TEXAS GENERAL LINES - LIFE, ACCIDENT AND HEALTH INSURANCE EXAM 2024-2025, Exams of Nursing

Download TEXAS GENERAL LINES - LIFE, ACCIDENT AND HEALTH INSURANCE EXAM 2024-2025 and more Exams Nursing in PDF only on Docsity! 1 | P a g e TEXAS GENERAL LINES - LIFE, ACCIDENT AND HEALTH INSURANCE EXAM 2024-2025 WITH ACTUAL CORRECT QUESTIONS AND VERIFIED DETAILED ANSWERS |FREQUENTLY TESTED QUESTIONS AND SOLUTIONS |ALREADY GRADED A+|NEWEST|GUARANTEED PASS|LATEST UPDATE 1) Sandra Timms, age 27, is advised by her producer to purchase Life insurance to cover a 20-year- amortized $50,000 business-improvement loan. Which of the following plans would adequately protect Ms. Timms at the minimum premium outlay? A- $50,000 Whole Life policy B- $50,000 Level Term policy for 20 years C- $50,000 20 Pay Life policy D- $50,000 Decreasing Term policy for 20 years Brainpower Read More 2) A 45-year old customer who is seeking to supplement his retirement income at age 65 would not buy a: 2 | P a g e A- Deferred Annuity B- Equity Indexed Annuity C- Variable Annuity D- Immediate Annuity 3) John Livingston owns a 30-Pay Life policy that he purchased at the age of 30. The cash value will equal the face amount of the policy when he reaches the age of: A- 60 B- 70 C- 100 D- 30 4) Which of the following is an example of a Limited-Pay Life policy? A- Universal life B- Whole Life C- Life Paid-Up at Age 65 D- Renewable Term to Age 70 5) Which of the following policies provides the greatest amount of protection for an insured's premium dollar as well as some cash accumulation? A- Annuity B- Whole Life C- Term D- Limited-Pay Life 6) Which of the following individual policy conversions is usually permitted without any evidence of insurability? A- Conversion to a lower-premium plan B- Conversion from a Whole Life policy to a Term policy C- Conversion from a Term policy to a Whole Life policy D- Conversion to a larger amount of insurance 7) Which of the following is NOT correct regarding Ordinary Whole Life policies? A- The premiums payments are owed annually until you die or reach age 100 B- The cash value grows more quickly in the beginning years of the policy C- Coverage lasts for your own life D- Ordinary Whole Life is a type of permanent insurance 8) Which of the following statements is true about the premium payment schedule for a Whole Life policy? A- Premiums are payable for a designated period of time only, after which coverage is no longer provided B- Premiums are payable until the insured's retirement only, after which coverage is continued 5 | P a g e C- Is renewable with evidence of insurability D- Is renewable to age 100 21) A life insurance policy whose cash value will fluctuate depending upon the performance of a separate account is: A- Limited-pay Life B- Universal Life C- Ordinary Life D- Variable Life 22) A life insurance policy that combines term insurance protection, a flexible premium, and cash value accumulation is: A- Increasing Term Life B- Variable/Universal Life C- Universal Life D- Variable Life 23) Which of the following types of insurance policies would provide the greatest amount of protection for a temporary period during which an insured will have limited financial resources? A- Term B- Limited Pay policy C- Whole Life D- Annuity 24) At age 30, Tom Morris wishes to purchase a Whole Life policy. His producer explains that he can pay for the policy in several ways. One method is called 20-Pay Life, and another, Straight Life. Tom wishes to know which plan will accumulate cash value at a faster rate in the early years of the policy. Which of the following would be the producer's most appropriate response? A- "20-Pay Life will accumulate cash value faster." B- "The rate of cash-value accumulation depends on the profitability of the insurance company." C- "Straight Life will accumulate cash value faster." D- "Both plans will accumulate cash value at the same rate." LIFE SECTION 2 LIFE SECTION 2 1) Which of the following statements about the Reinstatement provision is true? A- It provides for reinstatement of a policy regardless of the insured's health B- It requires the policy owner to pay, with interest, all premiums that are in arrears in order for the policy to be reinstated C- It permits reinstatement within 10 years after a policy has lapsed 6 | P a g e D- It guarantees the reinstatement of a policy that has been surrendered for cash 2) The time period covered by the Free Look provision of a Life insurance contract starts: A- When the insured receives the contract and a "right to look" receipt B- When the contract is received in the agency office and given to the producer C- When the insured receives the contract and makes the first premium payment, if needed D- When the contract is issued and mailed to the agency office from the home office of the insurance company 3) Dividend projections may be included in a proposal for Life insurance when which of the following is true? A- There is a clear statement that payment of future dividends is not guaranteed B- The applicant has requested that they be included C- The projected amounts do not exceed the dividends previously paid by the same insurance company D- The projected amounts are calculated on the basis of the Commissioners Standard Ordinary Mortality Tables 4) The Life insurance rider that will pay the insured's premium after a period of disability due to accident or sickness is: A- Guaranteed Insurability B- Accidental Death and Dismemberment C- Waiver of Premium D- Automatic Premium Loan 5) Which of the following is a Non-forfeiture Option that provides continuing cash value buildup? A- Extended Term B- Deferred Annuity C- Reduced Paid-Up D- Cash Surrender 6) A rider that keeps a policy from lapsing due to non-payment of premium by borrowing from the cash value is: A- Reduced Paid-Up Option B- Extended Term Option C- Automatic Premium Loan D- Mode of Payment 7) Which of the following Settlement Options might provide payments that exceed the proceeds of the policy and the interest earned? A- Interest Only B- Fixed Period C- Life Annuity D- Fixed Amount 7 | P a g e 8) A client buys a $50,000 Whole Life policy on himself and wants to add $25,000 in Term coverage for his spouse. He should add which of the following riders to his policy? A- Spousal Rider B- Family Rider C- Other Insured Rider D- Additional Insured Rider 9) All of the following are considered to be owner's rights under a Life insurance policy, EXCEPT: A- Changing an irrevocable beneficiary B- Changing a dividend option C- Taking a policy loan D- Selecting a settlement option prior to death 10) If the insured dies 5 years after he bought a Life insurance policy and the insurer determines that there was material misrepresentation on his application, they will: A- Pay the claim B- Pay only a portion of the claim C- Deny the claim D- Deny the claim but refund the premium 11) The life insurance policy provision that prevents the insurer from modifying a policy after it has been issued is the: A- Incontestability Clause B- Entire Contract Clause C- Consideration Clause D- Insuring Clause 12) Which of the following statements is true about exercising a Guaranteed Insurability option: I. The new insurance is available at the original issue age rate II. Evidence of insurability is not required III. The insured can exercise the option at any time after the age of 21 IV. The maximum purchase is specified in the contract A- III and IV B- I and II C- II and IV D- I, II, and III 13) In a policy insuring the life of a child, which of the following allows the premiums to be waived in the event of the death or disability of the person responsible for premium payments? A- Reduced Paid-Up option B- Payor Benefit Rider 10 | P a g e A- Payor Benefit Rider B- Guaranteed Insurability Rider C- Waiver of Premium Rider D- Child Term Rider 27) A beneficiary designation that prevents the policy owner from making certain changes in the policy is: A- Primary B- Irrevocable C- Revocable D- Contingent 28) Margaret May wants to name her husband as the beneficiary of her Life policy; however, she wishes to retain all of the rights of ownership. Mrs. May should name her husband as: A- Revocable beneficiary B- Irrevocable beneficiary C- Tertiary beneficiary D- Secondary beneficiary 29) On Life insurance, the purpose of the Entire Contract Clause is to: A- Limit the policy to the contract plus the application, if attached B- Spell out the rights of the policy owner C- Require that the insurer attach the application to the policy at issue D- Spell out the rights of the beneficiary 30) The Life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the: A- Misstatement of Age clause B- Insuring clause C- Incontestability clause D- Reinstatement clause 31) The provision in a Life insurance policy that provides protection against unintentional policy lapse is known as the: A- Automatic Premium Loan provision B- Payor clause C- Waiver of Premium benefit D- Reduction of Premium option 32) The purpose of the Grace Period is to: 11 | P a g e A- Give the beneficiary time to prove that insurable interest exists B- Protect the policy owner against unintentional lapse C- Protect the insurer against adverse selection D- Give the insurer time to determine the cause of death 33) Jim gets married and wants to add his new spouse to his existing Life insurance policy. Which rider should he add? A- Guaranteed Insurability Rider B- Other Insured Rider C- Payor Rider D- Term Rider 34) An insured died during the Grace Period of her Life insurance policy and had not paid the required annual premium. The insurance company is obligated to pay which of the following to the beneficiary? A- The face amount of the policy less any earned premiums B- The full face amount of the policy C- The cash value of the policy, if any D- A refund of any premiums paid 35) A client buys a Life insurance policy on July 1st and dies by suicide 6 months later. The insurance company will: A- Deny the claim B- Deny the claim, but refund the premium C- Pay the claim in full D- Pay half of the claim 36) To add coverage for a child to your Whole Life policy you would purchase which of these riders? A- Payor Benefit Rider B- Guaranteed Insurability Rider C- Waiver of Premium Rider D- Child Term Rider 37) Which of the following statements about the Misstatement of Age provision in a Life insurance policy is true? A- If the insured's age has been overstated, it provides that a premium refund and the face amount of the policy will be payable B-If the insured's age has been understated, it provides that a death benefit smaller than the face amount of the policy will be payable C- It becomes inoperative after the expiration of the policy's Contestable period D- It is an optional provision 12 | P a g e 38) An insurance company will grant an advance from the cash value of a Life insurance policy when the policy owner requests which of the following? A- An automatic premium loan B- A low-interest dividend loan C- A policy loan D- A loan from Extended Term Insurance LIFE SECTION 3 LIFE SECTION 3 1) An insured's premium for Life insurance is based mainly upon their: A- Risk classification