. It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated. Upon policy reinstatement, the policyowner will be required to pay all back premiums plus interest, and may be required to repay any outstanding loans and interest.

Answer 250

D. The contingent beneficiary. A contingent beneficiary receives the death benefit if the primary beneficiary predeceases the insured. If there are no designated beneficiaries surviving the insured, the benefits are paid to the estate of the insured.

Answer 251

D. An insured is diagnosed with cancer and needs help paying for her medical treatment. Accelerated benefits are paid when insureds endure financial hardship due to severe illness. They may request immediate payment of some portion of the policy's death benefit, usually 50-100%, depending on the insurer. Benefits are not taxable.

Answer 252

D. To provide a guaranteed income for a certain amount of time When the fixed-period installments option is selected, the insurer agrees to pay the proceeds in equal installments over a specified period of time.

Answer 253

A. Dividend amounts are guaranteed in the policy. Dividends cannot be guaranteed.

Answer 254

C. Guaranteed insurability. Guaranteed insurability is a rider that is included at the time of application (or can be added at a later date) which allows the insured to increase the amount of insurance without proving evidence of insurability.

Answer 255

C. Reinstatement provision A lapsed policy may be reinstated within 3 years by paying back premiums, with interest, and proving insurability.

Answer 256

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

Answer 257

D. 6 months Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.

Answer 258

C. $9,800 In this scenario, the death occurred within the mandatory 30-day grace period. Past due premium would be subtracted from the face amount of the policy.

Answer 259

C. It commences when the policy is delivered. The free look provision is a mandatory provision that allows the insured to examine a policy, and if dissatisfied for any reason, return the policy for a full refund of any premiums paid.

Answer 260

A. Extended Term The Extended Term nonforfeiture option has the same face amount as the original policy, but for a shorter period of time.

Answer 261

B. Transfer of all ownership rights in a policy. Absolute Assignment involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policyowner does not need to have an insurable interest in the insured.

Answer 262

C. It allows the insured to reject the policy with a full refund. The free-look provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium.

Answer 263

D. Death due to plane crash for a fare-paying passenger Generally, policies do not exclude conditions in which an insured is a fare-paying passenger on a commercial airline.

Answer 264

D. Owner's Rights Policyowners can learn about their ownership rights by referring to the policy.

Answer 265

C. Grace period. Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force.

Answer 266

B. War or military service There are two different types of exclusions that may be used by life insurers that limit the death benefit if the insured dies as a result of war or while serving in the military. The status clause excludes all causes of death while the insured is on active duty in the military. The results clause only excludes the death benefit if the insured is killed as a result of an act of war.

Answer 267

C. Suicide is excluded for a specific period of years and covered thereafter. In most states, if death results from suicide within a certain period, the insurer is not obligated to pay the death benefits.

Answer 268

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

Answer 269

B. Lump sum Upon the death of the insured, or endowment, the contract is designed to pay the proceeds in cash, called a lump sum, unless the recipient chooses an optional mode of settlement.

Answer 270

D. It has the highest amount of insurance protection. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.

Answer 271

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

Answer 272

B. It remains the same no matter how many children are added to the policy. The premium does not change on the inclusion of additional children; it is based on an average number of children.

Answer 273

B. The amount of premium payment The consideration clause states that the value offered by the insured is the premium and statements made in the application, so it will include the information about the amount and frequency of premium payments.

Answer 274

A. 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.

Answer 275

C. $50,000 The face of the term policy would be the same as the face amount provided under the whole life policy.

Answer 276

B. 2 years The incontestability clause prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a material fact.

Answer 277

D. The death benefit will be smaller. If an insured withdraws a portion of the death benefit by the use of this rider, the benefit payable at death will be reduced by that amount, plus the amount of earnings lost by the insurance company in interest income.

Answer 278

C. Pay the death benefit The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years, even on the basis of a material misstatement of facts or concealment of a material fact.

Answer 279

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

Answer 280

C. Automatic premium loan This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

Answer 281

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

Answer 282

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

Answer 283

B. It determines who receives policy benefits if the primary beneficiary is deceased. Naming a secondary beneficiary (also referred to as a contingent beneficiary) ensures that there is a beneficiary to receive policy proceeds if the primary beneficiary dies before the insured. If there is no secondary beneficiary, the policy benefits will go to the insured's estate.

Answer 284

A. Fixed-period installments. Fixed-period installments is a settlement option, and not one of the dividend options.

Answer 285

C. Policy loans can be made on policies that do not accumulate cash value. The policy loan option is only found in policies that contain cash value.

Answer 286

D. Consideration. "Consideration" is the value offered by the insured to the insurer, and vice versa. The insured makes accurate statements in the application and remits premium payments. In exchange, the insurer provides benefits as stipulated in the contract.

Answer 287

D. A copy of the original application for insurance. An insurance contract must contain a copy of the original application.

Answer 288

A. The loan amounts are deducted from the death benefit. In the event an insured dies, any outstanding policy loans and accrued interest is deducted from the policy proceeds. Loans cannot exceed the cash value of the policy.

Answer 289

B. Mode The premium mode is the manner or frequency that the policyowner pays the policy premium.

Answer 290

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

Answer 291

A. Must allow the policyowner to return the policy for a full refund. This provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. The beginning of this free-look period starts when the policyowner receives the policy, not when the insurer issues the policy.

Answer 292

B. To protect the insurer from persons who purchase life insurance with the intention of committing suicide The suicide provision protects the company from those individuals who purchase life insurance with the intention of committing suicide. If the insured commits suicide after the 2 year period, the policy will pay the death proceeds to the designated beneficiary the same as if the insured had died of natural causes.

Answer 293

A. Equal to the original policy for as long as the cash values will purchase. With this option, the cash value is used as a single premium to purchase the same face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.

Answer 294

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

Answer 295

B. Grace period Grace period is a mandatory provision found in all life and health insurance policies that provides coverage for a period of time after the premium becomes past due.

Answer 296

A. The beneficiary can only be changed with written permission of the beneficiary. If a policy has an irrevocable beneficiary designation the beneficiary can only be changed with written permission of the beneficiary.

Answer 297

C. 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.

Answer 298

B. Size of each installment The size of each installment determines the length of time that benefits are received under the Fixed Amount settlement option. It logically follows that larger installments translate into shorter benefit periods.

Answer 299

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

Answer 300

D. Viator Viator means the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract.

Answer 301

B. Taxation on accumulation Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.

Answer 302

B. At distribution, all amounts received by the employee are tax free. Funds in a qualified plan accumulate on a tax-deferred basis; however, at distribution any amount received by the employee will be treated as ordinary income for tax purposes.

Answer 303

B. The employees receive individual policies. The employer receives a master policy, and employees receive a certificate of insurance.

Answer 304

D. From trustee to trustee In a direct rollover, the distribution is made directly from the trustee of the first plan to the trustee or administrator/custodian of the new IRA plan.

Answer 305

D. Generally not taxed as income. Life insurance death benefits are generally not taxed as income.

Answer 306

D. An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. A collateral assignment is the transfer of some or all of the death benefits of the policy to a creditor as security for a loan, but does not give the creditor the rights of ownership. In the event of the insured's death, the creditor would only be able to recover that portion of the policy's proceeds equal to the creditor's remaining interest in the loan.

Answer 307

C. Survivor protection. Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. This is known as survivor protection.

Answer 308

C. Premiums are determined by the age, sex, and occupation of each individual certificate holder. Premiums are determined by the age, sex, and occupation of the entire group.

Answer 309

B. The cash value available to the policyowner. Liquidity in life insurance refers to availability of cash to the insured. Some life insurance policies offer cash values that can be borrowed at any time and used for immediate needs.

Answer 310

B. Executive is the owner, and the executive pays the premium. Executive buys the policy and pays the premium, and the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income.

Answer 311

D. Cash values can be borrowed at any time. Liquidity in life insurance refers to availability of cash to the insured through cash values.

Answer 312

C. Viatical settlement A viatical settlement allows an insured with a life-threatening condition to sell the existing policy in order to receive benefits when they are most needed. Viators typically receive a percentage of the policy's face value from the person who purchases the policy.

Answer 313

C. Buy-sell agreement. Personal uses of life insurance include survivor protection, estate creation and conservation, cash accumulation, and liquidity. A buy-sell agreement is for business uses of life insurance.

Answer 314

C. The seller must be terminally ill. With Life Settlements, unlike with viatical settlements, the seller does not need to be terminally ill. They usually involve life insurance policies with a face amount of $250,000 or more, "key-person" coverage, corporate owned policies, or policies representing excess coverage that is no longer needed, and could be sold for an amount greater than the current cash value.

Answer 315

A. Costs of training a replacement A Key person insurance policy will pay for costs of running the business and replacing the employee.

Answer 316

A. The plan is funded by permanent insurance only. Key Person coverage may be funded by any type of life insurance.

Answer 317

B. 6 credits To be considered currently (or partially) insured, an individual must have earned 6 credits during the last 13-quarter period.

Answer 318

D. The owner Life Settlement Broker is a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract. Life settlement brokers represent only the policyowners.

Answer 319

C. Workers Compensation Workers Compensation is a benefit payable when a worker is injured by a work-related injury, regardless of fault or negligence. It is not considered a business use of insurance.

Answer 320

B. Funding against company's general financial loss. Both life and health insurance can be used for a variety of purposes in a business setting, including the funding of business continuation agreements, compensating executives, and protecting the firm against financial loss resulting from the death or disability of key employees.

Answer 321

D. To lessen the risk of financial loss because of the death of a key employee A business can suffer a financial loss because of the premature death of a key employee that has specialized knowledge, skills, or business contacts. A business can lessen the risk of such loss by the use of key person insurance.

Answer 322

A. Executive bonus. When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called an executive bonus.

Answer 323

C. Cross-purchase plan. In a Cross-Purchase Plan each partner involved purchases insurance on the life of each of the other partners. With a cross-purchase plan, each partner is the owner, premium-payor, and beneficiary of the life insurance on the lives of the other partners. The amount of the life insurance is equal to each partner's share of the purchase price of the deceased partner's interest in the business.

Answer 324

B. Owner's income Traditional IRA contributions are tax deductible, but may be limited if the owner's income exceeds a certain level.

Answer 325

A. The benefit is received tax free. Should a key person die, the benefit is treated as a reimbursement to the business for loss of services from that key person.

Answer 326

B. Life expectancy Life Expectancy is an important concept in life settlement contracts. It refers to a calculation based on the average number of months the insured is projected to live due to medical history and mortality factors (an arithmetic mean).

Answer 327

C. A policyowner who is not the insured Third-party owner is a legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it.

Answer 328

D. Buy-sell agreement. Buy-Sell agreements are used to contractually establish the intent of someone else to purchase the business upon the insured's death, and to set a value (purchase price) on a business. Life insurance is used to fund the buy-sell agreement. Any type of life insurance may be purchased to provide the necessary funds for the agreement. Insurance can be used to either fully or partially fund the buy-sell agreement.

