Practice Tests

Which of the following is the most valid reason for a person to purchase a specified (dread) disease health insurance policy?

A) He wants to make sure that he and his family are protected against a major illness.
B) Her family has a history of cancer, and she is concerned that she might contract the disease.
C) He has been diagnosed with heart disease.
D) She wants coverage against the risk of such illnesses as AIDS, tuberculosis, and diabetes.

B) Her family has a history of cancer, and she is concerned that she might contract the disease.
A formal technique designed to evaluate the clinical necessity, appropriateness, or efficiency of health care services, procedures, or settings is known as:

A) utilization review.
B) adverse selection.
C) retrospective review.
D) external review.

A) utilization review. Utilization review is a set of techniques designed to evaluate the clinical necessity of health care services. Techniques include ambulatory review, prospective review, second opinion, certification, concurrent review, case management, discharge planning, or retrospective review.
How many Medicare supplement policies can a producer sell to one person?

A) As many as the person wants.
B) Two policies.
C) Up to three policies, if the person is over age 65.
D) One policy.

D) One policy.
Lawrence signed an application for a life insurance policy on September 2, and took a required medical exam on September 4. He gave the agent a check for the initial premium and received a conditional receipt at the time of application. The policy was issued as originally applied for and the agent delivered the policy to him on October 15. The earliest effective date for Lawrence’s insurance policy would be:

A) December 31.
B) October 15.
C) September 2.
D) September 4.

D) September 4. The conditional receipt explains to the applicant that the policy will be issued subject to the approval of the insurance company. If the policy is eventually issued as originally applied for, typically the earliest effective date is the date the applicant has completed all of their requirments. In this instance the applicant was required to complete a medical exam as part of their requirements, so the earliest effective date would be the date the medical exam was completed.
Disability income benefits can be provided by all of the following EXCEPT:

A) long-term care insurance.
B) disability income insurance policy.
C) disability income rider to a life policy.
D) waiver of premium rider to a life policy.

A) long-term care insurance. Unrelated in this case- it provides for individuals who need daily assistance for a long period of time.
Cybil is insured under a key-person life insurance policy owned by Delta Corporation and then quits her job. Which of the following statements is NOT correct?

A) Delta can assign the policy.
B) Cybil can convert the policy to an individual policy.
C) Delta can surrender the policy for cash.
D) Delta can keep the policy in force.

B) Cybil can convert the policy to an individual policy. Cybil has no conversion right with respect to the key-person policy because she does not own the policy.
An individual may purchase a life insurance policy on all of the following persons EXCEPT:

A) a spouse.
B) a dependent.
C) a business partner.
D) a neighbor.

D) a neighbor.
All the following are standard life insurance dividend options EXCEPT:

A) leaving the dividends with the insurer to accumulate at interest in a cash account.
B) taking the dividend as an income tax-free cash distribution from the insurer.
C) using the dividend to increase the base whole life policy’s face amount.
D) using the dividend to purchase a unit of paid-up whole life insurance.

C) using the dividend to increase the base whole life policy’s face amount. It is not possible to increase the face amount of a whole life insurance policy, whether by dividend payment or any other means.
All of the following statements pertaining to health insurance policy notice of claim and claim forms provisions are correct EXCEPT:

A) Furnishing claim forms is the responsibility of the insurance company.
B) Gail submits notice of claim to her insurance company after she becomes totally disabled. The company is to supply a claim form to her within 15 days.
C) Charlotte is injured January 5. Later, she wishes to file a policy claim for expenses incurred in connection with the injury. Generally, she would be required to submit a notice of claim to the company by February 5.
D) Rex, the insured in a disability income policy, has been totally disabled and receiving benefits for 25 months. The notice of claims provision in his policy requires that he submit proof of loss every 6 months.

C) Charlotte is injured January 5. Later, she wishes to file a policy claim for expenses incurred in connection with the injury. Generally, she would be required to submit a notice of claim to the company by February 5. FALSE: Generally, a claimant must notify the insurance company within 20 days of an accident under a health insurance policy. Proof of loss must be submitted within 90 days of the loss, but if it is not reasonably possible for the insured to do so, the deadline will be extended to one year. The company must supply its claim forms to the insured within 15 days of notice of a claim.
A factor that distinguishes universal life from whole life is that partial withdrawals can be made from the policy’s cash value account. Whole life insurance allows a policyowner to tap cash values only through a policy loan or a complete cash surrender of the policy’s cash values, in which case the policy terminates.
Universal life is distinguished from whole life insurance in that:

A) no withdrawals can be made from the policy’s cash value account.
B) partial withdrawals can be taken from the cash value account.
C) policy loans can be taken from the policy.
D) complete withdrawals of the cash value can be taken.

B) partial withdrawals can be taken from the cash value account.
Which of the following organizations reimburses its insureds for covered medical expenses?

A) Commercial insurers.
B) Health maintenance organizations.
C) Blue Cross/Blue Shield.
D) Preferred provider organizations.

A) Commercial insurers. Policyowners obtain medical treatment from whatever source they feel is most appropriate and, per the terms of their policy, submit their charges to their insurer for reimbursement.
A life insurance policy provides for monthly income payments if the insured dies at any time during the first ten years. The income period begins when the policy is issued and ends ten years later. What kind of policy is this?

A) Family maintenance.
B) Modified endowment.
C) Family income.
D) Modified whole life.

C) Family income.
The Goodwill Society was formed as a fraternal benefit society to help underprivileged children. The founding members set up the society as a for-profit entity, and established a representative form of government with elected officers. The society also sells life insurance only to members of the society, and is considering offering sickness and accident insurance to its members as well. Which one of the following statements about the society is CORRECT?

A) The society cannot sell sickness and accident insurance to its members.
B) The society must operate under a lodge system, not a representative form of government.
C) The society cannot have elected officers.
D) The society must be operated as a nonprofit entity if it is a fraternal benefit society.

D) The society must be operated as a nonprofit entity if it is a fraternal benefit society. To be characterized as a fraternal benefit society, the Goodwill Society must be nonprofit, have a lodge system that includes ritualistic work, and maintain a representative form of government with elected officers. While most fraternals primarily offer life insurance, they may also offer sickness and accident insurance to members as well.
Which of the following statements describes franchise insurance?

A) It may be issued to individuals with or without evidence of insurability.
B) It is treated in the same manner as any group insurance plan.
C) It is available only to persons who deliver materials to a central point.
D) It is issued only to certain businesses that are owned by individuals.

A) It may be issued to individuals with or without evidence of insurability. Franchise insurance is coverage issued as individual accident and health insurance policies distributed on a mass merchandising basis. It is administered by group methods with or without evidence of insurability.
John would like to purchase a life insurance policy that offers level premiums from the time the policy is issued until his death. He also wants a policy that combines death protection with a savings element that can eventually be used for retirement purposes. John should consider purchasing which of the following plans?

A) A 30-year term life insurance policy.
B) A single-premium whole life insurance policy.
C) Family maintenance policy.
D) A straight whole life insurance policy.

D) A straight whole life insurance policy. John should consider purchasing a straight whole life insurance policy, which provides permanent level protection with level premiums from the time the policy is issued until his death (or age 100). It also includes a cash value element, which can be used for retirement purposes.
The entire contract provision of a disability income policy defines the contract to include all the following EXCEPT:

A) any riders the insurer may unilaterally add to the policy in the future.
B) the policy document.
C) the riders attached to it when the policy was issued.
D) the properly completed and signed application.

A) any riders the insurer may unilaterally add to the policy in the future.
When it is used, the time limit on the certain defenses provision in a health insurance policy provides that the policy cannot be contested and claims cannot be denied after two (or three) years EXCEPT:

A) for fraudulent statements in the application.
B) for incomplete policy records.
C) for mental incompetence of the insured.
D) for nonpayment of premiums.

A) for fraudulent statements in the application. According to the time limit on certain defenses provision, the policy cannot be contested after two (or three) years for preexisting conditions unless the conditions were specifically excluded from the policy.
Tony, age 65 and in excellent health, wants to buy an annuity with $100,000 he recently gained on the sale of his home. He wants to select an income option that will provide him the highest monthly income possible. Which annuity income option best meets Tony’s objective?

A) It is not possible to answer this question with the limited information provided.
B) A 10-year period certain and life annuity income option.
C) An installment refund annuity income option.
D) A straight life annuity income option.

D) A straight life annuity income option. Regardless of the annuitant’s age, health, or marital status, a straight life annuity income option will provide more monthly income than any life annuity income option that includes a guarantee feature.
Which of the following actions is best described as misrepresentation?

A) Inducing a policyowner to replace their current policy with a new policy with that same insurer.
B) Intentionally telling a prospect that a particular life insurance policy provides for the payment of dividends when it does not.
C) Convincing a policyowner to lapse their present policy in order to sell them a new policy with a different insurance company.
D) Not informing a health insurance policy buyer that the policy excludes preexisting conditions.

D) Not informing a health insurance policy buyer that the policy excludes preexisting conditions.
To be considered qualified, a long-term care insurance policy must conform to requirements concerning all of the following EXCEPT:

A) policy conversion.
B) marketing standards.
C) policy replacement.
D) premium charges.

D) premium charges.
If an employer makes a contribution to an employee’s Health Savings Account:

A) the contribution is excluded from the employee’s gross income.
B) the contribution is subject to withholding from wages for income tax.
C) the contribution is subject to FICA taxes.
D) the employee can take an income tax deduction for the contribution.

A) the contribution is excluded from the employee’s gross income.
The probationary period in a disability income policy is the initial period of time that must pass before the insured qualifies for benefits due to sickness. The probationary period does NOT apply to benefits payable due to accidents.
A life insurance policy in which the face amount remains level and the cash value grows to an amount equal to the face amount when the insured reaches age 100 is:

A) a level term policy.
B) a whole life policy.
C) an endowment policy.
D) a decreasing term policy.

B) a whole life policy. The cash values of a whole life policy grow steadily and, if the insured lives and premiums are paid to age 100, will equal the face amount.
Which of the following statements regarding persons participating in an HMO is CORRECT?

A) They pay for health care services as they are incurred.
B) They negotiate health care service fees with contracted HMO providers.
C) They pay a fixed periodic fee whether or not health care services are used.
D) They pay for health care services as they are incurred, at a rate discounted for the HMO.

C) They pay a fixed periodic fee whether or not health care services are used. Persons participating in an HMO pay a fixed periodic fee in advance for services performed by participating physicians and hospitals. This fee is payable, whether or not the participant uses any health care service.
If a disabled Medicare enrollee is also covered by an employer-provided health plan as a family member:

A) the employer’s health plan will be the primary payor if it covers 100 or more employees.
B) Medicare will always be considered the primary payor.
C) the employer’s health plan will always be considered the secondary payor because the plan participant is a family member, not an employee.
D) Medicare will only provide disability income benefits since the plan participant is covered by an employer-provided health plan.

A) the employer’s health plan will be the primary payor if it covers 100 or more employees.
If a disabled Medicare enrollee is also covered by an employer-provided health plan as an employee or family member, the employer’s plan will be considered the primary payor, but only if it covers 100 or more employees.
Which of the following individuals could sell a life insurance policy to a viatical settlement provider?

A) Abby, who needs additional retirement income.
B) Tony, who is suffering from a short-term disability.
C) Becky, who was just diagnosed with a terminal illness.
D) Phil, who suffers from chronic allergies and asthma.

C) Becky, who was just diagnosed with a terminal illness. Terminally or chronically ill individuals may enter into a viatical settlement arrangement to obtain income during their illnesses. With these arrangements, a life insurance policyowner sells his policy to an investor at a discount of its face value. Once the insured dies, the investor collects the remaining benefits.
Which of the following statements regarding a conditional receipt is CORRECT?

A) It is given only if the initial premium has been submitted with the signed application.
B) It is given when the application is completed.
C) It is given pending acceptance by the applicant of additional riders.
D) It is given at the time of policy delivery.

A) It is given only if the initial premium has been submitted with the signed application. The conditional receipt means that if the coverage is accepted as applied for and an initial premium is submitted with the application, the policy will be in force from the date the application is signed.
All of the following are considered basic health care services offered by HMOs EXCEPT:

A) emergency care.
B) inpatient hospital care.
C) x-ray services.
D) rehabilitative and home health services.

D) rehabilitative and home health services. Rehabilitative and home health services are not considered basic health care services; instead, they are characterized as health care services.
An insurer can cancel a health insurance policy by delivering written notice to the insured at least how many days before the effective date of cancellation?

A) 5 days.
B) 10 days.
C) 30 days.
D) 90 days.

A) 5 days.
Which of the following falls under the definition of a limited policy?

A) A flat-benefit disability policy.
B) Long-term care insurance.
C) Accidental death & dismemberment (AD&D) insurance.
D) Prescription drug plan.

D) Prescription drug plan.
When a policyowner surrenders a life insurance policy, the insurance company may withhold payment of the policy’s cash values for up to:

A) 9 months.
B) 6 months.
C) 2 years.
D) 1 year.

B) 6 months. One of the nonforfeiture provisions required in life insurance policies is the cash surrender value option. While in most instances the insurer will send the cash value much sooner, the insurer has up to six months to pay the cash surrender value to the policyowner.
Which of the following statements is an example of an unethical (and illegal) act?

A) A surplus line broker applies funds due an insured for return premiums to amounts due from the same insured for unpaid policy premiums.
B) A life insurance analyst attempts to be licensed as an insurance agent.
C) A life insurance analyst charges a fee for a service associated with the servicing of a policy written by the analyst.
D) A broker charges a fee for service that exceeds the ordinary placing of a policy.

