L&H PRACTICE TEST QUESTIONS 100% VERIFIED ANSWERS 2024/2025 CORRECT STUDY SET, Exams of Organization and Business Administration

Download L&H PRACTICE TEST QUESTIONS 100% VERIFIED ANSWERS 2024/2025 CORRECT STUDY SET and more Exams Organization and Business Administration in PDF only on Docsity! L&H PRACTICE TEST QUESTIONS 100% VERIFIED ANSWERS 2024/2025 CORRECT STUDY SET Group Life insurance reduces the impact of _______________. adverse selection The Buyer's Guide is _________ and the Policy Summary is __________ generic; specific A Short Term Disability Income policy is one that pays benefits for ____________________. Less than 2 years Don qualifies for Medicaid even though he has assets of $250,000. For this to happen, Don must have had a _____________________. Long Term Care Partnership policy What is the most important rating factor in Disability Income coverage? Occupation What are the participation requirements for a Group Life plan? Contributory - 75% Non-contributory - 100% Except in the case of bankruptcy, credit information may be retained no longer than _____ years. 7 years A Long Term Disability Income policy is one that pays benefits for ______________. More than 5 years An individual Medical Expense policy for which the premiums are paid weekly must offer a minimum ______ grace period. 7 day Which Life policy provision states that statements made on the application are representations and not warranties? Entire Contract For an AD&D policy to pay a death benefit, death must occur within ___ days of the accident. 90 What type of Health Rider would not increase the cost of the policy? Exclusion rider Under a Family Medical Expense policy without maternity benefits, newborns are covered ____. at the moment of birth Mary bought a Disability Income policy in 2012 and understated her age on the application by 5 years. When she becomes totally disabled in 2020 and files a claim for her monthly benefit of $3000 per month, her company will ______________________. Pay the benefit Mary's premium would have bought at her true age. Both time and dollar deductibles help...... hold down the cost of Health insurance Describe the tax consequences of a Key Employee Disability policy? Premiums are not tax deductible, and benefits are untaxed. What Health benefit would be taxable? Group Disability Income benefit How does a traditional IRA differ from a Roth IRA? Roth IRAs are funded with after-tax dollars Disability Income benefits are based upon: Earned income Under HIPAA if Mark loses his longstanding Group Major Medical at ABC Corp, but makes timely entry into the Group Major Medical plan offered by his new employer, he will not be subject to new preexisting conditions limitations. Timely entry is defined as ______ days or less. 63 Which Life policy provision states that the application is part of the contract? Entire Contract Clause Medicare Advantage is also known as _____ of Medicare. Part C David allows his Major Medical policy to lapse. Is his company is required to reinstate him? No A Conditional Receipt is intended to... Speed up coverage The primary qualifier for Medicare is... Age Which Life policy provision defines who can change a policy after it has been issued? Entire Contract What do Medical Expense policies use to reduce adverse selection? Pre-existing conditions limitations Accepting a deductible is an example of: retaining risk would Convertible Term have an increased premium after a given period of time? Yes Who assumes the investment risk in a Whole Life policy? The insurance company Ron and Don are identical twin brothers who buy a $100,000 Whole Life policy at age 20. Ron chooses Straight Life and Don chooses a 20-Pay contract. If each lives to age 100 and pays premium as agreed, whose Cash Value is greater? The cash value of the two policies will be the same. This is because Ron's caught up to Don's at age 100. At any age earlier, Don's would be greater. Assume that you meet the requirements for Social Security Disability benefits on the day you are terminated by XYZ Industries. You may continue your Group Major Medical coverage for up to ____ months under COBRA until you become eligible for Medicare. 29 A policy owner who wishes to retain all rights of ownership should name his beneficiary as a(n) Revocable beneficiary Dental coverage plans which list all covered dental procedures and the price the coverage will pay for each procedure are known as_______ plans scheduled A Settlement Option which will pay principle and interest for 20 years and then stop regardless of the life or death of the beneficiary is known as... Annuity Certain Permanent Partial Disability is best covered by_______________. Residual Disability benefit The Gross Premium is calculated in which way? Risk plus Expense minus Interest What is true concerning a Probationary period? It reduces adverse selection A Juvenile Life policy would likely be modified by which rider? Payor Benefit Ambulatory care is also known as ______________. Outpatient Care If you are terminated from your employment at XYZ Industries, you can continue your Group Major Medical coverage under COBRA for ___ months 18 In Life insurance, insurable interest must exist _________. At the time of application Assume you cover yourself and your spouse under your Group Major Medical at XYZ Industries and your spouse loses coverage following your divorce. Your spouse can continue coverage under COBRA for ____months. 36 You must deliver a prospectus to a proposed insured when selling which policies? Variable Life Put the forms of renewability of a Health policy in order from most favorable to least favorable for the insured/policy owner Non-cancellable, Guaranteed Renewable, Conditionally Renewable, Optionally Renewable. Accident Only coverage known as a Blanket Health policy is _____ . 20 M and J are both insureds under a policy which will pay when the first of the two dies. They are insured under a ______________________. Joint Life policy Blue Cross and Blue Shield provides Health insurance on what basis? Service What would be most appropriate to use as a Mortgage Protection policy? Decreasing Term policy What is the most generous definition of totally disabled? Own Occupation What is the primary purpose of a Medicare Supplement Policy? To fill in the gaps of Medicare A Life policy that builds cash value faster than a 7-Pay Whole Life contract is considered to be a(n) _________________. Modified Endowment Contract To reinstate a lapsed Whole Life policy, is a reinstatement fee necessary? No. David owns a Major Medical policy and pays his premiums quarterly. The Uniform Health Provisions Law requires that his policy contain a minimum Grace Period of ____ days. 31 Do Long Term Care policies cover Alzheimer's? yes Ron and Don are identical twin brothers who buy a $100,000 Whole Life policy at age 20. Ron chooses Straight Life and Don chooses a 20-Pay contract. If each lives to age 100 and pays premium as agreed, who will pay the most over the life of the contract? Ron How does a Group Medical Expense policy respond to an occupational injury loss? It will exclude coverage The Cash Value of a Life insurance policy belongs to ___________. The policy owner Are dividends guaranteed in a Whole Life insurance policy? No A preexisting condition under a Medicare Supplement policy must have occurred and/or been treated within ____ months of the effective date of the MSP. 6 Do Elimination periods held reduce adverse selection? No Which is a cost containment feature stressed by HMOs? a) use of Primary Care Physicians as Gatekeepers b) use of a national network of hospitals and providers c) encouraging subscribers to utilize medical specialists d) making benefit payments directly to the insured a) use of Primary Care Physicians as Gatekeepers When insureds can go directly to medical specialists, it drives up the cost of Health insurance. By requiring that the Primary Care Physician endorse the idea of seeking the care of a specialist, we eliminate the hypochondriac who wants to talk to a heart transplant specialist about his