Answer 329

B. The policyowner of the life insurance policy The term owner refers to the owner of the policy who may seek to enter into a life settlement contract. The term does not include an insurance provider, a qualified institutional buyer, a financing entity, a special purpose entity, or a related provider trust.

Answer 330

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

Answer 331

D. HR-10 (Keogh Plan). HR-10 (Keogh Plans) are plans specifically for self-employed and their employees.

Answer 332

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

Answer 333

C. An individual not covered by an employer-sponsored plan who has earned income Individuals who are not covered by an employer-sponsored plan may deduct the amount of their IRA contributions regardless of their income level.

Answer 334

B. Modified endowment contract. Any cash value life insurance policy that develops cash value faster than a seven-pay whole life contract is called a Modified Endowment Contract. It loses the benefits of a standard life contract.

Answer 335

C. The employer is the owner and beneficiary. With the key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary.

Answer 336

A. It is approved by the IRS. A qualified retirement plan is approved by the IRS, which then gives both the employer and employee benefits such as deductible contributions and tax-deferred growth.

Answer 337

C. Third-party ownership Contracts that are owned by someone other than the insured are known as third-party ownership. Most policies involving third-party ownership are written in business situations or for minors in which the parent owns the policy.

Answer 338

B. 6 credits. To be considered partially insured, an individual must have earned 6 credits during the last 13-quarter period.

Answer 339

D. Premiums are not tax deductible as a business expense. The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free.

Answer 340

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

Answer 341

B. Tax-deductible contributions. Qualified plans have these tax advantages: employer contributions are tax deductible and are not taxed as income to the employee; the earnings in the plan accumulate tax deferred; lump-sum distributions to employees are eligible for favorable tax treatment.

Answer 342

D. The amount of the distribution is reduced by the amount of a 20% withholding tax. Distributions from 401(k) plans are taxable as ordinary income in the year of the distribution. However, if the distribution is rolled over to a Traditional IRA, taxes are deferred until the required minimum IRA distributions begin (which is generally no later than age 72). Since this client actually took a distribution (instead of making a trustee-to-trustee roll over), the distribution is subject to 20% withholding tax.

Answer 343

C. Not subject to income taxation by the Federal Government. When premiums are paid with after tax dollars, the death benefit is generally not subject to federal income taxation.

Answer 344

C. To create an estate With insurance, the death benefit creates an immediate estate should the insured die.

Answer 345

C. It determines if the insurance policy is a MEC. The Seven-pay Test determines whether an insurance policy is "over-funded" or if it's a Modified Endowment Contract (MEC). In other words, the cumulative premiums paid during the first seven years of a policy must not exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest.

Answer 346

B. 100% participation of members is required in noncontributory plans. If the employer pays all of the premium, then all employees must be included.

Answer 347

B. Fully insured. A worker is fully insured under Social Security if the worker has accumulated the required number of credits based on his/her age.

Answer 348

D. 100% If the employer pays all of the premium, all employees must be covered to avoid adverse selection.

Answer 349

C. They are tax deferred until withdrawn. Taxation is deferred on both contributions and earnings until funds are withdrawn.

Answer 350

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

Answer 351

B. Tax deductible by the employer. The premiums that an employer pays for life insurance on an employee, whereby the policy is for the employee's benefit, are tax deductible to the employer as a business expense.

Answer 352

C. Old Age Survivors Disability Insurance Social Security is formally called Old Age Survivors Disability Insurance - OASDI.

Answer 353

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.

Answer 354

B. The insurer will pay the full death benefit from the group policy to the beneficiary. The employee usually has a period of 31 days after terminating from the group in order to exercise this conversion option. During this time, the employee is still covered under the original group policy.

Answer 355

A. She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan. If a person has life insurance under a group plan and then leaves the group, he/she may convert group coverage to individual coverage within 31 days of leaving the plan without proof of insurability.

Answer 356

B. They are not included as income for the employee, but are taxable upon distribution. Funds contributed are excluded from the employee's current taxable income, but are taxable upon withdrawal.

Answer 357

A. Welfare benefits. Social Security is an entitlement program, not a welfare program.

Answer 358

B. Premiums paid by an employer on a $30,000 group term life insurance plan for employees As a general rule, premiums paid for life insurance are not tax deductible. The exception to this rule is when an employer buys group term life insurance for his employees since it is considered a business expense.

Answer 359

C. Withdrawals are not taxable. Any distributions from MECs are taxable, including withdrawals and policy loans. All of the other statements are true.

Answer 360

C. At least 1,000 employees. A SIMPLE plan is available to small businesses that employ not more than 100 employees receiving at least $5,000 in compensation from the employer during the previous year.

Answer 361

C. Interest only If a beneficiary receives payments that contain both principle and interest portions, only the interest is taxable as income.

Answer 362

B. For 31 days. An employee has 31 days under the conversion privilege to convert to an individual policy.

Answer 363

D. It is only taxable if the cash value exceeds the amount paid for premiums. The cash value of a surrendered policy is only considered to be taxable as income if the cash value exceeds the amount of premiums paid for the policy.

Answer 364

A. The insured may choose to convert to term or permanent individual coverage. When group coverage is converted to an individual policy, the insurer will determine the type of coverage, usually permanent insurance.

Answer 365

C. Retirement Profit-sharing plans are qualified plans where a portion of the company's profit is contributed to the plan and shared with employees. A 401(k) qualified retirement plan allows employees to take a reduction in their current salaries by deferring amounts into a retirement plan. The company can also somehow match the employee's contribution, whether it is dollar for dollar or on a percentage basis.

Answer 366

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

Answer 367

D. 40 The term "fully insured" refers to someone who has earned 40 quarters of coverage (10 years of work times 4 maximum annual credits).

Answer 368

A. A nonqualified annuity plan. Nonqualified plans are a perfectly legal way for selected employees to receive certain types of benefits. Before-tax corporate dollars can be used for these plans, and they are not subject to government standards. Because of this, however, nonqualified plans contributions are not tax-deductible, unlike with qualified plans.

Answer 369

B. Have attained fully insured status Although Social Security offers many benefits, such as retirement, survivors, and Medicare, only those who have attained fully insured status are eligible for Disability Income benefits. Contributing to Social Security for 40 quarters (10 years) attains fully insured status.

Answer 370

D. Attained age. If an employee terminates membership in the insured group, the employee has the right to convert to an individual whole life policy without proving insurability. The insurer will determine what type(s) of policy an employee may convert to, but it must be issued at a standard rate, based on the individual's attained age.

Answer 371

A. Grow tax deferred. Generally life insurance cash values are only income taxed if the policy is surrendered (totally or partially) and the cash value exceeds the premiums paid.

Answer 372

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

Answer 373

B. Settlement option. A settlement option is exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender.

Answer 374

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

Answer 375

C. SEPs are suitable for large companies. A SEP is a benefit plan that is designed to be provided by a small employer for the benefit of the employees.

Answer 376

B. Employees. Qualified plans are designed for the exclusive benefit of the employees and their beneficiaries.

Answer 377

C. 75% Under a contributory group plan, an insurer will require that 75% of eligible employees be included in the plan.

Answer 378

A. $3,000 The difference between the premiums paid and the cash value would be taxable.

Answer 379

A. The plan must provide an offset for social security benefits. Plans must meet the general requirements established by IRS.

Answer 380

B. The employer can receive a current tax deduction for any contributions made to the plan. Employers do not receive a current tax deduction for any contributions made to a nonqualified plan. The plans are legal; however, they do not qualify for any favorable tax treatment under the IRS rules.

Answer 381

C. Split-dollar plan Examples of nonqualified plans are individual annuities and deferred compensation plans for highly paid executives, split-dollar insurance arrangements, and Section 162 executive bonus plans.

Answer 382

D. Money borrowed from the cash value is taxable. Money borrowed from the cash value is not taxable. Policy loans can be repaid at any time, including surrender and death. An insurer can charge interest on outstanding policy loans.

Answer 383

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

Answer 384

C. Dividend The return of unused premiums is called a dividend. Dividends are not considered to be income for tax purposes, since they are the return of unused premiums.

Answer 385

A. Dividends are not taxable. Dividends are not considered to be income for tax purposes, since they are the return of unused premiums. The interest earned on the dividends, however, is subject to taxation as ordinary income.

Answer 386

C. Keogh The Keogh or HR-10 plan allow self-employed individuals to establish tax favored retirement plans for themselves and their eligible employees.

Answer 387

C. It has a tax benefit for both employer and employee. A qualified plan is approved by the IRS, which then gives both the employer and employee benefits in deductibility of contributions and tax deferral of growth.

Answer 388

B. They are tax free to terminally ill insured. When accelerated benefits are paid under a life insurance policy, they are received tax free by terminally ill insured, and tax free up to a limit for chronically ill insured.

Answer 389

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

Answer 390

A. Employer contributions are not tax deductible. Tax-qualified annuities must be approved by the IRS and allow for tax deductible employer contributions. All withdrawals are taxed and earnings grow tax deferred.

Answer 391

B. The CEO of a private corporation. Not all public employees are eligible for 403(b) plans, or tax-sheltered annuities, only employees of public education (local, state, or federal), as well as employees of charitable organizations.

Answer 392

B. He will have to pay a penalty if he is younger than 59 1/2. Any cash value life insurance policy that develops cash value faster than a seven-pay whole life contract is called a Modified Endowment Contract. It loses the benefits of a standard life contract. All withdrawals are subject to taxation on a LIFO basis, and if withdrawals are made earlier than the age of 59 1/2, a 10% penalty is imposed.

Answer 393

A. $3,000 If $100,000 of life insurance proceeds were used in a settlement option paying $13,000 per year for 10 years, $10,000 per year would be income tax free (as principal) and $3,000 per year would income taxable (as interest).

Answer 394

B. The president and employee of a family corporation. Keogh plans are for self-employed individuals and their employees.

Answer 395

C. A qualified plan for a small business A Simplified Employee Pension (SEP) is a type of qualified plan suited for the small employer or for self-employed. A SEP is an employer-sponsored IRA with an expanded contribution rate up to 25% of compensation or a specified maximum contribution amount.

Answer 396

A. Simplified Employee Pension plan. A Simplified Employee Pension (SEP) is an employer sponsored IRA. Contributions to the plan are not included in the employee's taxable income for the year, to the extent that they do not exceed the maximums allowed. Distributions from a SEP are taxable as ordinary income when received at retirement.

Answer 397

B. Profit sharing plan A profit sharing plan is one where the employer will contribute monies into an employee's retirement plan when the company shows a profit. The others are all qualified plans, but company profit isn't an issue with them.

