California Life, Accident, and Health Insurance Exam, Exams of Insurance law

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Final Exam: California Life, Accident,

and Health Insurance

What is an insurance solicitor authorized to do? - ANS Help an agent or broker sell insurance According to the California Insurance Code, what is "insurance"? - ANS A contract What does a Hospital Confinement indemnity policy pay for? - ANS Pay a specified daily amount while the insured is confined to a hospital According to the California Insurance Code, how is the word "may" interpreted? - ANS Permissive Which statement is CORRECT when describing a contract of adhesion? - ANS Contract may be accepted or rejected by the insured. Retirement plans are prevented from favoring highly compensated employees under which government regulation - ANS Nondiscrimination When calculating life insurance premium rates, which component would an agent's commission fall under? - ANS Insurer's expenses All of the following circumstances must be met for loss retention to be an effective risk management technique, EXCEPT - ANS Probability of loss is unknown An insurance policy written after 1988 that fails to pass the seven-pay test is known as - ANS a modified endowment contract All of these are reasons the Commissioner may disapprove a licensee's request to use a fictitious name EXCEPT - ANS The name is the licensee's actual name

Which of the following services are health maintenance organizations (HMO's) NOT required to provide?

• ANS Prescription drugs Which of the following is NOT true regarding a family policy that covers children? - ANS Conversion of child's coverage to permanent insurance requires evidence of insurability Which of the following types of life insurance combines a savings element along with a flexible premium option? - ANS Universal life What determines the Social Security normal retirement age? - ANS Year in which worker was born When an insurance company requests an attending physician's report, the request must be accompanied by a - ANS copy of the signed authorization A savings vehicle designed to first accumulate funds and then systematically liquidates the funds is called a - ANS deferred annuity what does ESOP stand for? - ANS Employee Stock Ownership Plan Which Social Security status does a worker with 6 quarters of coverage during the last 13-quarter period have? - ANS Currently insured When a claimant has coverage under more than one health plan, which group medical plan provision applies? - ANS Coordination of benefits How is an agent's first-year commission calculated for a replacement long-term policy? - ANS Based on the difference between the new and original policy annual premiums

Jerry is an insured who understated his age on his life insurance application, paying $12 per $1,000 of insurance instead of $15 per $1,000. If he dies, how will the adjusted death benefit be calculated? - ANS 12/15th of the policy's face amount What is considered the most common type of specified disease insurance policy? - ANS Cancer Cancer affects 1 in 2 men and 1 in 3 women and typically involves a lot of out-of-pocket expenses. Considered most common type of specified disease insurance. Both the Federal and state governments jointly finance which health insurance entitlement program? - ANS Medi-Cal Which of these is NOT a valid policy dividend option? - ANS Monthly income payments An insurance policy issued in California may be called a comprehensive long-term care insurance policy if benefits are provided for - ANS Institutional (nursing facilities) and home care According to the PPACA, an adult can be covered by a parent's health care plan until what age? - ANS Age 26 Under a noncancellable health insurance policy, an insurer can - ANS cancel the policy for nonpayment of premium AAA Insurance Company has transferred a portion of its loss exposure to BBB Insurance Company. In this reinsurance transaction, what is AAA Insurance Company called? - ANS Primary Insurer Mike and Ike are 30 year old identical twins. Both are in excellent health. Each brother purchases a life policy that has a $750 annual premium. Mike buys a 10-year renewable term policy. Ike purchases a whole life policy. All of the following statements are true EXCEPT - ANS Mike has the option of using his cash value to purchase a reduced amount. of paid-up whole life insurance

Which type of worker has Social Security benefits available to them? - ANS Fully insured According to the California code governing claim settlement practices, which of the following is NOT considered to be an act of unfair discrimination? - ANS Denial of a claim based on reckless behavior At what point does a self-insured group qualify for stop-loss coverage? - ANS When claims exceed a specified limit in a set period of time How is the cost of employer-provided group life insurance with coverage amounts above $50, treated for tax purposes? - ANS Taxable income to the employee Which of the following is a situation where there is a possibility of either a loss or a gain? - ANS Speculative risk In a life insurance policy, the entire contract consists of - ANS policy and attached application Which of the following is NOT a component of determining policy premiums? - ANS Dividends Jim is applying to become an insurance agent and has a past misdemeanor conviction that was later expunged due to California Penal Code 1203.4. Which of the following statements is correct? - ANS Jim must still disclose the conviction on his insurance license application Insurance agents and brokers must make their insurance records available to the Commissioner - ANS at all times The Human Life Value concept is based on - ANS income