C) A life insurance analyst charges a fee for a service associated with the servicing of a policy written by the analyst.
With regard to the tax treatment of medical expenses, which of the following statements is CORRECT?

A) Medical expenses, reimbursed or unreimbursed, are always deductible from an insured’s income for taxation purposes.
B) Benefits received under an individual accident and health plan are taxable income to the recipient.
C) Unreimbursed medical and dental expenses are deductible by an individual taxpayer to the extent they exceed 15% of his or her adjusted gross income.
D) Personal medical and dental expenses reimbursed by insurance are not deductible.

D) Personal medical and dental expenses reimbursed by insurance are not deductible.
Medical expenses that are reimbursed by insurance are not tax deductible. Unreimbursed medical and dental expenses are deductible to the extent they exceed 10% of an individual’s adjusted gross income.
Which of the following options is designed to protect the policyowner should the policy be in danger of lapsing for nonpayment of premium?

A) automatic premium loan.
B) premium exclusion.
C) guaranteed insurability.
D) waiver of premium.

A) automatic premium loan. Under the automatic premium loan provision, the cash values will be used to pay the premium if the premium due has not been paid by the end of the grace period.
With regard to the taxation of life insurance policies, which of the following statements is CORRECT?

A) As long as a whole life policy is not surrendered, the cash value accumulates tax free.
B) The premiums that Acme Manufacturing pays for its business life insurance policies (key purpose insurance, entity cross-purchase plans) are tax deductible.
C) Amy owns a participating life insurance policy on her own life. She can deduct the premium payments, but she will be taxed on any dividends the policy may pay.
D) Terry owns a 10-year-old whole life insurance policy which she surrenders for cash. She will be taxed on the full amount she receives, since the policy did not mature.

A) As long as a whole life policy is not surrendered, the cash value accumulates tax free.
Policy surrenders are taxable only to the extent that amounts received exceed total premiums paid by the policyowner.
Which of the following businesses need NOT provide maternity benefits through its group medical expense insurance plan?

A) There are no exceptions. All group plan sponsors must provide maternity benefits.
B) A company with fewer than 20 employees.
C) A company with a predominately young, female staff that files an exclusion petition with the Department of Labor.
D) A company with fewer than 15 employees.

D) A company with fewer than 15 employees.
Accidental death and dismemberment benefits must be payable if the loss occurs within how long after the accident?

A) 2 years.
B) 90 days.
C) 24 hours.
D) 10 days.

B) 90 days.
What type of insurance companies are organized and incorporated under state laws but have no stockholders?

A) Mutual insurers.
B) Stock insurers.
C) Lloyd’s of London.
D) Reciprocal insurers.

A) Mutual insurers.
Mutual insurance companies are organized and incorporated under state laws but have no stockholders. Instead, the owners are the policyholders. Like mutual insurers, reciprocal insurers are also owned by their policyowners; however, the policyowners insure the risks of the other policyowners. Stock insurers are private organizations, organized and incorporated under state laws for the purpose of making a profit for their stockholders. Lloyd’s of London, on the other hand, is an association of individuals and companies that individually underwrite insurance.
Doris is covered under an indemnity dental plan through her employer. The plan has a $200 annual deductible, except that up to two examinations with teeth cleaning and one set of X-rays are covered in full (no deductible). Covered expenses beyond the deductible are covered at 80%. So far this plan year Doris has had one examination with teeth cleaning costing $100, dental X-rays that costs $80, two fillings that cost $320, and teeth whitening that cost $100. Of this $600 in expenses, how much did Doris have to pay the dentist out of her own pocket?

A) $280.00
B) $260.00
C) $324.00
D) $124.00

The examination, cleaning, and X-rays are covered in full. The elective whitening ($100) is not covered. The two fillings require the insured to cover the deductible ($200) and 20% of the remaining $120 ($24). Of the $600 in expenses, Doris had to pay the dentist $324 out of her own pocket.
All of the following statements about mutual insurance companies are correct EXCEPT:

A) they do not have capital stock.
B) they charge a fixed premium.
C) they are unincorporated.
D) they must maintain the same reserves as a stock company.

C) they are unincorporated.
A mutual insurance company is an incorporated insurer owned by its policyowners. It does not have capital stock, charges a fixed premium, and must maintain the same reserves as a stock company. It is common for mutual companies to sell participating policies in which the policyowners share the insurer’s divisible surplus in the form of policy dividends.
An insurance company formed under the laws of any country other than the United States would be considered a(n):

A) alien insurance company.
B) nonadmitted insurance company.
C) foreign insurance company.
D) domestic insurance company.

A) alien insurance company.
Which of the following statements regarding the medical reimbursement benefit available in some individual disability income policies is CORRECT?

A) The benefit is a percentage of the monthly income benefit.
B) The benefit is only paid if the insured is still able to continue working.
C) The benefit is paid in addition to other benefits under the policy.
D) The benefit is paid for a disabling illness.

A) The benefit is a percentage of the monthly income benefit.
The amount paid for the accidental loss of sight or dismemberment under an accidental death and dismemberment policy is known as the policy’s:

A) dismemberment sum.
B) capital sum.
C) primary sum.
D) secondary sum.

B) capital sum.
An insurer will use all of the following to determine if a person should be issued a policy EXCEPT:

A) information stored in the Medical Information Bureau.
B) a medical report from a qualified professional.
C) an application for insurance.
D) the work history of the applicant.

D) the work history of the applicant.
Which of the following statements regarding contributions to a health savings account is CORRECT?

A) Contributions cannot be made through a cafeteria plan.
B) Contributions made by an individual taxpayer are not deductible from income.
C) Contribution limits are indexed annually for inflation.
D) Contributions made by an employer are included in the employee’s income.

C) Contribution limits are indexed annually for inflation.
Generally, contributions to an HSA may be made by an individual, the employer, or both. If they are made by the individual taxpayer, the HSA contributions are deductible from income. If they are made by an employer, HSA contributions are excluded from the employee’s income. Contributions also may be made through a cafeteria plan.
Which renewability provision allows an insurer to not renew a health insurance policy on a given date as specified in the policy?

A) Cancellable.
B) Optionally renewable.
C) Guaranteed renewable.
D) Conditionally renewable.

B) Optionally renewable.
An individual accident and health insurance policy must include which of the following provisions?

A) A change of occupation limitation.
B) A misstatement of age provision.
C) A provision that the policy, including any endorsements or riders, constitutes the entire contract.
D) A provision limiting benefits if the insured has insurance with other insurers.

C) A provision that the policy, including any endorsements or riders, constitutes the entire contract.
Which of the following statements regarding the naming of a minor as life insurance beneficiary is NOT correct?

A) The naming of a minor as beneficiary generally involves more legal issues and complications than naming an adult as beneficiary.
B) The youngest age at which an individual may be regarded as an adult for beneficiary purposes is age 18.
C) If an insurer retains policy proceeds because the beneficiary is a minor, it may elect to make limited payments to an adult guardian for the benefit of the minor beneficiary.
D) If the beneficiary is a minor, it is possible for the insurer to elect to retain the policy proceeds until the child reaches the age of majority.

B) The youngest age at which an individual may be regarded as an adult for beneficiary purposes is age 18.
All of the following statements pertaining to waiver of premium in health insurance policies are correct EXCEPT:

A) it exempts an insured from paying premiums during periods of permanent and total disability.
B) it applies only to a specified age, such as 60 or 65.
C) it applies to both medical expense and disability income policies.
D) it may be applied retroactively, after the insured has been disabled for a specified period.

C) it applies to both medical expense and disability income policies. FALSE- it does not apply to medical expense policies.
Medicare supplement (or Medigap) policies pay:

A) Benefits provided under Medicare Part A.
B) Medical costs arising from extended custodial (nursing home) care.
C) All or most of Medicare’s deductibles.
D) Benefits to those who cannot afford Medicare Part B coverage.

C) All or most of Medicare’s deductibles.
Replacing insurers must do all of the following EXCEPT:

A) seek authorization for replacement from the Department of Insurance.
B) inform their field representatives about the replacement regulations.
C) require a list of the applicant’s life insurance or annuity contracts that are to be replaced.
D) send each existing insurer a written communication advising of the proposed replacement.

A) seek authorization for replacement from the Department of Insurance.
Insurers must inform their field representatives about the replacement regulation requirements. When replacement is involved, the insurer must obtain a list of all existing life insurance to be replaced. It must also send copies of sales proposals to each existing insurer, along with a written communication advising of the proposed replacement that identifies the existing insurance to be replaced. Authorization for replacement is not required from the Department of Insurance.
Ralph owns a $50,000 nonpar whole life policy. Its cash value has accumulated to $15,000, and he has paid a total of $9,500 in premiums. If he surrenders the policy for its cash value, how will it be taxed?

A) Ralph will receive $5,500 tax free; the $9,500 balance is taxable as income.
B) Ralph will receive the $15,000 tax free.
C) Ralph will receive the $15,000 as taxable income.
D) Ralph will receive $9,500 tax free; the $5,500 balance is taxable as income.

D) Ralph will receive $9,500 tax free; the $5,500 balance is taxable as income. A policyowner is allowed to receive tax free an amount equal to what he or she paid into the policy over the years in the form of premiums.
All of the following are duties of the Commissioner EXCEPT:

A) examining domestic insurers.
B) determining whether an insurer’s rates are unfairly discriminatory.
C) enforcing insurance laws.
D) writing insurance laws.

D) writing insurance laws.
The state legislature writes and enacts insurance laws, whereas the Department of Insurance, headed by the Commissioner, is responsible for implementing and enforcing these laws. The Commissioner is also responsible for examining domestic insurers and determining whether an insurer’s rates are unfairly discriminatory.
Which of the following actions is NOT an unfair claims method?

A) Failing to explain why a claim was denied.
B) Denying a claim within a reasonable time after a proof of loss statement was completed.
C) Denying a claim without making a reasonable investigation.
D) Attempting to settle claims on the basis of an application that was altered without notice to the insured.

B) Denying a claim within a reasonable time after a proof of loss statement was completed.
Long-term care coverage may consist of all of the following EXCEPT:

A) home-based care.
B) institutional care.
C) surgical care.
D) community care.

C) surgical care.
The insured in a $25,000 life insurance policy died of a heart attack. Since the policy had a “double indemnity” provision, the policy beneficiary received

A) $50,000.00
B) $25,000.00
C) nothing.
D) $12,500.00

B) $25,000.00. Under a “double indemnity” provision, the policy beneficiary would receive double the face amount in the event of a fatal accidental injury. Since the insured’s death was not due to an accident, the policy paid its $25,000 face amount.
Insurers can set different premium rates for different individuals based on:

A) whether or not the insured is blind.
B) classifications that are the result of actual cost experience.
C) the race of the insured.
D) where the insured lives.

B) classifications that are the result of actual cost experience.
What benefits does Medicare provide for treatment in a skilled nursing care facility after 100 days?

A) Coverage for diagnostic services and medical supplies only.
B) Coverage for physical and occupational therapy only.
C) None.
D) Reduced coverage with a higher copayment from the insured.

C) None. Medicare does not pay benefits for treatment in a skilled nursing care facility beyond 100 days.
Which of the following situations constitutes an insurable interest?

A) The policyowner must expect to suffer a loss when the insured dies or becomes disabled.
B) The insured must have a personal or business relationship with the beneficiary.
C) The beneficiary, by definition, has an insurable interest in the insured.
D) The policyowner must expect to benefit from the insured’s death.

A) The policyowner must expect to suffer a loss when the insured dies or becomes disabled.
Carson is a driller on an oil rig. While coverage through his group plan is adequate, he wants an inexpensive way to continue at least some of his income and possibly pick up some of the expenses his group plan may not cover in the event he is injured. Which of the following policies would best meet his objectives?

A) Disability income insurance.
B) Long-term care insurance.
C) Accidental death and dismemberment coverage.
D) Accident-only insurance.

D) Accident-only insurance.
If a long-term care policy is considered tax qualified:

A) it must conform to certain standards established by the individual state in which it is offered.
B) it can be offered as an employee benefit by an employer.
C) its benefits will qualify for tax-exempt treatment.
D) it must base premiums solely on the insureds’ age, health, and benefits provided.

C) its benefits will qualify for tax-exempt treatment.
All of the following actions constitute a policy replacement EXCEPT:

A) surrendering an existing permanent life policy for its cash value so it can be used to purchase another life policy.
B) changing dividend options from paid-up additions to cash payment on an existing whole life policy.
C) electing an extended term nonforfeiture option on an existing permanent life policy.
D) electing a reduced paid-up nonforfeiture option on an existing whole life policy.

B) changing dividend options from paid-up additions to cash payment on an existing whole life policy.
Which of the following is NOT a means by which insurers control how policyholders use their health insurance coverage?

A) Ambulatory surgery.
B) Precertification review.
C) Indemnification of medical expenses.
D) Mandatory second opinions.

C) Indemnification of medical expenses.
Long-term care insurance policies must be:

A) noncancelable.
B) nonreplaceable.
C) guaranteed renewable.
D) cancelable.

A) noncancelable.
On August 1, Roger completed an application for a major medical policy, gave his agent a check for the initial premium and received an insurability receipt from the agent. No medical examination was required. On August 3, the agent submitted Roger’s application and premium to the insurance company. On August 6, Roger was involved in an accident and admitted to a hospital. On August 12, the agent received Roger’s policy from the insurance company. Which of the following statements concerning this situation is CORRECT?

