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Life Insurance Policy Provisions and Regulations, Exams of Insurance Economics

Various aspects of life insurance policies, including policy delivery, application requirements, policy provisions, underwriting processes, and insurance regulations. It addresses topics such as policy ownership, premium payments, policy loans, suicide clauses, and the tax treatment of insurance products. The document also discusses insurance company types, agent licensing, and regulatory requirements in florida. With a focus on life insurance fundamentals and industry practices, this document could be useful for students studying insurance, finance, or risk management disciplines.

Typology: Exams

2024/2025

Available from 09/30/2024

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Download Life Insurance Policy Provisions and Regulations and more Exams Insurance Economics in PDF only on Docsity! Florida Life & Health Practice Test/ 198 Questions with Verified Ans. An underwriter determines that an applicant's risk should be recategorized due to a health issue. This life insurance policy may be issued with a(n) - Answer: extra premium In order for coverage on a non-medical insurance application to take effect the same day, the producer must collect a signed application and - Answer: the initial premium When does a life insurance contract become effective if the initial premium is not collected during the application process? - Answer: When producer delivers policy and collects initial premium Why is an applicant's signature required on a life insurance application? - Answer: To attest that the statements on the application are accurate to the best of the applicant's knowledge Page 1 of 24 A Disability Income policyowner suffers a disability which was due to the same cause as a previous disability. Both disabilities occurred within a five-month period. The insurer may cover the second disability without a new elimination period under the - Answer: Recurrent Disability provision Which of these statements is INCORRECT regarding the federal income tax treatment of life insurance? - Answer: Entire cash surrender value is taxable Q would like to purchase $100,000 of permanent protection on his wife and $50,000 of Term coverage on himself under the same policy. What kind of policy should Q purchase? - Answer: Whole life policy with other insured rider What action should a producer take if the initial premium is NOT submitted with the application? - Answer: Forward the application to the insurer without the initial premium What is being delivered during a policy delivery? - Answer: Insurance contract to the proposed insured Which of these actions should a producer take when submitting an insurance application to an insurer? - Answer: Inform insurer of relevant information not included on the application Before a life insurance policy is issued, which of these components of the contract is required? - Answer: Applicant's signature on application Which requirement must be met for an association to be eligible for a group life plan? - Answer: Group was formed for a purpose other than acquiring insurance G purchased a Family Income policy at age 40, The policy has a 20-year rider period. If G were to die at age 50, how long would G's family receive an income? - Answer: 10 years Page 2 of 24 What does a Guaranteed Insurability rider provide a Disability Income policyowner? - Answer: The ability to periodically increase the amount of coverage without evidence of insurability P, age 50, purchased an annuity that P will fund with $500/ month for 15 years. The annuity will then pay P retirement payments after the 15 years. Which type of annuity did P purchase? - Answer: Deferred The underwriting process involves all of these EXCEPT for - Answer: Policy loan Which parts of a life insurance policy are guaranteed to be true? - Answer: Warranty P and Q are married and have three children. P is the primary beneficiary on Q's Accidental Death and Dismemberment (AD&D) policy and Q's sister R is the contingent beneficiary. P, Q, and R are involved in a car accident and Q and R are killed instantly. The Accidental Death benefits will be paid to - Answer: P only An insured covered by life insurance has just died. What will happen if the primary beneficiary had already died before the insured and contingent beneficiary? - Answer: Proceeds will go to the contingent beneficiary What type of renewability guarantees premium rates and renewability? - Answer: Guaranteed renewable When does a Probationary Period provision become effective in a health insurance contract? - Answer: At the policy's inception The clause in an Accident and Health policy which defines the benefit amounts the insurer will pay is called the - Answer: Insuring clause Page 5 of 24 A Disability Income policyowner recently submitted a claim for a chronic neck problem that has now resulted in total disability. The original neck injury occurred before