Review tests Flashcards
1
Q
What is stop-loss limit?
A
The dollar amount beyond which the insured no longer must pay the coinsurance percentage and participate in expense payment.
Example: Many major medical policies include a provision whereby when expenses reach a certain dollar amount, the insured no longer shares in the cost of expenses, the insurer pays 100% of the remaining covered charges.
2
Q
Third-party ownership refers to a situation in which
A
the policyowner is someone other than the insured.
Example: in a business, a corporation may apply for insurance on the life of a key employee.
3
Q
The amount of benefit payments with a fixed annuity are
A
guaranteed.
4
Q
A life annuity with period certain settlement option pays the annuitant
A
for a specified minimum number of years, or the rest of his life, whichever is longer.
A life annuity with a period certain settlement option guarantees payments for a minimum stated period. If the annuitant dies before all the guaranteed payments have been made, the rest of the guaranteed payments are made to a beneficiary.
5
Q
Under Social Security disability benefits, a qualified disabled worker receives a benefit equal to
A
100% of the worker’s primary insurance amount (PIA)
6
Q
How is the beneficiary paid when there is a discrepancy in age when discovered after insured dies?
A
When a discrepancy between the age used for setting premiums and actual age exists, the insurer must determine the amount the premium would have bought at the insured’s correct age and pay that face amount to the bene.
7
Q
Basic services that HMOs (Health Maintenance Organizations) are required to provide include:
A
- Hospital inpatient and outpatient services
- Physician
- Emergency
- Preventative services
- Diagnositc and therapeutic radiology services
- Short-term physical therapy and rehabilitation services
- Laboratory and x-ray services
- Outpatient Surgery
8
Q
The death benefit of a variable life policy…
A
may go up or down but will never fall below the guaranteed minimum amount specified in the policy.
9
Q
The suicide clause states that if an insured commits suicide:
A
During the first two years after the policy is in effect, the insurance company will only pay the premium paid by the insured, not the face value of the policy.
10
Q
An insurance contract is an aleatory contract. This means:
A
equal value is not given by both parties to the contract.
11
Q
Dread disease, travel accident, vision care and hospital income (indemnity) policies are all examples of:
A
Limited Policies
A limited policy is one that covers only a limited, specific risk.
12
Q
Premiums paid for individual life insurance are (tax deductible or not tax deductible)?
A
NOT TAX-DEDUCTIBLE
13
Q
When the entire death benefit is paid in a lump sum to a beneficiary, how is it taxed?
A
Not taxable as income.
If the death benefit payment is made under other settlement options, not a “lump sum”, the original death benefit is NOT taxable, but any interest earned on the proceeds are taxable as ordinary income when paid to the bene.
14
Q
Qualified Health Plans (QHP) that are part of the Affordable Care Act are sold where?
A
ONLY on the Health Insurance Exchange
QHPs are only available on the health insurance exchange and are the only plans that provide premium tax credits and cost-sharing reductions for eligible individuals.
15
Q
What is the proper term for a company owned by its policyowners?
A
A mutual insurance company
In a mutual insurance company, the policyowners share ownership of the company.
16
Q
Income payments made from an annuity are (tax info)…
A
only partly subject to federal taxation
Federal law states a fixed part of each annuity income payment is return of capital rather than new income and is not subject to taxation.
17
Q
Insurance policies are legal contracts and are subject to the general law of contracts. To form a valid contract, what four elements must be present.
A
- Legal purpose
- Agreement (offer and acceptance)
- Consideration
- Competent Parties
18
Q
Accelerated death benefits
A
An accelerated death benefit can be requested when the insured has a limited life expenctancy or meets certain medical circumstances.
- Generally death must be expected within 24 months.
- Payments range from 25%-100% of the death benefit, not the cash value
- Medicaid rules are not a factor in determining accelerated death benefit amounts
19
Q
What is a unilateral contract?
A
In a unilateral contract, only one party is required to perform contractual obligations.