At age 65, which of the following is available at no cost to individuals? - ANS Medicare Part A The importance of a representation is demonstrated in what rule - ANS Materiality of concealment Express power given to an agent in an agency agreement is - ANS the authority to represent the insurer The risk selection process is primarily given to which insurance company department? - ANS Underwriting Why is a life insurance policy's delivery date important? - ANS The free-look period begins on the policy delivery date An employee for XYZ Corp is injured on the job. Where does coverage for the employee's injuries come from? - ANS Workers' Compensation Rating an individual's need for long-term care benefits can be measured by - ANS Activities of daily living When handling premiums for an insured, an agent is acting in which capacity? - ANS Fiduciary Individual health insurance coverage typically excludes injuries at an employee's workplace because - ANS it's covered by the state Worker's Compensation program Which of the following does specified disease insurance NOT cover - ANS costs covered by medical expense insurance Which of the following is NOT a requirement of a contract - ANS Equal consideration is required between the involved parties

ESOPs are typically invested in - ANS employer stock Buy-sell agreements are typically funded by which two insurance products? - ANS Life insurance and disability insurance Which of the following is NOT covered by the Family and Medical Leave Act (FMLA)? - ANS Traveling overseas with a spouse The "blackout period" affects whose benefits? - ANS Surviving spouse Employer contributions to qualified plans are - ANS Tax deductible by the employer Which of the following healthcare providers provides both the healthcare services and healthcare coverage? - ANS Health Maintenance Organization (HMO) A terminated employee that has exercised the conversion privilege is able to convert - ANS term insurance into permanent insurance The elimination period in a disability income policy serves the same purpose as - ANS a deductible What type of coverage pays a benefit for part-time nursing care that can be provided in a patient's home? - ANS Home health care A life insurance policy can be surrendered for its cash value under which policy provision? - ANS Nonforfeiture options When a mutual insurer becomes a stock company, the process is called - ANS Demutualization

Under a health insurance policy, the provision that states the kind of benefits provided and the circumstances under which they will be paid is called the? - ANS Insuring clause How many "activities of daily living" must an insured be UNABLE to perform in order to meet the chronically ill requirement of a Long-Term Care policy? - ANS Minimum of two activities of daily living Medical expenses policies will typically cover which of the following? - ANS Injuries cause by accidents A situation in which there is ONLY a chance of loss or no loss is a fundamental risk - ANS pure risk Which statement about Health Maintenance Organization is NOT true? - ANS When a member uses out- of-network providers, a higher monthly fee is charged Who does a life settlement broker represent? - ANS Individual wanting to sell their life policy to a third party What effect did the Pregnancy Discrimination Act have on the health industry? - ANS Pregnancy must be treated as any other medical condition What time period allows an insured's life insurance policy to remain inform even if the premium was not paid on the due date? - ANS Grace period A creditor would be allowed rights to life insurance policy proceeds if which of the following beneficiaries is chosen? - ANS The insured's estate What distinguishes a deferred annuity from an immediate annuity? - ANS The time at which benefit payments start

The elimination period in a disability income policy serves the same purpose as(n) __________ in a medical expense policy - ANS deductible When a life insurance policy is surrendered, how does the cost recovery rule apply? - ANS The policy's cost basis is exempt from taxation An insured is protected from the expense of a catastrophic illness by which of the following health insurance provisions? - ANS Stopp-loss Which of the following is NOT required in the content of a policy? - ANS Probability of loss The insurer has the option of terminating a health insurance policy on a date stated in the contract. What type of policy is this? - ANS Optionally renewable According to section 1729.2 of the California Insurance Code, which of these does NOT qualify as "background information"? - ANS Misdemeanor Charles filed, not resulting in conviction If an insured dies because of an accident, which type of life insurance rider will provide additional coverage? - ANS Accidental death rider A life insurance policy that pays the face amount if the insured survives to a specified period of time is called - ANS Endowment insurance Who is eligible for retirement benefits under Social Security? - ANS Fully insured workers What does the term "illustration" mean when used in the phrase "life insurance policy illustration", according to the California Insurance Code? - ANS Presentation of policy features that includes non- guaranteed elements

The objective of underwriting is to - ANS Avoid selecting a disproportionate number of bad risks MRMIP Stands for - ANS Major Risk Medical Insurance Program Which type of jurisdiction requires an insurer to have its rates accepted by the Insurance Department prior to using them? - ANS Prior approval When an applicant applies for insurance, the process by which the insurer determines whether to issue a policy is called - ANS underwriting When an accidental death benefit is added to a while life policy, how does this affect the policy's cash value? - ANS Policy's cash value is not affected Which of the following acts is NOT a Federal offense committed by an insurance agent - ANS Misrepresentation on an insurance application A contract requires - ANS an offer and acceptance of the contract terms A beneficiary receives only the death benefit earnings in which settlement option? - ANS Interest option Manuel is considered to be a disable person as defined by the Americans with Disabilities Act (ADA). As such, he is unable to perform any of the following life activities EXCEPT - ANS Driving Tom is shopping for a policy that covers two people and would pay the face amount ONLY when the first person dies. The type of life policy he is looking for is called a - ANS Family income policy Which of the following factors is NOT used in underwriting health insurance policies? - ANS Intelligence

