Unit Tests Review 1. The owner of a camera store is worried that her new employees may help themselves to items from inventory w/out paying for them. What kind of hazard is described? - Physical - Ethical - Moral - Morale 2. In the insurance business, risk can best be defined as ___ - Sharing the possibility of a loss - Uncertainty regarding the future - ... financial loss - ... when death will occur 3. Buying insurance is one of the most effective ways of ___ - Avoiding - Transferring - Reducing - Retaining 4. A tornado is an example of ___ - Physical hazard - Speculative risk - Peril - Moral hazard 5. Tom buys his wife Mary a $50k diamond ring. When she is not wearing the ring, she keeps it in a safe deposit box at a local bank. This is an example of risk ___ - Avoidance - Reduction - Retention - Transference 6. In Florida, properly licensed and appointed agents may act as brokers in insurance transactions, in which case they may legally represent ___ - The insurer - The applicant and insurer - The state office of insurance regulation - Themselves 7. All of the following methods support the sale of insurance through agents and broker EXCEPT ___ - Independent agency system - Personal producing general agency system - Career agency system Direct selling system 8. “An insurance contract is prepared by one party, the insurer, rather than by negotiation between the contracting parties.” Which if the following statements explains this characteristic of insurance contracts? - The insurance contract is an aleatory contract - ... a contract of acceptance - ... a contract of adhesion - ... names only the insurer as the competent party 9. Which of the following statements regarding utmost good faith in insurance contracts is CORRECT? - The concept of utmost good faith – that there is no attempt to conceal, disguise, or deceive – applies only to the insurer - Although a warranty is a statement, it is not technically part of the contract - A representation is a statement that the applicant guarantees to be true - Most state insurance laws consider statements made in an application for an insurance policy to be representations, nor warranties. 10. Which of the following is an example of legal consideration? - Politeness - Initial premium - Legal purpose - Offer and acceptance 11. An insurance salesperson who offers a customer a $200 gourmet dinner in exchange for the purchase of a life insurance policy would be considered to have violated ethical sales practices by ___ - Twisting - Replacement - Churning - Rebating 12. Which of the following is NOT part of the home office underwriting process? - Credit report - Medical information bureau report - Applicants’ analysis report - Inspection report 13. The basis for many state statues regulating insurance advertising is the NAIC’s ___ - McCarren-Ferguson Act - Fair Credit Reporting Act - Ethics in Advertising Act - Unfair Trade Practices Act 14. Which of the following is the goal of a sales presentation? - To educate the client so the client can make her own decisions about what right for her - To sell the client as many products as possible - To convince the client that the producers’ recommendations are best - To explain the rules and regulations governing particular insurance products 15. Which of the following is NOT part of a sales presentation? - Review and re-establish the client-producer relationship - Introduce the recommended policy - Review the product application - Review the client’s needs and priorities 16. All of the following are reasons why it is seldom in the best interest of a policyholder to replace a life insurance policy with a new one EXCEPT? - Most of the first-year premium is swallowed up in commission - The old policy, viewed objectively, no longer meets the stated needs and objectives of the policyholder - The premium is higher because the insured is older - Waiting periods begin anew 17. Selling variable universal life insurance policies as mutual funds is an example of a prohibited practice called ___ - Twisting - Misrepresentation - Replacement - Rebating 18. When values of an insurance policy are used to purchase another policy with the same insurer for the sole purpose of earning additional premiums or commissions, this practice is called ___ - Replacement - Misalliance - Rebating - Churning 19. Which of the following terms best describes life insurance policy that provides that provides a straight $100k of coverage for a period of five years? - Permanent level - Whole term - Level term - Variable term 20. “When level premium insurance is renewed, the premium amount rises to reflect the increased mortality risk of the insureds older age.” What phrase best describes this approach to increasing premiums? - Variable rate - Targeted rate - Step rate - Seniority rate 21. The cash values of life insurance policies belong to which of the following? - Policyowner - Insured - Insurer - Beneficiary 22. All of the following are statements regarding basic forms of whole life insurance are correct EXCEPT? - Generally, straight life premiums are payable, at least annually, for the duration of the insured’s life - The owner of a 30-pay life policy will owe no more premiums after the 30th year the policy is in force - Limited payment life provides protection only for the years during which premiums are paid - A single-premium life policy is purchased with a large one-time only premium 23. All of the following statements about term insurance are correct EXCEPT? - It pays a benefit only if the insured dies during a specified period - Level, decreasing, and increasing are basic forms of term insurance - Cash values build during the specified period - It provides protection for a temporary period of time 24. Bob purchases a $50k 5-year level term policy. All of the following statements about Bob’s coverage are correct EXCEPT? - The policy provides a straight, level $50k of coverage for 5 years - If the insured dies at