20
Q
The cash value accumulation in a life insurance policy
A
can be used for loans or later as retirement income.
21
Q
The federal Affordable Care Act (ACA) eliminated pre-existing condition exclusions for ___ but not for ___.
A
The federal Affordable Care Act (ACA) eliminated pre-existing condition exclusions for MEDICAL EXPENSE POLICIES
but not for DISABILITY POLICIES, LONG-TERM CARE INSURANCE, MEDICARE SUPPLEMENTS, AND LIMITED BENEFIT POLICIES.
22
Q
Expense load is also known as
A
the insurers operating costs.
23
Q
Modified Endowment Contract (MEC)
A
MECs are still life insurance and offer tax-free death benefits and tax-deferred cash value accumulation. If a policy becomes MEC and no distributions are taken from that policy during the insured’s lifetime, they will not experience any adverse tax implications due to the contract’s MEC status.
24
Q
The type of health care provider that is a managed care entity and provides both health care services and health care financing is…
A
a health maintenance organization (HMO)
An HMO is a group of medical practitioners who contract to provide medical services at a negotiated price, so the group provides both the coverage and the medical services. HMOs provide both the health care service and the health care financing, while traditional health care insurance companies provide only the financing.
25
Term insurance differs from permanent insurance in that term
builds no cash value and pays a death benefit only.
Term insurance, with lower premiums, provides only protection against early death. No cash value accumulates in a term life policy.
26
The Medical Information Bureau is
a non-profit insurance trade association
The insurance industry-sponsored Medical Information Bureau tries to help insurers reveal misrepresentation or potential fraud by applicants.
27
A limited pay life policy...
requires premium payments for a specified number of years or until a spedified age is reached
In a limited pay life policy, the insured policyowner pays premiums for a specified time or until a specified age, and the insurance protection continues throughout his life.
28
Living benefits of insurance include:
* Loan values
* dividends
* cash withdrawals
* retirement income
29
Employer paid premiums for employee grout health insurance are generally:
tax deductible to the employer and nontaxable to the employees
Premiums paid by an employer for a group plan are generally deductible as a business expense, and benefits are tax free to employees as long as benefits do no exceed actual expenses.
30
Rebating
The giving of anything of value including a portion of the agent's commission.
This may be done if it is specified in the insurance contract and available to the entire class of insured.
Rebating may NOT occur if the practice is prohibited by the insurer or involves discrimination according to race, sex, age, marital status, or nationality among insured.
Any rebating schedule must be visable to the public in the agent's office and kept by the agent for five years.
31
Failure to comply with Florida's statues regardign controlled business would:
subject the agent's license to revocation.
32
Medicare coverage is divided into four parts, explain them
Part A - covers hospital, skilled nursing facility, hospice and home health care
Part B - covers medical care provided by physicians and other medical services
Part C - covers health care delivered by managed care plans
Part D - covers prescription drugs
33
A limited pay life policy...
the insured policyowner pays premiums for a specified time or until a specified age, and insurance protection continues throughout his life.
34
Taxes, premiums paid for individual life insurance are...
NOT tax-deductible
35
MECs (Modified Endowment Contracts)
MECs are life insurance and offer tax-free death benefits and tax-deferred cash value accumulation. If a policy becomes MEC and no distributions are taken from that policy during the insured's lifetime, they will not experience any adverse tax implications due to the contract's MEC status.
36
Living benefits of life insurance:
loans, dividends, cash withdrawals, and retirement income
37
In a group insurance, the evidence of an agreement between the insurer and the employer or association is the
CONTRACT
38
What is the proper term for a company owned by its policyowners?
Mutual Insurance Company
39
Employer-paid premiums for employee group health insurance are generally (taxes)
tax deductible to the employer and nontaxable to the employee
Premiums paid by an employer for a group plan are generally deductible as a business expense, and benefits are tax free to employees as long as benefits do not exceed actual expenses.