B- Gender C- Occupation D- Age 2) A prospect's statements made in the application for insurance constitute a part of which of the following? A- Subrogation Clause B- Incontestability Clause C- Co-insurance Clause D- Consideration Clause 3) In the formation of a Life insurance contract, the special significance of a Conditional Receipt is that it: A- Serves as proof that the producer has determined the applicant to be fully insurable for coverage by the insurance company B- Is intended to provide coverage on a date earlier than the date of the issuance of the policy C- Is given by the producer only to applicants who fully prepay all scheduled premiums in advance of policy issue D- Guarantees the applicant that a policy will be issued in the amount applied for in the application 4) Life insurance becomes effective when: A- When the insurer receives the application at their home office B- When the conditions in the conditional receipt are satisfied C- The applicant writes the check and receives a conditional receipt D- When the producer signs the application 5) A producer submits a completed and signed application to the underwriter along with the first premium check. After checking the results of the physical exam, the underwriter issues a 'rated' policy. Which of the following will not be required: 15 | P a g e A- Refuse to issue the policy B- Require a yearly medical exam C- Charge an extra premium D- Lower its insurability standards 17) When giving a client a conditional receipt, which of the following is true? A- You never collect a premium until you deliver the policy B- The coverage will begin at earliest as of the date of application or when the client passes a physical, whichever is later C- Coverage begins as of date of application D- In order for coverage to begin the applicant must pay all premiums 18) If an existing client of a producer wants to buy another Life insurance policy, the producer should: A- Submit an unsigned application to the insurer referring to existing underwriting information B- Have the customer come in and complete and sign a new application C- Complete and sign the application on behalf of the customer D- Advise the customer that no physical exam is required since he is an existing client 19) Which of the following is true when the insurer issues a 'rated' policy: A- Coverage is effective immediately B- It is considered to be acceptance of the risk C- No additional premiums will be due D- It is considered to be a counteroffer 20) A producer sends a completed and signed application along with the check for the initial premium to the underwriter, who notices that the applicant forgot to sign the check. When would coverage start? A- The date of the conditional receipt B- On the date the application was signed C- When the producer delivers the policy and picks up a signed check along with a Statement of Continued Good Health D- When the underwriter received the application and unsigned check 21) Which federal law governs consumer investigative reports: A- Telephone Communication Protection Act B- Privacy Protection Act C- Fair Credit Reporting Act D- Employee Retirement Income Security Act 22) If an application for Life insurance is not complete: A- The insurer will reject it B- The insurer will issue the policy and request additional information C- The insurer will return it to the producer D- The insurer will consider it to be void 16 | P a g e LIFE SECTION 4 LIFE SECTION 4 1) A plan under which the surviving partners of a partnership agree to buy the interest of a deceased partner is known as a: A- Surviving Shareholder plan B- Buy and Sell Agreement C- Key Employee Life policy D- Deferred Compensation plan 2) Carl Burk, whose wife is his business partner, buys a Life insurance policy on his wife's life. Because of this third-party ownership, the beneficiary should be the: A- Policy owner's children B- Policy owner's estate C- Policy owner D- Policy owner's wife 3) When a company requires that their employees pay part of the premium for the Group Life insurance coverage, it is known as a ___________ group: A- Contributory B- Nonparticipatory C- Participatory D- Noncontributory 4) Albert Metz, who has $2,000 of Group Life insurance, has just terminated his employment. Mr. Metz has how many days in which to convert his group coverage to individual coverage? A- 28 B- 21 C- 15 D- 31 5) Which of the following is not considered to be a 'qualified' plan? A- IRA B- 403b Tax Sheltered Annuity C- Split Dollar D- Keogh 6) Traditional IRAs have a premature distribution penalty for distributions taken prior to age: A- 55 B- 70 1/2 C- 59 1/2 D- 65 17 | P a g e 7) Tim Watson wants to obtain a Life insurance policy on his employee, Mike Carson, and to name Mike's wife, Deborah Carson, as the beneficiary. Signatures of which of the following would be legally required on the application? I. Tim Watson II. Mike Carson III. Deborah Carson A- I and II B- II and III C- I, II, and III D- I only 8) An insurable interest must exist when: A- Cash values are borrowed B- Death proceeds become payable C- A life insurance policy is issued D- A policy is surrendered for cash 9) A client with a participating Life insurance policy receives both interest and dividends. What are the tax implications? A- Neither are taxable B- The interest is taxable, but the dividends are not C- Both are taxable as ordinary income D- The dividends are taxable, but the interest isn't 10) A Life insurance policy of which the cash value is over-funded according to IRS rules is known as: A- A Universal Life Contract B- A Variable Life Contract C- A Modified Endowment Contract D- A Variable/Universal Life Contract 11) The owner of a business is insured under a $100,000 Key Employee Life policy that contains a Double Indemnity clause and a Suicide clause. The business has paid the annual premium of $2,000. Six months after the inception date of the policy, the insured commits suicide. The insurance company's liability for payment is: A- $100,000 B- $200,000 C- $ -0- D- $2,000 12) A parent who wishes to have complete control of their son's life insurance policy until the son reaches age 25 can do so through the use of which of the following? 20 | P a g e C- Accidental loss of eyesight D- Death due to heart attack 8) The most an insured can collect on a Disability Income policy is most closely tied to: A- The average income in their state B- 200% of his income C- Their income D- A percentage of the federal poverty guidelines 9) A 69-year old Medicare beneficiary, who has been hospitalized twice in the past year, should consider buying which of the following to cover future excess medical bills: A- Major Medical B- Medicare Supplement C- Medicaid D- Long Term Care 10) When selling a Medicare Supplement policy, a producer must disclose all of the following, EXCEPT: A- What Medicare covers and what the Supplement covers B- Limitations and exclusions C- The 10 day free look provision D- Premium 11) Jim has a Major Medical policy with a $500 deductible and 80/20 co-insurance. If he has a $5,000 claim, how much of the claim will Jim have to pay: A- $500 B- $3,600 C- $1,400 D- $900 12) Which of the following A&H policies would provide reimbursement for expenses incurred as the result of a broken leg? A- Dental insurance policy B- Accidental Death and Dismemberment policy C- Disability Income policy D- Medical Expense policy 13) Under a Major Medical policy, the cost of which of the following would usually be considered a covered medical expense? I. Heart surgery II. An emergency appendectomy III. Plastic surgery for burns received in an auto accident A- I and II B- I only 21 | P a g e C- III only D- I, II, and III 14) All of the following are true about Long Term Care insurance, EXCEPT: A- It may be cancelled, if the insured's health changes B- It may be cancelled for non-payment of premium C- Coverage is subject to a daily maximum limit D- It must have a 30-day free look provision 15) HMOs offer all of the following features, EXCEPT: A- Co-payments B- Closed networks C- Reimbursement D- Preventative care 16) Which of the following statements about Group insurance is true? A- Group insurance is essentially reduced-cost mass protection B- A small group is rated on the basis of its own experience C- Group insurance is issued after each prospect has had a medical examination D- Each person insured in a group is issued a policy 17) When benefits are paid to a policy owner covered under a Hospital Expense policy, the policy is considered to be which of the following? A- Reimbursement B- Special Risk C- Limited Accident D- Service 18) Which of the following statements about Accidental Death and Dismemberment coverage are true? I. Death benefits are paid only if death occurs within 24 hours of an accident II. Dismemberment benefits are paid for certain disabilities that are presumed to be total and permanent III. Accidental Death benefits are paid only if death results from an accidental bodily injury as defined in the policy A- I and III B- II and III C- I, II, and III D- I and II 19) If you purchased a Major Medical policy with a $500 deductible and 80/20 co-insurance, what would be the effect of adding a $500 Supplemental Accident rider to your policy: A- It would limit coverage to $500 in the event of accidental injury B- It would waive the deductible and co-insurance up to $500 for accidental injury 22 | P a g e C- You would be required to pay a $500 additional premium if you were injured in an accident D- The deductible and co-insurance would be waived up to $500 for injury or sickness 20) Regarding Long Term Care insurance, which of the following is not considered to be an Activity of Daily Living (ADL): A- Talking B- Bathing C- Transferring D- Eating 21) Leland Farrell was hospitalized for two weeks and received a bill for $2,100. He has a Major Medical policy with a $100 deductible. His co-insurance is 80/20, figured after reducing the bill by the deductible amount. Mr. Farrell is expected to pay a total of: A- $520 B- $500 C- $400 D- $1,500 22) Group A&H insurance normally specifies that what percentage of those eligible must be enrolled under a noncontributory plan? A- 100% B- 25% C- 75% D- 50% 23) Which of the following is not covered by a Basic Medical Expense policy: A- Hospital room and board B- Long term care expenses C- In-hospital doctor visits D- Surgical expenses 24) Jill has a Major Medical insurance policy with a $1,000 deductible and 80/20 co-insurance. If she has a $10,000 claim, how much will her insurer pay: A- $2,800 B- $7,200 C- $2,000 D- $1,000 25) Hospital Indemnity policies will pay: A- Medical bills B- Surgical expenses C- Hospital room and board D- A daily amount if hospitalized 25 | P a g e 10) Which mandatory Health insurance policy provision keeps the producer and/or the insurer from modifying the policy after it has been issued? A- Entire Contract clause B- Insuring agreement C- Incontestability D- Legal actions 11) Which of the following properly describes a policy, where the policyowner has no guarantee of renewal and the insurance company may refuse to renew the policy at the next premium due date? A- Guaranteed Renewable B- Conditionally Renewable C- Optionally Renewable D- Non-cancelable 12) The Health insurance policy provision that prevents an insurer from altering its agreement with a policy owner by referring to documents not contained in the policy is the: A- Entire Contract clause B- Legal Actions provision C- Incontestability clause D- Insuring clause 13) Pre-existing Conditions are referred to in which of the following required A&H policy provisions? A- Claims Forms B- Time Limit on Certain Defenses C- Payment of Claims D- Legal Actions 14) Which of the following is true regarding coverage for war on an accident and health policy? A- It is excluded via a rider B- It is never covered C- It is always covered D- It is excluded per the contract 15) Under a Guaranteed Renewable Health insurance policy, the insurer may: A- Cancel the contract for too many claims B- Change rates by class C- Change policy provisions at any time D- Reduce the amount of insurance if the insured's health declines 16) An applicant for an Individual Health policy failed to complete the responses to the Medical History questions because she had forgotten some important past treatment dates. She did, however, sign the application. Before being able to complete the responses and pay the initial premium, she was confined to a hospital for a condition that would ordinarily be covered by the policy. In this situation, she was not insured because she had not met the conditions specified in which of the following? 