the application was taken 5 years prior. The neck injury was never disclosed to the insurer at the time of application. How will the insurer handle this claim? - Answer: Claim will be paid and coverage will remain in force T files a claim on his Accident and Health policy after being treated for an illness. The insurance company believes that T misrepresented his actual health on the initial insurance application and is, therefore, disputing the claim's validity. The provision that limits the period during which the company may dispute a claim's validity is called - Answer: Time Limit on Certain Defenses K failed to pay a renewal premium within the time granted by the insurer. K then sends in a payment which the insurer subsequently accepts. Which policy provision specifies that coverage may be restored in this situation? - Answer: Reinstatement Which of these statements accurately describes the Waiver of Premium provision in an Accident and Health policy? - Answer: Premiums are waived after the insured has been totally disabled for a specified time period Pre-hospitalization authorization is considered an example of - Answer: managed care An agent takes an individual Disability Income application, collects the appropriate premium, and issues the prospective insured a conditional receipt. The next step the insurance company will take is to - Answer: determine if the applicant is an acceptable risk by completing standard underwriting procedures Which of the following statements about the classification of applicants is INCORRECT? - Answer: Substandard applicants are never declined by underwriters Page 6 of 24 A prepaid application for individual Disability Income insurance was recently submitted to an insurer. When the insurer received the Medical Information Bureau (MIB) report, the report showed that the applicant had suffered a stroke 18 months ago, something that was not disclosed on the application. Which of the following actions would the insurance company NOT take? - Answer: Send a notice to the MIB that the applicant was declined Health insurance benefits NOT covered due to an act of war are - Answer: excluded by the insurer in the contract provisions Which Accident and Health policy provision addresses preexisting conditions? - Answer: Time Limit on Certain Defenses The Notice of Claims provision requires a policyowner to - Answer: notify their physician of a claim within a specified time According to the Time Payment of Claims provision, the insurer must pay Disability Income benefits no less frequently than which of the following options? - Answer: Monthly What should an insured do if the insurer does not send claims forms within the time period set forth in a health policy's Claims Forms provision? - Answer: Submit the claim in any form The policy provision that entitles the insurer to establish conditions the insured must meet while a claim is pending is - Answer: Time Limit on Certain Defenses When an insurance company sends a policy to the insured with an attached application, the element that makes the application part of the contract between the insured and the insurer is called the - Answer: Entire Contract provision Page 7 of 24 For which of the following expenses does a Basic Hospital policy pay? - Answer: Hospital room and board M has a Major Medical insurance policy with a $200 flat deductible and an 80% Coinsurance clause. If M incurs a $2,200 claim for an eligible medical expense, how much will M receive in payment for this claim? - Answer: $1,600 How do life insurance companies handle cases where the insured commits suicide within the contract's stated Contestable period? - Answer: Claims are denied under the Suicide clause of the policy N is a student pilot with a large life insurance policy. Which of these features would limit the insurer's obligation in the event N was killed while flying as a student pilot? - Answer: Exclusion B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of - Answer: additional Whole Life coverage at specified times Deductibles are used in health policies to lower - Answer: overuse of medical services Whose life is covered on a life insurance policy that contains a payor benefit clause? - Answer: Child Basic Hospital and Surgical policy benefits are - Answer: lower than the actual expenses incurred A characteristic of Preferred Provider Organizations (PPOs) would be: - Answer: Discounted fees for the patient Page 10 of 24 The individual most likely to buy a Medicare Supplement policy would be a(n) - Answer: 68-year old male covered by Medicare An insured pays premiums on an annual basis for an individual health insurance policy. What is the MINIMUM number of days for the Grace Period provision? - Answer: 31 Which of the following provisions specifies how long a policyowner's health coverage will remain in effect if the policyowner does not pay the premium when it is due? - Answer: Grace Period Which of the following statements BEST defines usual, customary, and