Answer 398

D. 403(b) Plan (TSA). Under a 403(b) Plan, tax-sheltered annuities may be established for the employees of specified nonprofit charitable, educational, religious, and other 501c(3) organizations, including teachers in public school systems. Such plans generally are not available to other kinds of employees.

Answer 399

D. Self-employed plumber Self-employed persons may contribute to an HR-10 Plan.

Answer 400

D. Someone who works 400 hours per year A person must have worked at least 1,000 hours per year to be eligible for a Keogh Plan.

Answer 401

C. Teachers and not-for-profit organizations. Tax sheltered annuities commonly referred to as 403(b) plans, are designed for teachers and not-for-profit organizations.

Answer 402

C. Application An individual can submit an application to an insurer, which requests that the insurer review the information and issue an insurance contract.

Answer 403

B. The agent it is the responsibility of the agent to make sure that the application has been properly signed and that all questions have been answered correctly.

Answer 404

D. Applicant Any changes made to the application must be initialed by the applicant.

Answer 405

B. 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.

Answer 406

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

Answer 407

A. The spouse of the policyowner. Every health insurance application requires the signature of the proposed insured, the policyowner (if different than the insured), and the agent who solicits the insurance.

Answer 408

C. Have the insured sign a statement acknowledging that he is aware of the change. If the insurer makes a change to the policy, the change must be explained to the insured, and the insured must sign a statement acknowledging that the change was explained.

Answer 409

C. 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.

Answer 410

C. Neither approved the application nor issued the policy When the agent receives the application and issues a conditional receipt, the insurer has not yet approved the application and issued the policy.

Answer 411

B. Insurer If an insurer requests a medical examination, the insurer is responsible for the costs of the exam.

Answer 412

A. Assets. In a replacement situation the agent must be careful to compare the benefits, limitations, and exclusions found in the current and proposed replacement policy.

Answer 413

A. Insurer Only insurers, not agents, can bind coverage.

Answer 414

A. Held or transmitted in any form. Under the Privacy Rule for HIPAA, protected information includes all individually identifiable health information held or transmitted by a covered entity or its business associate in any form or media, whether electronic, paper, or oral. This is called protection health information (PHI).

Answer 415

B. Start over with a fresh application. Most companies require that the app be filled out in ink. The agent might make a mistake when filling out the app or the applicant might answer a question incorrectly and want to change it. There are two ways to correct an application. The first and best is to simply start over with a fresh application. If that is not practical, draw a line through the incorrect answer and insert the correct one. The applicant must initial the correct answer.

Answer 416

D. The agent It is the responsibility of the agent to deliver the policy.

Answer 417

A. The applicant It is required by law that an insurer inform the applicant of all sources that will be contacted in determining the applicant's insurability, in addition to how the information will be gathered.

Answer 418

C. Collect payment at time of delivery The agent has the responsibility to deliver the policy to the insured and to collect any premium that may be due at the time of delivery.

Answer 419

C. Ask her to sign a statement of good health. If the premium is not collected until the policy is delivered, the agent must receive a statement of good health, which acknowledges that the insured's health status has not changed since the policy was approved.

Answer 420

C. 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.

Answer 421

D. At the time of application. A notice to the applicant must be issued to all applicants for health insurance coverage.

Answer 422

C. The old policy should stay in force until the new policy is issued. The agent must make sure that the current policy is not canceled before the new policy is issued.

Answer 423

B. The applicant must give prior informed written consent. A separate written consent form must be obtained prior to an HIV exam. HIV exam results may be disclosed to underwriters, but not agents.

Answer 424

C. A policy is issued to each insured individual. The actual policy, called the "master contract", is issued to the group sponsor only; the individuals covered under the policy are issued certificates of insurance as proof that they are covered under the master contract. Dependents are covered under group plans. If the group contract is terminated, insureds may convert to individual policies without having to provide proof of insurability.

Answer 425

B. Income. AD&D policies cover loss of body parts or life only.

Answer 426

A. 20 employees. Under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), any employer with 20 or more employees must extend group health coverage to terminated employees and their families.

Answer 427

A. Termination of employment due to downsizing Employee qualifying events include the termination of employment for reasons other than for misconduct; dependents qualifying events include the death of the employee, divorce or legal separation.

Answer 428

C. Surgery to repair a wrist damaged by tendonitis Accident-only policies cover medical costs caused by accidents, not sickness. Because the wrist was damaged by a sickness, not an accident, the policy would not cover any medical claims relating to the surgery or the condition itself.

Answer 429

C. Copayment A copayment is a specific dollar amount of the cost of care that must be paid by the member. For example, the member may be required to pay $5 or $10 for each office visit.

Answer 430

B. Individual insurance does not require medical examinations, while group insurance does require medical examinations. In individual coverage, policies are issued based upon individual underwriting. In group plan, everyone is covered for the same coverage and there is no individual underwriting selection.

Answer 431

B. Individual members of the group may select the level of benefits for their own coverage. In group health insurance, all individuals are covered under the master policy for the same coverages.

Answer 432

A. One It is common in most vision expense insurance plans to restrict benefits to one exam and one pair of glasses in any 12-month period.

Answer 433

A. None General disability policies do not cover losses caused by war, military service, intentionally self-inflicted injuries, overseas residence, or injuries suffered while committing or attempting to commit a felony.

Answer 434

C. Relative value In a relative-value approach, a surgical procedure is assigned an amount of points relative to the maximum coverage allowed for a given surgery.

Answer 435

D. Copayment A copayment is a specific dollar amount of the cost of care that must be paid by the member.

Answer 436

B. Guaranteed renewability The benefit amount payable under most LTC policies is usually a specific amount per day, and some policies pay the actual charge incurred per day. Most LTC policies are also guaranteed renewable; however, insurers do have the right to increase the premiums.

Answer 437

A. The group is assessed individually for insurability. Group health insurance policies must cover everyone in the group, regardless of age, health history, and occupation. Because of this blanket coverage, the group as a whole is assessed for insurability. The size, average age, gender ratio, persistency, and industry of the group are considered, along with other factors, when determining premiums. Groups can be reassessed annually in order to adjust premium amounts.

Answer 438

D. Rent. Business overhead insurance is designed to pay the ongoing business expenses of a small business owner while they are disabled and unable to work. It does not pay the salary of the business owner or their loss of profits. However, it will provide the funds needed to pay the salary of the employees other than the owners and their other ongoing business expenses, such as rent.

Answer 439

A. Convert to an individual health policy It is perfectly legal for a company to terminate the master contract of a group health insurance policy. When this happens, the insureds can convert to individual health policies within a specified period of time, without having to provide proof of insurability.

Answer 440

B. The PPO will pay reduced benefits. The group health plan will not pay the full amount charged by the non-PPO doctor.

Answer 441

B. Cash to the owner's business partner to accomplish a buyout If an owner dies or becomes disabled, the disability policy under the buy-sell agreement would provide enough cash to accomplish a buyout of the company.

Answer 442

A. Disability Buy-Sell The Disability Buy-Sell agreement specifies how a business will pass between business owners if one of the owners dies or becomes disabled.

Answer 443

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

Answer 444

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

Answer 445

A. During which illness-related disabilities are excluded from coverage. The probationary period limits coverage on new policies for certain illness-related conditions.

Answer 446

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

Answer 447

C. In an institutional setting Skilled nursing care is performed under the direction of a physician, usually in an institutional setting.

Answer 448

D. To provide continuation of coverage for terminated employees The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires any employer with 20 or employees to extend group health coverage to terminated employees and their families after a qualifying event.

Answer 449

C. It is divided into geographic territories. HMOs offer services to those living within specific geographic boundaries that may be formed by county lines or city limits. If one lives within the boundaries, they are eligible to belong to the HMO, but if they do not live within the boundaries, they ineligible.

Answer 450

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

Answer 451

C. Endorsement to a health policy. Long-term care insurance policies may be purchased on an individual or group basis, or as an endorsement to a life insurance policy.

Answer 452

D. COBRA Dependents of employees are eligible to receive group health insurance under the employee's plan. If the employee and the dependent become legally separated or divorced, or if the employee dies, the dependent will be eligible for COBRA benefits for up to 36 months.

Answer 453

D. Early detection through regular checkups The goal of the HMO is early detection so members are encouraged to participate in regular checkups. In this way the HMO hopes to catch disease in its earliest stages when treatment has the greatest chance for success.

Answer 454

C. Endorsement to a health policy. Long-term care insurance policies may be purchased on an individual or group basis, or as an endorsement to a life insurance policy.

Answer 455

D. COBRA Dependents of employees are eligible to receive group health insurance under the employee's plan. If the employee and the dependent become legally separated or divorced, or if the employee dies, the dependent will be eligible for COBRA benefits for up to 36 months.

Answer 456

D. Early detection through regular checkups The goal of the HMO is early detection so members are encouraged to participate in regular checkups. In this way the HMO hopes to catch disease in its earliest stages when treatment has the greatest chance for success.

Answer 457

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

Answer 458

D. A benefit for each day the insured is in a hospital. Hospital confinement indemnity policies pay specific amounts that depend on the amount of time the insured is confined to the hospital.

Answer 459

C. Integrated dental plan. When dental coverage is covered under the benefits of a major medical plan, the dental coverage and medical coverage would be an integrated plan. Any deductible amount can be met by either dental or medical expenses.

Answer 460

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

Answer 461

B. The primary care physician refers the member. In order for the member to get to see a specialist, the primary care physician must refer the member. If the member feels that the specialist should be treating him or her but is unable to get the referral from the primary care physician, the member might consider changing primary care physicians. In some HMOs there is a financial cost to the primary care physician for referring a patient to a more expensive specialist.

Answer 462

D. Critical illness. A critical illness policy covers multiple illnesses, such as heart attack, stroke, renal failure, and pays a lump-sum benefit to the insured upon the diagnosis (and survival) of any of the illnesses covered by the policy.

Answer 463

C. Medical Integrated plans allow for dental plans to be included in a medical plan, providing coverage for both under a single contract. Sometimes the deductibles are merged, but this does not have to be the case.

Answer 464

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

Answer 465

D. 6 months to 2 years. Short-term disability is defined as a disability lasting not more than 2 years.

Answer 466

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.

Answer 467

B. The capital amount in a lump sum AD&D policies pay a capital amount (a percentage of the principal amount) for the loss of one limb or loss of sight in one eye. The principal amount is paid for death or often for the loss of 2 limbs or loss of sight in both eyes. Benefits are paid in a lump sum.

Answer 468

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

Answer 469

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.

Answer 470

D. Loss of one eye. The definition of a presumptive disability varies by company, but generally includes a total loss of sight, speech, hearing, or the use of any two limbs.

Answer 471

B. Business Overhead Expense. Business Overhead insurance is often purchased by small employers to pay the ongoing business expenses (such as payroll) in the event the owner of the business becomes disabled. Premiums paid are deductible as a business expense, but proceeds paid are taxable as income.