heartburn. Which statement is true concerning a Long Term Care policy? a) A hospital stay may be required prior to Nursing Home coverage. b) The policy may restrict benefits to skilled nursing care. c) The policy may be written with a 20-Day Free Look. d) The policy may be issued on a Guaranteed Renewable basis. d) The policy may be issued on a Guaranteed Renewable basis. LTCs can be issued on ONLY a Guaranteed Renewable or Non-cancellable basis...the best two forms of renewability. The policy may NOT require a prior hospital stay (most of these people are NOT sick or hurt, they are merely old). In most states, at least 3 levels of nursing care must be covered by an LTC...the idea being that we should provide the LEAST INVASIVE amount of care. And, every state requires a minimum Free Look of 30 days. Some require more. Which factor is used in calculating an individual's Social Security Primary Insurance Amount (PIA)? a) gender b) earned income during the working years c) the number of employers during the working years d) occupation during the working years b) earned income during the working years Earned income determines contribution to Social Security and contribution determines the benefit You purchased a $100,000 Life Paid at 65 policy from a mutual insurance company. At age 65, you discover that you you have $135,000 of paid-up life insurance. Which dividend option did you b) With work-related accident and sickness claims, Group Major Medical is primary and Workers Comp is excess. c) Group Major Medical will pay for work-related sicknesses, and Workers Comp will pay for work- related accidents. d) Workers Comp covers occupational accident and sickness claims, and Group Major Medical covers non-occupational accident and sickness losses. d) Workers Comp covers occupational accident and sickness claims, and Group Major Medical covers non-occupational accident and sickness losses. Occupational losses = Workers Comp Non-occupational losses = Medical Expense policies Life insurance policy dividends are __________________. a) taxed as ordinary income. b) taxed as capital gains. c) paid only by stock insurance companies. d) a return of premium overcharge. d) a return of premium overcharge. Since it is merely a return of overcharge, it is not subject to income taxes. There was no profit. If you pay for your $10.75 dinner with a $20, you would get $9.25 in change. You certainly would not declare the $9.25 as earnings on your tax return! Same with policy dividends. The owner of a Life insurance policy does not name a beneficiary. If the insured dies, benefits are paid to________________ . a) The insured's estate b) the insured's spouse c) the insured's children d) the state a) The insured's estate No beneficiary = paid to the estate Beth and Seth are both employed and each covers the family with their nonparticipating Group Major Medical policy. How do we determine whose policy is primary for their children? a) The older spouse's policy is primary. b) The policy of the spouse earning the higher income is primary. c) The policy which has been in effect the longest is primary. d) The policy of the spouse having a birthday in the earliest month of the year is primary. d) The policy of the spouse having a birthday in the earliest month of the year is primary. Political correctness dictates this should be a 50/50 proposition. There is no reason that the primary policy should always belong to one gender or the other. How do we get a 50/50 chance? Checking the birthdate is easier than running around flipping coins or playing rock, paper, scissors. Which loss is eligible for coverage under a typical Accidental Death and Dismemberment (AD&D) policy? a) an insured is injured in an auto accident and dies 6 months later b) an insured loses a leg due to diabetes c) an insured drowns following a boating accident d) an insured suffers a stroke piloting an airplane and then dies in the ensuing crash c) an insured drowns following a boating accident Death must be due to an ACCIDENT, not a sickness, and death must occur within 90 days of the accident, so the boating accident is the only possible choice. What coverage is designed for the inability to perform the Activities of Daily Living (ADLs)? a) Medicare b) Major Medical c) Long Term Care d) Medicare Supplement c) Long Term Care Long Term Care is for what many of us would call Nursing Home coverage. Most of the residents are neither sick nor hurt...they are simply old. Too old, in fact, to take care of themselves. They need help bathing, dressing, toileting, eating and taking their medicine...the Activities of Daily Living. Where in a Life policy can you find the insurance company's consideration? a) Entire Contract clause b) Insuring clause c) Consideration clause d) Premium Payment clause b) Insuring clause The Company's consideration in a Life policy is the promise to pay benefits in the event of the d) Aging d) Aging Long Term Care = NOT sick, NOT hurt, just too old to take care of themselves. A false statement made intentionally on an application is an _______ . a) consideration b) warranty c) misrepresentation d) concealment c) misrepresentation A statement on the application is a representation. It is acceptable if it is true to the best of the applicant's knowledge and belief. If it is not true to the best of the applicant's knowledge and belief, it is a misrepresentation A husband and wife are both employed and own a house with a mortgage. Their Mortgage Protection policy may be written as which of the following? a) Joint Life b) Survivorship Life c) Family Protection Life d) Modified Life a) Joint Life We need to insure 2 people. Joint Life and Survivorship Life will each insure 2 or more people. In this case, we want the benefits paid when the first dies so that the widow(er) will be able to stay in the house. Joint Life pays when the 1st dies; Survivorship Life pays when the last dies. SHORTCUT: J precedes S in the alphabet...Joint is 1st, Survivorship is last. David invests his life savings of $500,000 in an Annuity. Which of the following would provide David with the largest monthly benefit? a) Straight Life Annuity b) Refund Life Annuity c) Joint and Survivor Life Annuity d) Life Annuity with Period Certain a) Straight Life Annuity While all 4 Annuities will pay for David's lifetime, choices B, C, & D could pay after David's death...they offer a minimum guaranteed payout. Because they could pay longer, they pay less each month. Marcie paid $1800 to the insurance company as her first year's premium for her Major Medical policy. When she is severely injured in an avalanche on a ski trip, the company paid out over $100,000 to cover her medical bills. The unequal exchange of values demonstrates that the insurance policy is which type of contract? a) Unilateral b) Conditional c) Aleatory d) Valued c) Aleatory Insurance policies are aleatory contracts. On an individual basis, what you pay in may not be at all what you get back. Had Marcie skipped the ski trip, she might have paid the insurance company for 45 years and never collected a dime. The moral of the story is: If you want to get your money's worth, stand under an avalanche. Which of the following is a characteristic of traditional Whole Life insurance? a) Flexible premium payments b) Policy owner controls how the cash value is invested c) Policy owner can receive total cash value at policy surrender without any tax consequences d) Policy owner can borrow against the cash value d) Policy owner can borrow against the cash value Borrowing with the cash value as collateral is a fundamental characteristic of Whole Life. If you surrender the policy with the cash value of $10,000 after paying $9,000 in premium, the $1000 you have earned is taxable. Which of the following Health policies features first dollar (no deductible) coverage? a) Major Medical b) Base Plan c) Disability Income d) Service Plan b) Base Plan The Base Plans of the 1930's did not pay high limits, but they did typically pay with no (or a very small) deductible. c) Refund Life Annuity d) Annuity Certain