A) Roger’s coverage will begin when he receives the policy from the agent.
B) Roger’s coverage began the day the insurance company received the application and premium from the agent.
C) Roger’s coverage began the day the agent sent the application and premium to the insurance company.
D) Roger’s coverage began when he received the insurability receipt.

D) Roger’s coverage began when he received the insurability receipt.
The insurability type of conditional receipt provides that when an applicant pays the initial premium, coverage is effective—on the condition that the applicant proves to be insurable—either on the date the application was signed or the date of the medical examination, if one is required.
A health insurance policy can exclude coverage for all of the following EXCEPT:

A) pregnancy.
B) dental care.
C) preexisting conditions.
D) cancer.

D) cancer.
Frank owns a graded premium whole life insurance policy that includes a spousal rider. Which of the following is the most likely type of insurance underlying the spousal rider?

A) Annually renewable term.
B) Graded premium whole life.
C) Level premium term.
D) Straight level-premium whole life.

C) Level premium term. Most Other Insureds riders, including so-called spousal riders, are based on a level-premium term life policy that provides level term coverage to a specified age of the spouse (for example, age 65) at a level premium.
All of the following statements regarding limited-pay life insurance are correct EXCEPT:

A) limited-pay policies endow when the insured is 100 years old.
B) limited-pay policy death benefits remain level for the duration of the policy.
C) limited-pay policies mature more quickly than do continuous premium whole life.
D) cash value grows more quickly than it does in continuous premium whole life.

C) limited-pay policies mature more quickly than do continuous premium whole life. False- Limited pay policies emphasize savings more than straight life policies.
After a health insurance policy is in force, the initial period that often must pass before a loss due to sickness can be covered is known as:

A) the elimination period.
B) the trial term.
C) the preexisting interval.
D) the probationary period.

D) the probationary period.
The probationary period helps the insurer to avoid paying benefits for losses due to illness contracted before the policy was issued. The elimination period arises in the context of a disability income policy. It is the period between the beginning of an insured’s disability and the commencement of the period for which benefits are payable.
A policyowner stops paying premiums on a whole life policy with an accidental death benefit and exchanges the policy for extended term insurance. All of the following statements pertaining to this situation are correct EXCEPT:

A) the term policy has no cash value.
B) the policyowner will have continued protection for a limited period of time.
C) there will be no accidental death benefit with the new policy.
D) the term policy will have a reduced face value.

D) the term policy will have a reduced face value.
Which of the following statements about a Medicare supplement policy is CORRECT?

A) The insurer may cancel it on the grounds of the insured’s health status alone.
B) The insurer may cancel it because the insured has not paid the premiums.
C) It can indemnify against losses resulting from sickness on a different basis from claims resulting from accidents.
D) The insurer may cancel it on the grounds of the insured’s geographic location.

B) The insurer may cancel it because the insured has not paid the premiums.
A disabled worker’s unmarried dependent child who is younger than 18 years is eligible for monthly benefits equal to how much of the worker’s primary insurance amount (PIA)?

A) 25%.
B) 100%.
C) 50%.
D) 75%.

C) 50%.
All of the following benefits are available under Social Security EXCEPT:

A) death benefits.
B) disability benefits.
C) welfare benefits.
D) old-age or retirement benefits.

C) welfare benefits. Social Security provides death benefits, old-age or retirement benefits and disability benefits to eligible workers. Social Security is an entitlement program, not a welfare program.
The official title of the head of the insurance department can vary by state. Which of the following would typically NOT be a title applicable to the head of a state insurance department?

A) Superintendent.
B) Director.
C) Commissioner.
D) Administrator.

D) Administrator.
To be eligible for Social Security disability benefits, one of the requirements is that the person

A) be totally and permanently disabled for at least three months.
B) be totally disabled for at least five months.
C) be totally disabled for at least three months.
D) be totally and permanently disabled for at least five months.

B) be totally disabled for at least five months.
One of the requirements to be eligible for Social Security benefits is that the person be totally and permanently disabled for at least five months. The other requirements are that the disability must be expected to last for at least 12 months or end in death, and the person must be fully insured and disability insured as defined under Social Security regulations.
Which of the following riders allows an insurer to issue a health insurance policy to an individual that covers everything but a certain injury or illness?

A) Preexisting condition.
B) Waiver for impairments.
C) Multiple indemnity.
D) Optional exclusion.

B) Waiver for impairments.
The waiver of impairments rider allows the insurer to issue a health insurance policy to an individual that covers everything but a certain specified injury or illness. This allows an otherwise uninsurable person to obtain at least some coverage.
Which of the following statements regarding the “Notice Regarding Replacement of Life Insurance” is CORRECT?

A) It must be presented to all applicants, whether or not a policy is being replaced.
B) It must be presented to the applicant no later than upon policy application.
C) It need not be given to the applicant in the case of a direct response sale.
D) It is not required if the face amount of the policy being replaced is less than $5,000.

B) It must be presented to the applicant no later than upon policy application.
When making a change of address, it is typically required that the producer notify the head of the Department of Insurance:

A) within a reasonable time period.
B) only if the change involves moving out of state.
C) if the change involves moving to a new city.
D) within a specified time period.

D) within a specified time period.
Maynard earns $125,000 a year. Under most disability income policies, the maximum amount of monthly benefit he will receive is:

A) $7,812.00
B) $5,205.00
C) $10,416.00
D) $6,250.00

D) $6,250.00. The typical maximum benefit is 60% of predisability income.
A stop-loss feature in a major medical policy specifies the maximum:

A) benefit amount the policy provides in a lifetime.
B) amount the insured must pay in premiums.
C) benefit amount the policy provides each year.
D) amount the insured must pay toward covered expenses.

D) amount the insured must pay toward covered expenses.
Which of the following is a contract designed primarily to augment reimbursements under Medicare for hospital, medical, or surgical expenses?

A) Medicare supplement plan.
B) Home health care plan.
C) Golden-age health care plan.
D) Medicare alternative benefits plan.

A) Medicare supplement plan.
When the surviving spouse of a deceased licensee enters into a written agreement with a licensed producer to continue the deceased’s insurance business, which of the following restrictions apply to this contract?

A) All insurance contracts written during the time period are not binding.
B) The parties involved must agree not to share commissions.
C) It cannot remain in effect for more than 6 months.
D) All clients of the deceased must be notified of the change in writing within 30 days.

C) It cannot remain in effect for more than 6 months.
Individual certificates issued to all individuals insured under an insurance policy must include the following information EXCEPT:

A) a statement of the insurance protection provided.
B) a conversion provision.
C) the premium amount.
D) a statement as to whom benefits are payable.

C) the premium amount. Individual certificates for insureds in a group plan must state what coverage is provided and to whom it is payable, and include a detailed conversion provision.
Joanie was injured in an automobile accident. She is now in a coma and expected to die. Under the terms of her individual accidental death and dismemberment (AD&D) policy, which of the following is CORRECT?

A) As next of kin, her husband can change the beneficiary from himself to their daughter.
B) As next of kin, her husband would automatically receive the principal sum.
C) Her daughter, who is the revocable beneficiary, can change the beneficiary to her father.
D) The beneficiary cannot be changed.

D) The beneficiary cannot be changed. The beneficiary designation cannot be changed without the approval of the policyowner.
Which of the following statements regarding an accidental death and dismemberment rider for a disability insurance policy is NOT correct?

A) The dismemberment feature provides insureds with periodic payments to help them during a rehabilitation period.
B) The life insurance feature of this rider does not pay a death benefit if the death is due to natural causes.
C) The sum payable under the dismemberment feature is typically expressed as a muliple of the disability policy’s weekly indemnity.
D) Once a sum has been paid under the dismemberment feature, the disability income payments stop.

A) The dismemberment feature provides insureds with periodic payments to help them during a rehabilitation period. FALSE- the rider does not provide periodic benefit payments.
All the following statements regarding annuities owned by a corporation that cover key employees are correct EXCEPT:

A) annuity benefits payable to the corporation with the key employee as annuitant are income tax free to the corporation.
B) if the corporation surrenders the deferred annuity for its cash value, the amount of the cash surrender value is greater than the corporation’s basis in the contract, subject to income taxation to the corporation.
C) there are no income tax consequences to the key employee/annuitant.
D) premiums paid by the corporation are not tax deductible.

A) annuity benefits payable to the corporation with the key employee as annuitant are income tax free to the corporation. FALSE- Annuities that are owned by a corporation with a key employee as annuitant are treated the same, for tax purposes, as annuities owned by individuals.
Which of the following terms best describes the policy provision for the payment of additional income when the insured is eligible for social insurance benefits but those benefits have not yet begun?

A) Cost-of-living adjustment rider.
B) Interim benefit rider.
C) Guaranteed insurability rider.
D) Social Security rider.

D) Social Security rider.
The Social Security rider, sometimes called the social insurance substitute rider, provides for the payment of additional income when the insured is eligible for social insurance benefits but those benefits have not yet begun, have been denied, or have begun in an amount less than the benefit amount of the rider.
Which of the following group health plans allows employers to reduce business costs by paying for employees’ medical expenses instead of paying premiums for insurance coverage?

A) Modified fully insured plan.
B) Partially self-funded plan.
C) Conventional fully insured plan.
D) Fully self-administered plan.

D) Fully self-administered plan.
In a fully self-funded or self-administered group health insurance plan, the employer bears the responsibility for covering all costs. Instead of paying premiums to an insurer, the employer makes periodic contributions to a fund. Payments to cover employee health expenses are made from this fund. Employers choose this type of plan in the belief that by funding actual medical costs as they arise rather than paying premiums for services that may not be used, they are saving even more money that can earn interest for the employer rather than an insurer.
A principal function of annuities is to:

A) create an estate.
B) liquidate an estate.
C) provide for surviving dependents.
D) reduce income taxes.

B) liquidate an estate.
The principal function of life insurance is to create an estate. The principal function of annuities is to liquidate an estate.
Which of the following is the best example of overinsurance?

A) The client’s hospital bills total $1,000 a day. His 3 health insurance policies pay $900 a day.
B) The client’s income is $4,000 a month. He becomes disabled, and his individual disability policy provides a flat benefit of $1,200; his Social Security benefit is $1,000.
C) The client’s hospital bill comes to $1,300 a day. His major medical plan pays $1,000, whereas his hospital indemnity plan pays $400.
D) The client earns $1,500 a month and becomes disabled on the job. He is eligible for $800 a month from workers’ compensation and $850 from Social Security.

C) The client’s hospital bill comes to $1,300 a day. His major medical plan pays $1,000, whereas his hospital indemnity plan pays $400.
An assignment in which the assignee receives full control over the policy is called:

A) a collateral assignment.
B) an absolute assignment.
C) a guaranteed assignment.
D) a revocable assignment.

B) an absolute assignment.
Under an absolute assignment, the transfer of rights and benefits is complete and irrevocable. A collateral assignment is one in which the policy is assigned to a creditor as security for a debt until the debt is satisfied.
Which of the following provisions gives a long-term care policyowner the option to purchase additional insurance amounts within specified parameters regardless of insurability?

A) Guaranteed renewability.
B) Guarantee of insurability.
C) Guaranteed coverage.
D) Guarantee of benefits.

B) Guarantee of insurability.
Workers’ compensation covers income loss resulting from:

A) unemployment.
B) work-related disabilities.
C) any accidental injury.
D) sickness.

B) work-related disabilities.
The chief officer of the state insurance department is NOT responsible for:

A) licensing and supervising agents and brokers.
B) enacting insurance laws.
C) issuing rules and regulations.
D) overseeing insurance companies’ marketing practices.

B) enacting insurance laws. The state legislature is responsible for writing and enacting insurance laws.
What is another name for a sanction imposed by the commissioner on an insurance producer or insurer in New Jersey?

A) Cease and desist order.
B) Limitations period.
C) Administrative penalty.
D) Notice of violation.

C) Administrative penalty. An administrative penalty is a sanction which the commissioner can impose on an insurance producer or insurance company. It may include the revocation or suspension of a license or the imposition of a fine.
Which of the following types of life insurance riders is NOT based on term life insurance?

A) Spousal.
B) Return of premium.
C) Cost of living.
D) Waiver of premium.

D) Waiver of premium. The waiver of premium rider is based more on the actuarial principles of disability insurance than life insurance. All other riders listed are based on some form of term life insurance.
Leland elects to surrender his whole life policy for a reduced paid-up policy. The cash value of his new policy will:

A) continue to increase.
B) decrease gradually.
C) remain the same as in the old policy.
D) decrease by 50% immediately.

A) continue to increase. When Leland surrenders his whole life policy for a reduced paid-up policy, the face value is reduced but the cash value continues to increase.
Which kind of insurance company is owned by individuals who buy shares but are not entitled to receive policy dividends?

A) Reciprocal insurance company.
B) Mutual insurance company.
C) Stock insurance company.
D) Fraternal insurance company.

C) Stock insurance company.
Stock companies consist of stockholders also known as shareholders that do not receive (policy) dividends. Mutual companies consist of policyholders and they do receive (policy) dividends.
All of the following are elements of an insurable risk EXCEPT:

A) the loss must be predictable.
B) the loss must have a determinable value.
C) the loss must be catastrophic.
D) the loss must be the result of chance.

C) the loss must be catastrophic.
All of the following statements regarding annuities are correct EXCEPT:

A) an annuity contract provides for the purchase of income.
B) like life insurance, an annuity is used primarily to provide income at death.
C) annuity payments are guaranteed.
D) an annuity is based on mortality assumptions and the law of large numbers.