26 | P a g e A- Insuring clause B- Pre-existing Conditions clause C- Eligibility clause D- Consideration clause 17) The language in a Major Medical Expense policy that requires a claim to be shared between the insurer and the insured is called? A- Coordination of Benefits B- Co-insurance C- Co-payment D- Deductible 18) The purpose of the Illegal Occupation provision is to: A- Allow an insurance company to collect extra premiums to provide coverage for an insured's illegal acts B- Protect an insured from purchasing policies from an unlicensed producer C- Absolve an insurance company from liability for a loss incurred by an insured during his commission of a felony D- Prevent a producer from rebating on large policies 19) The owner of a Medical Expense policy has all of the following rights, EXCEPT to: A- Sue the insurance company, if there is a disagreement over a claim B- Assign the benefits to the provider of the medical services C- Return the policy to the insurance company within the Free Look period D- Add coverage for a spouse without providing proof of insurability 20) Which clause or provision contains the insurer's promise to pay claims in accordance with the terms of the policy? A- Consideration clause B- Payment of Claims provision C- Insuring agreement or clause D- Entire Contract clause 21) On Disability Income insurance, which of the following is true regarding the Change of Occupation provision? A- It allows the insurer to adjust benefits B- It is a mandatory policy provision C- It is designed to protect the insured D- It allows the insurer to void coverage 22) A client with Disability Income insurance hurts his back and is off work for 3 months and then returns to work. If he hurts his back again, it may be covered as a: A- Recurrent disability B- Temporary disability 27 | P a g e C- Residual disability D- Partial disability 23) If the insurer does not send the insured claim forms within the time specified, which of the following is correct? A- The insurer has waived the requirement and must pay the claim B- The insured does not have to submit claim forms C- The insured may submit the claim on any form D- The insured is relieved of any further responsibility 24) Under the Uniform Provisions Law, which of the following provisions is optional for an A&H policy? A- Physical Examination and Autopsy B- Time Limit on Certain Defenses C- Change of Occupation D- Entire Contract 25) A producer has just been told by a policy owner that she is 10 years younger than was listed on the application. The producer should: A- Notify the insurance company for a possible review of the application B- Write a new policy at the correct age immediately so there will be no gap in coverage C- Notify the insurance company to adjust the existing policy to the correct age D- Determine whether there has been any change in health since the application for the policy 26) Marshall bought a disability income policy with a 30 day waiting period on March 1st. He became disabled on June 1st but went back to work on June 15th. He became disabled again on July 1st until October 1st. When do his benefits begin? A- July 1st B- June 15th C- August 15th D- June 1st 27) if a Health insurance policy is delivered on August 1st and returned by the insured on August 9th, the insurer will: A- Refund all premiums paid and void the policy B- Pay all claims turned in between August 1st and August 9th C- Require the insured to disclose the reason why D- Return part of the premiums paid 28) In Health insurance, the length of the Grace Period varies according to which of the following? I. The mode of premium payment II. The length of the benefit period A- II only B- I only 30 | P a g e HEALTH SECTION 3 1) All of the following are true about eligibility for Disability Income benefits under Social Security EXCEPT: A- There is a 5 month waiting period B- They are available only to those who have attained fully insured status C- They are available only to those who are at least age 65 D- Claimants must prove that their disability prevents them from performing any gainful work and will last at least 1 year 2) To be eligible for Social Security Disability Income benefits, the claimant must satisfy a waiting period of: A- 6 months B- 1 year C- 30 days D- 5 months 3) To be eligible for Social Security Disability Income benefits, the claimant must prove that their disability prevents them from performing any gainful work and be expected to last at least ______ or result in death. A- 1 month B- 5 months C- 6 months D- 12 months 4) Which of the following is a program established to help states expand their public assistance programs for individuals whose income and resources are insufficient? A- POS plan B- Medicaid C- Critical illness plan D- Medicare 5) This program is made up of four parts, and the insured helps to pay for three of these parts. A- POS plan B- Medicaid C- Medicare D- Critical illness plan 6) Part A of Medicare is generally available at no charge to those who are at least age: A- 60 B- 62 C- 55 D- 65 31 | P a g e HEALTH SECTION 4 HEALTH SECTION 4 1) Which of the following statements is true about Residual Disability benefits? A- They are reduced when an insured is not under a doctor's care B- An insured is entitled to a Principal Sum benefit for the partial loss of a limb C- Payment may be based on loss of time, income, or function D- Payment may be based on termination of employment 2) Which of the following benefits, if any, may be taxed like wages and salary by the Internal Revenue Service? A- Workers' Compensation benefits B- Welfare benefits C- All answer options are incorrect D- Social Security Disability benefits 3) The coverage provided by a Disability Income policy that does NOT pay benefits for losses occurring as the result of the insured's employment is called: A- Workers' Compensation B- Non-occupational coverage C- Unemployment coverage D- Occupational coverage 4) On Health insurance, all of the following are considered to be Rights of Ownership EXCEPT: A- Applying to reinstate a lapsed policy B- Changing an irrevocable beneficiary on an AD&D policy C- Paying the premium D- Assigning benefits payable to a health care provider 5) What type of Health insurance requires the policy owner to designate a beneficiary? A- Specified Disease B- AD&D C- Disability Income D- Medical Expense 6) What type of Disability Income insurance coverage will pay the insured a portion of the difference between what he earned before his disability and what he can earn now? A- Temporary B- Partial C- Residual D- Total 7) All of the following are true regarding a Group Health insurance policy that includes coverage for dependents EXCEPT: 32 | P a g e A- Dependent children may continue coverage as long as they live at home B- Upon termination of employment, dependents may continue their group coverage C- Upon termination of employment, dependents may convert to an individual policy without a physical exam D- Newborn children are covered from the moment of birth 8) If an insured, covered by both Disability Income insurance and Workers' Compensation, is injured at work, the claim will be: A- Shared by the two policies equally B- Paid by Workers' Compensation C- Paid by the Disability Income policy D- Denied HEALTH SECTION 5 HEALTH SECTION 5 1) Policy delivery refers to the delivery of the: A- Insurance policy cost disclosure materials to the applicant B- Premium and receipt for the insurance policy to the agency office C- Completed application for the insurance policy to the agency office D- Completed insurance policy to the applicant 2) If, at the time of application, the applicant does not pay any initial premium, what should the producer do when delivering the policy? A- Ask the applicant to fill out a new application B- Ask the applicant to take another physical exam C- Require the client to pay the entire first years premium to start coverage D- Collect the initial premium and ask the client to sign a Statement of Continued Good Health 3) The Fair Credit Reporting Act requires that: A- The insurer or producer to furnish a copy of the consumer report to applicants who have been rejected B- The insurer may not use underwriting information received from producers as the basis for declining coverage C- The insurer furnish the Federal Trade Commission a list of all declined applicants D- The applicant be advised, in advance, that a consumer report may be ordered 4) Coverage becomes effective when the: A- The producer delivers the policy to the insured B- First premium has been paid and the application is approved C- The medical exam has been completed and the premium has been paid D- First premium has been paid and received in the insurer's home office 5) All of the following must sign the application, EXCEPT: 35 | P a g e A- Mail out a new application, making coverage effective upon return B- Use information in your existing file to complete the new application C- Complete a new application by phone and sign the client's name D- Meet with the client in person and have them complete and sign the application 18) All of the following statements about sources of underwriting information are true, EXCEPT: A- The contents of an inspection report cannot be disclosed to the applicant B- An attending physician's statement is a good source of information C- The application is typically the principal source of information D- A medical examination is typically used when benefits are large SECTION 1 - TEXAS COMMON LAW SECTION 1 - TEXAS COMMON LAW 1) A person appointed by an insurer to solicit or sell insurance on their behalf in this state is known as a(n): A- Adjuster B- Agent