d) Annuity Certain An Annuity Certain is NOT a Life Annuity. It simply pays out for the time period selected by the beneficiary (5 years, 10 years) and then stops. Notice that choices A, B, & C all have the word "Life" in the name....they are Life Annuities. Which of the following is a characteristic of Health Savings Accounts? a) a high deductible b) double indemnity for accidental death c) occupational coverage d) coverage triggered by the insured's inability to perform the ADLs a) a high deductible The idea of an HSA is build a sizable account which can offset a very large deductible in the event of a catastrophic loss. If the first $5000 or $10,000 is paid by you as a deductible, then the coverage becomes much more affordable Which is NOT excluded under a Dental insurance plan? a) Restoration b) Missed appointment charges c) Teeth whitening d) Treatment received in the military a) Restoration Restoration = fillings and crowns; restoration is covered A woman is diagnosed with Alzheimer's 3 months before she applies for a Medicare Supplement policy. Can her condition be excluded under her MSP? a) Yes, Alzheimer's is an exclusion in all MSPs. b) No, her condition will be covered from the outset. c) Yes, but her condition will be covered after one year. d) Yes, but her condition will be covered after 6 months. d) Yes, but her condition will be covered after 6 months. An MSP allows the company to look BACK into an insured's health history for 6 months to identify preexisting conditions, and then those preexisting conditions must be covered AFTER 6 months. 6 months BACK...then, 6 months Forward. At age 65 Paul and Paula both begin to take a Straight Life Income distribution from their identical Annuities. Which is true about their monthly benefits? a) Paula will get the larger check. b) Paul will get the larger check c) Paula will get checks for a longer period. d) Paul will get checks for a longer period. b) Paul will get the larger check Paul will get the bigger check because his group (men) will die earlier than Paula's group (women). Here, gender is important. However, we cannot say that Paula will get checks for a longer period. The Law of Large Numbers applies to large groups not individuals Which Life policy has flexible premiums, a flexible death benefit, and cash value that grows at a guaranteed minimum interest rate? a) Whole Life b) Variable Whole Life c) Universal Life d) Variable Universal Life c) Universal Life Whole Life is almost inflexible; the two Variable policies make no guarantees concerning the growth of cash value. Under Section 1035 of the IRS code, which of the following exchanges could result in a tax consequential gain or loss? a) A Life policy exchanged for a Life policy b) An Annuity exchanged for an Annuity c) A Life policy exchanged for an Annuity d) An Annuity exchanged for a Life policy d) An Annuity exchanged for a Life policy The IRS code does not exempt an Annuity exchanged for a Life policy from the tax ramifications of a possible gain or loss. Which Life Insurance Policy rider could result in a death benefit less than the face amount of the policy? d) All flexible premium policies a) Variable Whole Life Any time that the policy owner assumes the risk (any Variable policy) the money is invested in a Separate Account. When the company assumes the investment risk, the cash value is invested in the General Account. Adverse selection is the tendency for _________________. a) High risk individuals to purchase no insurance. b) High risk individuals to purchase small amounts of insurance. c) High risk individuals to purchase large amounts of insurance. d) Low risk individuals to purchase large amounts of insurance. c) High risk individuals to purchase large amounts of insurance. A person who has been given 10 days to live might try to purchase $5,000,000 in Life insurance if any company would sell it to him. An Accelerated Death Benefit could be paid to all of the following insureds EXCEPT: a) An insured who has contracted a disease that will result in his death in the near future. b) An insured with a permanent and total disability with the expectation that he will never be able to work again. c) An insured admitted to a nursing home with the expectation that he will never leave the nursing home. d) An insured is injured to the extent that he will die within weeks. b) An insured with a permanent and total disability with the expectation that he will never be able to work again. Disability is NOT a trigger for Accelerated Death Benefits. All of the following are guaranteed under a Variable Whole Life policy EXCEPT: a) death benefit b) premium c) cash value d) period of protection c) cash value The Policy owner directs the investment and accepts the market risk, so cash value is NOT guaranteed. Paul and Paula begin paying $200 each month for identical Annuities offered by the same company. They make the same number of payments. At age 65, which is true concerning the current value of the two accounts? a) Paula's account will be larger. b) Paul's account will be larger. c) The two accounts will be equal. d) Cannot be determined from this information. c) The two accounts will be equal. Gender has nothing to do with the accumulation of $$$...both are putting in the same amount and earning the same amount. Their totals will be equal. What are the characteristics of a Major Medical policy? a) deductible, coinsurance and reimbursement benefits b) elimination period, deductible and monthly limits c) cancellable, deductible and valued policy d) deductible, stated benefits and excess benefits a) deductible, coinsurance and reimbursement benefits Major Meds have a deductible, require coinsurance and reimburse "reasonable and necessary costs" expended by the insured for covered medical expenditures. Only a DI policy has an elimination period, and DI benefits are "stated benefits" (like $4000/month) making them "valued policies". Which of the following is true concerning the Grace Period in Individual Health policies? a) The more frequently premiums are paid, the longer the Grace Period. b) Premium mode dictates the Grace Period. c) If premiums are paid monthly, the Grace Period is 30 days d) Grace Periods vary based upon premium amount b) Premium mode dictates the Grace Period. Premium mode = frequency of premium payments weekly premium = 7 day Grace Period monthly premium = 10 day Grace Period quarterly, semi-annual or annual premium = 31 day Grace Period What is the minimum Grace Period for a monthly premium Medical Expense policy? a) 31 days What is the purpose of an Elimination Period in a Health policy? a) to screen out preexisting conditions b) to serve as a time-based deductible c) to serve as a probationary period d) reduce the cost of Medical Expense insurance b) to serve as a time-based deductible Elimination periods are time-based deductibles sold with Disability Income policies. For instance, a 30-Day Elimination Period would dictate that you cover your own costs for the first 30 days of a disability. On the 31st day you become eligible for benefits. Be aware, however, that if you are to be paid monthly, you would not get a check until the 61st day. The first 30 do not count; then you have 30 days of losses for which you then get paid. Insurance companies do not pay benefits due to the anticipation of a loss; benefits are paid following a loss. All of the following are qualifying events that allow early withdrawal from an IRA without penalty EXCEPT: a) first-time home purchase b) medical expenses c) first-time auto purchase d) education expenses c) first-time auto purchase Congress wants you to buy a house, pay your doctor and get your education. As far as a car is concerned, they would prefer that you ride the bus. Which of the following Life policies allows the policy owner to obtain permanent coverage? a) Renewable Term b) Convertible Term c) Decreasing Term d) Level Term b) Convertible Term Convertible Term converts to Whole Life, permanent coverage. Who is the beneficiary of a Group Credit Life insurance plan? a) the insured b) the