B) like life insurance, an annuity is used primarily to provide income at death. FALSE- an annuity provides income during life, while life insurance provides income at death
All of the following are required provisions in life insurance policies EXCEPT:

A) a 1-month grace period for payment of premiums after the first payment has been made.
B) a misstatement of age provision.
C) a replacement provision.
D) a reinstatement provision.

D) a reinstatement provision.
John works for a mutual insurance company that was formed to handle the insurance needs of lawyers. The type of company that John works for is called a:

A) risk retention group.
B) reinsurer.
C) reciprocal insurer.
D) fraternal benefit society.

A) risk retention group. A risk retention group is a mutual insurance company formed to insure people in the same business, occupation, or profession, such as pharmacists, dentists, lawyers, or engineers.
Reinsurers insure other insurers
policyholders themselves insure the risks of other policyholders in a reciprocal insurer
The term mutualization refers to:

A) sharing company profits with stockholders.
B) dissolution of an insurance company.
C) transferring control of a company from stockholders to policyowners.
D) transferring control of a company from policyowners to stockholders.

C) transferring control of a company from stockholders to policy owners. (Stock insurance company becomes a mutual insurance company)
Sally, age 66, has accumulated 50 credits from working during the past 15 years. For Social Security purposes, this means that Sally is:

A) ineligible for full retirement and survivor benefits.
B) partially insured.
C) eligible for partial retirement and survivor benefits.
D) fully insured.

D) fully insured. Fully insured when you receive 40 credits (10 yrs of work)
Which of the following does NOT describe a penalty for violating the Fair Credit Reporting Act?

A) loss of license indefinitely
B) Reasonable attorney’s fees.
C) Either fines or imprisonment.
D) Punitive damages awarded by a court.

A) loss of license indefinitely
A lapsed life insurance policy may be reinstated at any time within how many years from the date of premium default?

A) Two years.
B) Three years.
C) Four years.
D) Five years.

B) Three years.
Assured Insurance Company issues a health insurance policy it describes as noncancellable. This means that:

A) the insured is entitled to renew the policy indefinitely, though the insurer can change policy provisions.
B) the company cannot cancel the policy for any reason.
C) the company cannot cancel the policy after the insured becomes eligible for Medicare.
D) the insured can continue the policy by paying premiums until at least age 65.

D) the insured can continue the policy by paying premiums until at least age 65.
A policy that is noncancellable or guaranteed renewable gives the insured the right to continue it in force by the timely payment of premiums at least until age 65 or until the insured becomes eligible for Medicare. The insurer cannot unilaterally change any provision while the policy is in force.
An insurance producer’s license will NOT be reinstated if the applicant for the license has had his license revoked within the preceding:

A) one year.
B) three years.
C) six months.
D) five years.

D) five years. If a producer’s license is revoked, the producer must wait 5 years before applying for reinstatement and 10 years before owning a share of an insurance organization. If a producer’s license is suspended, he may apply for reinstatement immediately after the period of suspension.
All of the following organizations may be classified as service organizations EXCEPT:

A) a preferred provider organization.
B) a health maintenance organization.
C) a Blue Cross/Blue Shield organization.
D) a health insurance company.

D) a health insurance company. They sell insurance not health care services.
What is the purpose of the Fair Credit Reporting Act?

A) It gives consumers the right to question reports made about them by investigative agencies.
B) It protects credit companies during the course of their investigations.
C) It guarantees that credit reports will remain confidential and not accessible to businesses that do not sell insurance.
D) It prohibits insurance companies from obtaining reports on applicants from investigative agencies.

A) It gives consumers the right to question reports made about them by investigative agencies. The Fair Credit Reporting Act is a federal law that ensures confidential, fair, and accurate reporting of information about consumers, including applicants for insurance. It does not preclude insurance companies from obtaining outside reports; however, it allows consumers to request disclosure of information contained in these reports.
Mrs. Williamson purchases a 5-year $50,000 level term policy with an option to renew. Which of the following statements about the policy’s renewability is CORRECT?

A) The premium for the renewal period will be the same as the initial period, but a 1-time service charge will be assessed upon renewal.
B) The premium for the renewal period will be the same as the initial period.
C) The premium for the renewal period will be higher than the initial period.
D) The premium for the renewal period will be lower than the initial period.

C) The premium for the renewal period will be higher than the initial period. (Older, more risk). Remember, renewal isn’t always cheap.
A significant feature of adjustable life insurance is that the:

A) policyowner need not pay premiums after the policy has been in force for a certain number of years.
B) cash value is 3 times greater than in traditional whole life insurance.
C) premiums may be increased or decreased from time to time by the policyowner.
D) policyowner may make retroactive adjustments in the policy’s provisions.

C) premiums may be increased or decreased from time to time by the policy owner. An adjustable life policy is simply a whole life policy with adjustable features, such as premiums which may be increased or decreased from time to time by the policyowner. Such adjustments cannot be made retroactively.
Benefit periods for short-term disability income policies typically vary from:

A) one to five years.
B) one to 12 months.
C) three months to three years.
D) six months to two years.

D) six months to two years.
Benefit periods for short-term disability income policies typically vary from 6 months to 2 years. In contrast, long-term disability policies carry benefit periods of 2 years and longer.
long-term disability income policies
> 2 years
short-term disability income policies
6 months – 2 years
Under a group health insurance plan, a terminated employee may have which of the following options?

A) To continue reduced-benefit coverage under the group plan at an adjusted premium.
B) To continue the identical coverage at the same premium.
C) To convert the coverage to an individual plan at the same premium.
D) To convert the coverage to an individual plan at an adjusted premium.

D) To convert the coverage to an individual plan at an adjusted premium. A terminated employee can convert group coverage to an individual plan based on the new plan’s own premium rate, or he may continue the identical coverage as that provided under the group plan, but at an adjusted rate.
An eligible applicant for Social Security disability benefits must meet all of the following qualifications EXCEPT:

A) be younger than age 65.
B) have had surgery within 30 days before applying for benefits.
C) be unable to engage in gainful work for at least five months before the benefit payout.
D) enjoy a fully insured status under the Social Security program.

B) have had surgery within 30 days before applying for benefits.
Which of the following statements pertaining to delivery of a life insurance policy is NOT correct?

A) An insurer issues a policy (after the initial premium has been paid) and sends it to the agent for unconditional delivery, but the agent postpones delivery. This is an example of constructive delivery.
B) An insurer issues a policy (before the initial premium has been paid) and sends it to the agent with instructions not to deliver it unless the applicant is in good health. This is an example of constructive delivery.
C) From a legal perspective, a policy may be delivered by mail instead of in person if all necessary conditions have been met.
D) An insurer issues a policy (after the initial premium has been paid) and sends it to the agent for unconditional delivery to the policyowner. This is an example of constructive delivery.

B) An insurer issues a policy (before the initial premium has been paid) and sends it to the agent with instructions not to deliver it unless the applicant is in good health. This is an example of constructive delivery. **If the insurer places a condition on the delivery, there is no constructive delivery
Which of the following statements pertaining to life insurance companies is CORRECT?

A) Mutual insurance companies sell insurance to insurers.
B) The primary purpose of a life insurance company that is organized as a stock company is to earn a profit for its stockholders.
C) If a life insurance company is owned by its policyowners, it is a stock company.
D) A stock company that issues both participating and nonparticipating life insurance policies is classified as a full lines company.

B) The primary purpose of a life insurance company that is organized as a stock company is to earn a profit for its stockholders. Stock insurance companies are owned by stockholders, not policyowners. They are organized for the purpose of making a profit for their stockholders.
Joni is covered under a dental insurance plan that requires her to annually pay the first $200 of dental expenses (other than routine semi-annual examinations and cleanings, which are covered in full), at which point the plan reimburses her for 80% of the cost of routine care. Based only on this information, Joni is most likely covered under a(n):

A) exclusive provider organization.
B) dental health maintenance organization.
C) comprehensive plan.
D) capitation plan.

C) comprehensive plan. Most commonly provided by commercial insurance companies, comprehensive plans operate much like major medical health insurance plans. Though routine examinations and cleanings may be covered in full, other routine care is covered only after the insured satisfies an annual deductible. Insureds are also required to pay for a percentage of covered care through the plan’s coinsurance provision.
A Medicare Select policy is a Medicare supplement policy or certificate that contains:

A) restricted network provisions.
B) provisions limiting benefits because of the applicant’s current health status.
C) provisions limiting benefits for preexisting conditions.
D) unlimited access to health service providers.

A) restricted network provisions.
Since the obligations of the insurance company hinge on certain acts of the policyowner, the beneficiary, or both, the insurance contract is termed:

A) aleatory.
B) bilateral.
C) unilateral.
D) conditional.

D) conditional.
If a life insurance policy specifically names a beneficiary other than the insured’s estate, what recourse may the creditors of the deceased insured take to attach the policy proceeds?

A) File a petition with the insurer showing proof of the deceased insured’s outstanding debts and thus qualify for a portion of the death benefit.
B) Nothing, because life insurance proceeds are exempt from the claims of the deceased insured’s creditors as long as there is a named beneficiary other than the insured’s estate.
C) Seek a court injunction to delay payment of the death proceeds until the issue of who gets paid is settled in court.
D) Attach a lien against the policy that automatically diverts a portion of the death benefit to the creditor.

B) Nothing, because life insurance proceeds are exempt from the claims of the deceased insured’s creditors as long as there is a named beneficiary other than the insured’s estate. **One of the unique features of life insurance is that the life insurance proceeds are exempt from the claims of the deceased insured’s creditors as long as there is a named beneficiary other than the insured’s estate.
Bob purchases a $50,000 5-year level term policy. All of the following statements about Bob’s coverage are correct EXCEPT:

A) If the insured lives beyond the five years, the policy expires and no benefits are payable.
B) if the insured dies after the specified five years, only the policy’s cash value will be paid.
C) if the insured dies at any time during the five years, his beneficiary will receive the policy’s face value.
D) the policy provides a straight, level $50,000 of coverage for five years.

B) if the insured dies after the specified five years, only the policy’s cash value will be paid. **NO CASH VALUES IN A TERM POLICY
Remember, there are no cash values in a term policy.
For which of the following situations would a life income settlement using the joint-and-survivor option be suitable?

A) The insured wants to make sure his wife receives income for life, but if she predeceases him, he wants his daughter to receive the money according to the settlement option she chooses.
B) The insured wants to split the proceeds equally between his son and daughter and wants to use the money to provide each with income for life.
C) The insured wants to use the proceeds to provide his son and daughter-in-law with income that will last as long as either is alive.
D) The insured wants to use the proceeds to fund a trust to provide financial protection for his children.

B) The insured wants to split the proceeds equally between his son and daughter and wants to use the money to provide each with income for life. The joint-and-survivor option makes the most sense when the goal is to provide a couple with income for as long as either is alive.
All of the following are acceptable characteristics that an insurer can consider when rating a small employer group plan EXCEPT:

A) age.
B) family composition.
C) location.
D) 10-year medical histories.

D) 10-year medical histories.
All of the following statements regarding blanket insurance are correct EXCEPT:

A) some groups may qualify at the discretion of the Superintendent of Insurance.
B) an employer may purchase blanket insurance to cover employees who face exceptional hazards.
C) individual applications or certificates are not required.
D) benefits are payable to a common carrier, school, volunteer fire department, or other approved type of policyholder.

D) benefits are payable to a common carrier, school, volunteer fire department, or other approved type of policyholder. FALSE- benefits are not payable to the policyholder for the defined group
All of the following statements regarding Social Security are true EXCEPT

A) a fully insured worker is entitled to a greater range of benefits than a currently insured worker
B) self employed individuals are exempt from paying the FICA tax
C) most state and local government employees are covered by Social Security
D) Social Security benefits are indexed for inflation

B) self employed individuals are exempt from paying the FICA tax. FALSE- Self employed persons pay both the employer’s and employee’s share of the FICA tax.
Lee has a Social Security PIA of $800 at the time of his death. How much is payable to his surviving spouse as a lump-sum death benefit under Social Security?

A) $255.00
B) $0.00
C) $800.00
D) $500.00

A) $255.00. The Social Security lump-sum death benefit is a one-time-only payment of $255 to a deceased worker’s surviving spouse or eligible children.
All of the following statements regarding a traditional individual retirement account (IRA) are correct EXCEPT:

A) distributions must begin from an IRA by April 1 of the year following the IRA owner’s attainment of age 70½.
B) assuming that only tax-deductible contributions were made into the IRA, 100% of distributions from it are treated as taxable income.
C) a 10% penalty is assessed on any distribution from an IRA before age 59½.
D) IRAs are available to anyone younger than age 70½ with earned income, but deductible contributions are limited for individuals who are also covered under an employer-sponsored retirement plan.

C) a 10% penalty is assessed on any distribution from an IRA before age 59½. **Penalty is not assessed on ALL distributions
Who are the parties to a life insurance contract?

A) Agent and the applicant.
B) Applicant and the insuring company.
C) Agent, the applicant and the beneficiary.
D) Applicant and the beneficiary.

D) Applicant and the beneficiary. The parties to a life insurance contract are the applicant and the insuring company. Neither the beneficiary nor the agent is a contracting party.
A misstatement of age provision, which states that if an insured’s age has been misstated, any benefits will be paid based on the coverage the premium would have purchased at the correct age, is optional.
All of the following are optional provisions in an individual health insurance policy EXCEPT:

A) legal actions provision.
B) change of occupation provision.
C) misstatement of age provision.
D) unpaid premiums provision.