40
Universal Life (UL)
was designed for people who want flexible premiums and flexible coverage over the course of their lifetime. UL premiums are flexible, not fixed, like whole life. Premiums paid into a UL policy accumulate as interest in the policy's cash value.
41
Elements of a contract:
* competant parties
* a legal pupose
* an offer and acceptance (agreement)
* a consideration
42
Social Security PIA payout at time of death?
The social security spouse benefit for a spouse caring for an unmarried child under age 16 or disabled before age 22 is 50% of the PIA.
43
If a long-term care policy is considered tax qualified,
its benfits will qualify for tax-exempt treatment.
44
Individual certificates issued to all individuals insured under an insurance policy must include
Individual certificates for insureds in a group plan must state what coverage is provided and to whom it is payable, and they must include a detailed conversion provision
45
What is the withdrawal rule for annuities?
The withdrawal rule on annuity cash value is LIFO, last in first out.
This means if the policyowner takes a withdrawal, the company will give the owner interest first, which is taxable at the insured's individual income tax bracket.
If the owner is not at least 59 1/2 at the time of withdrawal, a 10% penalty will also be assessed to taxable dollars withdrawan. The owner never pays taxes on withdrawing the cost basis or the money paid into the annuity.
46
What provides for an enhanced death benefit on a universal life policy?
Option B
Option B (or Option 2) allows the cash value in the account to be added to the death benefit.
For example, if a $100,000 policy has $25,000 of cash value, the beneficiary will receive $125,000.
Ref: 4.6.2.2
47
Alexandria assigns her $10,000 life insurance policy to a bank as collateral for a loan. The ASSIGNEE is
The bank
When a life insurance policy is assigned, the recipient of the policy (in this case, the bank) is called the assignee.
48
Under COBRA regulations, regarding coverage after a divorce from an insured
The ex-spouse's coverage can be continued with identical benefits for a specified period, up to 36 months.
It may be possible for the ex-spouse to convert the policy, but that is not a COBRA requirement. Although premiums may be increased, the terms of the coverage, including the cooinsurance and deductible, must remain the same.
49
ERISA requires the reporting and disclosure of certain information regarding group insurance plans to be made available to:
* plan participants and their benes
* IRS
* Department of Labor
50
The Florida Employee Health Care Access Act governs group health insurance provisions provided by insurers or HMOs to
Small employers
51
Conversion Privilege in group health insurance
An insured employee who resigns or is terminated has 31 days in which to take out a conversion policy without haveing to show evidence of insurability. The insurer has the right to adjust the premium rate for the new policy. The insurance continues in force for the individual while she is converting from the group plan to an individual policy.
52
Direct-writing companies
Direct-writing companies employ producers to sell the company's insurance products. These employees are paid a salary, commission or both. The insurer owns the business that the producers write.
53
Qualified retirement plans advantages to employers include
Qualified retirement plans provide many advantages to employers, including favorable tax rules, increased productivity from employees, and good public relations with employees in the public.
54
While a policy loan is generally an available option with any form of permanent life insurance, a partial withdrawal of cash value from the policy is available only with...
Universal Life
While policy loans are available with any type of permanent life insurance policy, partial cash value withdrawals require the policy flexibility that only universal life insurance offers.
55
A single plan that covers the employees of two or more unrelated employers is called
MEWA - Multiple Employer Welfare Arrangement
A MEWA is a plan that is established for the purpose of providing benefits such as health insurance to the employees of two or more employers.
56
In an insurance transaction, licensed agents legally represent
The insurer
A licensed insurance agent legally represents the insurer in a sales transation and in any disputes between the insured or benes and the insurer.
57
A managed health care system that finances and delivers health care services through contract providers is called
A Health Maintenance Organization.
58
What are members of a group health policy given that shows evidence of insurance?
A certificate of coverage
Members each receive a certificate of coverage that provides evidence of insurance, who is covered by the plan and a summarization of benefits.
59
Individual accident and health insurance policies must contain
* change of beneficiary
* proof of loss
* and time limit on certain defenses provisions
A change of occupation provision is optional.