Answer 472

D. Business overhead expense policy Business Overhead Expense (BOE) insurance is sold to small business owners for the purpose of reimbursing the policyholder for various business overhead expenses during a period of total disability. Expenses such as rent, utilities, and employee salaries are covered.

Answer 473

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

Answer 474

A. 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.

Answer 475

C. Death benefits are paid only if death occurs within 24 hours of an accident. Under an AD&D insurance policy, the death benefit will be paid if the accidental death occurs within 90 days of the accident, not 24 hours.

Answer 476

D. Adult day care Adult day care is designed for those who require assistance with various ADLs on a daily basis, but not around the clock. Custodial care is usually the only service provided by adult day care facilities.

Answer 477

D. Probationary period Probationary period is the period of time after a policy is in effect before claims arising out of an illness are covered. This is to prevent adverse selection, persons waiting until they have been exposed to a cause of loss before purchasing coverage.

Answer 478

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

Answer 479

C. 90 days. Most policies will pay the accidental death benefit as long as the death is caused by the accident and occurs within 90 days.

Answer 480

D. First-dollar basis. Another term used to describe "no deductible" is "first-dollar basis".

Answer 481

D. $102 The employer is permitted to collect a premium from the terminated employee at a rate of no more than 102% of the individual's group premium rate (in this scenario, 102% of $100 total premium is $102). The 2% charge is to cover the employer's administrative costs.

Answer 482

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

Answer 483

A. 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.

Answer 484

B. The employer contributions are not included in the individual insured's taxable income. HSA contributions made by an employer are not included in the determination of an individual's taxable income.

Answer 485

C. A lump-sum benefit payment option Buyout plans usually allow for a lump-sum payment of the benefit.

Answer 486

D. 20% An HSA holder who uses the money or a nonhealth expenditure pays tax on it, plus a 20% penalty.

Answer 487

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

Answer 488

A. It is designed to pay on a first dollar of expense basis. A major medical policy usually has deductibles and a copayment requirement. Basic medical, but not major medical, expense policies pay on a first dollar basis.

Answer 489

A. Preferred Provider Organization (PPO). The insurer negotiates the rates for specific procedures for their subscribers. If the subscriber chooses to go to a provider outside the preferred provider, they will have to pay a part of the cost of service.

Answer 490

D. Major medical coverage. The corridor deductible derives its name from the fact that it is applied between the basic coverage and the major medical coverage.

Answer 491

A. Skilled care. Custodial care, respite care, home health care, and adult day care at all coverages used to reduce the necessity of admission into a care facility. Skilled care is almost always provided in an institutional setting.

Answer 492

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

Answer 493

C. 36 months The maximum period of coverage under COBRA is 36 months, in the event of the covered employee's death or divorce.

Answer 494

B. Help individuals save for qualified health expenses. HSAs help individuals save for qualified out-of-pocket health care expenses such as the deductible expense from a high deductible health plan.

Answer 495

D. Alzheimer's disease Most LTC policies exclude coverage for drug and alcohol dependency, acts of war, self-inflicted injuries, and nonorganic mental conditions. Organic cognitive disorders such as Alzheimer's disease, senile dementia, and Parkin's disease are covered.

Answer 496

D. The employer In key person disability insurance purchased by a business, the business is the policyowner and the beneficiary, and the key person is the insured.

Answer 497

C. Increases. LTC policies define the benefit period for how long coverage applies, after the elimination period. The longer the benefit period, the higher the premium will be.

Answer 498

C. Accident-only Accident-only policies cover medical benefits related to an accident. Medical conditions related to sickness are not covered.

Answer 499

D. Presumptive disability Presumptive disability is a provision that is found in most disability income policies which specifies the conditions that will automatically qualify the insured for full disability benefits.

Answer 500

A. Amanda is 67 and is covered by a basic medical expense policy. To be eligible for a Health Savings Account, an individual must be covered by a High Deductible Health Plan (HDHP), must not be covered by other health insurance except for specific injury, accident, disability, dental care, vision care, or long-term care insurance, must not be eligible for Medicare (usually age 65), and can't be claimed as a dependent on someone else's tax return.

Answer 501

C. Its goal is to channel patients to providers that discount services. Insureds are treated by providers who have agreed to discount their charges.

Answer 502

B. No benefits Presumptive Disability plans offer full benefits for specified conditions. These policies typically require the loss of use of at least two limbs, total and permanent blindness, or loss of speech or hearing. Benefits are paid, even if the insured is able to work. Because the insured's blindness was only temporary and the loss of use in only 1 leg, he does not qualify for presumptive disability benefits.

Answer 503

D. Key Person Disability Key person disability is purchased by the employer on the life of a key employee to cover the expense of hiring and training a replacement for the key person.

Answer 504

B. 15 days A probationary period refers to the amount of time that coverage is not available for illness-related disabilities, so it would not apply to a broken leg. The elimination period, however, is the time that must elapse between the onset of the disability and when the benefits will start being paid. In this case, the individual is considered disabled for 45 days, and the benefits will start to be paid after 30 days. So, the client will receive benefits for 15 days.

Answer 505

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

Answer 506

B. When the amount payable under Social Security is more than the amount payable under the rider. These riders provide benefits when the amount payable under Social Security is less than the amount payable under the rider (in this case only the difference will be paid).

Answer 507

C. To provide an incentive for the insured to return to work The reason that insurers don't pay benefits that are equal to the insured's prior earnings is to reduce the chance of malingering on the part of the insured. Limiting the amount of coverage provides an incentive for the insured to return to work after a disability, as opposed to collecting benefits when he or she is capable of returning to work.

Answer 508

A. Adverse selection. If an insurer issues a group health insurance policy, they must cover everyone in the group under the master contract. Group underwriting is designed to avoid adverse selection.

Answer 509

B. 12 Long-term care policies, which can be marketed in the form of individual policies, group policies, or as riders to life insurance policies, provide coverage for individuals who are no longer able to live an independent lifestyle and require living assistance at home or in a nursing home facility. They must provide coverage for at least 12 consecutive months in a setting other than an acute care unit of a hospital.

Answer 510

C. They are available for an additional premium. Optional benefits, such as guarantee of insurability and return of premium, are available with Long-Term Care policies for an additional premium.

Answer 511

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

Answer 512

A. Key employee disability insurance. The business is the contract holder and would receive benefits if a specified key employee became disabled.

Answer 513

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

Answer 514

A. Attending physician Home health care is care provided in one's home and could include occasional visits to the person's home by registered nurses, licensed practical nurses, licensed vocational nurses, or community-based organizations like hospice. Home health care might include physical therapy and some custodial care such as meal preparations.

Answer 515

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

Answer 516

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

Answer 517

D. Elimination period. The elimination period is the time immediately following the start of a disability when benefits are not payable. This is used to reduce the cost of providing coverage and eliminates the filing of many claims.

Answer 518

A. Replace income lost due to a disability. Disability income insurance is designed to replace income loss because the insured is disabled.

Answer 519

D. $120 a day

Answer 520

D. Broader in general. A policy that uses the accidental bodily injury definition will provide broader coverage than a policy that uses the accidental means definition.

Answer 521

D. The individual member When an individual becomes a member of the HMO, he or she will choose a primary care physician. Once chosen, the primary care physician will be regularly compensated for being responsible for the care of that member.

Answer 522

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

Answer 523

C. The elimination period. The elimination period is a waiting period, expressed in days, not dollars, imposed on the insured from the onset of disability until benefit payments commence.

Answer 524

C. Premiums are deductible, and benefits are taxed. The premiums paid for BOE insurance are tax deductible to the business as a business expense. However, the benefits received are taxable to the business as received.

Answer 525

B. The first day of disability and the day the insured starts receiving benefits. The elimination, or waiting, period starts at the onset of a disability claim and is the period of time the insured must wait before benefits start.

Answer 526

B. Control specialist costs. Initially the member chooses a primary care physician, or gatekeeper. If the member needs the attention of a specialist, the primary care physician must refer the member. This helps keep the member away from the higher priced specialists unless it is truly necessary.

Answer 527

C. Elimination period. On disability income insurance, the time between the onset of an injury or sickness and the time benefits is known as the waiting or elimination period.

Answer 528

C. Alzheimer's disease. While normally mentally and nervous disorders or disease are excluded in long-term care policies, Alzheimer's disease is not. The rest are all possible exclusions.

Answer 529

B. 15-day waiting period / 10-year benefit period The waiting, or elimination, period is the time from the onset of disability the insured must wait before becoming eligible for benefits. The shorter the waiting period, the higher the premium. After the insured satisfies the waiting period, they will receive benefits from the insurer for a limited benefit period. The longer the benefit period, the higher the premium. A disability income policy that includes the shortest waiting period and the longest benefit period would be most expensive.

Answer 530

C. Relief for a major care giver Respite Care is designed to provide relief to the family care giver, and can include a service such as someone coming to the home while the care giver takes a nap or goes out for a while. Adult day care centers also provide this type of relief for the caregiver.

Answer 531

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

Answer 532

D. Conversion factor In order to determine the amount payable for a given procedure, the assigned points (relative value) of 200 are multiplied by a conversion factor. This conversion factor represents the total amount payable per point. For example, if the conversion factor is $10 and the point value is 200, the policy would pay $2,000 for the procedure (200 x 10).

Answer 533

D. Coverage is unlimited. Basic Surgical Expense Coverage is commonly written in conjunction with Hospital Expense policies. These policies pay for the costs of surgeons' services, whether the surgery is performed in or out of the hospital. Coverage includes surgeons' fees, anesthesiologist, and the operating room when it is not covered as a miscellaneous medical item. As with the other types of basic medical expense coverage, there is no deductible, but coverage is limited.

Answer 534

B. Coverage applies both on and off the job. Employees who are injured on the job are covered by Workers Compensation insurance. Group Disability Income insurance is designed to cover employees only while they are off the job, so the coverage is considered to be nonoccupational in nature.

Answer 535

A. Surgeon's services Basic medical expense coverage offers a wide range of limited benefits that typically result in high out-of-pocket costs. Basic medical expense coverage provides coverage for nonsurgical services a physician provides and can be used for emergency accident benefits, maternity benefits, mental and nervous disorders, hospice care, home health care, outpatient care, and nurses' expenses.

Answer 536

D. The attending physician will be paid a fee for service, but the member patient will have to pay a higher coinsurance amount. If a non-member physician is utilized under the Point-Of-Service plan, then the attending physician will be paid fee for service, but the member patient will have to pay a higher coinsurance amount or percentage for the privilege.

Answer 537

B. 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.

Answer 538

A. Diagnostic and preventive care Dental expense insurance is a form of medical expense health insurance that covers the treatment, care and prevention of dental disease and injury to the insured's teeth. An important feature of a dental insurance plan which is typically not found in a medical expense insurance plan is the inclusion of diagnostic and preventive care (teeth cleaning, fluoride treatment, etc.).