A) legal actions provision. A legal actions provision stating that no legal action will be entered into to recover on the policy earlier than 60 days or later than 3 years after written proof of loss has been furnished is mandatory in an individual health insurance policy.
Sarah pays $250 each month in premiums for her personal dental insurance policy and earns $300,000 a year as CEO of a small company. If she incurs $500 in dental expenses and the insurer reimburses her for these costs, Sarah:

A) cannot take an income tax deduction for either the premiums paid or the $500 in dental expenses.
B) can take an income tax deduction for the amount of premiums paid for the dental insurance.
C) can take an income tax deduction for the amount of premiums paid for dental insurance and for the $500 in expenses.
D) can take an income tax deduction for the $500 in dental expenses.

A) cannot take an income tax deduction for either the premiums paid or the $500 in dental expenses.

*Because Sarah was reimbursed for the full amount of her dental costs, she cannot take an income tax deduction.
*In addition, because the amount of premiums does not exceed 10% of her adjusted gross income, she cannot deduct the premium costs.

Premiums need to exceed 10% of income, and deductions cannot be taken on reimbursed expenses
All of the following statements about executive bonus plans are correct EXCEPT:

A) at the employee’s death, the company receives the death proceeds free of tax.
B) they are considered nonqualified plans.
C) the employee is the policyowner.
D) the bonus paid to the employee is includable in his gross income.

A) at the employee’s death, the company receives the death proceeds free of tax. FALSE- the beneficiary receives the proceeds.
Many disability buy-out plans are characterized by all of the following EXCEPT:

A) option to have benefits paid in periodic installments.
B) option to have benefits paid in a lump sum.
C) relatively short elimination periods.
D) requirement that the nondisabled owners purchase the disabled owner’s share of the business.

C) relatively short elimination periods. *They are usually longer than elimination periods on individual policies.
A business entity acting as an insurance producer must obtain what kind of license?

A) Nonresident producer license.
B) Temporary producer license.
C) Insurance producer license.
D) Limited lines producer license.

C) Insurance producer license.
All of the following provisions are optional in an individual health insurance policy EXCEPT:

A) unpaid premium provision.
B) illegal occupation provision.
C) change of beneficiary provision.
D) misstatement of age provision.

C) change of beneficiary provision.
Which of the following is closely allied with twisting?

A) Defamation.
B) Coercion.
C) Rebating.
D) Churning

D) Churning
TWISTING —– CHURNING
All of the following statements about preferred provider organizations are correct EXCEPT:

A) they offer health care coverage to low-income individuals.
B) they offer health care services to their members at discounted rates that are negotiated in advance.
C) they operate on a fee-for-service rendered basis.
D) physicians who are part of a PPO are in private practice.

A) they offer health care coverage to low-income individuals. FALSE- they do not offer health care coverage, only health care SERVICES
What kinds of risks does a health insurance policy cover during the ten day waiting period after it has been reinstated?

A) Accidents.
B) Accidents and sickness.
C) Neither accidents nor sickness.
D) Sickness.

A) Accidents.
All of the following people may be granted a temporary producer license EXCEPT:

A) the spouse of a licensed producer who has moved out of state.
B) the widow of a deceased producer.
C) the designee of a licensed producer who is entering active service in the U.S. Armed Forces for a significant period of time.
D) an employee of a licensed producer who has become disabled.

A) the spouse of a licensed producer who has moved out of state.
MAG Trading Co. established a tax-qualified, long-term care insurance plan for its employees. Which of the following statements is NOT correct?

A) Benefits received from the plan are subject to income tax.
B) Premiums paid by MAG Trading are considered a necessary business expense for tax purposes.
C) MAG Trading can take a deduction for the premiums it pays.
D) MAG Trading’s employees can exclude from income any employer-paid premium contributions.

A) Benefits received from the plan are subject to income tax. FALSE- Any premiums it pays are excludable from the employees’ income, and the company can take a tax deduction for the premiums paid, which are considered a necessary business expense for tax purposes
Who must notify an insurer that its policy is in danger of being replaced?

A) Insured.
B) Replacing insurer.
C) Broker.
D) Agent.

B) Replacing insurer.
Coverage for a health insurance policy will take effect just as if the policy had already been issued if all of the following conditions have been met EXCEPT:

A) the policy is eventually issued as applied for.
B) the policy has been legally delivered to the applicant.
C) the applicant satisfies all of the conditions of the conditional receipt.
D) the initial premium was paid with the health application.

B) the policy has been legally delivered to the applicant. It is not necessary for the policy to be legally delivered to the applicant for coverage to take effect.
Which of the following statements pertaining to Medicare is CORRECT?

A) Bob is covered under Medicare Part B. He submitted a total of $1,100 of approved medical charges to Medicare after paying the required deductible. Of that total, Bob must pay $880.
B) Each individual covered by Medicare Part A is allowed one 90-day benefit period per year.
C) Medicare Part A is automatically provided when a qualified individual applies for Social Security benefits.
D) For the first 90 days of hospitalization, Medicare Part A pays 100% of all covered services, except for an initial deductible.

C) Medicare Part A is automatically provided when a qualified individual applies for Social Security benefits. Medicare Part A is available when an individual turns 65 and is automatically provided when he or she applies for Social Security benefits. Medicare Part B pays 80% of medical expenses after the insured pays the deductible.
Individual health insurance policies are typically written on which basis?

A) Participating.
B) Experience rated.
C) Nonparticipating.
D) Claims rated.

C) Nonparticipating.
INDIVIDUAL : NONPARTICIPATING
GROUP : PARTICIPATING
Health insurance policies may be written on either a participating or nonparticipating basis. Most individual health insurance is issued on a nonparticipating basis. Group health insurance, however, is generally participating and provides for dividends or experience rating.
What type of annuity payment option provides a guaranteed income to the annuitant for life and, if the annuitant dies before the annuity is depleted, a lump-sum cash payment to the annuitant’s beneficiary?

A) Straight life option.
B) Period certain option.
C) Installment refund option.
D) Cash refund option.

D) Cash refund option.
All of the following types of health insurance coverage can be written on an individual basis EXCEPT:

A) Social Security.
B) medical expense.
C) accidental death and dismemberment.
D) disability income.

A) Social Security.
Paul is self-employed and pays $5,000 a year in premiums for health insurance covering his family. If his wife also works and is covered by an employer-sponsored health plan, what is the maximum income tax deduction that Paul can take for his health insurance coverage?

A) $2,500.00
B) $3,000.00
C) $5,000.00
D) $0.00

D) $0.00. Partners and sole proprietors can deduct 100% of amounts paid during the taxable year for insurance that provides medical care for them, their spouses, and dependents. However, the deduction is not available to a partner or sole proprietor if he is eligible to participate in a health plan maintained by an employer of the self-employed individual or his spouse. As a result, Paul will not be able to take an income tax deduction for the amount of premiums paid.
Which of the following types of health insurance coverage is always available on a group basis?

A) Accidental death and dismemberment.
B) Medical expense.
C) Maternity care.
D) Disability income.

C) Maternity care. Disability income, medical expense, and AD&D insurance can all be written on both an individual and a group basis. It is a federal requirement, however, that all group plans offer maternity care. Most individual plans do not offer maternity benefits.
When there is no coverage available through an authorized carrier in the state, this insurance is referred to as:

A) reinsurance.
B) excess and surplus lines.
C) reciprocal insurance.
D) risk retention.

B) excess and surplus lines.
Excess and surplus lines is the name given to insurance when there is no coverage available through an authorized carrier in the state where the risk arises or the risk is located, or for which there is no market through the original producer. This type of business must be placed through a licensed excess or suplus lines broker.
In major medical and comprehensive medical expense policies, a coinsurance provision:

A) does not apply until benefit amounts exceed $2,000.
B) has no effect on claims.
C) helps to satisfy the deductible amount.
D) provides for percentage participation by the insured.

D) provides for percentage participation by the insured.
As it pertains to group health insurance, COBRA stipulates that:

A) group coverage must be extended for terminated employees up to a certain period of time at the employee’s expense.
B) group coverage must be extended for terminated employees up to a certain period of time at the employer’s expense.
C) terminated employees must be allowed to convert their group coverage to individual policies.
D) retiring employees must be allowed to convert their group coverage to individual policies.

A) group coverage must be extended for terminated employees up to a certain period of time at the employee’s expense.
Which of the following dental plans covers dental services on a traditional fee-for-service basis?

A) Preferred Provider Organization.
B) Comprehensive plan.
C) Direct reimbursement plan.
D) Capitation plan.

B) Comprehensive plan. The insurer uses the monthly premium to pay the dentist directly for services rendered. This is done after the insured pays the deductible. These plans often have a predetermined or set deductible amount that differs among plans.
When a life insurance beneficiary is revocable:

A) the policyowner may only change the beneficiary with the beneficiary’s consent.
B) the policyowner is limited with respect to how many times he or she can change the beneficiary during the policy’s term.
C) the beneficiary has no vested claims in the policy or its proceeds while the insured is living.
D) the policyowner and the beneficiary share ownership of the policy.

C) the beneficiary has no vested claims in the policy or its proceeds while the insured is living. When beneficiaries are revocable, the policyowner may change designation at any time.
To be eligible to participate in a Keogh plan an employee must meet all of the following requirements EXCEPT:

A) have worked at least 1,000 hours in the year.
B) be at least 21 years of age.
C) be at least 18 years of age.
D) have completed one or more years of continuous employment.

C) be at least 18 years of age. FALSE- In order to be eligible to participate in a Keogh plan an employee must be at least 21 years of age, have completed one or more years of continuous employment with that employer, and have worked at least 1,000 hours in the year.
A required provision of individual health insurance policies is that written notice of a claim must be given to the insurer within:

A) 30 days following an accident or illness.
B) 14 days after the loss occurs.
C) 20 days after loss occurs or commences, or as soon as is reasonably possible.
D) 45 days after an accident or the beginning of an illness.

C) 20 days after loss occurs or commences, or as soon as is reasonably possible.
Individual health insurance policies must provide that written notice of a claim is to be given to the insurer within 20 days after a covered loss occurs, or as soon as is reasonably possible.
Tom is covered under Medicare Part A. He spends 1 week in the hospital for some minor surgery and returns home on July 10. It was his first hospital stay in years. He pays his deductible and Medicare pays the balance. He is then admitted to the hospital again on November 1 of that same year, when he returns for more surgery. Which of the following statements is CORRECT?

A) It will be considered the start of a new benefit period.
B) He will not have to pay the Part A deductible again.
C) Tom will have to pay the Part A deductible again only if the second surgery is unrelated to the first surgery.
D) He need not pay the Part A deductible, but must make a daily copayment.

A) It will be considered the start of a new benefit period.
The second hospitalization is part of a new benefit period, since it begins more than 60 days after the first hospitalization started. The new benefit period will require payment of the deductible again, but another hospitalization period of 60 days with 100% coverage of benefits is available.
Applicants for which of the following types of policies normally would require the MOST comprehensive underwriting?

A) Industrial health insurance.
B) Guaranteed renewable disability income insurance.
C) Basic medical expense insurance.
D) Limited accident insurance.

B) Guaranteed renewable disability income insurance. Applicants for noncancelable and guaranteed renewable disability income insurance would require the most comprehensive underwriting because they allow an insured’s guaranteed renewal of the policy up to a certain age, without evidence of insurability.
Which of the following managed care concepts was developed most recently?

A) Swing plans.
B) The dual choice requirement.
C) Exclusive provider organizations.
D) Preferred provider organizations.

C) Exclusive provider organizations.
A corporation or other limited liability association that assumes and spreads the liability exposure for any of its group members is called:

A) a reciprocal insurer.
B) a mutual insurer.
C) a risk retention group.
D) a stock insurer.

C) a risk retention group. A risk retention group is a corporation or other limited liability association that assumes and spreads the liability exposure for any of its group members. All members of a risk retention group have an ownership interest in the group and must be in businesses that expose them to similar liabilities.
All of the following are considered to be viable medical plan cost-saving options EXCEPT:

A) skilled nursing facilities.
B) hospice care.
C) emergency room preadmission testing.
D) specialized birthing centers.

C) emergency room preadmission testing. Emergency care must be provided when needed, so many plans waive the deductible and coinsurance. Preadmission testing would be impractical.
Blanket health insurance refers to a type of:

A) individual health and life insurance.
B) group health and life insurance.
C) group accident insurance.
D) individual accident insurance.

C) group accident insurance.
Renee is the owner and insured of a $100,000 policy. She sells the policy to her business partner, Jill, for $35,000 and for the next ten years, Jill pays the $1,200 annual premium. Assuming Renee dies ten years after the transfer and the $100,000 is paid to Jill, how are the proceeds taxed under the transfer-for-value rule?

A) Jill will be taxed on $65,000, the difference between what she paid for the policy and the proceeds she received.
B) Jill will be taxed on the $100,000. The transfer-for-value rule makes policies sold for consideration fully taxable.
C) Jill receives the $100,000 tax free.
D) Jill will be taxed on $53,000, the difference between what she paid for the policy plus the premiums she paid, and the proceeds she received.

C) Jill receives the $100,000 tax free. The transfer-for-value rule states that if a policy is transferred for consideration and the insured dies, the transferee will be taxed on the excess of the proceeds over the consideration, including any premiums. However, this rule does not apply to transfers to a partner of the insured.
Larry purchased a traditional IRA in 1985. Over the years he has contributed (and deducted from his taxes) $50,000 into the contract. Now age 62, Larry is retiring and plans to annuitize the contract. His life expectancy is 20 years, and he will receive $450 per month under a straight life annuity income option. Of the $5,400 he will receive annually from this annuity, how much will represent taxable income?