creditor c) the members of the group d) the individual certificate holders b) the creditor Remember, the purpose of Credit Life is to pay the creditor in the event of the insured's death. Which Life insurance policy serves the same purpose as a Graded Premium Whole Life policy? a) Variable Whole Life b) Adjustable Life c) Limited Pay Whole Life d) Modified Life d) Modified Life Graded Premium Whole Life and Modified Life are both designed to keep the premium paid in the early years as low as possible, but to ultimately provide permanent insurance coverage. Graded Premium Whole Life provides Whole Life from the start, but undercharges in the early years and makes up for it by overcharging later on. Modified Life starts as Convertible Term and then converts to Whole Life. Which clause in a Health insurance contract specifies the company's promise to pay benefits? a) Entire Contract clause b) Consideration clause c) Insuring clause d) Ownership clause c) Insuring clause The Insuring Clause will say something like, "Cosmo Mutual will pay $3000 per month following the disability of the insured as defined in this policy, yadda, yadda, yadda." Which statement is true concerning Group Health plans? a) Group Medical Expense plans must cover maternity benefits. b) Noncontributory Group Major Medical plans with more than 20 employees must provide maternity benefits. c) Large Group Health plans require employee medical exams to determine eligibility for coverage. d) Group Major Medical plans typically exclude coverage for occupational losses. b) 20 c) 45 d) 60 a) 10 Accidents are covered immediately, sicknesses are covered after a 10 day probationary period What type of Life insurance is most appropriate for mortgage protection? a) Whole Life b) Increasing Term c) Survivorship Life d) Decreasing Term d) Decreasing Term Decreasing Term is pure protection, therefore most affordable. Death benefit decreases to reflect the decreasing principal on the mortgage. If your policy lapses and you do not select a Non-forfeiture Option, which is automatic? a) Cash b) Reduced Paid-Up c) Extended Term d) One-Year Term c) Extended Term A, B, and C are the Non-forfeiture Options; D is not. Only Extended Term leaves the full death benefit in place following a lapse. What does the Legal Action provision of an individual Health policy state? a) Insureds must wait 30 days after filing Proof of Loss to initiate a lawsuit, and must act within 2 years. b) Insureds must wait 60 days after filing Proof of Loss to initiate a lawsuit, and must act within 2 years. c) Insureds must wait 60 days after filing Proof of Loss to initiate a lawsuit, and must act within 3 years. d) Insureds must wait 90 days after filing Proof of Loss to initiate a lawsuit, and must act with 3 years. c) Insureds must wait 60 days after filing Proof of Loss to initiate a lawsuit, and must act within 3 years. You must give the insurance company 60 days to get the claim paid before you do anything. If you are going to file suit for nonpayment, you must do so within 3 years. In a PPO, what is the primary financial benefit for an insured member to use only the services of a listed health care provider? a) a lower premium b) a better level of care c) lower cost sharing expenses d) increased cash value build-ups in HSA accounts c) lower cost sharing expenses Stay on the PPO list = regular coinsurance off the PPO list = higher coinsurance The Medical Information Bureau was created by ____________ . a) the government to protect the public. b) the doctors to protect patient privacy. c) the hospitals to collect and disseminate medical information. d) the insurance companies to use as an underwriting tool. d) the insurance companies to use as an underwriting tool Insurance companies use the MIB to obtain underwriting info. What is the purpose of Coinsurance in a Medical Expense policy? a) screen out preexisting conditions b) control the over-utilization of the policy c) eliminate adverse selection d) eliminate costs that are not medically necessary b) control the over-utilization of the policy Without coinsurance, some insureds would see no reason to try and control costs once the deductible was met. A Producer is asked to collect money from a Policy owner when delivering the policy. What else might the Producer be asked to collect? a) a Statement of Continued Good Health With few exceptions, funds withdrawn from a Qualified Retirement plan at age 65, will be _________. a) Taxed as ordinary income b) Taxed as capital gains c) Not subjected to the income tax d) Treated as dividend income a) Taxed as ordinary income The IRS never misses. Since they didn't tax you putting into a Qualified plan, they will tax you coming out. In which Disability Income policy is the Policy owner NOT also the beneficiary? a) Group Disability Income b) Individual Disability Income c) Key Employee Disability Income d) Disability Buy-Sell a) Group Disability Income With Group DI, the Policy owner is the employer, the beneficiaries are the certificate holders (employees). Whole Life is more expensive than Term for all of the following reasons EXCEPT: a) Whole Life builds cash value and Term does not. b) Whole Life provides coverage for the whole of life; Term has an expiration date. c) Term policies contain more exclusions than Whole Life policies. d) Term policies are pure death protection; Whole Life provides death protection and the growth of cash value. c) Term policies contain more exclusions than Whole Life policies. While most insurance policies have many exclusions, Life policies of any kind have almost none, and therefore do NOT affect Life rates. Even the standard exclusion... suicide is only valid for 2 years in most jurisdictions. When a policy owner names a single beneficiary and reserves the right to change beneficiaries in the future, the designated beneficiary is __________________ . a) Revocable and contingent b) Irrevocable and contingent c) Revocable and primary d) Irrevocable and primary c) Revocable and primary Primary = 1st in line; Revocable = changeable The insured dies four months after the effective date of his life policy. At that time, the company discovers 6 unanswered questions on the application. The insurance company can _________________ . a) Pay the claim b) Refuse to pay the claim c) Request answers from the estate of the insured d) Adjust the benefits to reflect the answers to those questions a) Pay the claim The company could have demanded answers to the 6 questions before issuing the policy...but having accepted the app and issued the policy, they are stuck. One way in which insurance companies protect themselves against adverse selection when underwriting individual Health insurance policies is to ______________________________________ . a) deny coverage based upon sexual orientation b) pay for AIDS testing of all applicants c) ask if an applicant has sought AIDS testing or counseling d) utilize an Impairment rider to eliminate future HIV-AIDS claims b) pay for AIDS testing of all applicants The company must pay for the testing, and the applicants must be aware of what the tests are intended to determine. Adjustable Life would not offer the policy owner flexibility in _______. a) The type of insurance b) The cash value investment vehicle c) The death benefit d) The premium payable b) Cost of Living c) Guaranteed Insurability d) Multiple indemnity a) Payor Benefit A Payor Benefit Rider is attached to a Juvenile policy, and it only promises to waive premium following the death or disability of the premium payer (mom or dad) until Jr. reaches adulthood and can pay for the policy himself. The death benefit is unaffected. What contract term best describes an application submitted to the insurance company along with initial premium? a) Invitation to make an offer b) Offer c) Counteroffer d) Acceptance b) Offer App + premium = offer; App without premium = invitation Which Annuity is purchased with a lump-sum, benefits that begin immediately and will pay only for the balance of the Annuitant's life? a) Deferred Life Annuity b) Immediate