Answer 539

B. Gets higher. LTC policies also define the benefit period for how long coverage applies, after the elimination period. The benefit period is usually 2 to 5 years, with a few policies offering lifetime coverage. Obviously the longer the benefit period, the higher the premium will be; and the shorter the elimination period, the higher the premium will be.

Answer 540

A. Contracting with insurance companies HMOs seek to identify medical problems early by providing preventative care. They encourage early treatment and whenever possible provide care on an outpatient basis rather than admitting the member into the hospital. Contracts are between the insured and the HMO, not an insurance company.

Answer 541

A. 0% General disability policies do not cover losses caused by war, military service, intentionally self-inflicted injuries, overseas residence, or injuries suffered while committing or attempting to commit a felony.

Answer 542

B. High-deductible health plan. To be eligible for an HSA, an individual must be covered by a high-deductible health plan.

Answer 543

A. Hospital, Surgical, Medical Basic medical policies and major medical policies are commonly grouped into medical expense insurance. The three basic coverages are hospital, surgical, and medical, and may be purchased separately or as a package.

Answer 544

D. No coverage will apply, since the injury could have been foreseen. An accidental means clause states that if the insured meant to do whatever caused their injury, no coverage applies since the resulting injury should have been foreseen.

Answer 545

B. Elective services HMOs emphasize preventive health care as a method of reducing medical expenses by early detection of health problems before they may require more costly treatment.

Answer 546

D. All of the above are correct. In a PPO, the insured does not have to select a primary care physician (PCP). Conversely, in a PPO, all network providers are considered "preferred," and you can visit any of them, even specialists, without first seeing a PCP. Certain services may require plan precertification, an evaluation of the medical necessity of inpatient admissions and the number of days required to treat your condition.

Answer 547

B. Number of family dependents. Long-Term Care policies can vary in the number of days of confinement covered, the number of home health visits covered, the amount paid for nursing home care, and other contract provisions.

Answer 548

C. Disability buyout The disability buyout agreement specifies who will purchase a disabled partner's interest and legally obligates that person or party to purchase such interest upon disability.

Answer 549

B. Nothing; illness is not covered during the first 20 days of the contract. Loss by illness is not covered if it occurs during the probationary period.

Answer 550

D. Corridor The 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. The corridor deductible derives its name from the fact that it is applied between the basic coverage and the major medical coverage.

Answer 551

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.

Answer 552

B. A member of an HMO can receive care in or out of the HMO service area, but care is preferred in the service area. Emergency care must be provided for the member in or out of the HMO's service area. If emergency care is being provided for a member outside of the service area, the HMO will be eager to get the member back into the service area so that care can be provided by salaried member physicians.

Answer 553

B. Yes, and they may use any preferred physician, even if not part of the HMO In a POS plan the individuals can visit an in-network provider at their discretion. If they decide to use an out-of-network physician, they may do so.

Answer 554

A. POS Point-of-Service (POS) plans are a combination if HMOs and PPOs.

Answer 555

D. Allison is insured by a High Deductible Health Plan (HDHP) To be eligible for a Health Savings Account, an individual must be covered by a High Deductible Health Plan (HDHP), must not be covered by other health insurance except for specific injury, accident, disability, dental care, vision care, or long-term care insurance, must not be eligible for Medicare, and can't be claimed as a dependent on someone else's tax return.

Answer 556

C. It allows guaranteed acceptance of all applicants. A different choice can be made every time a need arises for medical services.

Answer 557

D. Loss of the owner's income. If business owners want coverage for the loss of their own income due to total disability, they need to purchase a separate individual disability income policy.

Answer 558

C. Agree to follow the PPO standards and charge the appropriate fees. Any physician or hospital that qualifies for and agrees to follow the PPO's standards and charges the established fees can be added to the PPO's approved list at any time. The providers may withdraw their name from the list at any time, as well.

Answer 559

D. 65 After age 65, a withdrawal from an HSA used for nonhealth purposes will be without a penalty, although taxed.

Answer 560

B. Employers are no longer forced to offer HMO plans. The HMO Act of 1973 forced employers with more than 25 employees to offer an HMO plan as an alternative to their regular health plans. The part of the act requiring dual choice has expired and has not been reinstated.

Answer 561

D. Geographic areas The HMO offers services to those living within specific geographic boundaries (for example, along county lines). Persons who live within the boundaries eligible to belong to the HMO, but if they do not live within the boundaries, they are ineligible.

Answer 562

D. Jeremy had to have both legs amputated, but has learned how to take care of himself and to get around in a wheelchair. Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves.

Answer 563

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

Answer 564

C. Surgeons' fees Hospital expense policies cover hospital room and board, and miscellaneous hospital expenses, such as lab and x-ray charges, medicines, use of operating room and supplies, while the insured is confined in a hospital.

Answer 565

C. Tax deductible. Contributions to HSAs by individuals are deductible, even if the taxpayer does not itemize. Contributions by an employer are not included in the individual's taxable income.

Answer 566

A. There will be a tax. An HSA holder who uses the money for a nonhealth expenditure pays tax on it, plus a 20% penalty. After age 65, a withdrawal is used for a nonhealth purpose will be taxed, but not penalized.

Answer 567

B. 12 months It is common in most vision expense insurance plans to restrict benefits to one exam and one pair of glasses in any 12-month period.

Answer 568

B. Pay a special deductible on his major medical policy Before a major medical policy pays benefits not covered under an exhausted basic medical policy, the insured must pay a corridor deductible.

Answer 569

D. Gatekeeper The HMO subscriber must choose a primary care physician (PCP) who acts as a gatekeeper. If the member needs the attention of a specialist, the PCP must make a referral. This helps the member avoid higher priced specialists unless it is truly necessary.

Answer 570

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

Answer 571

A. Death benefits are paid only if death occurs within 24 hours of an accident. Under an AD&D insurance policy, the death benefit will be paid if the accidental death occurs within 90 days of the accident, not 24 hours.

Answer 572

D. The PPO will pay reduced benefits. The group health plan will not pay the full amount charged by the non-PPO doctor.

Answer 573

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.

Answer 574

D. 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.

Answer 575

D. Claim is denied if his policy contains the Illegal Occupation provision. This optional provision specifically excludes coverage for injuries incurred while performing an illegal act. The insurer will not be liable for any loss to which a contributing cause was the insured's commission of or an attempt to commit a felony or to which a contributing cause was the insured's being engaged in an illegal occupation.

Answer 576

D. It allows the insured to return the policy within 10 days for a full refund of premiums if dissatisfied for any reason. Free look is a mandatory provision found in all life/health policies that allows the insured to return the policy within a specified number of days and receive a full refund of premium if dissatisfied with the policy for any reason.

Answer 577

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

Answer 578

A. Disability income A waiver of premium rider generally is included with guaranteed renewable and noncancelable individual income policies. It is a valuable provision because it exempts the insured from paying the policy's premium during periods of total disability.

Answer 579

A. Immediately Coverage for accidents is immediate when reinstatement occurs, but coverage for sickness may have a waiting period of about 10 days.

Answer 580

D. Impairment rider The impairment rider excludes a specified condition from coverage, therefore, reducing benefits. An insurance company will not charge extra for a rider that reduces benefits.

Answer 581

D. Is renewable at the insured's option to a specified age. Guaranteed renewable means that the insured has the right to keep the policy until a specific age; however, while the insurer cannot increase the rates on an individual basis, the insurer can increase the rates for all insureds by class.

Answer 582

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.

Answer 583

B. An independent examination as often as reasonably required. While a claim is pending, an insurance company may require an independent exam as often as reasonably required.

Answer 584

C. Promising to pay in accordance with the contract terms The consideration clause requires the insurer to promise to pay in accordance to the terms stated in the contract.

Answer 585

D. Unlimited The Physical Exam and Autopsy provision allows the insurer to examine the insured as much as is reasonably necessary while the claim is being processed, provided that the insurer pays the expenses.

Answer 586

D. The larger the percentage that is paid by the insured, the lower the required premium will be. After the insured satisfies the policy deductible, the insurance company will usually pay the majority of the expenses -- typically 80% -- with the insured paying the remaining 20%. Other coinsurance arrangements exist, such as 90%/10%; 75%/25%; or 50%/50%. When the insured retains a larger share of the risk, they will pay a lower premium.

Answer 587

A. Monthly. If a claim involves disability income benefits, the policy must pay those benefits not less frequently than monthly. In all other cases, the company may specify the time period of 45 or 60 days for payment of claims.

Answer 588

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

Answer 589

C. Adjust the benefit in accordance with the decreased risk. Change of occupation provision allows the insurer to adjust benefits if the insured changes occupations.

Answer 590

C. Copayment is a set dollar amount. With both, copayment and coinsurance provisions, the insured shares part of the cost for services with the insurer. Unlike coinsurance, a copayment has a set dollar amount that the insured will pay each time certain medical services are used.

Answer 591

D. They can be changed only with the written consent of that beneficiary. Once an irrevocable beneficiary is shown for the policy, it requires his or her written consent to change.

Answer 592

A. To help the insurance company to prevent overutilization of the policy. The purpose of the coinsurance provision is for the insurance company to control costs and discourage overutilization of the policy.

Answer 593

D. 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.

Answer 594

A. Free Look Period The Free Look provision allows a policyholder 10 days after the policy is delivered in which to decide whether or not he/she wants the policy. If the policyholder decides to return the policy within this period, he/she receives a full refund of all premiums paid.

Answer 595

A. 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.

Answer 596

D. 50/50 After the deductible has been paid, the insurance company will pay a specified amount for a physician's visit, while the insured pays the remaining percentage. This is called "coinsurance". Plans will often be listed in a fraction format, with the first number representing the amount that will be paid by the insurer. The less the insurer must pay with coinsurance payments, the lower the premiums will be. Therefore, Ray should choose the 50/50 plan.

Answer 597

A. The method of premium payment. The insuring clause, usually on the first page of the policy, is the general statement that defines the insurance agreement and identifies the insured and the insurance company and states what kind of loss (peril) is covered.

Answer 598

C. Unearned premiums are retained by the insurance company. This rider allows the insurer to cancel the policy at any time, or at the end of the policy period. Any unearned premium must be returned to the policyholder. If the insurer cancels, the unearned premium will be returned on a pro rata basis.

Answer 599

D. Cancellable A cancellable policy may be canceled at any time with proper written notice from the insurer and a refund of any unearned premium. The insurer must continue to honor any claims submitted before the cancellation date.

Answer 600

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

Answer 601

A. The insured is in an accident and incurs a large claim. The company may not cancel coverage due to covered claims. All the rest are allowable reasons for an insurer to terminate the contract.

Answer 602

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.