60
All of the following reforms began in 2010 under the Affordable Care Act
* Pre-existing coverage for children under age 19
* Dependent coverage until age 26
* No lifetime limits on essential services
Pre-existing coverage was extended to all insureds in 2014.
61
What are the three types of agent authority?
1. Express
2. Implied
3. Apparent
62
What cash payment amount must an insurer report as suspicious activities?
in excess of $10,000
63
Guarantee of Insurability
A guarantee of insurability provision provides a long-term care insurance policyowner with the option to purchase additional life insurance amounts within a specified parameters regardless of insurability, claims history, or existing conditions. This is an optional benefit available to policyowners.
64
An aleatory contract
A contract in which one party may receive considerably more in value than the other party is an aleatory contract.
65
Equity-Indexed annuity
Has most of the features of fixed annuity contracts except that the interest credited to the annuity owner's account is tied to a stock market-related index, such as S&P 500 Index.
Unlike variable annuities, an equity-indexed annuity cannot decrease in value and has a fixed miniumum guarantee.
66
Under Medicare Part A, the participant must pay his deductible (how often)
Once per BENEFIT PERIOD
A benefit period starts when a patient enters the hospital and ends when the patient has been out of the hospital for 60 consectutive days.
67
What policies would require the most comprehensive underwriting?
Applicants for NONCANCELABLE and GUARANTEED RENEWABLE disability income insurance would require the most comprehensive underwriting because these policies allow an insured's guaranteed renewal of the policy up to a certain age, without evidence of insurability.
68
Generally speaking, how many days does a certificate holder have to convert to an individual policy?
31 days (varies from state to state)
69
What is an incorporated insurer that does not have capital stock and has a governing body that is elected by its policyowners?
Mutual Insurer
A mutual insurer is an incorporated insurer that is owned collectively by its policyowners, who elect its directors.
Mutual insurers do not have capital stock.
70
The time of payment of claims provision requires that
claims must be paid after the insurer is notified and receives the proof of loss
71
Three distinct categories of basic health coverage are:
* medical expense
* disability income
* accident-only
72
Policyowners have 3 nonforfeiture options:
1. Cash surrender
2. Reduced Paid-Up Insurance
3. Extended Term Insurance
73
When reinstating a life policy, does a new suicide exclusion period go into effect?
no
74
All of the following are penalties for violating the Fair Credit Reporting Act
* Either fines or imprisonment
* Punitive damages awarded by a court
* Reasonable attorney's fees
Loss of license indefinitely is NOT a penalty
75
What is the default nonforfeiture option?
Extended term
If a permanent life policy lapses for nonpayment and the policyowner has not chosen a nonforfeiture option, the insurance company by default will chose extended term insurance. The company will purchase a 1-year term policy on the insured's behalf at his attained age with the same size death benefit as the policy that lapsed for nonpayment.
76
Whole Life Insurance - graded premium
Graded premium polciies offer lower premiums during the initial period that gradually increase before leveling off for the duration of the contract. The total amount paid over the period of the policy would equal what is paid for a straight life policy.
77
When a group policy is converted:
* the premium will be based on the insured's attained age
* conversion must be within 31 days from the date the coverage is lost
* must be the same coverage amount
* must be a permanent, not term policy
* no proof of insurability is required
78
Taxes for premiums for a qualified long-term care insurance paid by an employer
Employer-paid group long term care insurance is deductible to the employer, not taxable to the employee, and benefits are tax-free to the employee up to certain specified limits.
79
Under Social Security, a worker's Primary Insurance Amount (PIA) is:
An amount equal to the worker's full retirement benefit at the full retirement age or disability benefit
The Primary Insurance Amount (PIA) is calculated using the percentages of the person's income over her working years.