Life Annuity c) Single Premium Annuity Certain d) Level Premium Deferred Life Annuity b) Immediate Life Annuity Don't be overwhelmed with the words. In the question, the phrase "benefits begin immediately" eliminates choices A & D because they are "Deferred." Then, "pays only for the balance of the Annuitant's life" eliminates choice C due to the word "Certain" which says the Annuity will pay for a specific period of time regardless of the life or death of the Annuitant. If there is an outstanding policy loan at the insured's death, the beneficiary will receive which of the following? a) Full death benefit b) No death benefit c) Notice that the loan must be satisfied before the death benefit can be paid d) The death benefit minus the loan and any outstanding interest. d) The death benefit minus the loan and any outstanding interest. Death with an outstanding loan triggers a death benefit minus the outstanding loan and interest. Statements on an application that are taken by the insurance company as true to the best of the applicant's knowledge and belief are _________ . a) warranties b) promises c) representations d) guarantees c) representations -representations = true to the best of your knowledge -warranties = absolutely true An insured who purchases a rated policy can expect to _______ . a) Pay standard premiums b) Pay lower premiums c) Pay higher premiums d) Find additional limitations in the policy c) Pay higher premiums Rated policy = higher than average risk = higher premiums In a Health insurance policy, what constitutes the company's consideration? a) the policy document b) the policy summary c) the acceptance receipt d) the promises contained in the policy d) the promises contained in the policy consideration = something of value; paper is worth nothing, the promises contained in that paper become the something of value. Which of the following is critical to the accuracy of the Law of Large Numbers? a) Similar risks a) Both policies will pay. b) Neither policy will pay. c) Medical Expense could pay. d) Disability Income could pay. d) Disability Income could pay. Medical Expense policies exclude on the job injuries as they are covered by Workers Compensation. Disability Income policies tend to pay for on the job injuries...often in addition to Workers Compensation benefits. On the other hand, some will coordinate with Workers Comp. If your DI policy should pay $4000/month and Workers Comp is paying $1000, then the DI contract will pay $3000. Which is NOT a standard method for paying the premium of a Whole Life policy? a) Single Premium b) Decreasing Premium c) Limited Pay d) Continuous Premium b) Decreasing Premium The only way that a Whole Life premium would decrease is through the use of the Reduction of Premium dividend option, and dividends are not guaranteed. After receiving ten monthly benefit payments, an annuitant requests that the payout method be changed from Straight Life to Survivorship Life. How will the insurance company respond? a) Lower the monthly payments made to the annuitant. b) Raise the monthly payments to the annuitant. c) Continue the monthly payments as promised originally. d) Shorten the payment period to account for the increase in risk. c) Continue the monthly payments as promised originally. Why would the annuitant want this? Likely, a doctor has given him 90 days to live, and he wants his wife to be paid throughout her lifetime following his death. If the company agreed to this, it would be adverse selection at its worse. Social Security Disability Income (SSDI) are only available to: a) a person who is fully insured b) a person who is currently insured c) a person who is over age 62 d) a retiree receiving Medicare benefits b) a person who is currently insured Social Security Retirement, Survivor and Disability benefits are available to fully insured workers, but only Survivor benefits are available to currently insured workers. An insured has a Major Medical plan with a $1000 deductible and 80/20 coinsurance. On a covered loss of $1800, how much would the Insurer pay? a) $240 b) $300 c) $640 d) $800 c) $640 The Insurer...the Company, pays 80% of the bill after the deductible. $1800 - $1000 = $800. Then it is .80 X $800 = $640. HINT: If you are a "bargain hunter" shopper, you can get 80% of any number by taking 20% off! In a Variable Annuity, the investment risk rests with the _______ . a) Insurance company b) Annuity Contract owner c) Investment Management Company d) Securities and Exchange Commission (SEC) b) Annuity Contract owner Variable Annuity...the V-word...owner takes the investment risk All of the following are true about Group Life insurance EXCEPT: a) It has a lower lapse rate than individual policies. b) The entire group is underwritten...average age and gender. c) It pays a higher commission rate. d) Turnover affects the premium favorably. c) It pays a higher commission rate. One reason that Group coverage is less expensive is that the commission rate is lower. Of course, if the group has 10,000 members, your check will still be substantial. c) marital status By law, marital status CANNOT be an underwriting factor. Which benefit is NOT normally included in an Individual Medical Expense policy? a) X-Rays b) physical therapy c) maternity d) blood transfusions c) maternity Maternity coverage in an individual policy must be requested and paid for. Under Long Term Care, the highest level of care is called __________. a) Intermediate Care b) Skilled Nursing Care c) Respite Care d) Home Health Care b) Skilled Nursing Care -Skilled Nursing Care = required daily, only administered by a skilled practitioner following doctor's orders. -Intermediate Care = same except the care is required only occasionally -Respite Care = a temporary substitute for a family member who is the primary caregiver -Home Health Care = Respite Care given in the patient's own home If you hold only a Life and Health license, you may NOT sell ______ . a) Adjustable Life b) Variable Whole Life c) Universal Life d) Modified Life b) Variable Whole Life Variable products are insurance and securities. A Producer must have both an insurance license and a securities license. If an AD&D policy pays for the loss of one limb, the amount paid is _____. a) the principal sum b) the secondary sum c) the capital sum d) the subordinate sum c) the capital sum AD&D face amount = principal sum = paid for accidental death or the loss of two or more of the "primary parts". Primary parts = eyes, hands, feet Capital sum = paid for accidental loss of 1 primary part...usually 1/2 of the Principal sum Stan is insured with a $100,000 Whole Life policy having $50,000 in cash value and a Double Indemnity rider. If Stan dies in an accident, his beneficiaries will receive __________. a) $350,000 b) $300,000 c) $250,000 d) $200,000 d) $200,000 Since it was an accident, the company pays double...