C- Broker D- Solicitor 2) Texas resident agents must complete _____ hours of continuing education every two years. A- 10 B- 40 C- 24 D- 20 3) Which of the following is NOT prohibited under the Unfair Practices section of insurance law: A- Making false oral statements about the financial condition of a person which are calculated to injure that person B- Readjusting group premium rates based on loss or expense experience C- Misleading or false statements about dividends previously paid on an insurance policy D- Discriminating between insurance applicants on the basis of gender 4) An insurance company can have rates based on: A- Gender B- Ethnic background C- Religion D- Nationality 5) Forcing a client to buy insurance from a particular lender as a condition of granting a loan is defined as: A- Defamation B- Rebating 36 | P a g e C- Misleading advertising D- Coercion 6) Shareholders own a ___________ insurer: A- Stock B- Fraternal C- Reciprocal D- Mutual 7) An insurance company authorized to sell insurance in Texas, but with their home office in Illinois, is called a/an: A- Alien company B- Domestic company C- Foreign company D- Surplus company 8) Regarding Claims Methods and Practices, all of the following are true EXCEPT: A- Insurers cannot deny unsubstantiated claims B- Insurers must conduct a reasonable investigation prior to denial of a claim C- Insurers may settle a claim by attempt to reach a compromise D- Insurers cannot require insureds to pay the costs of a claims investigation 9) All of the following are true regarding the federal Fair Credit Reporting Act EXCEPT: A- It applies to credit reports ordered in connection with insurance, banking and employment B- Insurers are not required to give customers a copy of the report C- Reports may be sent to anyone who requests one D- The customer must be notified if adverse action is taken as a result of a report 10) No licensee whose license has been denied, refused or revoked can file another licensing application with the Commissioner for at least ____ years: A- 5 B- 4 C- 2 D- 3 11) All could be considered rebates EXCEPT: A- Employment B- Dividends C- Securities D- Commissions 12) To become a Texas insurance agent, you must: A- Pass an exam B- Have resided in Texas for at least one year 37 | P a g e C- Post a bond D- File your personal financial statement with the Commissioner 13) When the applicant passes the exam and qualifies in all other respects except for the fingerprint check by the FBI, the Department of Insurance will issue a license called: A- Conditional B- Retroactive C- Temporary D- Reciprocal 14) A Texas resident agent seeking to sell insurance to customers in another state needs: A- A non-resident license in that state B- A Foreign agents license in that state C- A Certificate of Authority in that state D- A resident license in that state 15) Which of the following statements regarding temporary licenses is FALSE: A- They may be renewed B- They may be issued without exam C- They are valid up to 90 days D- They require 40 hours of license training 16) When the Commissioner finds, after a hearing, that a person has intentionally violated an insurance regulation, what is the maximum fine that may be levied: A- $25,000 B- $250 C- $5,000 D- $2,500 17) If an agent is convicted of a felony in this or another state, who do they have to notify: A- The National Association of Insurance Commissioners (NAIC) B- The Federal Department of Insurance C- The local Agent's Association D- The State Department of Insurance 18) Unfair claims practices will be assumed to be intentional if: A- They are reported to an insurer by the policyholder B- They occur with such frequency as to indicate a general business practice C- The licensee fails to promptly submit a required report D- The licensee has been reported for a similar practice during the preceding three years 19) Circulating deceptive sales material to the public is what type of Unfair Trade Practice: A- Defamation B- Misleading advertising 40 | P a g e C- Captive business D- Exclusive business 34) Which of the following is NOT considered an unfair practice: A- Requiring any person to buy insurance through a specific insurer as a condition to lending money for the purchase of property B- Paying dividends to policyholders out of a surplus accumulated from participating policies C- Charging a higher premium than the one filed D- Using misleading advertising 35) Temporary licenses issued in Texas generally: A- Are renewable for a like period B- Expire in 90 days C- None of the above is true D- Expire in one year 36) Under the Unfair Claims Settlement Practices Act, which of the following is NOT unfair: A- Attempting to settle based upon an application that has been altered B- The denial of an unsubstantiated claim C- Failure to respond promptly on claims communications D- Refusing to pay claims without conducting a reasonable investigation 37) The type of government primarily concerned with the regulation of insurance and insurance companies is: A- County government B- Federal government C- City government D- State government 38) Making false or malicious statements about the financial condition of an insurer or agent is what type of Unfair Trade Practice: A- Defamation B- Intimidation C- Coercion D- Deceptive advertising 39) An insurer must acknowledge receipt of a Notice of Claim within _____ days: A- 20 B- 10 C- 5 D- 30 40) Who might receive dividends from a mutual insurer: 41 | P a g e A- Policyholders B- Stockholders C- Subscribers D- Shareholders 41) Insurers applying for authority to do business in Texas are required to do all of the following, EXCEPT: A- Show evidence of sufficient legal reserves to handle claims B- File rates C- File forms D- Maintain their home office in Texas 42) A mortgage company may do all of the following EXCEPT: A- Buy coverage for you if you fail to do so as required by agreement B- Recommend an insurance company C- Require you to buy insurance from an authorized company D- Require you to buy insurance from them 43) An independent auto insurance agent's contract is terminated by the insurer he represents. How are his clients affected: A- They may stay with the terminated agent and receive customary services B- They must transfer to another agent of the company C- They must apply for coverage through the Assigned Risk Pool D- They must insure elsewhere 44) To obtain a Texas license, you must do all EXCEPT: A- Be 18 years of age B- Complete pre-license training C- Be fingerprinted D- Pass an exam 45) If an agent's license is suspended or revoked, what happens to their accounts: A- They are automatically non-renewed B- They continue in force C- They are cancelled immediately D- They are assigned to another insurer SECTION 2 - TEXAS LIFE LAW SECTION 2 - TEXAS LIFE LAW 1) "Twisting" is a commonly-used term describing: A- The making of misleading representations as to the financial condition of any insurer B- A misrepresentation made to a policyholder for the purpose of inducing the lapse, forfeiture, surrender, retention or conversion of any policy of insurance 42 | P a g e C- Unfair avoidance of payment of policy benefits to which a claimant is entitled D- Giving, or promising to give, tangible or intangible items of value or service in order to induce a prospect to buy a policy of insurance 2) In the replacement of existing life insurance policies, regulations mandate disclosure of relevant information to all of the following EXCEPT: A- The existing insurer B- The beneficiaries of the existing policy C- The applicant D- The replacing insurer 3) Conversion of a Group Life Insurance policy may not be made to: A- 15 year level term B- 20-pay life C- Life paid up at age 65 D- Whole Life 4) All of the following are true about Credit Life insurance EXCEPT: A- It must be written as group insurance B- It is usually decreasing term insurance C- It may not be written for more than the amount of the loan D- It may not be written in connection with loans of more than 10 years 5) The Life Insurance Replacement Rule does not apply to which of the following: A- 10 year Convertible and Renewable Level Term B- Credit Life C- Whole Life Insurance D- Endowment 6) Which of the following is NOT true regarding the replacement of Life insurance: A- It is unlawful B- It may be detrimental C- It may lead to liability for Errors and Omissions D- Both the agent and the customer must sign the Notice Regarding Replacement 7) Which of the following is true about the Texas Life, Accident, Health and Hospital Service Insurance Guaranty Association: A- Coverage is unlimited B- Agents may use it's presence as an inducement to the sale C- All insurers must participate D- It protects the customers of insolvent insurance companies 8) Under what circumstances may a partially or totally blind person be offered life insurance at rates different from those applying to persons with unimpaired sight: 45 | P a g e C- One / 49 D- Five / 99 6) Group Medical Expense Health insurance policies must cover newly born and newly adopted children for at least ____ days: A- 15 B- 61 C- 31 D- 10 7) The Coordination of Benefits clause in group health insurance indicates: A- How the insurer will coordinate with the hospital B- That when two policies are in force, one will be primary and one will be excess C- How the insurer will coordinate with the doctor D- That when two policies are in force, they will share the claim equally 8) Prior to implemenation of the PPACA, to avoid a new probationary period when replacing health insurance coverage, an individual should have prior "creditable coverage" for at least _______ months. A- 24 months B- 6 months C- 18 months D- 12 months 9) On Group Health insurance, state law may regulate all of the following EXCEPT: A- The grace period B- COBRA continuation requirements C- Participation requirements D- Small group eligibility requirements 10) All of the following are true about large employer Group Medical Expense plans EXCEPT: A- The limiting age of an unmarried child of an enrollee is age 21 B- Unmarried grandchildren of the insured under age 26 may be covered, if dependent C- They may not limit or exclude initial coverage of a newborn or adopted child in any way D- They must provide coverage for drug and alcohol treatment in the same manner as they cover any other illness 11) Long Term Care Insurance is an Individual or Group Insurance policy designed to provide coverage for at least ______ months for custodial care services provided in a setting other than an acute care unit of a hospital. A- 6 months B- 18 months C- 24 months D- 12 months 46 | P a g e 12) A long-term care policy sold in this state must be Guaranteed renewable: A- For life B- To age 75 C- To age 85 D- To age 65 13) All of the following are true about Skilled Nursing Home Care under Medicare EXCEPT: A- It is subject to co-insurance B- It is covered under Part B C- It is covered under Part A D- Coverage is limited to 100 days 14) On a Group Medical Expense plan covering 20 or more employees, if an insured needs kidney dialysis, the primary coverage is provided by: A- Medicare Part A B- Medicare Part B C- Medicaid D- The