Answer 603

B. Pay the claim. Because the accident occurred during the grace period, the insurance company will pay the claim.

Answer 604

A. Attained age. The premium charged for the increase will be based upon the attained age of the insured.

Answer 605

A. Insurer to the insured Upon receipt of a notice of claim, the company must supply claims forms to the insured within a specified number of days.

Answer 606

C. Waiver of Premium rider. The Waiver of Premium rider causes the insurer to waive future premiums when an accident or disease causes a disability lasting at least six months.

Answer 607

C. Insuring clause. The insuring clause is a provision on the first page of the policy that states the coverage and when it applies.

Answer 608

C. Amounts payable under the policy will reflect the insured's correct age. If an insured misstates his or her age upon policy application, the optional misstatement of age provision will change the payable benefit to that which would have been purchased at the insured's actual age.

Answer 609

C. Stop-Loss Limit A "stop-loss limit" is a specified dollar amount beyond which the insured no longer participates in the sharing of expenses.

Answer 610

C. A specified dollar amount that the insured must pay first before the insurance company will pay the policy benefits. The purpose of a deductible is to have the insured absorb the smaller claims, while the coverage provided under the policy will absorb the larger claims. The higher the deductible, the lower the premium.

Answer 611

A. Entire contract. The policy, together with the attached application, constitutes the entire contract. This provision limits the use of evidence other than the contract and the attached application in a test of the contract's validity. This is a mandatory provision in life insurance.

Answer 612

B. A reinstated policy provides immediate coverage for an illness. Accidental injury is covered immediately, but to protect the insurer against adverse selection, losses resulting from sickness are covered only if the sickness occurs at least 10 days after the reinstatement date.

Answer 613

D. Coverage for dependents Most medical expense policies will not cover expenses for dental care, self-inflicted injuries, or injuries incurred as a result of military service (among other exclusions). Most policies include coverage for dependents.

Answer 614

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

Answer 615

D. Coinsurance. The larger the percentage that is paid by the insured, the lower the required premium will be.

Answer 616

C. 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.

Answer 617

A. Adjust the benefit in accordance with the increased risk. A part of the premium rating concerns the hazard of occupation.

Answer 618

A. Entire contract clause. Entire contract is a mandatory provision that is required by law.

Answer 619

D. As long as the policy is in force An insurer can contest a fraudulent misstatement as long as the policy is in force. No other statement or misstatement made in the application at the time of issue will be used to deny a claim after the policy has been in force for 2 years.

Answer 620

B. The insured was in compliance with the policy requirements regarding claims. If claims forms are not furnished to the insured, the claimant is deemed to have complied with the requirements of the policy if he or she submits written proof of the occurrence, nature of the loss, and extent of loss to the insurer.

Answer 621

D. Legal actions. This mandatory provision requires that no legal action to collect benefits may be started sooner than 60 days after the proof of loss is filed with the insurer. This gives the insurer time to evaluate the claim.

Answer 622

B. Consideration Clause. The consideration clause specifies that both parties to the contract must give some valuable consideration. The payment of the premium is the consideration given by the applicant. Because the applicant had not paid an initial premium, she is not covered by insurance.

Answer 623

A. Policyholder to renew the policy to a stated age, with the company having the right to increase premiums on the entire class. Coverage is guaranteed, but rates can be adjusted for the entire class.

Answer 624

D. 90 days of a loss. Under the Uniform Required Provisions, proof of loss under a health insurance policy normally should be filed within 90 days of a loss.

Answer 625

C. The mode of the premium payment The grace period is 7 days on a policy with a weekly premium mode; 10 days if a monthly premium mode; 31 days on other premium modes.

Answer 626

C. 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.

Answer 627

D. Stop-loss limit A "stop-loss limit" is a specified dollar amount beyond which the insured no longer participates in the sharing of expenses.

Answer 628

C. $900 (deductible + 20% of the bill after the deductible [20% of $2,000]) L would first pay the $500 deductible; out of the remaining $2,000, the insurer will pay 80% ($1,600) and the insured will pay 20% ($400).

Answer 629

D. The insured. Payments for loss of life benefits are to be made to the designated beneficiary. If no beneficiary has been named, payment proceeds are to be paid to the deceased insured's estate. Claims other than death benefits are to be paid to the insured or the insured's estate, unless otherwise assigned by the insured.

Answer 630

B. Join the group after the effective date. The probationary period is the waiting period new employees must satisfy before becoming eligible for benefits.

Answer 631

C. The insurer is considered to be notified since the notification to agent equals notification to the insurer. Notice to the agent equals notice to the insurer. The agent is the insurer's representative.

Answer 632

B. Payment of premium The two types of consideration on the part of an insurance applicant are payment of premiums and representations on the application.

Answer 633

A. Adjust the claim benefit to reflect the insured's true age The Misstatement of Age provision says that if a client has misstated her age, whether intentional or unintentional, they will adjust the benefit being paid. It doesn't matter when the mistake was found.

Answer 634

C. A list of available doctors The Insuring Clause lists the insured, the insurance company, what kind of losses are covered, and for how much the losses would be compensated.

Answer 635

A. Payment of Claims The Payment of Claims provision states that the claims must be paid to the policyowner, unless the death proceeds need to be paid to a beneficiary.

Answer 636

D. 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.

Answer 637

A. Physical examination and autopsy Physical examination and autopsy is a mandatory provision required by law. The other answer choices are optional provisions.

Answer 638

D. Within 90 days or as soon as reasonably possible, but not to exceed 1 year The "proof of loss" provision states the claimant must submit a proof of loss within 90 days; however, if it is not possible to comply, the time parameter is extended to 1 year. The one-year limit does not apply if the claimant is not legally competent to comply with this provision.

Answer 639

B. Insurer's executive officer Only an executive officer of the company, not an agent, has authority to make any changes to the policy. The insurer must have the insured's written agreement to the change.

Answer 640

A. A statement that is sufficiently clear to identify the insured and the nature of the claim. The Insurance Code requires that each policy must include, "Written notice of claim must be given to the insurer within 20 days after the occurrence or commencement of any loss covered by the policy, or as soon thereafter as is reasonably possible".

Answer 641

B. 10 days The grace period is 7 days of the premium is paid weekly, 10 days if paid monthly, and 31 days for all other modes.

Answer 642

D. 24 months. The relation of earnings to insurance provision allows the insurance company to limit the insured's benefits to his/her average income over the last 24 months.

Answer 643

D. 90 days of a loss. Under the Uniform Required Provisions, proof of loss under a health insurance policy normally should be filed within 990 days of a loss.

Answer 644

D. Renewal provision Renewability provisions are included in each health insurance contract and outlines both the insurer's and insured's right to cancel or renew coverage. This is considered to be a very important provision required by HIPAA, the federal Health Insurance Portability and Accountability Act of 1996.

Answer 645

C. Income assistance for work-related injury. Medicaid covers a variety of medical costs, from eyeglasses to hospitalization.

Answer 646

A. Part A. Medicare Part A pays for these services, subject to copayments and limitations on the number of days of care.

Answer 647

B. All providers will have the same coverage options and conditions for each plan. In reference to the standard Medicare Supplement benefits plans, the term "standard" implies that all providers will have the same coverage options and conditions for each plan.

Answer 648

A. Parts A and B of Medicare To buy a Medigap policy, the applicant must generally have both Medicare Part A and Part B.

Answer 649

D. The terminally ill. Under certain conditions, hospital insurance can help pay for hospice care for terminally ill insureds, if the care is provided by a Medicare-certified hospice.

Answer 650

A. It is fully funded by Social Security taxes (FICA). Part B is funded by monthly premiums and from the general revenues of the federal government.

Answer 651

A. Disability expected to last for at least 6 months. For the purposes of obtaining benefits, the Social Security Act defines disability as inability to engage in any gainful employment due to a medically determinable physical or mental impairment that is expected to result in death or last for a continuous period of 12 months.

Answer 652

B. Medicare Part A. To receive Medicare prescription drug benefits, beneficiaries must sign up with a plan offering this coverage in their area and must be enrolled in Medicare Part A or in Parts A and B.

Answer 653

C. Medicare Part C. Medicare consists of Hospital Insurance protection (Part A), Medical Insurance protection (Part B), and Medicare Advantage (Part C) (formerly known as Medicare+Choice). Medicare Part D is a "stand alone" drug insurance policy for persons who need the coverage and are eligible for Medicare Part and/or Part B.

Answer 654

C. To be eligible, one must meet certain requirements. A person must have been employed in a job that is covered under Social Security, or the spouse of a deceased covered worker.

Answer 655

B. The individual's son gets a part-time job to help support the family. Benefits cease the individual reaches age 65, dies, or is no longer disabled. If a person has been receiving Social Security disability benefits at the time that he or she turns age 65, the disability benefits cease, and are replaced by Social Security retirement benefits. At death, family benefits will continue as survivor benefits. Benefits will continue for an adjustment period of three months if an individual no longer satisfies the definition of disability.

Answer 656

C. Have accumulated 6 work credits in the past 3 years. To qualify for disability benefits under SS, the disabled person must have earned a certain amount of work credits. A maximum of 4 work credits can be earned each year. The amount of credits required varies by age. Persons disabled before the age of 24 can qualify for SS benefits with only 6 work credits earned in the 3 years prior to the start of the disability.

Answer 657

B. Worker's occupation A worker's specific occupation is not a factor in determining benefits, so long as the worker has earned the required amount of work credits.

Answer 658

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

Answer 659

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

Answer 660

B. Long-term care Hospice care, which includes respite care, and hospital care are included in Medicare Part A.

Answer 661

C. 5 Months Under SS disability benefits, a person will have to wait five months before any benefits will be paid. Actual benefit payments start with the sixth month of disability.

Answer 662

B. It consists of 3 parts: Part 1: hospitalization, Part B: doctor's services, Part C: disability income. Medicaid is a state program funded by state and federal taxes that provide medical care of the needy. Parts A-C are part of Medicare.

Answer 663

A. It is solely a federally administered program. Medicaid is assistance program for persons with insufficient income and/or resources to pay for health care. States administer the program that is financed by federal and state funds.

Answer 664

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

Answer 665

C. Offer the supplement policy on a guaranteed issue basis. Once a person becomes eligible for Medicare supplement plans, and during the open enrollment period, coverage must be offered on a guaranteed issue basis.

Answer 666

B. Fully insured status SS Disability benefits are available only if the worker is fully insured. Benefits are provided only after a 5-month waiting period.

Answer 667

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

Answer 668

C. First 3 Medicare supplemental policies cover costs of deductibles and coinsurance for Parts A and B. Since Medicare will not pay for the first 3 pints of blood, a Medicare Supplement plan will cover that. This is considered to be a core benefit.

Answer 669

A. Part B coverage is provided free of charge when an individual turns age 65. Those who desire Part B coverage must enroll and pay a monthly premium.