$200,000. With Whole Life, you can collect the cash value if you surrender the policy or the death benefit if you die. One or the other...not both. Which statement is true about preexisting conditions in Group Health contracts? a) Preexisting conditions are never covered. b) Coverage for serious preexisting conditions can be excluded by an Impairment rider c) Preexisting conditions are generally covered after a specified time period d) Group members may purchase a Guaranteed Insurability Rider to assure coverage of their preexisting conditions. c) Preexisting conditions are generally covered after a specified time period Large Group Health policies generally cover preexisting conditions immediately while smaller plans only exclude for a short time period. (Impairment riders are only used with INDIVIDUAL Health policies). Which statement is NOT true about the reinstatement of a Health policy? a) When the policy owner pays all past due premiums and interest, repays any outstanding policy loans and presents proof of insurability, then the company must reinstate the policy. b) The insurance company may collect up to 60 days of past-due premium. d) The target premium option cannot be changed to the minimum premium option. d) The target premium option cannot be changed to the minimum premium option. The policy owner can choose to pay minimum premium or target premium and can change from one to the other without restriction. (UL violates a normal rule in Life insurance. Option Two allows for a death benefit comprised of the face amount + the cash value. In all other policies, the benefit is one or the other....but not both. Charles understates his age when he buys a Life policy naming his wife, Mary, as an irrevocable beneficiary. When he dies 10 years later, the company discovers the misstatement and _____________________ a) refuses the claim on the basis of a material misrepresentation b) pays the face amount because Mary's rights are irrevocable c) pays the face amount because the policy is now incontestable d) pays the amount the premium would have purchased at the correct age d) pays the amount the premium would have purchased at the correct age The Incontestable clause does NOT apply to the misstatement of age or gender. The company simply makes it right by adjusting the death benefit to what the premiums paid would have purchased for the correct age or gender. This adjustment can be made at any time. In which of the following contracts is the death benefit called the Principal Sum? a) Survivorship Annuity b) Accidental Death and Dismemberment c) Increasing Term d) Joint Life b) Accidental Death and Dismemberment In an AD&D policy the face value is called the Principal Sum. It is paid upon accidental death or the loss of two or more of the primary parts which include hands, feet and eyes. The loss of one of the primary parts triggers the dismemberment benefit which is called the Capital Sum and it usually pays 1/2 of the Principal Sum. Which of the following Individual Medical Expense riders is added at no additional expense to the Policy owner? a) Accidental Death and Dismemberment Rider b) Waiver of Premium Rider c) Pregnancy Rider d) Impairment Rider d) Impairment Rider The Impairment Rider (sometimes called an Exclusion Rider) has no cost because it has no benefit to the Policy owner. If Denver quarterback Payton Manning tried to buy Health Insurance, most underwriters would not be willing to cover his neck or spinal column after three surgeries. However, they would gladly issue Manning a policy that covers everything else but excludes neck or spinal column claims. The Impairment Rider is essentially a one-insured, permanent preexisting conditions exclusion. Unlike most Riders, it doesn't add, it subtracts. You own a Major Medical policy with a $500 deductible, an 80/20 coinsurance requirement, a $20,000 Stop Loss provision and a $1,000,000 Lifetime benefit limit. If your first claim under the policy is for $6,500 of covered expenses, what amount do you have to pay of this claim? a) $1,200 b) $1,300 c) $1,700 d) $4,800 c) $1,700 Step #1 Subtract deductible. $6,500 - $500 = $6,000; and of course, you pay the $500 deductible. Step #2 Coinsurance. You pay 20% of $6,000 or $1,200. Step #3 Add. $500 + $1,200 = $1,700 Hint: Don't sweat the $20,000 Stop Loss or the $1,000,000 Lifetime Benefit. They are there simply as distractors and have nothing to do with solving the claim problem. ABC Corporation covers its employees under a Group Life plan. When John is terminated, ABC fails to notify him of the plan's Conversion rights. Fourteen days after his termination, John dies in a parachuting accident. What happens? a) ABC pays the full death benefit. b) The insurance company pays the full death benefit. c) No benefits are paid because John had not elected to exercise the Conversion privilege. d) No benefits are paid because hazardous avocations are excluded. b) The insurance company pays the full death benefit. The Conversion privilege gives the departing employee 31 days to convert. During the 31 days, coverage is fully in place. In this situation, the conversion benefit would be extended to 60 days because John was not advised of his right to convert, so the insurance company will pay the full death benefit. In a Group Life policy, hazardous avocations are not even rated, much less excluded. Which of the following Health insurance policies requires a beneficiary designation? a) Travel Accident d) The plans cannot be funded by Life insurance. b) They may discriminate in favor of certain employees. Since these are NON-Qualified plans, all the normal rules vanish. They CAN discriminate...they can be funded with Life insurance, BUT, they receive no favorable tax benefits Which of the following Health insurance benefits is taxable? a) Benefits from an employer paid Group Medical Expense policy b) Benefits from an individually purchased Medical Expense policy c) Benefits from an employer paid Group Disability Income policy d) Benefits from an individually purchased Disability Income policy c) Benefits from an employer paid Group Disability Income policy Begin answering this question by eliminating the two Medical Expense policy answers. You will NEVER pay taxes on the benefits of a Medical Expense policy because the benefits DO NOT go to you...they go to the doctors and hospitals. With Disability Income, the rule is simple: If U-pay, the IRS got you paying in, your premiums were after tax $s, so you do NOT pay taxes on any benefits; If Employer-paid, the IRS got nothing going in, your employer deducted his costs as a business expense. Soooo, your benefits will be taxable. SHORTCUT: The IRS will get you coming or going; but not both You take a prepaid application on a Major Medical policy from Cecil and Kerry on October 1st. They sail through underwriting and a policy with an effective date of October 15 arrives in your office on October 17. When you deliver the policy, you should do which of the following? a) Explain that the 10-Day Free Look will expire on October 25 b) Obtain a Statement of Continued Good Health c) Review the policy benefits, exclusions and riders d) Collect the premium due c) Review the policy benefits, exclusions and riders You should obviously review the policy. The Free Look countdown starts on the date of delivery. Since the policy is already in effect, a Statement of Continued Good Health is of no value...it's too late for the company to back out. Since the application was prepaid, there is no premium due A Variable Annuity Life Only payout option is expressed as __________ . a) a dollar amount each month for life. b) a guaranteed number of annuity units each month for life. c) a guaranteed interest rate for life. d) a guaranteed number of payments for life. b) a guaranteed number of annuity units each month for life. A Variable Annuity Life Only contract promises a guaranteed number of Annuity units each month for life. A Conventional Annuity payout might promise $3000 per month for life. A Variable Annuity payout would promise 300 units per month for life. If the value of a unit is $10, then the amount would be $3000. If the fund increases in value and a unit is worth $12, then the payout is $3600. A decrease in the fund might reduce the value to $9 and the payout to $2700...it is, after all, variable. The Coordination of Benefits clause found in Group Major Medical policies is used to: a) Integrate Disability Income benefits with Major Medical benefits b) Avoid double payment of benefits to an insured who has duplicate Group coverage c) Investigate the claims history of an insured and his dependents d) Avoid duplicate premium charges to an employer for the same employee b) Avoid double payment of benefits to an insured who has duplicate Group coverage Insurance companies do NOT want to pay double benefits. Assume you (and your spouse and children) are covered by your non-contributory Medical Expense policy at your employment. Your spouse covers the family under an identical policy at his/her place of employment. If you suffer a covered loss, you are covered by both policies, but the Coordination of Benefits clause keeps you from receiving double benefits. Which of the following statements about Convertible Term insurance is