A) $2,484.00
B) $0.00
C) $5,400.00
D) $2,916.00

C) $5,400.00
Any individual or employer who offers or is covered by a high-deductible health plan may establish a HSA. In contrast, only self-employed persons or small employers can establish a medical savings account (MSA).
Which of the following individuals can establish a health savings account?

A) Any individual or employer with a high-deductible health plan.
B) Self-employed individuals with high-deductible health plans.
C) Employers with 50 or fewer employers who offer high-deductible health plans.
D) Self-employed individuals and small employers with high-deductible health plans.

A) Any individual or employer with a high-deductible health plan.
All of the following are true about the group conversion option EXCEPT

A) If the member dies during the conversion period, the insurer will pay the death benefit in full.
B) The member can convert to any type of insurance except term insurance.
C) the option guarantees the member that coverage will continue for 60 days.
D) Group life policies must include a conversion privilege

C) the option guarantees the member that coverage will continue for 60 days. FALSE- it guarantees coverage will last for 31 days
All of the following are required provisions in an individual life insurance contract EXCEPT:

A) home health care.
B) grace period.
C) payment of claims.
D) misstatement of age.

A) home health care.
The Commissioner of Insurance may, without a hearing, immediately suspend the certificate of authority of an insurer for each of the following reasons EXCEPT:

A) exceeding powers granted under its certificate of authority.
B) violating the insurance code.
C) failing to pay claims when due.
D) conducting business in a fraudulent manner.

C) failing to pay claims when due. An insurer’s failure to process or pay claims in a timely manner, if found to be a general business practice, will result in the Commissioner’s imposition of an administrative fine. The Commissioner makes this determination only after a hearing on the matter. The Commissioner may immediately suspend a certificate without notice or hearing if the insurer violated the insurance code, conducts its business fraudulently, or gives its consent.
What did the federal HMO law do to encourage the formation of HMOs?

A) Provided for training personnel.
B) Established HMO quotas for each state.
C) Set up subsidies for physicians and other medical specialists.
D) Provided federal assistance for federally qualified HMOs.

D) Provided federal assistance for federally qualified HMOs.
Medicare supplement insurance is designed for persons who have reached the age of:

A) 50 to 65.
B) 70 to 80.
C) 65 or older.
D) 60 or older.

C) 65 or older. Medicare supplement insurance fills the gaps in coverage left by Medicare, which provides hospital and medical expense benefits for persons aged 65 and older.
Bill’s medical expense policy states that it will pay him a flat $50 a day for each day he is hospitalized. The policy pays benefits on which basis?

A) Reimbursement.
B) Service.
C) Partial.
D) Indemnity.

D) Indemnity. Indemnity medical expense policies do not pay expenses or bills. They merely provide the insured with a stated benefit amount for each day he or she is confined to a hospital as an inpatient. The money may be used by the insured for any purpose.
How does an insurer treat benefits that are payable for expenses incurred when the company accepted the risk without being notified of other existing coverage for the same risk?

A) It deducts them.
B) It estimates them.
C) It eliminates them.
D) It prorates them.

D) It prorates them. Benefits payable for expenses incurred are prorated in cases where the company accepted the risk without being notified of other existing coverage. This limits overinsurance and is known as the “insurance with other insurers” provision.
All of the following are required provisions of group life insurance policies EXCEPT:

A) misstatement of age.
B) individual policy contract.
C) incontestability.
D) grace period.

B) individual policy contract.
Upon the issuance of a life insurance policy, an insurable interest must exist between:

A) the insured and the beneficiary.
B) the applicant and the beneficiary.
C) the agent and the applicant.
D) the applicant and the insured.

D) the applicant and the insured. REMEMBER, you have an insurable interest in yourself.
Many insurance policies contain a preexisting limitation that excludes coverage for unspecified conditions for how long?

A) Nine months.
B) One year.
C) Six months.
D) Three months.

C) Six months.
David is age 40 and single. He earned $45,000 in 2011 as an engineer with a company that has a group health plan but no employer-sponsored retirement plan. If David sets up a traditional IRA in 2011, what is the maximum contribution he can deduct from taxes that year?

A) $2,000.00
B) $10,000.00
C) $3,000.00
D) $5,000.00

D) $5,000.00. He is eligible to set up an IRA and deduct $5,000, the maximum amount for individuals under age 50.
Lynn is insured under Medicare Part A and enters the hospital for surgery. Assuming that Lynn has not yet tapped into her lifetime reserve, what is the maximum number of days that Medicare will pay for her hospital bills?

A) 150 days.
B) 90 days.
C) 60 days.
D) 120 days.

A) 150 days.
Initial deductible- Medicare pays for 60 days
Next 30 days- patient contributes a little
After 90 days- he can tap into a lifetime reserve of an additional 60 days, paying a higher level of daily co-payments.
a patient who has not yet tapped into the lifetime reserve days could have up to 150 days of Medicare coverage for 1 hospital stay
How long must an insurance producer maintain records of insurance transactions with its policyholders?

A) One year.
B) Five years.
C) Six months.
D) Three years.

B) Five years.
Brenda and Ted have an estate worth $10 million, the majority of which is invested in their family business. In order to pay the federal estate tax that will be due at the death of the survivor, they should consider purchasing a:

A) joint life policy.
B) family plan policy.
C) second-to-die policy.
D) multiple protection policy.

C) second-to-die policy, which covers both parties but pays the death benefit only on the death of the survivor. (aka it’ll pay the taxes when the estate is due)
To ensure that annuities are used for retirement purposes, a 10% penalty tax is imposed on distributions from a deferred annuity to a person who has not yet reached age 59½. This penalty is imposed on the interest earned and withdrawn, not on the principal. However, the penalty tax does not apply to distributions made to an annuity owner who separates from service from an employer and has reached age 55.
The penalty is also inapplicable to distributions made under a deferred annuity contract purchased by the employer at the termination of a qualified plan and held until the taxpayer separates from service.
Under Medicare Part A, the participant must pay his or her deductible:

A) once per benefit period.
B) monthly.
C) twice per benefit period.
D) annually.

A) once per benefit period. For Medicare Part A, the participant must pay his or her deductible once per benefit period. A benefit period starts when a patient enters the hospital and ends when the patient has been out of the hospital for 60 consecutive days.
For group health insurance, employees may be classified in all of the following ways EXCEPT by:

A) type of payroll.
B) age.
C) length of service.
D) duties.

B) age.
The period during which annuity benefits are received is called the

A) earnings period
B) payout period
C) accumulation period
D) annuity period

D) annuity period
The payor benefit typically waives premiums on a juvenile policy if the:

A) insured child dies before reaching a specified age, usually 21 or 25.
B) policy is converted before the insured reaches a specified age.
C) insured child becomes disabled.
D) person who pays the premium dies or becomes disabled before the insured child reaches a certain age.

D) person who pays the premium dies or becomes disabled before the insured child reaches a certain age.
All of the following are optional provisions in an individual accident and health insurance policy EXCEPT:

A) loss-of-time benefit adjustment.
B) change of beneficiary.
C) illegal occupation.
D) change of occupation.

B) change of beneficiary. Change of beneficiary is a MANDATORY provision
All forms of insurance are alike in all of the following ways EXCEPT:

A) the nature of the perils covered is the same.
B) all are based on the law of large numbers.
C) all are implemented through a contractual agreement between the insurance owner and insurer.
D) all indemnify financial loss.

A) the nature of the perils covered is the same.
The major difference between life insurance and other forms of insurance is that life insurance covers a certain risk–death–whereas the others insure against contingencies that may or may not happen: sickness, fire, or theft.
As beneficiary, Kathryn receives $800 monthly from her deceased husband’s life insurance under a fixed amount option. Each payment consists partly of principal (proceeds) and partly of interest. How is this income taxed?

A) The portion of each payment consisting of principal is taxed; the remainder is tax free.
B) Each payment is fully taxed.
C) Each payment is received fully tax free.
D) The portion of each payment consisting of interest is taxed; the remainder is tax free.

D) The portion of each payment consisting of interest is taxed; the remainder is tax free. The monthly payment to the beneficiary under the fixed-amount option is considered a partially taxable installment (similar to an annuity payment). A fixed, unchanged portion of each payment is considered a return of principal and is therefore not taxed. The balance, however, is taxable as interest income.
The “withdrawal to basis” method is a tax-effective way to access a universal life insurance policy’s cash value. Non-MEC withdrawals are tax-free up to basis. Treating the gain as a policy loan avoids taxation on that portion of the distribution.
Rodney, age 35, who earned $40,000 in 2011 and did not participate in an employer retirement plan, has a nonworking spouse. They filed a joint income tax return. Which of the following statements is TRUE?

A) Rodney could establish separate IRAs for himself and his wife and contribute and deduct $10,000 to his IRA and $5,000 to his wife’s IRA.
B) Rodney could establish an IRA for himself and contribute any amount he wishes to it.
C) Rodney could establish a separate IRA for himself and another for his wife and could deduct a contribution of up to $10,000 for 2011.
D) Rodney could establish an IRA for himself but not for his wife because she is unemployed. However, because he is married, he could contribute and deduct up to twice the maximum for an individual IRA, or $10,000.

C) Rodney could establish a separate IRA for himself and another for his wife and could deduct a contribution of up to $10,000 for 2011.
What entity qualifies retirement plans?

A) State insurance department.
B) Insurance company underwriting the fund.
C) Federal government.
D) Sponsoring employer.

C) Federal government. (Think ERISA)
Upon issuance of a conditional receipt to an insurance applicant who has paid the insurer an initial premium:

A) the insurance company assumes no risk until the policy is issued.
B) the applicant eliminates the need to provide the usual application information.
C) the applicant forfeits his or her right to a permanent contract.
D) the insurance company is conditionally assuming the risk.

D) the insurance company is conditionally assuming the risk.
Carl and Laura receive $270 per month under a joint and two-thirds survivor life policy settlement option. What would happen if Carl died within a year after payment started?

A) Laura would continue to receive a monthly benefit of $270 for as long as she lived.
B) Laura would receive $135 per month for as long as she lived.
C) Laura would receive $180 per month for as long as she lived.
D) The balance of the proceeds would be paid to Laura in a lump sum.

C) Laura would receive $180 per month for as long as she lived. The joint and two-thirds survivor life income option provides an income for two people: the full amount for the couple, while both are living, and two-thirds of the amount for the survivor.
A hospital indemnity insurance policy may be recommended to a client for all the following reasons EXCEPT:

A) the policy can be an ideal supplement to other health insurance.
B) the policy will pay the full amount of a hospital stay.
C) benefits are paid directly to the insured and may be used for any purpose.
D) the premiums are affordable.

B) the policy will pay the full amount of a hospital stay.
Which of the following is a goal of managed care plans?

A) To protect insureds from insolvency of health insurers.
B) To provide low cost health care to people who could not ordinarily afford health insurance.
C) To apply financial incentives that reduce the quantity and cost of services.
D) To fight fraud in the insurance business.

C) To apply financial incentives that reduce the quantity and cost of services.
All of the following statements about flexible spending accounts are correct EXCEPT:

A) they provide reimbursement for medical expenses incurred.
B) they may be provided as a stand-alone plan or as part of a traditional cafeteria plan.
C) they allow participants to pay for health care expenses with pre-tax dollars.
D) they may reimburse participants for all medical related expenses.

D) they may reimburse participants for all medical related expenses.
A flexible spending account is a benefit provided by an employer that allows an employee to deposit a certain amount of his or her paycheck into an account before paying income taxes. During the year, the employee is then directly reimbursed from this account for eligible health care and dependent care expenses. Only qualified medical expenses are reimbursable, not all medical expenses. Eligible expenses include certain medical expenses, health care plan deductibles, and co-payments.
With regard to medical benefits available through the federal government, Medicaid provides:

A) medical benefits for the disabled, regardless of income.
B) medical benefits exclusively for the aged.
C) medical benefits to all who have contributed to its funding through payroll taxes.
D) funds to states to assist their medical public assistance programs.

D) funds to states to assist their medical public assistance programs.
Medicaid provides funds to states to assist their medical public assistance programs. Medicare provides health benefits for the aged and disabled.
MEDICAID: FUNDS TO ASSIST, MEDICARE: BENEFITS FOR OLD
Controlled business is insurance sold to cover the lives, businesses, properties, or risks of all the following EXCEPT:

A) the spouse of the insurance producer.
B) an employer of the insurance producer.
C) a friend of the insurance producer.
D) the insurance producer.

C) a friend of the insurance producer. Controlled business is insurance written on the producer, the producer’s spouse or the producer’s employer.
A beneficiary receives the proceeds from a life insurance policy in a lump sum payment. Which of the following statements best explains how the proceeds will be treated in relation to the debts of the beneficiary?

A) It is protected from the beneficiary’s creditors once it is paid to a beneficiary.
B) It can be subject to the beneficiary’s debts and creditors.
C) It is not subject to the beneficiary’s debts and creditors.
D) It is protected from the beneficiary’s creditors as long as it is paid in a lump sum.