Group insurance plan 15) If an insured covered by a Disability Income policy is temporarily unemployed at the time he becomes disabled: A- Coverage is limited to what Unemployment Insurance pays B- Coverage is limited to what Social Security pays C- The coverage will apply in full D- There is no coverage 16) Most mandatory provisions on individual health insurance policies protect: A- The Commissioner B- The insurer C- The public D- The insured 17) Which of the following coverage may be excluded on a Medicare Supplement policy by the insurer: A- Dental care and eyeglasses B- Mental or emotional disorders, alcoholism & drug addiction C- All answer options are correct D- Cosmetic surgery 18) The purpose of Medicare Supplement Insurance is: A- To provide coverage for certain medical expenses before Medicare begins to pay B- To provide coverage to elderly people who are not covered under a corporate plan for retired employees 47 | P a g e C- To provide coverage for hospital, medical or surgical expenses that are not fully covered by Medicare D- To provide an alternative insurance plan for people who do not want to use Medicare 19) An insured who pays his premium monthly has a minimum grace period of: A- 30 days B- Seven days C- 31 days D- 10 days 20) A proposed insured under a Medicare Supplement policy should receive a Buyer's Guide and an outline of coverage: A- Within three days after policy delivery B- Before the policy is issued C- Before the policy is delivered D- Before an application is made for insurance 21) All of the following are true regarding a Disability income policy sold with an 'accidental means' clause EXCEPT: A- It is also known as the 'accidental bodily' injury or 'results' clause B- There is no coverage unless the injury was sudden and unforeseen C- It is not permitted to be used in this state D- It is very restrictive 22) A Medical Expense policy that includes coverage for dependent children, shall provide coverage for: A- All answer options are correct B- Congenital defects and birth abnormalities from the instant of a newly born child's birth C- Children up to 26 years of age D- Mentally retarded or physically handicapped children beyond age 26 if proof of such incapacity is furnished to the insurer by the policyholder within 31 days of the child's attainment of the limited age 23) No Medicare Supplement policy shall be delivered or issued for delivery in Texas unless: A- All answer options are correct B- The agent makes it clear that neither he nor his policy is in any way sponsored or affiliated with the federal government, the Medicare program, or the Social Security Administration C- In a Direct Mail Solicitation, the "Guide" is delivered along with the policy D- The "Guide to Health Insurance of People with Medicare" and a complete printed outline of coverage is completed and delivered to the applicant prior to the time application is made and acknowledgment of delivery is provided to the insurer 24) When determining "creditable coverage" for the purpose of guaranteed insurability, an individual must have had prior coverage for at least 18 months with no gaps of more than _______ days: A- 90 B- 63 50 | P a g e A- Mental health and substance abuse disorder services B- Prescription drugs C- Chiropractic care D- Preventive and wellness services 11) What is the actuarial value of the silver tier of benefits on the Exchange? A- 90% B- 80% C- 60% D- 70% 12) Under the PPACA, insurers who write individual medical expense polices must maintain a calendar year minimum loss ratio (MLR) of at least ____ percent. A- 50 B- 85 C- 60 D- 80 13) The actuarial value of the gold tier of benefits on the Exchange is which of the following? A- 60% B- 90% C- 80% D- 70% 14) Under the Patient Protection and Affordable Care Act, children may remain on their parent's medical expense policy until they reach what age? A- 23 B- 26 C- 20 D- 19 15) Which of the following is not an essential health benefit? A- Acupuncture B- Maternity and newborn care C- Lab services D- Hospitalization 16) To be eligible for cost sharing reductions, the policy must be purchased on the Exchange and be a ___ level plan. A- Bronze B- Silver C- Catastrophic D- Gold 51 | P a g e 17) If a medical expense insurer violates the minimum loss ratio requirement and has administrative expenses that are too high, they must: A- Make refunds to customers and lower their administrative expenses B- Re-underwrite their book of business C- File for a rate increase as soon as possible D- Make refunds to customers 18) Under the PPACA, if an employer offers health insurance to its employees, it must be offered to all eligible employees within ___ days of their start date. A- 90 B- 10 C- 60 D- 30 19) Advanced premium tax credit (APTC) is available to persons who purchase any metal level of coverage on the Exchange and have an income of not more than ____ % of the Federal Poverty Level. A- 133 B- 400 C- 300 D- 200 20) In order to avoid owing a penalty for not having insurance on your tax return, a person must have a qualified health benefit plan for a minimum of ____ months during a given year. A- Ten (10) B- Six (6) C- Twelve (12) D- Nine (9) 21) What is the actuarial value of the platinum tier of benefits on the Exchange? A- 70% B- 60% C- 80% D- 90% 22) Under the PPACA, insurers who write group medical expense polices must maintain a calendar year minimum loss ratio (MLR) of at least ____ percent. A- 50 B- 80 C- 85 D- 60 23) An insurer has a minimum loss ratio for its individual medical expense policies of 75% in 2015. What is the insurer required to do? 52 | P a g e A- Charge an additional 10% in premiums in 2016 B- Refund 5% of the premiums collected to those insured on individual policies in 2015 C- Refund 10% of the premiums collected to those insured on group policies in 2015 D- Charge an additional 5% in premiums in 2016 24) Under the PPACA, medical expense policies must include coverage for ____ essential health benefits. A- 10 B- 8 C- 15 D- 25 25) Which of the following statements is incorrect regarding the PPACA? A- There can be no limit on benefits for essential health coverages B- Premiums may be based upon a person's plan category C- Individual medical expense policies may contain a probationary period of up to six (6) months D- As of 2014, there is an individual mandate that requires every person residing in the U.S., age 18 or older, to have health insurance or pay a penalty on their tax return 26) Which of the following is not an essential health benefit under the PPACA? A- Emergency services B- Adult dental care C- Hospitalization D- Laboratory services SECTION 5 - TEXAS HMO LAW SECTION 5 - TEXAS HMO LAW 1) For cancellation of an HMO contract due to fraud or intentional misrepresentation of a material fact, how many days' advance written notice is required? A- 15 B- 30 C- 20 D- 10 2) Persons covered by an HMO (Health Maintenance Organization) are known as: A- Participants B- Beneficiaries C- Insureds D- Subscribers 3) Individuals enrolled in a health care plan offered by an HMO, including covered dependents, are commonly referred to as: 55 | P a g e speculative risk -involves the chance of gain or loss and is NOT insurable -ex: gambling pure risk involves only the chance of loss and is insurable exposure being subject to the possibility of loss because of an activity, location, or characteristics -second hand smoke -no control on exposure peril cause of loss natural peril lightning, hail, hurricane, and so forth human peril theft, murder, auto accidents, industrial accidents, and illness loss accidental/unexpected death or injury to a person or any reduction in quality, quantity, or value of property hazard situation that introduces or increases the probability of loss -triggers the event -overloaded light switch elements of an insurable risk (CANHAM) -Calculable -Affordable (premiums have to be affordable) -Noncatastrophic (not war, nuclear) -Homogenous (similar in nature; how many 31-yr-old males die each yr) -Accidental and definite (not on purpose) 56 | P a g e -Measurable (have to be able to put a $ amount on it) insurance vs. gambling insurance is a pooling of funds and sharing the cost of losses. the insured transfers risk away from themselves to another entity what is buying insurance? a transfer of risk -risk management personal uses of life insurance 1. final illness and funeral expenses 2. liquidity for immediate expenses 3. income for ongoing expense 4. survivor protection (loan spouse $ if you die, or recoup loss if spouse dies & you are sole provider) 5. estate creation (life ins. creates an estate to the death but life ins. could create estate tax) 6. cash accumulation (cash value life ins. is appropriate for all except emergency fund) 7. estate conservation what could ownership of life insurance cause in an estate? estate tax, only if over 3.5 million Contract the legal agreement between the insurer and the policyowner. What are the essential elements of all enforceable contracts? 1. competent parties 2. legal purpose 3. agreement 4. consideration competent parties a). insurance agency--certificate of authority b). applicant requirements of competent party applicant 57 | P a g e 1. of lawful age (usually 18; for the purchase of life insurance, 14 in Texas) 2. mental competence 3. not acting under duress what does the contract agreement consist of? offer and acceptance (counteroffer) -counteroffers are NOT required What is cash value life insurance good for? all except emergency fund consideration equitable terms are not required what is not considered an element of an enforceable contract? counteroffer counteroffer -not considered an element of an enforceable contract -occurs when the offeree rejects the offer, amends the offer and submits a different offer back to offerer (e.g. the insurer rejects the applicant's offer as a standard risk and counteroffers a policy as a substandard risk; an agreement is not reached until the two parties agree to the exact offer or counteroffer) no consideration = no coverage insurable interest the applicant/policyowner has an insurable interest (emotional and financial) in his own life and can name any beneficiary he chooses when is insurable interest required? a). when the proposed owner/applicant is to be someone other than the proposed insured (third-party insured) b). at the time of ISSUE, not at time of LOSS in life insurance (e.g. not at time of claim) insurable interest is NOT on... next door neighbor 60 | P a g e alien located outside the borders of the United States--another country resident agent live in state where you do business nonresident agent do business in a state where they do not live types of insurers 1. stock company 2. mutual company 3. fraternal associations/societies 4. reciprocal exchanges 5. Lloyd's associations Stock company owned by the shareholders/stockholders a). nonparticipating policies b). dividends--taxable (paid on stock--not policies owned; taxable income in year paid--ROI) often referred to as a nonparticipating company bc policyholders do not participate in dividends Mutual company -owned by the policyowners -participating/policy dividend (participate in dividends) -owner chooses policy dividend -policy dividends usually not taxable income (they are considered a return of unused premium) -policy dividends are not guaranteed policy dividend options (mutual company, owner chooses) 1. paid-up additions (policyowner can use dividends to buy additional coverage) 2. reduce premiums (policyowner can use dividends to pay premiums) 3. one-year term insurance (policyowner can use dividends to buy term coverage) 4. paid-up option (policy owner can use dividends to pay up all premiums due--(stop paying at some 61 | P a g e point)) 5. accumulate at interest (policyowner allows the policy dividends to accumulate at interest with the company; the company pays interest on the policy dividends 6. cash (if you put in bank & earn interest, the interest is taxable) who owns the mutual company? policyowners dividends in a mutual company are___________ nontaxable T/F: Mutual companies can guarantee dividends false who rule the insurance contract? owners in mutual company, owners receive____________ nontaxable dividends fraternal associations/societies a). nonprofit b). organized for the mutual benefit of its members and their beneficiaries c). have a lodge system and representative form of government d). association/society authorized to do business in Texas may provide: -death benefits in any form -annuity benefits -temporary or permanent disability benefits -hospital, medical, or nursing benefits -monument or tombstone benefits not to exceed statutory amount -funeral benefits (added benefits not for profit) fraternal association/society authorized to do business in Texas may provide the following: -death benefits in any form -annuity benefits -temporary or permanent disability benefits -hospital, medical, or nursing benefits 62 | P a g e -monument or tombstone benefits not to exceed statutory amount -funeral benefits reciprocal exchanges a). unincorporated insurer operating through an attorney-in-fact to provide insurance for its subscribers b). not rate regulated c). members share profits and losses Lloyd's asociations Texas Lloyd's association have no connection with underwriters at Lloyd's of London -individuals, partnerships, or associations (underwriters) can join together to provide insurance -co. operates through an attorney-in-fact, who has power of attorney for the underwriters -must be a minimum of 10 underwriters -they are subject to same regulation as other companies except for forms and rates -must use the word Lloyd's in their name -can write ALL forms of insurance EXCEPT life underwriter company receiving premiums and accepting responsibility for fulfilling the policy contract. company employee who decides whether or not the company should assume a particular risk. the agent who sells the policy how does the Lloyd's association company operate? through an attorney-in-fact, who has power of attorney for the underwriters How many underwriters must the Lloyd's association company have? minimum of 10 What regulation are Lloyd's associations subject to? same as other companies EXCEPT for forms and rates What is the maximum book of business Lloyd's associations can write? 10 times their net assets What types of insurance can Lloyd's associations write? all forms except life Where does shared risk underwriting come from? 65 | P a g e What is involved in field underwriting? agents' observations The Fair Credit Reporting Act FCRA federal law Requires the following: -at the time of application, the applicant is given notice that credit will be pulled -the applicant has a right to know; if credit is denied, the company must send the applicant the name & address of the credit agency used within 10 days -the applicant can submit correct information -have to notify you they are pulling credit report, but do not need consent to pull credit report once the credit report is received & __ creditor record.... do not send explanation to underwriter underwriting substandard applications -substandard life policies -substandard health policies -complete application underwriting substandard life policies a). Rated policy (rate up) (percentage method, flat extra premium, rated-up age) b). modified life policy (not standard) any premium that is altered from the regular premium for a similar life policy life insurance ____% morbidity charge for health reasons 50% Substandard health policies may be underwritten using the following: -Extra premium--rate up -modified health policy--any premium that is altered from the regular premium for a similar health policy -waivers--impairment--exclusion to an impatient for life of policy (ex: heart cord) completing the substandard application a). delay if questions are not all answered on the application b). agent's responsibilities--The agent is the agent of the insurer; info or money obtained by agent is 66 | P a g e considered to be received by the insurer c). changes on the application must be initialed by the applicant by crossing out the original, making the change, and initialing it. Correction fluid and erasure are not allowed (changes made by APPLICANT ONLY) d). necessary signatures--the agent and the applicant sign each application. in case of a third-party application: -owner/applicant -insured, and -agent beneficiary does NOT sign application e). always see the proposed insured personally key persons to have sign underwriting application -owner/applicant -insured -agent beneficiary does not sign application Representation vs. Warranties warranties are absolutely true & representations are true to the best of the applicant's knowledge warranties statements that must be absolutely true -of absolute fact -affect the contract What could breach of warranty result in? a void contract of denial of coverage Representations with life policies statements that are true to the best of the applicant's knowledge answers to questions on an insurance application are considered representations misrepresentations misstatements of fact (i.e. false statements, untruthful answers), usually not serious enough to affect coverage material misrepresentation false statement that is so serious that if the insurer had knowledge of the truth, it would have affected the underwriting decision (i.e. not issued policy or charged an additional premium) 67 | P a g e how much time do you have to discover material misrepresentations? 2 years if discover within 2 years, can cancel & return premiums, has to do with health issues after 2 years you are clean -discover person misstated their age within 2 years. can send letter to adjust the premium for original insurance What is the purpose of providing coverage with a conditional receipt? to insure the person before the effective date of the policy -breach of warranty could result in void contract or denial of coverage conditional receipt given to the policyowners when they pay a premium at time of application. such receipts bind the insurance company if the risk is approved as applied for, subject to any conditions stated on the receipt what is coverage in effect under? a conditional receipt on the date the requirements (conditions) of the receipt are satisfied 4 requirements that must be met for coverage under conditional receipt: (AMPS) 1. Application is fully completed and signed before death 2. Medical examination (if one is required), by the age or amount of insurance, completed before death 3. Premium (full mode) has been paid, before death (need to collect the standard premium 4. Standard risk as determined before or after death When does conditional receipt prevent coverage? if comes back from underwriting as substandard or unstated--? backdating allowed by Texas law for life insurance policies up to six months from date of application, to preserve age-related premium law of agency knowledge of the agent is knowledge of the principal; payment to the agent is payment to the principal 70 | P a g e no agent involved direct mail solicitations instead of agents delivering the policy duties of the agent -everything in person Duties of the agent 1. explain the policy, benefits, riders, and so forth in person 2. if a counteroffer, explain and have applicant sign acceptance form 3. if collection on delivery (COD [initial premium not paid with application]), get a health statement from the insured; if insured suffered a serious accident or illness prior to delivery, the agent CANNOT accept money or deliver the policy 4. coverage begins when premium is accepted 5. free-look period starts when policy delivery receipt is signed when does coverage begin? when premium is accepted when does free-look period begin? when policy delivery receipt is signed if he cancels can receive all premium back If insured suffered a serious accident or illness prior to delivery, can agent accept money or deliver the policy? NO COD Collection on delivery unique features of insurance policies 1. unilateral 2. adhesion 3. conditional 4. aleatory 5. executory 6. personal contract 7. utmost good faith 71 | P a g e unilateral the insurer is bound to the contract; the policyowner is not bound and is not considered to have breached the contract if he does not pay the premium -1-way enforcement -nonpayment of premiums are not considered to be a breach of contract adhesion "take it or leave it" contract is designed and written by the insurance company, and the insured adheres to the terms of the contract if there is any ambiguity in the contract terms, the ruling will be in favor of the insured or beneficiary conditional an insurance policy is a conditional contract the performance of the contract is conditional upon the occurrence of an uncertain event if no claim occurs during the policy period, no money is paid dependent upon chance or outcome aleatory unequal consideration between premium and benefit uneven between risk and reward premium has then paid benefit executory obligations remain to be executed at a later date in the future personal contract many policies are personal contracts between the policyowner and the insurer insurance is generally not transferable to another person life insurance policies are an exception they can be assigned, sold, given away, or transferred Premiums will remain the same! 1. property and casualty policies are personal contracts 2. life insurance policies are not personal contracts are property and casualty policies personal contracts? yes 72 | P a g e are life insurance policies personal contracts? no utmost good faith insurance is based on the applicant's honest and complete answers in the application and on the insurer's promise to pay benefits after some possible future event the public relies on the honesty and integrity of the agent and insurer the applicant and insurer must enter into the contract in good faith reinsurance is________ an insurer placing some of the risk with another insurer life and health insurance policies explain that the answers to questions on the application will be interpreted as_______ representations An application for life insurance was taken on a COD basis. When the agent returned with the policy, the applicant had suffered a heart attack. The agent should__________ not accept