Answer 670

A. 20% of covered charges above the deductible After the deductible, Part B will pay 80% of covered expenses, subject to Medicare's standards for reasonable charges.

Answer 671

D. 25% Once the initial benefit limit is reached, an insured is only responsible for 25% of the prescription drug cost. This percentage applies to generic and brand name drugs.

Answer 672

B. They cover the cost of extended nursing home care. Medicare supplement policies (Medigap) do not cover the cost of extended nursing home care. Medigap plans are designed to fill the gap in coverage attributable to Medicare's deductibles, copayment requirements, and benefit periods. These plans are issued by private insurance companies.

Answer 673

D. Nothing Nothing needs to be done in this case. Medicare Part A and B will automatically be effective the month you turn 65.

Answer 674

C. Medicaid Medicaid is a "needs" tested program administered by the states to provide assistance to persons who are not able to provide for themselves.

Answer 675

C. Guaranteed renewable Medicare supplements must be at least guaranteed renewable.

Answer 676

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

Answer 677

B. Medicaid is a state funded program that provides health care to persons over age 65, only. Medicaid is a government funded (both state and federal) program designed to provide health care to poor people of all ages.

Answer 678

C. 6 months An open enrollment period is a 6-month period that guarantees the applicants the right to buy Medigap once they first sign up for Medicare Part B.

Answer 679

D. It is a compulsory program. Part B is elective. Individuals become eligible for Part B at the same time they become eligible for Part A, however Part B requires that a monthly premium be paid.

Answer 680

C. Outpatient Hospital Treatment Outpatient treatment is covered under Part B.

Answer 681

D. Need. Medicaid is a program operated by the state, with some federal funding, to provide medical care for those in need.

Answer 682

A. Cosmetic surgery Cosmetic surgery is excluded from coverage by Medicare.

Answer 683

B. 12 credits Persons disable between ages 24 and 31 can qualify for benefits if they have credit for having worked half of the time between age 21 and the start of the disability. For example, if Joe becomes disabled at age 27, he would need 12 credits (or 3 years' worth) out of the prior 6 years (between ages 21 and 27).

Answer 684

C. Prescription drug benefit. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) was passed in November 2003. This act implemented a plan to add a Part D - Prescription Drug Benefit to the standard Medicare Coverages.

Answer 685

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

Answer 686

B. Old Age, Survivors, and Disability Insurance SS benefits are also known as Old Age, Survivors, and Disability Insurance (OASDI).

Answer 687

A. A retired person age 50. Under the current federal laws, any of the described persons could qualify for Medicare, except for individuals under age 65 who have no special circumstances.

Answer 688

A. Anyone who is willing to pay a premium. For Medicare Part A, a person must be age 65 or otherwise qualify.

Answer 689

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

Answer 690

C. Automatic enrollment There are 3 types of enrollment periods for Medicare Part A: initial enrollment period, general enrollment period, and special enrollment period.

Answer 691

B. 20% of covered charges above the deductible As established by Medicare, the patient must pay 20% of covered charges above the deductible.

Answer 692

D. 100 Treatment in a skilled nursing facility is covered in full for the first 20 days. From days 21 to 100, the patient must pay the daily copayment. There are no Medicare benefits provided for treatment in a skilled nursing facility beyond 100 days.

Answer 693

C. The individual must be at least 65 years old. It is difficult to receive Social Security disability benefits. Prospective recipients must have a particular insured status and satisfy a waiting period. Recipients must also meet a strict definition of total disability, making qualifying for benefits difficult.

Answer 694

A. Routine dental care Medicare Part B covers dental expense resulting from an accident only.

Answer 695

B. Medicare Advantage must be provided through HMOs. Medicare Part A provides hospital care; Medicare Part B provides doctors and physician services, and Medicare Advantage (previously Medicare+Choice) offers expanded benefits for a fee through private health insurance programs such as HMOs and PPOs.

Answer 696

B. Plan A In order to standardize the coverage provided under Medicare supplement policies, the NAIC has developed standard Medicare Supplement benefit plans which are identified with the letters A through N. The benefits in Plan A are considered to be core benefits and must be included in the other types.

Answer 697

B. The employer plan is primary coverage, and Medicare is secondary coverage. Employees age 65 or older will be covered under their employer's health insurance plans, regardless of age. Although employees are still eligible for Medicare at age 65, it will act as secondary insurance to the employer's health plan. In other words, employer plans continue to be primary coverage, and Medicare is secondary coverage.

Answer 698

A. Fully insured status Social Security Disability benefits are available only if the worker is fully insured. Benefits are provided only after a 5-month waiting period.

Answer 699

B. Age 65, regardless of his employment status. The individual will still be eligible for Medicare at age 65, but if he is still insured under his employer's group health plan, the group plan will be his primary coverage and Medicare will be secondary coverage.

Answer 700

D. Social Security disability benefit The amount of the Social Security disability benefit will be based on the person's Primary Insurance Amount (PIA). The PIA is based on the person's average indexed earnings on which Social Security taxes have been paid.

Answer 701

C. The insured must have first been hospitalized for 3 consecutive days. Part A coverers the cost of care in a skilled nursing facility as long as the patient was first hospitalized for 3 consecutive days, and the services are medically necessary and only up to amounts deemed.

Answer 702

D. 100 Treatment in a skilled nursing facility is covered in full for the first 20 days. From days 21 to 100, the patient must pay the daily copayment. There are no Medicare benefits provided for treatment in a skilled nursing facility beyond 100 days.

Answer 703

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

Answer 704

D. Not tax deductible. Premiums for personally-owned individual disability policies are not deductible.

Answer 705

A. A worker receives benefits only if the work related injury was not his/her fault. Workers Compensation benefits are payable when a worker is injured by a work-related injury, regardless of fault or negligence.

Answer 706

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

Answer 707

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

Answer 708

C. State government The state government offers and regulates Workers Compensation benefits, which vary slightly from state to state.

Answer 709

D. Benefits are offered by the insurer. The state government regulates Workers Compensation benefits, which vary slightly from state to state.

Answer 710

C. Present earnings and earnings prior to disability Residual disability will help pay for loss of earnings by making up the difference between the employee's present earnings and what they were earning prior to disability.

Answer 711

D. Any policy that has a death benefit must also have a Change of Beneficiary provision. Any policy that has a death benefit must also have a Change of Beneficiary provision. This allows the policyowner to change beneficiaries without the original beneficiary's consent, unless that person was designated as an irrevocable beneficiary.

Answer 712

D. Premiums are tax deductible and benefits are not taxed. Premiums paid by employers for Group Medical Expense insurance are tax deductible for the employer as a business expense. Also, policy benefits paid out to employees are not taxable as income to employees.

Answer 713

D. The remaining 4 primary beneficiaries If multiple primary beneficiaries are named in a policy, each will receive an equal percentage of the death benefit. In this case, since there are four remaining primary beneficiaries, they would receive the death benefit in equal shares. Only if all of the primary beneficiaries die, the contingent beneficiary would receive the entire death benefit.

Answer 714

A. 0% Premiums are paid with after tax dollars. Benefits are not income taxable.

Answer 715

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

Answer 716

A. Employee benefits are tax deductible the year in which they were received. For group medical and dental expense insurance any premium paid by the employer is deductible as a business expense. However, any premiums provided by the employee are only deductible if certain conditions are met. Group medical and dental expense benefits are received income tax free by the employee.

Answer 717

B. Work-related disabilities. All states have workers compensation laws, which were enacted to provide mandatory benefits for employee's work related injuries, illnesses, or death.

Answer 718

B. Subrogation After the insured accept payment from the insurer, they have been indemnified. Insurance policies require the insured to transfer any right to recovery to the insurer so that they may seek recovery up to the amount they paid as loss.

Answer 719

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

Answer 720

D. Subrogation. Subrogation is a provision found in most insurance policies that gives the insurer, after payment of a loss caused by a third party, the insured's rights to recovery against that third party. The insurer's rights are only to the extent of the loss payment.

Answer 721

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

Answer 722

A. The benefits will be coordinated. Benefits will be coordinated when individuals are covered under two or more health plans.

Answer 723

C. Any occupation - more restrictive than other definitions. If total disability is defined as any occupation, it means the coverage will apply only if the insured cannot find any means of income whatsoever. This is more strict than own occupation, where a person merely has to prove that they cannot perform the job for which they were previously trained.

Answer 724

C. A person's ability to work is significantly reduced or eliminated for the rest of his/her life. While different policies might define "total disability" differently, any definition would imply that under a total disability a person's ability to work is significantly reduced or eliminated for the rest of his/her life.

Answer 725

D. Control health insurance claims expenses. Managed care is a system of delivering health care and health care services, characterized by arrangements with selected providers, programs of ongoing quality control, and utilization review and financial incentives for members to use providers and procedures covered by the plan.

Answer 726

A. When the expenses exceed a certain percentage of the insured's adjusted gross income In either medical expense insurance policies or long-term care insurance policies, unreimbursed medical expenses paid for the insured, the insured's spouse, and dependents may be claimed as deductions if the expenses exceed a certain percentage of the insured's adjusted gross income.

Answer 727

A. Benefits are considered taxable income to the business. The buy-sell coverage benefits are tax free.

Answer 728

B. The more liberal "own occupation" Total disability is defined differently under some disability income policies. The more liberal "own occupation" definition of disability makes it easier to qualify for benefits.

Answer 729

C. The insurance through his company is primary. The policy that covers the person filing the claim will be considered the primary policy.

Answer 730

A. Nonoccupational coverage. Most group disability income is nonoccupational coverage, covering insured only off the job. The employer carries workers compensation for on the job injuries or sickness.

Answer 731

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.

Answer 732

C. Legal benefits Under Workers Compensation, medical and rehabilitation benefits, income benefits, and death benefits are all included.

Answer 733

B. Change of beneficiary The change of beneficiary mandatory provision allows the policyowner to change the beneficiary designation.

Answer 734

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

Answer 735

A. Decreases Because the insurer would have the entire premium to invest for a full year, they would reduce the premium amount.

Answer 736

B. An employee's group medical benefits are generally exempt from taxation as income. Group medical and dental benefits are received tax-free to employees. Also, premiums paid by the employer are deductible as business expenses.

Answer 737

C. The policyowner has the right to change beneficiaries in any case. The policyowner has the right to change beneficiaries unless he/she has chosen to have an irrevocable beneficiary. Otherwise, the policyowner can legally change beneficiaries, without the consent of the former beneficiary.

Answer 738

B. $500 Once the primary insurer has paid the full available benefit, the secondary insurer will cover what the first company will not pay, such as deductibles and coinsurance. The insured will, then, be reimbursed for out-of-pocket costs.

Answer 739

A. Monthly If the policyowner chooses to pay the premium more frequently than annually, there will be an additional charge (loading) because the company will not have the premium to invest for a full year, and the company will have additional expenses in billing the premium.

