Insurance MCQ

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. Answer: C) Medicare Part A is automatically provided when a qualified individual applies for Social Security benefits.

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. Answer: B) the policy has been legally delivered to the applicant.

Who must notify an insurer that its policy is in danger of being replaced? A) Insured. B) Replacing insurer. C) Broker. D) Agent. Answer: B) Replacing insurer.

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. Answer: A) Benefits received from the plan are subject to income tax.

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. Answer: A) the spouse of a licensed producer who has moved out of state.

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. Answer: A) Accidents.

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. Answer: A) they offer health care coverage to low-income individuals.

Which of the following is closely allied with twisting? A) Defamation. B) Coercion. C) Rebating. D) Churning Answer: D) Churning

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. Answer: C) Insurance producer license.

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. Answer: C) relatively short elimination periods. 

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. Answer: A) at the employee's death, the company receives the death proceeds free of tax. 

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

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. Answer: D) Applicant and the beneficiary.

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. Answer: C) a 10% penalty is assessed on any distribution from an IRA before age 59½.

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 Answer: A) $255.00. 

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 Answer: B) self employed individuals are exempt from paying the FICA tax.

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. Answer: D) benefits are payable to a common carrier, school, volunteer fire department, or other approved type of policyholder.

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. Answer: D) 10-year medical histories.

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. Answer: 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.

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. Answer: B) if the insured dies after the specified five years, only the policy's cash value will be paid.

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. Answer: 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.

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. Answer: D) conditional.

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. Answer: C) comprehensive plan.

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. Answer: B) The primary purpose of a life insurance company that is organized as a stock company is to earn a profit for its stockholders.

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. Answer: 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 ...

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. Answer: B) have had surgery within 30 days before applying for benefits.

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. Answer: D) To convert the coverage to an individual plan at an adjusted premium.

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. Answer: D) six months to two years.

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. Answer: C) premiums may be increased or decreased from time to time by the policy owner.

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. Answer: A) It gives consumers the right to question reports made about them by investigative agencies.

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. Answer: D) five years.

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. Answer: B) Three years.

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. Answer: A) loss of license indefinitely

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. Answer: D) fully insured.

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. Answer: C) transferring control of a company from stockholders to policy owners.

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. Answer: A) risk retention group.

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. Answer: D) a reinstatement provision.

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. Answer: C) the loss must be catastrophic.

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. Answer: C) Stock insurance company.

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. Answer: A) continue to increase.

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. Answer: D) Waiver of premium.

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. Answer: C) Administrative penalty.

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. Answer: B) enacting insurance laws. The state legislature is responsible for writing and enacting insurance laws.

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. Answer: B) Guarantee of insurability.

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. Answer: B) an absolute assignment.

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. Answer: 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.

A principal function of annuities is to: A) create an estate. B) liquidate an estate. C) provide for surviving dependents. D) reduce income taxes. Answer: B) liquidate an estate.

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. Answer: D) Fully self-administered plan.

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. Answer: D) Social Security rider.

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. Answer: A) annuity benefits payable to the corporation with the key employee as annuitant are income tax free to the corporation.

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. Answer: A) The dismemberment feature provides insureds with periodic payments to help them during a rehabilitation period.

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. Answer: D) The beneficiary cannot be changed.

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. Answer: C) the premium amount.

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. Answer: C) It cannot remain in effect for more than 6 months.

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. Answer: A) Medicare supplement plan.

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. Answer: D) amount the insured must pay toward covered expenses.

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 Answer: D) $6,250.00.

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. Answer: D) within a specified time period.

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. Answer: B) It must be presented to the applicant no later than upon policy application.

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. Answer: B) Waiver for impairments.

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. Answer: B) be totally disabled for at least five months.

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. Answer: D) Administrator.

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%. Answer: C) 50%.

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. Answer: B) The insurer may cancel it because the insured has not paid the premiums.

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. Answer: D) the term policy will have a reduced face value.

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. Answer: D) the probationary period.

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. Answer: C) limited-pay policies mature more quickly than do continuous premium whole life.

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. Answer: C) Level premium term.