B) It can be subject to the beneficiary’s debts and creditors.
When proceeds of a life insurance policy are payable to a beneficiary but held in trust by the insurer, the beneficiary has an exclusive right to the proceeds. These payments are not subject to the beneficiary’s debts and cannot be reached by creditors. This protection only applies to policies in which the proceeds are payable in installments. It does not protect proceeds paid in a lump sum. The protection also does not extend to proceeds once they are paid to a beneficiary.
The optional provision Other Insurance in This Insurer is specifically designed to:

A) avoid issuing 2 policies on an insured person.
B) limit the risk with any one individual insured by the insurance company.
C) discount the premiums if more than 1 policy is issued to insure the same individual.
D) restrict an insured’s coverage to one type of accident and health insurance.

B) limit the risk with any one individual insured by the insurance company.
Which of the following must a producer do when a new life insurance policy is sold?

A) Provide the existing insurer with the “Notice Regarding Replacement”.
B) Send the insurer a statement, signed by the applicant, disclosing whether or not the new insurance will replace existing insurance.
C) Give the applicant a copy of the producer’s certificate.
D) Provide a list of guaranteed dividends.

B) Send the insurer a statement, signed by the applicant, disclosing whether or not the new insurance will replace existing insurance.
In which of the following circumstances would the incontestable clause of an insurance policy apply?

A) Impersonation of the applicant by another.
B) No insurable interest.
C) Concealment of smoking.
D) Intent to murder.

C) Concealment of smoking. A policy issued under one of the other three situations may be voided at any time, since it would not be considered a valid, enforceable contract.
Cal, age 57, owns a whole life insurance with a $750,000 face amount that was paid for in 2002 with a single premium of $100,000. The current cash value is $125,000. If he were to borrow $30,000 from this policy today, which of the following choices best describes the tax treatment this transaction will receive?

A) $25,000 of the loan is subject to income taxation plus an additional 10% penalty tax.
B) The first $25,000 of the loan is tax free, but the remaining $5,000 is subject to income taxation.
C) The first $5,000 of the loan is tax free, and the remaining $25,000 is subject to income taxation.
D) The loan is income tax free.

A) $25,000 of the loan is subject to income taxation plus an additional 10% penalty tax. This policy is a modified endowment contract (MEC), evidenced by the fact that it was paid for with a single premium. Accordingly all withdrawals, including loans, above the cost basis (the total amount of premium paid in) are subject to income taxation and, if the owner is under age 59½, an additional 10% penalty.
Which kind of deductible is entirely or partially absorbed by a basic medical expense policy?

A) Corridor.
B) First dollar.
C) Integrated.
D) Decreasing.

C) Integrated. All or part of the integrated deductible is absorbed by, or integrated into, the basic medical expense policy. Then major medical benefits are payable.
Larry owns a deferred annuity for which his wife Karen is the designated annuitant and his son Chris is the designated beneficiary. If Larry were to die before the contract is annuitized, to whom would the contract’s death benefit be payable?

A) Larry’s estate.
B) Chris.
C) Karen.
D) No one; there is no death benefit under these circumstances.

B) Chris. A deferred annuity’s death benefit (which is equal to the contract’s accumulated value) is payable to the contract’s beneficiary, not the annuitant.
How long is the standard term of an insurance producer’s license in the state of New Jersey?

A) 3 years.
B) 2 years.
C) 1 year.
D) 4 years.

B) 2 years.
Which of the following methods of determining benefits under a surgical expense policy assigns a set of points to surgical procedures?

A) Surgical schedule.
B) Relative value.
C) Reasonable and customary costs.
D) Corridor offset.

B) Relative value.
Mutual companies are sometimes referred to as:

A) fraternal companies
B) stock companies
C) non-participating companies
D) participating companies

D) participating companies. Mutual companies are sometimes referred to as participating companies because the policyowners participate in dividends.
Brian, age 25, just started working and would like to purchase life insurance to ensure that his wife and child are protected if he dies prematurely. He has very limited funds but would eventually like to have permanent protection. Brian should consider purchasing:

A) limited pay whole life insurance.
B) variable life insurance.
C) level term life insurance.
D) whole life insurance.

C) level term life insurance.
All of the following statements about a modified whole life policy are correct EXCEPT:

A) it is basically an endowment policy.
B) premiums are uniformly lower during the early years of the contract.
C) cash value builds until the insured reaches age 100 so long as the policy is in force.
D) the premium-paying period continues to age 100.

A) it is basically an endowment policy.
The premiums in a modified whole life policy are lower in the early years of the policy’s term and higher in its later years.
With disability income insurance, a probationary period may NOT apply when the insured is disabled:

A) while traveling.
B) while at work.
C) by sickness.
D) by accidental injury.

D) by accidental injury. Probationary period does NOT apply to accidental injuries.
If a company pays the premiums on a disability income policy covering a key employee:

A) the company can deduct the premium if the benefits are payable to the company.
B) the benefits received by the employee are not subject to tax.
C) the company receives benefits from the policy income tax free.
D) the company cannot deduct the premium if benefits are paid to the key employee.

C) the company receives benefits from the policy income tax free.
All of the following health insurance policies must cover the treatment of alcoholism EXCEPT:

A) an employer group plan.
B) a Medicare supplement policy.
C) an individual health policy.
D) an individual policy that was converted from a terminated group plan that covered the treatment of alcoholism.

B) a Medicare supplement policy.
In order for coverage to go into effect, the applicant must first complete all of their requirments, including payment of the initial premium. If the applicant’s circumstances require a medical exam, the exam must also be completed before any coverage could go into effect. If all of the applicant’s requirements have been met, the insurer will continue to underwrite the policy even if the applicant dies prior to the policy being issued. If the policy is issued as originally applied for, benefits will be paid to the designated beneficiary.
Mick wants to establish a health savings account (HSA) for his family. How much can he contribute each year to the account?

A) 100% of the deductible, up to $5,800.
B) 80% of the deductible, up to $5,800.
C) 100% of the deductible, up to $2,900.
D) 80% of the deductible, up to $2,900.

A) 100% of the deductible, up to $5,800. For his family, Mick can contribute as much as 100% of the deductible, up to $5,800. If the plan were for him alone, the maximum contribution would be $2,900.
Insured losses are covered immediately after a health policy is reinstated when:

A) hospitalization is required.
B) claim forms are submitted with proof of loss.
C) all back premiums have been paid.
D) the losses result from accidental injuries.

D) the losses result from accidental injuries. Insured losses from sickness will not be covered unless they occur at least ten days after reinstatement. This is to prevent adverse selection against the insurer.
All of the following statements regarding the coordination of benefits provision of a health insurance policy are correct EXCEPT:

A) the deductible is the primary means of coordinating benefits and avoiding overinsurance.
B) each carrier pays benefits in a specified order, to avoid overinsurance.
C) the client can purchase multiple policies to assure maximum protection.
D) each carrier may pay a portion of the benefit, to avoid paying more than the total allowable expenses.

A) the deductible is the primary means of coordinating benefits and avoiding overinsurance.
Medical Savings Accounts are designed to:

A) enable senior citizens to create tax-favored accounts to defray unreimbursed medical expenses.
B) help uninsured individuals pay for health care expenses on a tax-favored basis.
C) help employees of small businesses and self-employed individuals pay for unreimbursed health care expenses on a tax-favored basis.
D) provide health insurance coverage to employees of small businesses and self-employed individuals.

C) help employees of small businesses and self-employed individuals pay for unreimbursed health care expenses on a tax-favored basis.
The annuitant of an annuity can be compared to which of the following with respect to a life insurance policy?

A) Creditor.
B) Beneficiary.
C) Insured.
D) Policyowner.

C) Insured. The annuitant is the person by whose life the contract is measured.
After paying the monthly premium and annual deductible under Medicare Part D, the proportion of prescription drug costs that Medicare beneficiaries pay is:

A) 10%.
B) 25%.
C) 15%.
D) 20%.

B) 25%.
For a beneficiary to receive accidental death benefits, death of the insured generally must occur within how many days following the accident?

A) 90 days.
B) 45 days.
C) 30 days.
D) 60 days.

A) 90 days.
In New Jersey, the Commissioner of Banking and Insurance is:

A) elected by the presidents of all domestic insurers in New Jersey.
B) elected by the New Jersey voters.
C) appointed by the governor.
D) appointed by the National Association of Commissioners.

C) appointed by the governor.
Hubert, the insured, changes to a more hazardous job than the one he had when he applied for his disability income policy. According to the policy’s change of occupation provision, what will happen when the insurer learns of his job change?

A) The insurer will cancel the policy unless Hubert pays an additional premium to cover the higher risk.
B) There is nothing the insurer can do as long as Hubert pays the premiums for the policy.
C) Policy benefits will be reduced to an amount the premiums would have purchased if they were based on the more hazardous occupation.
D) A specified percentage of benefits penalty will be charged against any future benefit payments.

C) Policy benefits will be reduced to an amount the premiums would have purchased if they were based on the more hazardous occupation.
All of the following statements are true about the tax advantages of a qualified retirement plan, EXCEPT:

A) Earnings of a qualified retirement plan are exempt from employees’ current income taxation.
B) Earnings from a qualified retirement plan are taxable when paid as a benefit.
C) Employees’ contributions to retirement plans are included in ordinary income.
D) Employer contributions to qualified plans are deductible business expenses.

C) Employees’ contributions to retirement plans are included in ordinary income. FALSE- they are deductible from ordinary income under certain conditions.
None of the following can be considered qualifying expenses for purposes of determining an individual’s medical tax deduction EXCEPT:

A) premium contributions paid by an employer to a group medical expense plan.
B) premium contributions paid by an individual to a group disability plan.
C) premium contributions paid by an employer to a group disability plan.
D) premium contributions paid by an individual to a group medical expense plan.

D) premium contributions paid by an individual to a group medical expense plan. Individual premium contributions to a group medical expense plan are deductible only when they and other unreimbursed medical expenses exceed 10% of an individual’s adjusted gross income. Premium contributions made by an employer and those made by an employee for group disability coverage cannot be considered for purposes of determining a medical tax deduction.
The first-year commission for Medicare supplement insurance policies cannot be more than:

A) 200% of the second-year commission.
B) 100% of the second-year commission.
C) 20% of the maximum amount of coverage.
D) 100% of the policy premium.

A) 200% of the second-year commission.
Long-term care policies can:

A) condition eligibility for benefits on a prior hospitalization requirement.
B) exclude coverage on the basis of Alzheimer’s disease.
C) condition eligibility for benefits on the basis of a diagnosis of terminal or chronic illness.
D) exclude coverage for a loss that is the result of a preexisting condition that occurred two months before the effective date of coverage.

D) exclude coverage for a loss that is the result of a preexisting condition that occurred two months before the effective date of coverage.
The Commissioner examines a domestic insurer to accomplish all of the following EXCEPT:

A) to investigate alleged violations of insurance law.
B) to determine whether a company will be granted a certificate of authority.
C) to approve the location of the insurer’s offices.
D) to conduct periodic examinations of an insurer’s books and records.

C) to approve the location of the insurer’s offices.
Paul is hospitalized with a back injury and, upon checking his disability income policy, learns that he will not be eligible for benefits for at least 60 days. This would indicate that his policy probably has a 60-day:

A) probationary period.
B) elimination period.
C) disability period.
D) blackout period.

B) elimination period. The elimination period is the time immediately following the start of a disability when benefits are not payable.
The core policy (Plan A) developed by NAIC as a standard Medicare supplement policy includes all of the following EXCEPT:

A) coverage for the first 3 pints of blood each year.
B) coverage for the Medicare Part A deductible.
C) coverage for the 20% Part B coinsurance amounts for Medicare-approved services.
D) coverage for the Part A coinsurance amounts.

B) coverage for the Medicare Part A deductible.
Which of the following statements about variable universal life insurance is NOT correct?

A) It pays a death benefit to a named beneficiary and offers the insured tax-deferred cash value investment options.
B) It offers flexibility in premium payments and face amount dependent on investment performance.
C) It guarantees a minimum cash value in the investment account.
D) It allows the insured to make withdrawals or to borrow from the policy during the insured’s lifetime.

C) It guarantees a minimum cash value in the investment account. It does guarantee a minimum death benefit, but not cash value.
What kinds of health care provider organizations are represented by Blue Cross and Blue Shield?

A) Health sector funds.
B) Health insurance companies.
C) Health benefit societies.
D) Health care service contractors.

D) Health care service contractors.
Joanna and her husband, Tom, have a $40,000 annuity that pays them $200 a month. Tom dies and Joanna continues receiving the $200 monthly check as long as she lives. When Joanna dies, the company ceases payment. This is an example of a(n):

A) joint and full survivor annuity.
B) life annuity.
C) installment refund annuity.
D) cash refund annuity.

A) joint and full survivor annuity. The joint and full survivor option provides for payment of the annuity to two people. If either person dies, the same income payments continue to the survivor for life. When the surviving annuitant dies, no further payments are made to anyone.
A managed health care system that finances and delivers health care services through contract providers is called a(n):

A) contract health provider.
B) health maintenance organization.
C) major medical expense association.
D) accident and health guaranty association.

B) health maintenance organization.
Which of the following statements regarding Section 529 plans is CORRECT?

A) Contributions are made with pre-tax dollars.
B) Section 529 plans are also referred to as Qualified Tuition Programs.
C) Certain contribution restrictions may apply based upon the income of the contributor.
D) Both types of Section 529 plans, prepaid tuition and college savings, lock in college costs.

B) Section 529 plans are also referred to as Qualified Tuition Programs.
In which of the following situations would an accidental death and dismemberment (AD&D) policy most likely NOT pay a benefit?