any premium or deliver the policy The agent wrote the application on Aug 1, and the medical examination was done on Aug 4. The insurer approved the application on Aug 18, and the policy was issued on Aug 20. The agent delivered the policy on Aug 24 and collected the initial premium. When was the coverage effective? Aug 24 All of the following will normally be acceptable reasons for buying life insurance EXCEPT a. survivor protection b. key employee insurance c. accumulation of funds for education expenses d. speculation on a neighbor's life d. speculation on a neighbor's life Which of the following would prevent the coverage provided by a conditional receipt from being effective? -the medical questionnaire form was completed by a nonmedicallly trained person -the policy was issued after underwriting was completed as a rated policy -the agent required the applicant to initial several changes made on the application -the premium was paid later than the date of the application the policy was issued after underwriting was completed as a rated policy (substandard above standard) 75 | P a g e -analytical approach to needs analysis -human life value approach to needs analysis -needs approach to needs analysis -planning approach to needs analysis needs approach to needs analysis A wealthy businessman has asked you if he should consider buying life insurance. If he dies, his family will be well cared for through his will and his accumulated wealth. What is a possible motive for his purchase of life insurance? -survivor protection -estate creation -cash accumulation -estate conservation estate conservation what is life insurance? a contract that pays an income tax-free death benefit to a named beneficiary upon the death of the insured what is life insurance used for? to provide cash to meet financial obligations left behind when the insured dies what does life insurance do? protection against dying too soon and creates an estate Gross premium = mortality + expense (outgoing) - intererst Net premium = mortality - interest or investments mortality (claim costs) 1980 Commissioner's Standard Ordinary (CSO) Mortality Table--stops at age 100 3 premium calculation factors that make up the gross annual premium 1. mortality (claim costs) 2. expenses (loading) 3. interest/earnings on investments 4. premium mode of premium payment 76 | P a g e the mode of premium payment is the schedule of payment: monthly, quarterly, semiannually, or annually single premium one-time payment of the present value of all future policy benefits a single premium mode is often used when a person purchases life insurance to pay estate taxes (estate conservation) when is single premium mode often used? when a person purchases life insurance to pay estate taxes (estate conservation) When are adjustments made to the gross annualized premium amount? when the mode is other than annual gross premium is net premium + expenses types of life policies -term insurance -whole life, ordinary life, straight whole life, or continuous premium -limited-pay whole life -family life policy or family plan policy -juvenile policy -adjustable life policy -indeterminate premium whole life insurance -joint life policy -survivor or survivorship life insurance policy -universal life -variable whole life -variable universal life -interest sensitive term insurance pure protection (policy or rider) pure death protection 1. temporary--coverage for a set number of years of to a certain age designed for a temporary need 2. low premium (no cash value) cheapest 3. renewable to a set age (if stated) with no proof of insurability; premiums will increase. In an annual renewable term (ART) or yearly renewable term (YRT), the policy is renewable annually at the option of the policyowner with no evidence of insurability. However, the premium is subject to an annual increase 77 | P a g e based on the insured's age premium will go up 4. convertible until a set age (if stated)--allows change to a permanent policy (whole life) without evidence of insurability 5. level term 6. decreasing term 7. increasing term 8. level premium term closer to death, higher the premium term insurance renewable ART YRT -renew with no proof of insurance -premium increases, renew annually based on increase in age proof a fact or piece of info which shows that something exists or is true evidence one or more reasons for believing that something is or is not true level term the death benefit remains level during the term of the policy premium stays the same decreasing term commonly used to cover the unpaid balance of a mortgage, pay for the rearing of children, or both the benefit decreases during the term of the policy rider or stand alone policy increasing term death benefit increases over the term available as a rider only level premium term the premium remains stable during the term of the policy. in this instance the insurer averages the premium over the term (e.g. 5, 10, or 20 years). additionally, the death benefit remains level rider or stand alone policy amortize 80 | P a g e -premium and/or premium paying period -face amount and/or period of protection (death benefit) 3. policyowner cannot decrease cash value (can't access cash) What does adjustable life policy allow policyowner to adjust? -premium and/or premium-paying period -face amount and/or period of protection cannot decrease cash value though what can't the policyowner do in adjustable life? cannot decrease cash value What is the only type of WL policy you can increase or decrease death benefit (face amount) through the use of term insurance? adjustable life evidence of insurability any statement or proof regarding a person's physical condition, occupation, and so forth, affecting acceptance of the applicant for insurance Indeterminate Premium Whole Life Insurance 1. a whole life policy with guaranteed premium for some initial period (usually 3 years) 2. after the initial period, the premium can increase or decrease depending of the investment and mortality experience of the insurer if company does good, premiums can go down 3. a policy summary must be presented to and signed by the applicant to future changes in premium What is the only cash value life insurance policy where you cannot access the cash? adjustable life policy Joint life policy first to die (JLP =FTD) 1. insures two people and pays when the first person dies 2. the advantage is a lower premium than with two policies Survivor or Survivorship Life Insurance Policy 81 | P a g e last to die (second to die) 1. Policy is written on 2 people 2. pays only when the last person dies 3. lower premium than two separate policies 4. used in estate planning; ideal way to provide each cash to pay federal estate taxes buy for estate planning purposes owned by a trust don't need death benefit minimum $60,000 What makes up death benefit makeup of ord life or WL at risk + cash value Universal Life (UL) unbundled accum. cash values 1. flexible premiums; can pay varying premiums and skip a premium payment occasionally cash value grows taxed deferred when you take money out pay tax on gain 2. interest sensitive -minimum interest guaranteed -pays a current interest that cannot be less than the guaranteed minimum (3%) 3. adjustable death benefit (increase will require proof of insurability 4. Unbundled premium--the premium can be broken down into its different components (whole life policies have an indivisible premium) each month 5. the industry opinion is that UL policies are cash value driven 6. the UL policy offers two options: -option A -option B 7. Partial surrender (partial withdrawal) allows the policyowner to surrender part of the cash value; the death benefit and cash value will be reduced by that amount -not subject to interest who takes on the risk in WL? 82 | P a g e insurer Unbundled premium (UL) -premium is credited to the cash account -interest is credited to cash account -cost of pure protection (i.e. term insurance) is charged to cash account -expenses (e.g. loading & administrative costs) are charged to cash account UL policy offers 2 options: Option A--designed to provide a level death benefit Option B--designed to provide an increasing death benefit can switch from A to B--have to prove insurability UL option A designed to provide a level death benefit cash value grows = death benefit = face amount - face amount + cash value UL option B designed to provide an increasing death benefit parital surrender (partial withdrawal) allows the policyowner to surrender part of the cash value; death benefit and cash value will be reduced by that amount not subject to interest Variable Whole Life (VL) 1. the cash value is invested in a separate account or in subaccounts with different investment objectives, usually equity securities ex: common stock 2. VL is sold in units 3. The policyowner has opportunity to achieve high investment returns 4. the policyowner bears the investment risk. There are no guaranteed earnings 5. premiums are FIXED for the lifetime of the insured 85 | P a g e interest sensitive (current assumption whole life) vanishing premium 1. characterized by premiums that vary to reflect the insurer's changing assumptions with regard to mortality, investment returns, and expense factors 2. premium--based on the annual performance of the company. premiums could vanish if the company has better than expected interest, mortality, or expense assumptions 3. death benefit could be reduced if future premiums are not paid in full 4. if the company has poorer than expected mortality costs, investment return, and/or expenses, a policyowner can choose to pay additional premium or reduce policy's face amount and continue to pay the same premium life policies with fixed premium -whole life -interest sensitive whole life -variable life life policies with fixed face amount -whole life life policies with guaranteed minimum death benefit -whole life -interest sensitive whole life -variable life -option A only on variable universal life life policies with fixed interest rate whole life life policies that are interest sensitive -interest sensitive whole life -variable life ROI -universal life -variable universal life ROI life policies with cash value and death benefit based on subaccount value -variable life -variable universal life life insurance policy cost comparison methods 86 | P a g e 1. traditional net cost method 2. interest-adjusted cost method traditional net cost method this is a method comparing the net cost of various life insurance policies the expected cash value + any estimated dividends are subtracted from the total premium paid at any given point (10 years, 20 years, or age 65 in the future life of a policy) = total premium paid - (expected cash value + estimated dividends) interest-adjusted cost method the expected cash value + any estimated dividends are subtracted from the total premium paid a given point The calculation is adjusted for the interest that could have been earned if the premiums had been invested elsewhere = Total premium paid - (expected cash value + estimated dividends) insuring clause states the legal purpose of the contract; the company's promise to pay or perform names the face amount, the insurer, the insured, the policyowner (if different from insured), and the beneficiary does not state the premium entire contract clause (mnemonic PAR) 1. Policy 2. Application 3. Riders Note: agent cannot change the contract. Executive officer of the insurer has to approve any changes keeps policyowner from depending on oral statement from agent not expressed in the policy What does an insurance company use as its defense? if it's not written it is not covered free-look provision goes by type of policy 1. notifies the policyowner of the right to examine and surrender the policy if not satisfied for any reason 87 | P a g e 2. 