How does underwriting differ between group life and individual life insurance? - ANS Medical questions must be answered on individual life insurance Which of the following are two examples of activities of daily living (ADL's) used in qualifying for long- term care benefits? - ANS Eating and dressing According to the California Insurance Code, what is used to describe a fact so important it could affect the policy premium? - ANS Materiality An annuitant would like to determine the amount of an annuity distribution that is exempt from taxation. What is used to calculate this? - ANS Exclusion ratio What is considered to be the definition of disability, according to Social Security? - ANS Unable to engage in any substantial gainful activity Paul has existing annuity and is sold a new one, in which the new policy holds no greater financial benefit to him that the existing contract. This is considered a(n) - ANS unnecessary replacement Which of the following is NOT a common life insurance policy rider? - ANS extended term Under a disability income insurance policy, which criteria must be met for "bodily injury" to be classified as accidental? - ANS The cause may be intentional, but the result must be accidental An individual who transacts life, disability, or life and accident and health insurance on behalf of an insurer is called a(n) - ANS Life agent What is the insurance term the State of California uses for an insurer that is eligible to transact business in the state? - ANS Admitted

Which of the following is NOT an insurer policy expense? - ANS Premiums Which word implies permissiveness according to the California Insurance Code? - ANS May According to PPACA, what is a health benefits exchange? - ANS An entity to which individuals and small businesses can have access to affordable health coverage Which of the following plans will cover medical costs that Medicare doesn't cover? - ANS Medicare supplement Which of the following is NOT an accurate description of Access for Infants and Mothers Program (AIM)?

• ANS Only women who have private insurance plans with a maternity-only deductible or copayment greater than $1,500 are eligible Which of the following statements correctly describes a contract of indemnity? - ANS One party is restored to the same financial position the party was in before the loss occurred Lynn owns a life policy that guarantees the right to renew the policy each year, regardless of health, but at an increased premium. What kind of policy is this? - ANS Renewable term What are members of the Medical Information Bureau (MIB) required to report? - ANS Medical ailments discovered during the underwriting process Which of the following statements about aleatory contracts is NOT true? - ANS The insured and the insurer contribute equally to the contract What is a common reason people purchase an annuity? - ANS To protect against the risk of outliving their financial resources

The California Insurance Code defines "policy" as a(n) - ANS Written contract Where must you specifically reside to qualify for MRMIP? - ANS California The probability of death listed by year, is demonstrated in - ANS Mortality tables Which of these is NOT a relevant factor in the health insurance principle of morbidity? - ANS Intelligence Which of the following is NOT included in comprehensive major medical plans? - ANS First-dollar coverage An insurance company entitled to transact business in California is called a(n) - ANS admitted carrier The free-look period for life insurance policy owners age 60 or older is - ANS 30 days Which of the following is a contract that involves one party which indemnifies another when a loss arises from an unknown event? - ANS Insurance policy In regards to a group health insurance plan, which statement is CORRECT? - ANS A non-contributory group health plan must cover all eligible members A life insurance policy's limit of liability would be - ANS the policy's face amount How is a life insurance policy dividend legally defined? - ANS A return of excess premium and not taxable What prevents a life insurance policy from being rescinded by the insurer after being in force for two years? - ANS Incontestability clause

Christine has a health insurance policy that has been in force beyond the incontestable period. The insurer has discovered that a fraudulent statement was made on the application. What would the insurer have to pay on a claim, assuming this wasn't a guaranteed renewable policy? - ANS Nothing An individual covered under a disability income policy may be eligible for a partial disability benefit if - ANS The insured can perform some of their job activities on a part-time basis Moral hazard is described as the - ANS increased chance of a loss because of an insured's dishonest tendencies Cindy buys a 10 year certain annuity with an installment refund. After receiving monthly payments for 5 years, Cindy dies. How many remaining payments will the insurer make to her beneficiary? - ANS 60 payments Which of the following is NOT a true description of non-medical life insurance? - ANS Applicants are not required to answer medical questions on the application Tim was recently terminated from his employment and opted to change his existing group term life insurance to individual permanent life insurance. What is this process called? - ANS Conversion What type of changes can be made to a guaranteed renewable health insurance policy? - ANS The premium rates of the policyowner Business Overhead Expense Insurance pays for - ANS business expenses when a business owner becomes disabled Which of the following is NOT an element of an insurable risk? - ANS Loss must be catastrophic