true? a) It is the only form of Term insurance that builds Cash Value. b) It is the only form of Term insurance that pays Dividends. c) It is the most appropriate form of protection for a debt obligation. d) It does not require the insured to prove insurability at conversion. d) It does not require the insured to prove insurability at conversion. If you own a Term policy which can be converted within the first 5 years, your health (insurability) is simply not a factor. (But since your age cannot be frozen, your new policy will be based upon your attained age at conversion). The term Managed Care includes all of the following EXCEPT: a) Primary Care Physicians acting as Gatekeepers b) Utilization Reviews What should the Policy owner of a Modified Life policy expect? a) an increase in death benefit over time b) cash value growth throughout the life of the policy c) no cash value growth over the life of the policy d) a future increase in premium d) a future increase in premium Modified Life starts out as Convertible Term and becomes Whole Life. Therefore the premium goes up at conversion. There is no cash value while the Term is in place, but after the policy becomes Whole Life, cash value will develop and grow. In comparing Medicare Supplement policies, an Applicant inquires about the difference between Plan A and Plan G. Which response is correct? a) Plan A is more expensive. b) Plan G offers more benefits. c) Plan A includes all of Plan G's benefits. d) Plan G offers only the core benefits. b) Plan G offers more benefits. All MSPs must offer the so-called Core Benefits. Plan A offers only the Core Benefits and each subsequent letter designation adds additional benefits An Annuity which is NOT purchased as part of a Qualified Retirement Plan has which of the following advantages? a) Premiums are tax deductible. b) Benefits are not taxable. c) Growth is tax deferred. d) Full value of the account can be taken without penalty prior to age 59 1/2. c) Growth is tax deferred. Annuity premiums are NOT tax deductible if the Annuity is not purchased as part of a Qualified Retirement Plan. The tax on the investment growth of an Annuity is deferred until it is withdrawn A prepaid application for insurance is legally considered to be a(n) ______ . a) invitation to make an offer b) offer c) counter-offer d) acceptance b) offer Application only = invitation Application + premium = offer Medicaid is funded by state government and by ______________ . a) Commercial insurance companies b) Blue Cross and Blue Shield c) The Federal government d) AARP c) The Federal government Medicaid is a Federal and state partnership designed to provide health care to the impoverished. What does Renewable Term insurance allow the policy owner to do? a) periodically increase the death benefit b) convert the coverage to Whole Life c) continue the coverage at the same premium rate d) continue the coverage without additional proof of insurability d) continue the coverage without additional proof of insurability Renewable Term = continue without proof of insurability Convertible Term = convert to a permanent form Increasing Term = increase the death benefit Level Premium Term = renew at the same premium Long Term Care contracts can require all of the following EXCEPT: a) Prior hospitalization b) A physician's certification of need c) A functional assessment d) An inability of the insured to perform any of the activities of daily living a) Prior hospitalization Long Term Care policies are intended to provide Nursing Home benefits to the elderly when they are neither sick nor hurt...they are simply too old to perform the activities of daily living. Yes, LTCs will a) Fewer elective surgeries b) Higher premium costs c) Independent review of recommendations for surgery d) Better management of the health care plan b) Higher premium costs Second surgical opinions are an important cost savings in all Managed Care efforts; they do NOT raise premium costs. What Life insurance policy has two or more insureds and pays upon the death of the last to die? a) Joint Life b) Survivorship Life c) Joint and Survivorship Life Annuity d) Multiple Indemnity b) Survivorship Life Both Joint Life and Survivorship Life insure 2 or more people. But, Joint pays on the death of the first and Survivorship Life pays on the death of the last to die. Memory Device: the letter J comes first in the alphabet and the letter S comes last. The Notice of Claim provision in an Individual Health Insurance policy requires written notice of loss to the company within ____ days of the loss. a) 7 b) 10 c) 15 d) 20 d) 20 Proof of Loss = 20 days; RE-CAUTION: You really, really, really need to know the Required and Optional Provisions of an Individual Health policy. Which of the following is true concerning the Paid-Up Additions to a participating Whole Life policy? a) The Paid-Up Adds are subject to underwriting approval. b) The Paid-Up Adds do not generate dividends. c) The Paid-Up Adds are Term insurance. d) The Paid-Up Adds are purchased based upon your original age. d) The Paid-Up Adds are purchased based upon your original age. The Paid-Up Adds are identical to the original policy. If the original policy is Whole Life, the Adds are Whole Life. If the original policy generates dividends, the Adds generate dividends. BUT, nothing freezes your age; each Paid-Up Addition will be purchased at your attained age The period of time during which an Annuity owner pays premium to the insurance company is called the __________________________. a) Accumulation period b) Annuity period c) Liquidation period d) Coverage period a) Accumulation period Pay-in period = Accumulation period Pay-out period = Annuity period When you apply for a Major Medical policy with a prepaid application, you and your agent are working under the assumption that you will be considered a Preferred Risk. Your company, however, responds that you are a Standard Risk and requires additional premium. The company's response is legally considered to be which of the following? a) an invitation to make an offer b) an offer c) a counter-offer d) acceptance of an offer c) a counter-offer Simply, you made an offer, and the company countered it. The form of Health insurance renewal that guarantees coverage until a stated date or age but does NOT guarantee premium is called ________. a) Non-cancellable b) Conditionally Renewable c) Guaranteed Renewable d) Optionally Renewable c) Guaranteed Renewable A Major Medical policy that guarantees coverage to, say, 65, but does NOT guarantee what the c) Dividends are guaranteed Dividends are NEVER guaranteed. At age 60, an Annuitant begins to receive income benefits from a Life Annuity with 10 Years Certain. If the Annuitant is still alive at age 70, the benefits will ___________________________ . a) continue until the Annuitant's death. b) be terminated. c) continue for an additional 10 years. d) be paid to the Annuitant's beneficiary a) continue until the Annuitant's death. If it is a Life Annuity, benefits will be paid for the Annuitant's lifetime...period. If it is a Life Annuity with 10 Years Certain, there is an additional guarantee...if the Annuitant dies in the first 10 years, payments will continue to a beneficiary for the remainder of the 10 year guarantee. For instance, had our Annuitant died at age 68, benefits would have been paid to a beneficiary for 2 more years. BUT, the original promise of a lifetime income is unchanged. If our Annuitant lives to 108, he still receives benefits. Which insurance product could NOT be used to fund an Individual Retirement Account (IRA)? a) Equity Indexed Annuity b) Mutual Fund c) Variable Annuity d) Variable Universal Life d) Variable Universal Life An insurance policy cannot be used to fund an IRA, so the VUL is out. In fact, insurance can only be incidental to ANY Qualified Retirement Plan. The Suicide clause dictates that if the insured commits suicide 15 years after the policy is issued, the company will _________________ . a) Deny the claim as the cause of death was intentional b) Pay the claim in its