Answer 740

B. Recurrent disability. Recurrent disability is the period of time (usually within 3-6 months) during which the recurrence of an injury or illness will be considered as a continuation of a prior period of disability.

Answer 741

C. Disability insurance can be written as occupational or nonoccupational. All disability insurance can be written on either an occupational or nonoccupational basis.

Answer 742

D. Deductible by the employer as an ordinary business expense. Group disability income premium paid by the employer is considered tax deductible by the business as an ordinary business expense. The premium payments are neither taxable nor tax deductible to the employee.

Answer 743

C. Disability Income The part of the benefit that is provided by the employer's contribution is income taxable to the employee.

Answer 744

C. Workers Compensation Workers Compensation provides employees with medical, income, death, and rehabilitation benefits in the event of work-related injury.

Answer 745

C. Whether the premiums were tax deductible The taxation status of benefits is often determined by whether the premium has been tax deducted.

Answer 746

C. 31 days Every policy providing coverage for a dependent child until a specified age will not terminate that coverage if the child is dependent upon the insured and is incapable of self-support because of physical or mental handicaps. Proof of the dependency is required within 31 days of the child attaining the maximum age.

Answer 747

A. Subrogation. When the insureds accept loss payment from the insurance company, they must transfer their rights to recovery to the insurer. This prevents the insured from collecting twice for the same loss, and allows the insurer to indemnify the insurance company.

Answer 748

A. Unlimited access to providers There are five distinguishing features of managed care: controlled access to providers, comprehensive case management, risk sharing, preventive care, and high-quality care.

Answer 749

C. 10% Most people who itemize their deductions can claim deductions for unreimbursed medical expenses, those that are not covered by health insurance, that exceed 10% of their adjusted gross income.

Answer 750

C. $3,000 On partially contributory group disability income insurance, only that portion of the benefits that are related to the premium paid by the employer is taxable to the employee. In this case, because the employer pays 75% of the premium, the employee will be taxed on 75% of the benefits.

Answer 751

B. This is a form of insurance that covers part-time workers. Partial disability covers full-time-working insureds who are unable to perform some, but not all, of their regular job duties or can no longer work full-time, which ultimately results in a loss of income. Payment from partial disability is typically 50% of the total disability benefit.

Answer 752

D. 100% For group medical and dental expense insurance any premium paid by the employer is deductible as a business expense.

Answer 753

A. Benefits are taxable to the employer. Key person disability income premiums are not deductible to the business, but the benefits are received income tax free by the business.

Answer 754

B. Premiums are not tax deductible, and benefits are not taxable. In individual disability income, benefits are not taxable, and premiums are not tax deductible.

Answer 755

B. $5,000 Once the primary plan has paid its full promised benefit, the insured submits the claim to the secondary, or excess, provider for any additional benefits payable.

Answer 756

C. Business overhead expense Business overhead expense (BOE) insurance is a unique type of policy that is sold to small business owners who must continue to meet overhead expenses such as rent, utilities, employee salaries, installment purchases, leased equipment, etc., following a disability.

Answer 757

C. The group plan will not pay because the employee was injured at work. Because the employee's injuries were work related, the group health policy would not respond. The insured would have to rely on worker's compensation for coverage.

Answer 758

C. If paid by the individual, the premiums are tax deductible. If an individual purchases his or her own disability insurance with before-tax dollars, any benefits paid are tax free, but the premium is not tax deductible. If an employer pays the premium, the employer may deduct the premium as a business expense. Any benefits paid to an employee are taxable, unless it is for the permanent loss of a body part, or loss of use of a body part.

Answer 759

D. Is defined as the frequency and the amount of the premium payment. The mode refers to the frequency the policyowner pays the premium: monthly, quarterly, semiannually, or annually. The amount of premium will change accordingly.

Answer 760

A. When the benefits received are equal or less than the employee's percentage of the contribution. Benefits received by the employee that are attributable to his or her portion of the contribution are not taxable as income.

Answer 761

C. $50,000 The proprietors of a business may deduct the cost of a medical expense plan because they are considered to be self-employed individuals instead of employees. The deduction cannot legally exceed the taxpayer's earned income for the year even if the cost of the medical expense plan exceeds this amount (in this scenario, $50,000).

Answer 762

B. Are made by the business and are not tax-deductible. Premiums are nondeductible to the business; however, benefits are received tax-free by the business.

Answer 763

C. "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.

Answer 764

A. Excessive benefits may be taxable. Regardless of whether or not the insured can deduct individual long-term care premiums, the benefits are received income tax free by the individual. Excessive benefits as determined by statute are taxable as ordinary income.

Answer 765

C. Unless the policy designated the current beneficiary as irrevocable, the policyowner can make the change at any time. Unless a beneficiary is designated as irrevocable, the insured can change beneficiaries without the consent of the former beneficiary.

Answer 766

C. Benefits that are attributable to employer contributions are fully taxable to the employee as income. Group disability income premium payments are considered tax deductible by the business as an ordinary business expense. In a plan funded entirely by the employer, income benefits are included in the employee's gross income and taxed as ordinary income.

Answer 767

A. No tax Daily benefits from the LTC policy are received income tax free, as long as they do not exceed the daily cost of long-term care.

Answer 768

D. Disability Buy-Sell Disability Buy-Sell Insurance provides funds for business organizations to purchase the business interest of a disabled partner. The premiums are not deductible, but the benefits are received income tax-free.

Answer 769

C. Premiums are tax deductible. The premiums paid for BOE insurance is tax deductible to the business as a business expense. However, the benefits received are taxable to the business as received.

Answer 770

D. Income tax free. In disability buy-sell policies, whether cross purchase or entity, the benefits are received income tax free by the business, but the premiums are not deductible to the business..

Answer 771

C. Settlement options.

Answer 772

A. No, the group must be formed for a purpose other than obtaining group insurance.

Answer 773

B. Within 20 days This mandatory provision requires the insured to give the insurer, or its agent, written notice of a claim within 20 days of the loss or as soon as reasonable possible. If the nature of disability is such that the insured is legally incapacitated, this requirement is waived.

Answer 774

D. Family term A Family Term policy is created when a Children's Term Rider and Spouse Term Rider are combined into a single rider which is attached to a whole life policy. Under the Family Term Rider, the entire family is covered under the same policy.

Answer 775

C. Replace a percentage of his lost income. Disability Income insurance covers income only, not medical expenses.

Answer 776

A. 60 days after written proof of loss has been submitted. The insured must wait 60 days, but no later than 3 years (in most states) after proof of loss, before legal action can be brought against the company.

Answer 777

D. 30 days Prior to a policy lapsing because of the outstanding loans, an insurer must provide a written notice to the insured no later than 30 days before the effective date.

Answer 778

C. Mental illness. Mental illness is covered, with some limitations.

Answer 779

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

Answer 780

B. Supplement Social Security coverage. Supplement Social Security coverage is a rider to a disability policy.

Answer 781

A. 3 days If a consumer report is requested, the insurer must notify the consumer at least 3 days following the intial request.

Answer 782

A. Adult day care Adult day care is care provided for functionally impaired adults on less than a 24-hour basis. It could be provided by a neighborhood recreation center or a community center. Care includes transportation to and from the day care center, and a variety of health, social, and related activities. Meals are usually included as a part of the service.

Answer 783

B. Insurer. Health insurance applications require the signatures of the proposed insured, the policyowner (if different than the insured), and the agent or producer.

Answer 784

A. Within 60 days. The terminated employee must exercise extension of benefits under COBRA within 60 days of separation from employment.

Answer 785

B. Supplementary major medical Supplementary Major Medical Policies are used to supplement the coverage payable under a basic medical expense policy. After the basic policy pays, the supplemental major medical will provide coverage for expenses that were not covered by the basic policy, and expenses that exceed the maximum. If the time limitation is used up in the basic policy, the supplemental coverage will provide coverage thereafter.

Answer 786

A. Conditional Receipt When an applicant pays the initial premium before the application is approved and the policy is issued, a conditional receipt can be issued in order to acknowledge the payment. Coverage will not begin, however, until the policy has been issued.

Answer 787

C. The insurer The insurer has the option of including optional provisions in the health insurance policy.

Answer 788

C. Only if the individual is not identified Insurance companies must maintain strict confidentiality regarding HIV-related test results or diagnoses. Test results may not be provided to the MIB if the individual is identified.

Answer 789

D. Probationary Period Probationary Period is an optional provision.

Answer 790

B. Policyowner's minor children or business associates Most policies involving third-party ownership are written in business situations or for minors in which the parent owns the policy.

Answer 791

B. Drug addiction. Treatment for drug and alcohol addiction is provided on a limited basis.

Answer 792

A. Health insurance policies in force. The information about the applicant's health insurance policies is not material to a life insurance contract.

Answer 793

B. Delivered. When the insurer relinquishes control of the policy by mailing it to the policyowner, policy is considered legally delivered.

Answer 794

B. The premium is based on the age of each insured. Survivorship Life (or "second-to-die" policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age.

Answer 795

C. It does not have a guaranteed death benefit. Straight Life (also called Ordinary Life or Continuous Premium Whole Life) charges a level annual premium for the lifetime of the insured and provides a level, guaranteed death benefit. If the insured lives to age 100, the policy endows (matures) and the face amount is paid to the insured at that time. During the insured's lifetime the straight life policy builds cash value. The insurer guarantees the cash value and death benefit under a straight life policy.

Answer 796

B. Fixed Amount The fixed-amount option pays a fixed, specified amount in installments until the proceeds (principal and interest) are exhausted. The recipient selects a specified fixed dollar amount to be paid until it is gone. If the beneficiary dies before the proceeds are exhausted, installments will continue to be paid to a contingent beneficiary until all proceeds have been paid out.

Answer 797

D. Part A deductible. Plan A is the core benefits only and does not include coverage for Part A deductibles.

Answer 798

A. An association of 35 people. Group insurance may be issued to employer, employee, or other groups that are together for a purpose other than the purchasing insurance.

Answer 799

C. 30 days. The free-look period for Medicare supplement policies must be at least 30 days.

Answer 800

B. Renewability provision Renewability provisions are included in each health insurance contract and outlines both the insurer's and insured's right to cancel or renew coverage. This is considered to be a very important provision required by HIPAA, the federal Health Insurance Portability and Accountability Act of 1996.

Answer 801

D. Benefits provided must be the same as for any other physical illness. All group health insurance benefit plans in Texas must provide for drug and alcohol addiction treatment on the same basis as the benefits provided for physical illness. Coverage amounts may be less, but must be sufficient to treat the chemical dependency.

Answer 802

B. Indemnity Indemnity health insurance plans , otherwise known as first-dollar insurance, do not require insureds to satisfy a deductible before providing benefits.

Life & Health Exam Questions Flashcards

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