Scott has just purchased a new house. He is now shopping for a life insurance policy that provides a death benefit that matches the projected outstanding debt of his mortgage. Which life policy would best suit his needs? - ANS Mortgage redemption What area of group health insurance is regulated under the Employee Retirement Security Act of 1974 (ERISA)? - ANS disclosure and reporting The California Life and Health Insurance Guarantee Association covers all of these types of policies, EXCEPT - ANS Self-funded plans All of the following are considered characteristics of group life insurance, EXCEPT - ANS Individual policies A hazard can be best described as - ANS a condition that may increase the likelihood of a loss occuring Retirement plans cannot favor highly compensated employs. The government regulation that prevents this from happening is called - ANS Nondiscrimination Which of the following is NOT considered a definition of risk? - ANS The cause of a loss Which of the following is NOT typically covered under vision care insurance? - ANS Eye surgery The Medical Information Bureau consists of - ANS life and health insurance companies Which of the following could lower the premium of a proposed disability income policy? - ANS Increase in the elimination period Which of the following is NOT considered to be insurer expenses? - ANS Policy premiums

In order to be considered "currently insured" under Social Security, an individual must be credited with:

• ANS 6 quarters of coverage during the last 13-quarter period Which of the following describes the increase in the probability of a loss due to an insured's dishonest tendencies? - ANS Moral hazard In what situation does a waiver of premium provision keep a health insurance policy in force without premium payments - ANS When an insured becomes totally disabled An applicant has revealed conditions that require information. Which of the following is needed next? - ANS Attending physician's statement Who acts as the gatekeeper in a Health Maintenance Organization (HMO)? - ANS Primary care physician Which type of risk is gambling? - ANS Speculative risk What is a participating life insurance policy? - ANS Contract that allows the policyowner to receive a share of surplus in the form of policy dividends After the annual deductible is met, a Medicare Part B patient will pay____ of the remaining covered expenses. - ANS 20% Which of the following does NOT have to be included on life insurance policy illustrations? - ANS Statement that all values and benefits are guaranteed The systematic liquidation of a sum of money is provided by a(n) - ANS Annuity

Which statement is TRUE regarding Workers' Compensation coverage - ANS Employer pays the entire premium for Workers' Compensation coverage Which of the following does Medicare Part A NOT provide coverage for? - ANS Doctor's services If a healthcare provider is considered to be a "service provider", what does this mean? - ANS Payment for services goes directly to the provider Which of the following is NOT a benefit of insurance? - ANS Losses due to fraud are eliminated Which of the following is NOT a valid reason to replace an existing long-term care policy? - ANS New policy has higher premium with fewer benefits Which of the following is a life insurance policy that does NOT require a physical exam? - ANS Non- medical Life insurance creates an immediate estate. This phrase means - ANS when the insured dies, a death benefit is paid A spendthrift clause in a life insurance policy - ANS restricts the ability of the beneficiary to assign benefits An agent's attempt to stop the replacement of an existing life insurance policy is known as - ANS conservation Minimum participation standards exist for group health insurance plans in order to - ANS prevent adverse selection

The California Insurance Code allows an individual how many days to cancel a life policy for a full- refund? - ANS Between 10 and 30 days Under a 10-year vesting schedule, what percentage of employer contributions must be vested after 10 years of service? - ANS 100% What is the price of insurance for each exposure unit? - ANS Rate Kim is insured under a disability income insurance policy with an "own-occupation" clause. She was recently injured in an automobile accident and can no loner perform the tasks of her job. Kim is now considered to be - ANS totally disabled How are acts of war and aviation treated under a group life insurance policy? - ANS policy exclusion Individuals age 65 or older are exclusively eligible for which optional program? - ANS Medicare Part B Which of the following is NOT a required uniform provision in individual health policies? - ANS Change of occupation Which of the following is NOT included under long-term care insurance - ANS Hospital acute care Which of the following is NOT considered to be an act of insurance solicitation? - ANS Publishing a magazine where one of the advertisers is a insurer Which of the following is NOT protected under the California Life and Health Guarantee Association? - ANS Insurers What is the term used to describe the frequency and severity of certain illnesses and accidents? - ANS Morbidity

Which of the following is NOT a characteristic of the conversion privilege? - ANS Employer pays the premium for the converted policy Failure to report background changes within 30 days as required under section 1729.2 of the California insurance code could be subject a license or applicant to - ANS All of these: Suspension, Fine, Denial Victoria owns a life annuity and elects to receive annuity payments monthly for the remainder of her life with "ten years certain". Her annuity will make payments - ANS for a minimum of 120 months and a maximum of the remainder of her life ABC Insured Company paid an insured $30,000 in lost wages, $35,000 for hospital costs, and $20,000 for physical therapy treatments. ABC later discover this was a fraudulent claim. How much may the insured be fined? - ANS $170, can increase up to double the value of the defrauded amount An annuity which is backed by a life insurer's separate account is called a(n) - ANS