reasonable (UCR) charges? - Answer: The maximum amount considered eligible for reimbursement by an insurance company under a health plan How are surrender charges deducted in a life policy with a rear-end loaded provision? - Answer: Deducted when the policy is discontinued S wants to open a tax-exempt Health Savings Account. To qualify for this type of account, Federal law dictates that S must be enrolled in a - Answer: High-deductible health plan Which of these options can an individual use their medical flexible spending account to pay for? - Answer: Prescription drugs Which of the following situations does a Critical Illness plan cover? - Answer: Leukemia Major Medical policies typically - Answer: contain a deductible and coinsurance Page 11 of 24 What does the ownership clause in a life insurance policy state? - Answer: Who the policyowner is and what rights the policyowner is entitled to Comprehensive Major Medical policies usually combine - Answer: Major Medical with Basic Hospital/Surgical coverage A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached? - Answer: Waiver of Premium Which of these statements about a Guaranteed Insurability Option rider is NOT TRUE? - Answer: Evidence of insurability is required when the option is exercised S buys a $50,000 whole life policy with a $50,000 Accidental Death and Dismemberment rider. S dies 1 year later of natural causes. How much will the insurer pay the beneficiary? - Answer: $50,000 An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period? - Answer: Full face amount minus any past due premiums D is the policyowner and insured for a $50,000 life insurance policy. The beneficiary is D's wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to? - Answer: Ex-wife Which of these are NOT an example of a Nonforfeiture option? - Answer: Life Income Page 12 of 24 Many small business owners worry how their business would survive financially if the owner becomes disabled. The policy which BEST addresses this concern is - Answer: Business Overhead Expense What kind of special need would a policyowner require with an Adjustable Life insurance policy? - Answer: flexible premiums Which of the following actions require a policyowner to provide proof of insurability in an Adjustable Life policy? - Answer: increase face amount When a policyowner exchanges a term policy for a whole life policy without providing proof of good health, which of these apply? - Answer: Conversion provision How long does the coverage normally remain on a limited-pay life policy? - Answer: age 100 Which of these statements describe a Modified Endowment Contract (MEC)? - Answer: Exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract A variable insurance policy - Answer: does not guarantee a return on its investment accounts Term insurance has which of the following characteristics? - Answer: Expires at the end of the policy period Which of the following features of a group Term Life policy enables an individual to leave the group and continue his or her insurance without providing evidence of insurability? - Answer: Conversion privilege Page 15 of 24 When an employee is required to pay a portion of the premium for an employer/employee group health plan, the employee is covered under which of the following plans? - Answer: Contributory The federal income tax treatment of employer-provided group health insurance can be accurately described as - Answer: Employee's coverage paid for by the employer is tax- deductible to the employer as a business expenditure The reason for a business having a Business Overhead Expense Disability Plan is to cover - Answer: fixed business expenses What type of policy would offer a 40-year old the quickest accumulation of cash value? - Answer: 20-pay life A life insurance policy that provides a policyowner with cash value along with a level face amount is called - Answer: Whole life Which of these characteristics is consistent with a Straight Life policy? - Answer: Premiums are payable for as long as there is insurance coverage in force Which of these require an offer, acceptance, and consideration? - Answer: Contract Which of these arrangements allows one to bypass insurable interest laws? - Answer: Investor- Originated Life Insurance What is the consideration given by an insurer in the Consideration clause of a life policy? - Answer: Promise to pay a death benefit Page 16 of 24 When must insurable interest be present in order for a life insurance policy to be valid? - Answer: At the time of application Insurance policies offered on a "take it or leave it" basis are considered what? - Answer: Contracts of Adhesion Which statement about a whole life policy is correct? - Answer: Cash value may be borrowed against Which statement is correct regarding the premium payment schedule for whole life policies? - Answer: Premiums are payable throughout the insured's lifetime/ coverage lasts until death of the insured T would like to be assured $10,000 is available in 10 years to replace