80
HSAs
* Earnings in a HSA grow tax-free
* The funds from an HSA may be withdrawn tax-free if they are used to pay for qualified health care expenses
* There are few exceptions where HSA funds can be used to pay insurance premiums
* Medicare Supplement premiums are not allowed
81
A relatively small flat dollar amount that HMO subscribers pay for each doctor visit is known as
co-payments
82
When an insurer is licensed in a state, they are considered to be
Admitted, authorized or approved
83
Fraternal benefit societies
Fraternal benefit societies operate under a special state insurance code. Policies are called certificates, and memebers who own life insurance are called certificate holders.
84
Does waiver of premium provision is for individual or group insurance?
A waiver of premium provision does not apply to group insurance.
85
A disabled worker's unmarried dependent child, who is younger than 18, is eligible for monthly benefits equal to how much of the worker's primary insurance amount?
50%
A disabled worker's unmarried dependent child who is younger than 18, or who is disabled before reaching age 22, is eligible for monthly benefits equal to 50% of the worker's PIA.
86
Taxes: Business Life insurance policies
* In general, business life insurance policies are not deductible to the business
* However, executive bonus plans are considered compensation and are deductible to the business, and the bonus used to pay the premium is taxable to the employee.
87
Guaranteed Insurability options allows the insured to purchase additional insurance at what intervals and for what time period?
* 3 year intervals
* between ages 25 and 40
88
What is the maximum number of days that Medicare will pay for hospital bills?
* After initial deductible is met, Medicare pays for all covered hospital charges for the first 60 days of hospitalization.
* The next 30 days are also covered, but the patient will be required to contribute a certain daily co-payment amount.
* If after the first 90 days, the patient is still hospitalized, he can tap into a 60-days lifetime reserve and pay a highter level of daily co-payments.
* Consequently, a patient who has not yet tapped into the lifetime reserve days could have up to 150 days of Medicare coverage for a single hospital stay.
89
Eric is recently divorced. His ex-spouse, Sophie wants to know if she can maintain coverage?
If an employee's spouse becomes ineligible for coverage under the employee's medical policy because of divorce, the employer must offer coverage to the ex-spouse for up to 3 years, provided the ex-spouse notifies the employer within 30 days of her intent to continue coverage. She must also pay up to 102% of the applicable premium for the coverage.
90
What are the different types of agents?
* Independent
* Captive
* Exclusive
* General or Managing General
91
What is presumptive disability?
Generally requires the loss of 2 limbs to qualify automatically for full benefits.
92
If consumer information reports are obtained under false pretenses, the maximum penalty is
A $5,000 fine, imprisonment for 1 year, or both
93
Life insurance - What is the purpose of Interest-Only option for payout?
Under the interest only option, only the interest on the face amount will be paid to the spouse on a regular basis. The face amount will be preserved for the benes.
Example, Heather wants her $85,000 life insurance policy arranged to pay her spouse a monthly income if she dies first, but most or all of the proceeds to go to their 2 children after her spouse's death. Interest only option would provide income for her spouse and conserve the proceeds for the children.
94
RESIDUAL BASIS relates to
Disability income insurance contracts may be written on a residual basis, which means that they will provide benefits for loss of earnings without regard for occupational status and even if the insured is able to return to work on a full-time basis. The benefit is payable if the insured's earnings are reduced by a specified percentage below her pre-disability earnings.
95
Cal, age 57, owns a whole life policy with a $750,000 face amount that was paid for with a single premium of $100,000. The current cash value is $125,000. If he were to borrow $30,000 from this policy today, what would the tax treatment be?
$25,000 of the loan is subject to income taxaction plus an additional 10% penalty tax.
This policy is a modified endowment contract (MEC), evidenced by the fact that it was paid for with a single premium. Accordingly, all withdrawls, including loans, above the cost basis (the total amount of premium paid in) are subject to income taxation and, if the owner is under ag 59 1/2, and additional 10% penalty.
96
What is APPARENT AUTHORITY?
Apparant authority arises from the reasonable assumptions that a third party, such as an insurance prospect, makes on the basis of the actions or statements of the principal. By providing an agent with business cards, sample policies and rate books the insurer give a prospect the impression that supports the agents statements and deeds with respect to the insurance transactions.