10 days or longer (30 for senior products) from the date the policy is delivered to the owner and delivery receipt is signed from day of delivery 3. if policy is returned, the company refunds entire premium The entire contract clause always consists of the _______ policy and copy of the policy who is the only person who can request changes in the policy? the owner has to request to insurance company who is the only person who can change the contract? the insurer (insurance company) consideration provision "must pay something" money +/- application premium +/- application 1. equal to the premium + application 2. states that the policyowner promises to pay all premiums due under the policy and that all representations made on the application are true 3. includes the premium amount and mode March 5th paid died 33 days later full death benefit grace period 31 days for premium due date grace period 1. 31 days from when the premium is due; policy remains in force during this time; any claim in the grace period is payable as face amount less earned premium 2. Ex: Premium is due Jan 15. Any claim between Jan 16 & Feb 15 will be paid. Any claim after Feb 15 will not be covered full death benefit or no full death benefit What insurance is the only one that can deduct 1 month premium from death benefit if premium is past due? term insurance 90 | P a g e -it does not have an effect on the suicide clause immediately in effect do not have to pay back dividends For reinstatement do you have to pay back dividends? no beneficiary provision 1. primary beneficiary 2. contingent/secondary beneficiary 3. contingent/tertiary beneficiary (any beneficiary other than primary is "contingent") 4. estate--the owner can choose the estate of the insured also, when there is no beneficiary or no living beneficiary 5. trust--policyowner designates a trust to receive policy benefits. a trustee manages the funds for the benefit of another (e.g. minor) 6. joint--policyowner names more than one beneificary in the same class -per capita--pays each named person -per stirpes--pays to the primary beneficiary's branch of the family before moving down the line to the contingent beneficiary 7. revocable--policyowner can change the beneficiary at any time 8. irrevocable--policyowner cannot change the beneficiary without written consent by the original beneficiary. Additionally, the owner may not request any change that will affect the beneficiary's right to collect the full amount of the death benefit without beneficiary's consent. (e.g. no policy loans, no collateral assignment, and no cessation of premium payment) 9. spendthrift clause 10. common disaster clause spendthrift clause a clause in most life insurance policies that prevents creditors of a beneficiary from claiming any of the benefits paid to beneficiary before the money is actually received protects beneficiary from creditors 91 | P a g e common disaster clause simultaneous death act (120 hours/5 days ciary are killed in the same accident) designed to protect the contingent beneficiaries -beneficiary has to live 120 hours to collect joint beneficiary per capita pays each named person joint beneficiary per stirpes pays to the primary beneficiary's branch of the family before moving down the line to the contingent beneficiary policyowner's rights incidence of ownership 1. change the beneficiary 2. select a settlement option 3. request a policy loan 4. select a dividend option 5. assign the policy; absolute assignment will allow the policyowner to transfer the policy out of the owner's estate 6. elect a nonforfeiture option 7. increase of decrease the face amount (have to prove insurability) Note: paying premium or being insured are not incidents of ownership Paying premium or being insured are NOT incidents of ownership true settlement options 1. lump sum--one cash payment 2. proceeds held at interest--could pay interest to the beneficiary with the principal payable to the payee or some other entity later 3. installment options -fixed amount installment--receives benefit in fixed dollar amounts -fixed period installment--receives benefit for a set period of time 4. life payout settlement options -life income 92 | P a g e -life income (with a period certain) -refund life income -joint and survivor life income life income income is payable during the entire lifetime of the beneficiary. Payments stop at time of death--no rights of survivorship; nothing to heirs; all factors being equal, this will produce the highest income if owner has not selected a settlement option, who chooses? beneficiary 100,000 settlement option elect payout over 10 yr period every yr you get a payment of 13500, how much is taxable and how much is tax free? 3500 is taxable 10000 is tax free life income (with a period certain) guarantees payment for life with a minimum period of time, generally 10 or 20 years; if beneficiary dies before the period ends, then someone will receive payments for the remaining period of time refund life income guarantees payment for life with a promise to pay someone at least the original amount until fully refunded joint and survivor life income two people jointly receive income; when the first person dies, the survivor receives income for life at a full or reduced amount assignment transfer of benefits 1. collateral (to guarantee loan) using cash value of a cash value policy to secure a loan 2. absolute (complete, irrevocable, and total)--transfer all ownership rights from former policy owner to the person named in the assignment viatical statements a transaction in which the policy owner sells a life insurance policy to an investor or group of investors. If the insured is terminally ill or requires long-term care, selling the policy provides immediate funds. The investor will continue to pay premiums and change the beneficiary to receive death proceeds 1. the difference between what the investor pays for the contract and the death benefit is taxable income when paid to the investor 95 | P a g e 3. loss of one member pays 50% of the principle sum 4. loss of 2 or more members or life pays 100% of the principal sum -hand -foot -arm -leg loss of sight in both eyes 5. if death does not occur, only the capital sum is paid (capital sum refers to dismemberment benefits only) 6. subject to the same exclusions as the ADB (suicide, aviation, felony, or war: 90 days) A policyowner names her son and daughter as joint beneficiaries of her $50,000 while life policy. She names her sister as contingent beneficiary. How will the death benefit be paid if the son dies before the insured? -$50,000 to the daughter -$25,000 to the daughter and $25,000 to the sister -$50,000 to the sister -$50,000 to the estate of the insured $50,000 to the daughter An agent is advising a young couple on the type of policy to buy. They want to be sure there will be enough insurance to pay off the mortgage. They do not have much money for premiums. The agent is to recommend a policy that will pay off the balance of $70,000 loan amortized over 20 years at the lowest possible premium. Which of the following choices will fill this need best? -$70,000 whole life -$35,000 level term life with a $35,000 AD&D rider -$70,000 20-yr decreasing term -$70,000 initial amount of death benefit in a universal life policy with Option B $70,000 20-yr decreasing term A middle-aged couple wants to be sure the surviving spouse will have the funds available to pay off the mortgage on their home if one spouse dies prematurely. Which of the following would be the most practical way to provide the money when the first person dies? -a family life insurance policy -term policies on each of the 2 persons -universal life on her and term insurance on him -a joint life policy 96 | P a g e a joint life policy All of the following are ways for a policyowner to take money out of a universal life policy and have the immediate use of those funds EXCEPT: -a policy loan -a cash surrender -a partial surrender -a change to an annuity a change to an annuity All of the following are nonforfeiture options EXCEPT -extended forms -automatic premium loans -reduced paid-up -cash surrender automatic premium loan Which of the following is a policy provision intended to keep the policyowner from depending on some oral statement of the agent to provide a benefit not expressed in the policy? -entire contract -grace period -policy loan -insuring clause -entire contract Life income with 20 years certain means -the person gets paid for life -the person gets paid for life and someone else gets paid for an additional 20 years after the first person dies -the person gets paid for life and if they die before receiving payment, someone else gets paid for the remainder of the 20 years -the proceeds of the life insurance policy are to be paid in equal monthly installments for 20 years, whether the person lives or dies the person gets paid for life and if they die before receiving payment, someone else gets paid for the remainder of the 20 years T had $50,000 life insurance with triple indemnity. He suffered a fatal heart attack and died while driving. He crashed into a highway sign. The insurer will pay -nothing 97 | P a g e -$50,000 -$100,000 -$150,000 $50,000 A universal life policy normally allows all of these choices or features EXCEPT -policy loans -a fixed rate of interest that will be paid on the cash value -settlement options -the right to get partial withdrawal of some of the cash value a fixed rate of interest that will be paid on the cash value A prospective client has asked an agent to recommend a policy that provides a set amount of life insurance and will accumulate some cash value. She has emphasized that she is interested in the lowest possible premium in a policy that will be available for all of her life. Which of the following will the agent recommend? -20-pay life -life paid up at age 65 -whole life -renewable and convertible 20-yr level term life whole life Term insurance provides -cash values -the ability to take a loan against a policy -pure insurance protection -life-long protection pure insurance protection D wants an insurance policy designed to cover the mortgage on his house if he should die before paying it off. The most suitable policy is -convertible term -renewable term -increasing term -decreasing term decreasing term C owns a one-year term policy. At the end of the year, she may purchase another, identical policy without showing proof of insurability; however, her premium may increase. C's policy is