A health insurance policy can exclude coverage for all of the following EXCEPT: A) pregnancy. B) dental care. C) preexisting conditions. D) cancer. Answer: D) cancer.

Long-term care insurance policies must be: A) noncancelable. B) nonreplaceable. C) guaranteed renewable. D) cancelable. Answer: A) noncancelable.

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. Answer: C) Indemnification of medical expenses.

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. Answer: B) changing dividend options from paid-up additions to cash payment on an existing whole life policy.

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. Answer: C) its benefits will qualify for tax-exempt treatment.

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. Answer: D) Accident-only insurance.

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. Answer: B) classifications that are the result of actual cost experience.

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 Answer: B) $25,000.00.

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. Answer: C) surgical care.

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. Answer: B) Denying a claim within a reasonable time after a proof of loss statement was completed.

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. Answer: D) Ralph will receive $9,500 tax free; the $5,500 balance is taxable as income.

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. Answer: A) seek authorization for replacement from the Department of Insurance.

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. Answer: C) All or most of Medicare's deductibles.

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. Answer: C) it applies to both medical expense and disability income policies. FALSE- it does not apply to medical expense policies.

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. Answer: B) The youngest age at which an individual may be regarded as an adult for beneficiary purposes is age 18.

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. Answer: C) A provision that the policy, including any endorsements or riders, constitutes the entire contract.

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. Answer: B) Optionally renewable.

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. Answer: C) Contribution limits are indexed annually for inflation.

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. Answer: D) the work history of the applicant.

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. Answer: B) capital sum.

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. Answer: A) The benefit is a percentage of the monthly income benefit.

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. Answer: A) alien insurance company.

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. Answer: C) they are unincorporated.

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 Answer: C

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. Answer: A) Mutual insurers.

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. Answer: B) 90 days.

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. Answer: D) A company with fewer than 15 employees.

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. Answer: A) As long as a whole life policy is not surrendered, the cash value accumulates tax free.

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. Answer: A) automatic premium loan.

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. Answer: D) Personal medical and dental expenses reimbursed by insurance are not deductible.

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. Answer: C) A life insurance analyst charges a fee for a service associated with the servicing of a policy written by the analyst.

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. Answer: B) 6 months.

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. Answer: D) Prescription drug plan.

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. Answer: A) 5 days.

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. Answer: D) rehabilitative and home health services.

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. Answer: A) It is given only if the initial premium has been submitted with the signed application. 

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. Answer: C) Becky, who was just diagnosed with a terminal illness.

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. Answer: A) the employer's health plan will be the primary payor if it covers 100 or more employees.

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. Answer: C) They pay a fixed periodic fee whether or not health care services are used.

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. Answer: B) a whole life policy. 

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. Answer: A) the contribution is excluded from the employee's gross income.

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. Answer: D) premium charges.

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. Answer: D) Not informing a health insurance policy buyer that the policy excludes preexisting conditions.

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. Answer: D) A straight life annuity income option.

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. Answer: A) for fraudulent statements in the application.

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. Answer: A) any riders the insurer may unilaterally add to the policy in the future.

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. Answer: D) A straight whole life insurance policy. 

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. Answer: A) It may be issued to individuals with or without evidence of insurability.

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. Answer: D) The society must be operated as a nonprofit entity if it is a fraternal benefit society.

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. Answer: C) Family income.

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. Answer: B) partial withdrawals can be taken from the cash value account.

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. Answer: C) using the dividend to increase the base whole life policy's face amount.

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. Answer: B) Cybil can convert the policy to an individual policy.

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. Answer: A) long-term care insurance.

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. Answer: D) September 4.

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. Answer: D) One policy.

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. Answer: A) utilization review.

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. Answer: B) Her family has a history of cancer, and she is concerned that she might contract the disease.

The Arkansas Automobile Insurance Plan: a. Requires the participation of all companies writing automobile liability insurance b. Covers insureds unable to afford auto insurance in the voluntary market c. Must include all of the coverages offered by commercial insurers d. Provides at least $500 of first party medical coverage Answer: a. Requires the participation of all companies writing automobile liability insurance