97
Limited Pay means
A whole life policy that makes it possible to stop premium payments at the end of a specified time without a reduction in the death benefit is limited pay.
The most common examples are 10-pay life, 20-pay life, and life paid-up at 65.
98
Fraternal Benefit Society
A fraternal benefit society is a nonprofit organization that does not have capital stock and exists solely for the benefit of its members. Fraternals must have a representative form of government and maintain a lodge system. Fraternal benefit societies that provide insurance benefits for their members must be licenses by the director and file an annual statement of their financial affairs.
99
Modified Whole Life Policy
The modified whole life policy is a variation of the traditional whole life policy, not an endowment policy. The premiums in a modified life policy are lower in the early years of the policy's term and higher in its later years.
100
The mode of premium payment refers to
the frequency of the payment
101
What is a return of premium rider?
The return of premium rider increases the death benefit by the sum or premiums paid to date.
102
An accidental death and dismemberment (AD&D) policy's rider principal sum is equal to
the death benefit on the base of the life insurance policy
An AD&D principal sum is paid out if the insured dies within 90 days of an accident. The principal sum paid from the rider is equal to the death benefit on the base of the life insurance policy. Essentially, this could be considered double death benefit or double indemnity.
103
Accelerated death benefit
* They are standard in life insurance policies
* The death benefit, less the accelerated payment, is still payable
* They provide for the early payment of part of a policy's face amount if the insured suffers from a terminal illness or injury
* The insured is expected to die within 24 months
104
The premium cost for group life insurance is generally based on
experience rating
105
What provision of a life insurance policy states that "no statement shall void this policy or be used in defense of a claim under it unless contained in the application"?
Entire Contract Clause
106
The best reason for designating a trust as a life insurance policy bene is to
make it possible to manage the policy proceeds for the long term benefit of an individual or organization
107
What is the basic purpose for the facility of payment clause found in some life insurance policies?
It authorizes the insurer to designate the payee of the life insurance death benefits if the designated bene cannot be located.
108
With employer-paid group health insurance premiums are (taxes)
not taxable for employees
When an employer pays the premiums for a group health insurance policy, the premiums are not taxable for the employees and are deductible for the employer.
109
Health Reimbursement Account (HRA)
An employer-funded account that pays employees for qualified medical expenses they incur.
110
Health Savings Account (HSA)
is a tax-exampt trust or account that pays for qualified medical expenses
111
Medical Savings Account
is a tax-exempt trust or account in a financial institution in which one saves money to pay for qualified medical expenses
112
Flexible Spending Account (FSA)
is a cafeteria plan with 3 components: health insurance premiums, qualified medical expenses, and dependent care expenses
113
If a company buys disability buy-sell insurance, (taxes)
the premiums are NOT deductbile by the business
A business cannot deduct premiums paid for disability buy-sell insurance, but the benefits received are not taxed.
114
Brent is covered by his employer's group disability plan, which is noncontributory. He was involved in a car accident and was unable to work for 6 months. During that time Brent received $9,000 in disability income payments. Based on these facts, which of the following statements is correct?
The disability income payments will be fully taxable to Brent.
Disability benefits provided by the group insurance plan are fully taxable to the extent that they are paid for by the employer. In this case, since the plan was noncontributory and Brent paid nothing toward the premium, the benefits will be fully taxable to Brent. Had Brent contributed 10%, of the premium, then 10% benefits would have been received tax-free. Disability benefits are received tax-free in proportion to the premium paid.
115
Underwriting is a process of
selecting, classifying, and rating risks
116
A consumer may make a written request for complete disclosure of the nature and scope of an investigative report regarding her credit history. The disclosure must be made within
5 days
117
Penalties for violating the Fair Credit Reporting Act include
fines, actual damages suffered by the consumer, punitive damages, and reasonable attorney's fees
118