A) The insured loses a finger while using a chain saw in his workshop.
B) The insured becomes distracted while talking on her cell phone when driving, collides with a telephone pole, and loses a leg as a result.
C) The insured trips over a computer cable at the office, strikes his head on a steam radiator, and dies from his injury one week later.
D) While serving as a camp counselor during a class field trip, the insured loses an arm in a boating accident.

A) The insured loses a finger while using a chain saw in his workshop.
All of the following statements pertaining to modified whole life and graded premium whole life policies are correct EXCEPT:

A) the premium for modified whole life increases each year after the first few years of policy issue.
B) the premium for graded premium whole life increases each year during the first few years after policy issue.
C) graded premium whole life policies build cash values and have premium-paying periods to age 100.
D) modified whole life contracts build cash values and have premium-paying periods to age 100.

A) the premium for modified whole life increases each year after the first few years of policy issue.
Deferred compensation plans are agreements between employers and employees whereby the employee reduces current income by deferring the receipt of currently due salary, bonus, commission, or salary increase until a specified future date – typically at retirement. Funded by the employee, deferred compensation arrangements are non-qualified plans that typically favor highly paid executives. Basically a “promise” to pay future benefits to the employee, contributions to the plan are not deductible to the employer until the employee actually begins taking distributions, at which time the employee would begin paying taxes on those distributions.
Which of the following statements pertaining to deferred compensation plans is CORRECT?

A) A deferred compensation arrangement is a non-qualified plan funded by the employee.
B) A deferred compensation arrangement is a qualified plan funded by the employee.
C) A deferred compensation arrangement is a qualified plan funded by the employer.
D) A deferred compensation arrangement is a non-qualified plan funded by the employer.

A) A deferred compensation arrangement is a non-qualified plan funded by the employee.
The time of payment of claims provision in an accident and health insurance policy requires that:

A) the insured must periodically submit proof of loss in order to receive the claim.
B) the insurer must furnish the insured with the forms required for filing proof of loss.
C) the insured must submit proof of loss within a specified time, or the claim may be denied.
D) claims will be paid immediately after the insurer receives written proof of the loss.

D) claims will be paid immediately after the insurer receives written proof of the loss.
The notice of claim provision requires that written notice be given to the insurer within 20 days after any loss.
The Blue Cross organization is an example of:

A) a contributory employer group.
B) a health maintenance organization.
C) a guaranty association.
D) a health care service corporation.

D) a health care service corporation.
All of the following statements pertaining to SIMPLE plans are correct EXCEPT:

A) these plans are reserved for employers with 500 or more employees.
B) all employees are fully and immediately vested in SIMPLE plans.
C) SIMPLE plans allow employers to set up tax-favored retirement savings plans for their employees without having to comply with complicated qualification requirements.
D) SIMPLE plans may be structured like IRAs or 401(k) plans.

A) these plans are reserved for employers with 500 or more employees. FALSE- SIMPLE plans are reserved to small business that employ 100 or fewer employees.
Tom is covered under Medicare Part A. He spends 1 week in the hospital for some minor surgery and returns home on July 10. It was his first hospital stay in years. Which of the following statements is CORRECT regarding his Medicare coverage?

A) Medicare will pay benefits, but Tom must make a daily copayment.
B) Medicare will not cover Tom’s hospital expenses because he was not hospitalized for 10 consecutive days.
C) After Tom pays the deductible, Medicare will pay 100% of all covered charges.
D) After Tom pays the deductible, Medicare will pay 80% of all covered charges.

C) After Tom pays the deductible, Medicare will pay 100% of all covered charges. Medicare pays 100% of covered services for the first 60 days of hospitalization after the deductible is paid.
A main goal of Medicare Part C is to:

A) encourage individuals aged 65 and over to enroll in the Medicare program.
B) encourage Medicare beneficiaries to join private health plans as an alternative to the traditional fee-for-service Medicare program.
C) encourage Medicare enrollees to purchase Medicare supplement insurance.
D) eliminate the traditional fee-for-service Medicare program.

B) encourage Medicare beneficiaries to join private health plans as an alternative to the traditional fee-for-service Medicare program.
Brian is the sole proprietor of a book store and paid $5,000 last year in premiums for medical expense coverage. He incurred $6,000 in medical expenses and was reimbursed for these costs under his health plan. Which of the following statements is CORRECT?

A) Brian can take a partial deduction for the amount of premiums paid.
B) Brian must include the benefits received from his health plan in income.
C) Brian can take a deduction for the entire amount of premiums paid.
D) Brian must include part of the benefits received from his health plan in income.

C) Brian can take a deduction for the entire amount of premiums paid. Self-employed individuals can take an income tax deduction for all amounts paid for medical care, including insurance premiums.
Which of the following types of plans integrates its coverage with a basic medical expense coverage, providing benefits in excess of those specified in the basic plan?

A) Comprehensive major medical.
B) Supplementary major medical.
C) Hospital indemnity.
D) Basic umbrella.

B) Supplementary major medical.
A guaranteed insurability rider may be attached to which of the following policies?

A) Accidental death and dismemberment.
B) Group health.
C) Medical expense.
D) Disability income.

D) Disability income.
Which of the following statements explains why a person would NOT be a good applicant for a long-term care insurance policy?

A) He has substantial savings put aside to cover these expenses.
B) Because of his financial situation, he must rely on Medicaid to pay the cost of long-term care.
C) He has a Medicare supplement policy that will cover the cost.
D) He already has a long-term disability policy.

B) Because of his financial situation, he must rely on Medicaid to pay the cost of long-term care. MEDICAID will pay for him because he is poor. No need for long-term care insurance.
With regard to substandard health insurance risks, which of the following statements is CORRECT?

A) When the applicant represents a substandard risk, the policy may be modified to exclude a specific kind of illness or condition.
B) To provide coverage to substandard risks, insurers are allowed to charge an extra premium; however, they cannot alter benefit periods or waiting periods.
C) Because of stringent underwriting requirements, most health insurance applicants are classified as substandard risks.
D) An applicant can be deemed a substandard risk based on physical condition only; no other criteria may be considered.

A) When the applicant represents a substandard risk, the policy may be modified to exclude a specific kind of illness or condition.
Under a group life plan, eligible dependents of an insured employee could include all of the following EXCEPT:

A) The insured employee’s children who are younger than the specified age.
B) Any eligible person for whom dependency upon the insured employee can be proven.
C) The insured employee’s spouse.
D) The insured employee’s parents.

D) The insured employee’s parents.
n New Jersey, what term is used to describe an insurer formed under the laws of Massachusetts and approved to do business in New Jersey?

A) Domestic company.
B) Approved company.
C) Alien company.
D) Foreign company.

C) Alien company.
Insurance companies formed under the laws of another state, commonwealth or territory of the United States are called foreign insurance companies. A domestic insurance company is formed under the laws of New Jersey and usually has a home office in the state. An alien insurance company is formed under the laws of another country.
If an impairment rider is attached to a health insurance policy, it will:

A) lengthen the policy’s waiting period.
B) decrease the amount of benefits provided.
C) increase the premium rate charged.
D) exclude from coverage losses resulting from specified conditions.

D) exclude from coverage losses resulting from specified conditions.
Anna applied for a $2 million life insurance policy and paid the first premium but was later found to be uninsurable. The agent gave her a receipt that guarantees coverage until the insurer formally rejects her application. Which type of receipt did Anna receive?

A) Conditional.
B) Insurability.
C) Binding.
D) Approval.

C) Binding.
Alice has a major medical policy with a $500 deductible and an 80%/20% coinsurance provision. If she receives a hospital bill for $7,500 of covered expenses, how much of that bill will she have to pay?

A) $2,000.00
B) $1,900.00
C) $1,400.00
D) $2,400.00

B) $1,900.00. FIRST, subtract the deductible, then do the 80/20%.
Suppose that two years before he died, an insured bought a policy to maintain his family’s income. The policy pays monthly benefits to the family for five years following the date of the insured’s death. The face amount of the ordinary insurance portion of the policy is paid at the end of the 5-year period. What kind of policy did the insured buy?

A) 7-year family maintenance plan.
B) 5-year family income plan.
C) 7-year family income plan.
D) 5-year family maintenance plan.

A) 7-year family maintenance plan.
A family maintenance plan, which uses a level term rider, provides for payment of income for a selected, fixed period of years that begins from the date of death. The face amount of the ordinary insurance portion of the contract is paid at the end of the fixed period.
All of the following are examples of social insurance EXCEPT:

A) Blue Cross and Blue Shield coverage.
B) Medicare.
C) workers’ compensation.
D) Social Security.

A) Blue Cross and Blue Shield coverage. These are service insurers.
Social insurance is provided by the federal and state governments and includes Social Security, Medicare, Medicaid and workers’ compensation
All of the following statements about life insurance are correct EXCEPT:

A) a policyowner must notify the insurer in writing to transfer a policy.
B) a policyowner must notify the beneficiary before transferring ownership.
C) life insurance is not a personal contract between the insurer and insured.
D) if a policy is transferred, the new owner receives all of the rights of policy ownership.

A) a policyowner must notify the insurer in writing to transfer a policy.
If a licensee is found to have knowingly violated the law, what is the maximum fine that the Commissioner may impose for the first violation charged?

A) $500.00
B) $1,000.00
C) $2,500.00
D) $5,000.00

D) $5,000.00. A fine may be assessed against the offender as follows: $5,000 for the first offense, $10,000 for the second offense, and $15,000 for subsequent offenses.
Concerning the consideration clause for a health insurance policy, all of the following statements are correct EXCEPT:

A) the consideration clause may specify the insured’s right to renew the policy.
B) a consideration clause may be included in a rider, if requested by the insured.
C) the amount and frequency of premium payment are stated in the consideration clause.
D) two principal elements of the consideration clause are the premium payment and the application.

B) a consideration clause may be included in a rider, if requested by the insured. It would never be included in the rider.
Blue Cross/Shield bases its rates on which of the following?

A) The size of the group.
B) Nationwide demographic and loss tables.
C) Actual medical costs and loss experience in the region.
D) The experience of the individual or group being insured.

C) Actual medical costs and loss experience in the region. Community ratings.
Under what system do a group of doctors and hospitals in a designated area contract with an insurer to provide medical services at a prearranged cost to the insured?

A) MIB.
B) PPO.
C) HMO.
D) DPO.

B) PPO.
Under a Keogh (HR-10) plan, an employer:

A) must contribute the same percentage to their eligible employees as they contribute to their own plan.
B) has the option to choose the percentage amount and which employees they contribute to.
C) can choose to not contribute to their employees.
D) must contribute to their eligible employees, but at a percentage of the employer’s choice.

A) must contribute the same percentage to their eligible employees as they contribute to their own plan.
If both an older and younger person had annuity funds of the same amount and simultaneously began to receive monthly life payments, which individual would receive the LARGER payments?

A) The amount of the payment is based on the purchase date of the annuity.
B) Older person.
C) Both would receive the same amount.
D) Younger person.

B) Older person. (Shorter amount of time to live, larger payments)
All of the following statements pertaining to the Fair Credit Reporting Act are correct EXCEPT:

A) the Fair Credit Reporting Act does not apply to insurance companies who use their own staffs to investigate an applicant for insurance.
B) the Fair Credit Reporting Act is a state law that helps to assure accurate reporting of information about consumers.
C) a life insurance company obtains a consumer report on Burl, an applicant, without advising him of its intended action. The company has violated the Fair Credit Reporting Act.
D) Peg has an application for life insurance rejected because of an unfavorable consumer report. She has a right to know what information the reporting agency has and can insist that any errors in the data be corrected.

B) the Fair Credit Reporting Act is a state law that helps to assure accurate reporting of information about consumers. FALSE- it is a FEDERAL LAW
Fair Credit Reporting Act is a ____ law.
federal
Which of the following legal terms indicates that a life insurance contract contains the enforceable promises of only one party?

A) Conditional.
B) Aleatory.
C) Unilateral.
D) Adhesion.

C) Unilateral. Insurance contracts are unilateral in that only one party-the insurer-makes any kind of enforceable promise.
Respite care is defined as:

A) coverage which provides a rest period for professional caregivers for the disabled or terminally ill.
B) coverage designed to provide a short rest period for a family caregiver.
C) care for the terminally ill.
D) care provided for the elderly in a group setting.

B) coverage designed to provide a short rest period for a family caregiver.
A licensed independent life or health insurance producer may represent:

A) no more than 2 authorized insurers within a 12-month period.
B) only 1 insurance company.
C) no more than 2 companies.
D) 1 or more authorized insurers.

D) 1 or more authorized insurers.
A contract is voidable when it:

A) was never in effect.
B) cannot be enforced by either party.
C) is binding unless the party with the right to set it aside wishes to do so.
D) lacks one of the basic elements of a legal contract.

C) is binding unless the party with the right to set it aside wishes to do so.
Fees for all of the following items typically are covered under a medical expense policy’s miscellaneous expense benefit EXCEPT:

A) use of the operating room.
B) surgeon’s fees.
C) x-rays.
D) laboratory fees.

B) surgeon’s fees. This is covered under a surgical expense policy
Which of the following types of groups purchasing group life insurance are required to maintain a specified number of insureds under the policy?

A) A state university employee group.
B) A trustee group.
C) A credit life group.
D) An employee group.

C) A credit life group. The provisions under a credit life insurance group policy, which is issued on the lives of borrowers and purchasers on credit, require that a specified number of insureds under the policy be maintained. 100 insureds is a common level for the number of insureds required. If participation drops below that number, the insurer may not insure new debtors under that group policy.