entirety c) Pay a pro rata death benefit based upon the number of months the policy was in force d) Refuse to pay the claim but return the premiums paid and interest to the beneficiary b) Pay the claim in its entirety In most jurisdictions, companies may include a clause in the policy that precludes payment for suicide during the first two policy years...after that period has expired, the full death benefit is payable Major Medical policies normally cover ______________________ . a) elective cosmetic surgery b) well-baby care c) custodial care d) usual, customary and necessary medical expenses d) usual, customary and necessary medical expenses If you wrestled with this question, it can teach you a lot about taking the State Exam. The answer is clearly that Major Med policies cover usual, customary and necessary medical expenses. That is literally the definition of Medical Expense coverage. But if you found yourself thinking, "I think well- baby care should be covered",or trying to make a case for custodial care...you are overthinking the question or looking for "trick questions" where none exist. Don't talk yourself out of a perfectly straightforward question while thinking that "it can't be that easy." Which is NOT a characteristic of a Health Savings Account (HSA)? a) Medical Expense coverage with very high deductibles b) A tax-advantaged savings account which can be used to pay the deductible c) A tax-advantaged savings account which can be used to pay for non-reimbursed medical expenses d) Withdrawals from the account after age 59 1/2 for non-medical purposes without tax penalties d) Withdrawals from the account after age 59 1/2 for non-medical purposes without tax penalties Withdrawals from the HSA to cover medical costs are never taxable, and HSA withdrawals used for non-medical purposes are always taxable. If used for non-medical purposes prior to age 65, there is a tax penalty of 10% in addition to the taxes. Which Qualified Retirement Plan can be established by a business corporation? a) A Simplified Employee Pension IRA (SEP IRA) b) An Individual Retirement Account (IRA) c) A Tax Sheltered Annuity (TSA) d) A Roth IRA a) A Simplified Employee Pension IRA (SEP IRA) Business Corporations = SEPs (and a number of other options) Individuals = IRA or Roth IRA, Not-for-Profits = TSAs Extended Term insurance is a(n) ___________________________ . b) the employee Under COBRA, you may keep your coverage for a limited period of time for you and/or any of your dependents. BUT, you (the employee) pick up the total cost of the coverage (what you were paying + what the employer was paying) + 2%. It's a very valuable benefit, but it is NOT cheap. Which type of Health insurance should be purchased by a person who wants coverage for hospital bills following an accidental injury? a) Disability Income b) Medical Expense c) AD&D d) Workers Compensation b) Medical Expense Medical Expense policies are designed to pay medical bills resulting from a covered accident or sickness. (And, yes, there are some questions on the State Exam that are this easy. Don't let them make you crazy looking for tricks). On an application for a Disability Income policy, which of the following misrepresentations would NOT be considered material to the risk? a) Lying about your age b) Lying about your weight c) Failing to disclose a recent surgery d) Falsifying the number of your dependents d) Falsifying the number of your dependents Lying about your number of dependents would not be material to the issuance of a Disability Income policy. The benefits of a DI contract are a stated amount...like $3,000 per month. Whether you are supporting 2 people or 10 people on that amount is irrelevant to the insurance company. (On a Family Medical Expense Application, the number of dependents would be material. There will be more claims from a family of 10 than from a family of 3. All of the following are required elements of a legal contract EXCEPT: a) Assignment b) Acceptance c) Legal Capacity d) Legal Purpose a) Assignment Assignment is a change of ownership, not a required element of a legal contract Which two factors are the primary determinants of your Social Security Retirement benefits? a) Your age and your PIA b) Your gender and your PIA c) Your age and the IRS d) Your gender and the IRS a) Your age and your PIA Your Primary Insurance Amount (PIA) dictates how much you will be paid throughout retirement. If you retire at an earlier age, your benefit will be reduced. Which Life insurance Dividend Option can create a taxable income to the Policy owner in the year that the dividend is paid? a) Paid-Up Additions b) Accumulate at Interest c) Paid-Up Life d) All of the above because the dividend itself is taxable. b) Accumulate at Interest The dividend itself is NOT taxable; it is simply a return of overcharge. However, interest earned on the dividend through the Accumulate at Interest Option creates a tax liability in the year that it is paid; just like a savings account at a bank. Which Life insurance Dividend Option will shorten the premium payment period? a) Cash option b) One-year Term option c) Paid-Up Life option d) Reduced Paid-Up option c) Paid-Up Life option The Paid-Up Life Dividend Option shortens the premium payment period by applying the dividend to the cost of the policy. It's like prepaying a mortgage. A 20-Pay Life policy might be paid entirely in 18 years. (Reduced Paid-Up is NOT a Dividend Option; it is a Non-forfeiture Option). Joe and Jo own a small interior design studio that employs 5 people. They are concerned about the financial stability of the business if either of them becomes permanently disabled. A Producer would most likely recommend which of the following? a) Residual Disability d) Hospice Care b) Intermediate Care Occasionally = Intermediate; Daily = Skilled Nursing Care The Life insurance Ownership Provision states that all policy rights rest with the _________________ . a) Policy owner b) Insured c) Beneficiary d) Company a) Policy owner ALL RIGHTS rest with the owner. Only if the Policy owner gives up some of his rights by naming an irrevocable beneficiary does this ever change. State Law requires that the minimum level of renewability for a Long Term Care policy is ___________________ . a) Non-cancellable b) Optionally Renewable c) Guaranteed Renewable d) Conditionally Renewable c) Guaranteed Renewable An LTC must be at least Guaranteed Renewable Guaranteed Renewable = guarantees your right to keep it to a designated age Non-cancellable = guarantees your right to keep it to a designated age AND it further guarantees what the premium costs will be Which of the following can you sell without obtaining a Securities license? a) Equity Indexed Life b) Variable Whole Life c) Variable Universal Life d) Variable Annuity a) Equity Indexed Life To identify a security, look for the V-word...Variable. Equity Indexed Life is NOT a security. Which is NOT a factor in Life insurance underwriting? a) Gender b) Age c) Education d) Weight c) Education Education is not an underwriting factor in Life insurance. Which is true concerning contributory Group Life plans? a) Employees must pay all of the premium. b) Employers must pay all of the premium. c) Employees must pay some part of the premium. d) 100% of the eligible employees must be covered. c) Employees must pay some part of the premium. In a contributory plan, employees contribute part of the premium. In a non-contributory plan, the employer pays the whole cost. Contributory --75% must be covered; Non-contributory--100% Which is NOT a reason why Group Life insurance plans cost less to administer than individual policies? a) Less persistency b) Lower commission rates c) Less medical underwriting d) No suicide clause a) Less persistency Less persistency does not lower cost; it raises cost. Persistency = the likelihood that a policy will remain in effect Individual policies have a much higher lapse rate than Group policies and this greatly impacts the cost. HIPAA applies to Employer Groups of what size? a) 2 or more b) 10 or more c) 15 or more