a roof on his house. What kind of $10,000 policy should T purchase? - Answer: Ten-Year Endowment What type of life policy has a death benefit that adjusts periodically and is written for a specific period of time? - Answer: Decreasing term What kind of insurance policy supplies an income stream over a set period of time that starts when the insured dies? - Answer: Family Maintenance Policy What kind of premium does a Whole Life policy have? - Answer: Level An insurance company licensed in Florida and domiciled in Pennsylvania is known as - Answer: a foreign company A creditor who requires a debtor to obtain insurance from a particular company or agent as a condition for a loan is guilty of - Answer: Coercion Page 17 of 24 According to the insurance code, an agent's controlled business may NOT exceed a maximum of - Answer: 50% Under certain circumstances, in addition to treatment by medical doctors, health insurance policies in Florida must also cover payment to all of the following practitioners EXCEPT - Answer: Naturopaths The Life and Health Insurance Guaranty Association is - Answer: an association that protects policyowners against the insolvency of an insurance company Florida insurance law requires that if a Medicare Supplement policy is sold, the agent must deliver an Outline of Coverage to the applicant no later than - Answer: when the application is taken All of the following are possible consequences for placing with an unauthorized insurer EXCEPT - Answer: conviction of a first degree misdemeanor What is normally given to an applicant who pays the initial premium at the time of application? - Answer: Conditional receipt Florida law provides for a grace period of NOT less than how many days for a monthly-premium health insurance policy? - Answer: 10 Which of the following qualifications is NOT a prerequisite for becoming a licensed agent? - Answer: Having a high school diploma When an employee covered on a Group Life policy leaves the group, the conversion privilege gives the employee the right to - Answer: convert to an individual policy upon termination of employment Page 20 of 24 All of the following are unfair claim settlement practices EXCEPT - Answer: requiring written documentation of claim details Which of the following statements about unfair trade practices is true? - Answer: Twisting is a misrepresentation made by an agent in order to induce a policyholder to lapse a policy and switch insurance companies Z gave Z's age as 40 when Z purchased a Life policy. At the time of Z's death six years later, the company discovered Z's true age at issue had been 49. What would the normal procedure be under the misstatement of age provision in regard to the payment of the death claim? - Answer: The proceeds will be reduced based on whatever the premium would have been purchased at age 49 According to Florida statutes, all of the following provisions must be contained in a Medicare Supplement policy EXCEPT - Answer: A 12-month limitation on pre-existing conditions Under Florida insurance law, deceptive advertising is considered a form of - Answer: Misrepresentation When a stock life insurance company issues both participating and nonparticipating policies, the company is doing business on a(n) - Answer: mixed plan Which type of life policy contains a monthly mortality charge as well as self-directed investment choices? - Answer: Variable Universal Life C is a key employee at ABC Incorporated. If a Key Employee life policy is purchased on her life, which of these statements would be true? - Answer: ABC is the policyowner, C is the insured, and ABC is the beneficiary Page 21 of 24 Under federal tax laws, what is the tax treatment for an employer providing $50,000 of a contributory group Term Life plan to all its eligible employees? - Answer: Portion of the premiums paid for by the employer may be a tax deduction Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options? - Answer: Variable Life Additional coverage can be added to a Whole Life policy by adding a(n) - Answer: decreasing term rider B has a $100,000 Accidental Death and Dismemberment policy that pays triple indemnity for common carrier death. If B is killed from an accident on a commercial flight, what will the policy pay B's beneficiary? - Answer: $300,000 In a Disability Income policy, which of these clauses acts as a deductible? - Answer: Elimination Period T and S are named co-primary beneficiaries on a $500,000 Accidental Death and Dismemberment policy insuring their father. Their mother was named contingent beneficiary. Five years later, S dies of natural causes and the father is killed in a scuba accident shortly afterwards. How much of the death benefit will the mother receive? - Answer: $0 Which statement regarding the Change of Beneficiary provision is true? - Answer: The policyowner can change the beneficiary What is the underlying concept regarding level premiums? - Answer: The early years are charged more than what is needed Page 22 of 24