any time during the 5 years, his beneficiary will receive the policy’s face value - If the insured dies beyond the specified 5 years, only the policy’s cash value will be paid - If the insured lives beyond the 5 years, the policy expires, and no benefits are payable 25. Mrs. Williamson purchases a 5-year $50k level term policy with an option to renew. At the end of the 5-year term, she renews the policy. Which of the following statements is CORRECT? - The premium for the renewal period will be the same as the initial period - ... higher than the initial period - ... same as the initial period, but a one-time service charge will be assessed upon renewal - ... lower than the initial period 26. All of the following statements about variable insurance policies are correct EXCEPT? - Sale representations must be preceded or accompanied by a prospectus - State laws protect consumers and promote meaningful communication - Materials used in selling variable policies must be approved only by the state Office of Insurance Regulation - Full and fair disclosure must be provided to prospective policyowners 27. In contrast to traditional whole life insurance policies, with variable life insurance products ___ - Premiums are invested in an insurers general account - Investments match the insurers contractual guarantees and liabilities - Contract cash values are not guaranteed - The insurer assumes the investment risk 28. Which of the following is(are) common life insurance policy exclusion? - Death from war - Death by accidental means - Death by commercial aviation - All of the above 29. Which of the following statements best describes life insurance policy dividends? - Policy dividends represent earnings to shareowners who hold stock in insurance companies - Policy dividends affect the costs of virtually all insurance policies issued today - Policy dividends are an intentional return of a portion of the premiums paid - Policy dividends provide policyowners with a level, known annual cash inflow 30. “If an insurance company determines that the insured is totally disabled, the policyowner is relived of paying the policy premiums as long as the disability continues.” This statement describes ___ - The premium suspension clause - The waiting period exemption - The disability income rider - The waiver of premium rider 31. To what extend would a 14-day free-look provision apply in Florida? - The first 14 days after the application has been signed by the applicant - ... received by the insurer - The first 14 days after the policy has been issued by the insurer - The first 14 days after the issued policy has been delivered to the insured 32. All of the following statements regarding assignment of a life insurance policy are correct EXCEPT? - To secure a loan, the policy can be transferred temporarily to the lender as security for the loan - The policyowner must obtain approval from the insurance company before a policy can be assigned - The life insurance company assumes no responsibility for the validity of an assignment - The life insurance company must be notified in writing by the policyowner of any assignment 33. John stopped paying premiums on his permanent life insurance policy 8 years ago though he never surrendered it. He is still insurable and has no outstanding loan against the policy. The company probably will decline to reinstate the policy because the time limit for reinstatement has expired. The limit usually is ___ - 6 months - 1 year - 2 years - 3 years 34. Leland elects to surrender his whole life policy for a reduced paid-up policy. The cash value of his new policy will - Continue to increase - Decrease gradually - Remain the same as in the old policy - Be forfeited 35. If error is discovered after an insured dies and the insured was younger than the insurance policy stated, the insurance company will ___ - Reduce the death benefits - Reduce the premiums - Waive the differences - Increase the death benefits 36. If an error is discovered while an insured is living and the insured is older than the policy states, the insurance company on ___ - Increase the premium - Reduce the premium - Waive the premium - Increase the benefits 37. Which of the following statements about a life insurance policy’s cash value is CORRECT? - In many states (but not all), policyowners are entitled to the accrued cash values of their whole life policies - When a whole life insurance policy is active, the owner can borrow from the cash value - Owners of both term and whole life insurance are entitled to the cash surrender value when a policy is lapsed or surrendered - If a policyowner lets her while life insurance policy lapse, the beneficiary will be entitled to part of the policy’s cash value 38. If an irrevocable beneficiary dies before the policyowner, who of the following gains control of a life insurance policy with a reversionary irrevocable clause? - Insured - Irrevocable beneficiary’s children - Policyowner - Insurer 39. A clause that states that policy distributions payable to a beneficiary after the insured dies are not assignable or transferable and may not be attached in any way called ___ - A facility-of-payment clause - A debtors protection clause - A spendthrift trust clause - An assignment clause 40. The method used today to change beneficiaries is known as ___ - The recording method - The beneficiary alteration method - The assignment method - The change of designation method 41. Art, the owner and insured under a $75k life policy, is killed in an accident. He had paid total premiums of $26k. How much of the death benefit will be included in his gross estate tax purposes? - $0 - $26k - $49k - $75k 42. With regard to the situation described in Question 41, how much of the $75k death benefit that was paid to Art’s wife in a lump sum is taxable income to her? - $0 - $26k - $49k - $75k 43. Which of the following statements pertaining to life insurance policy settlement options is NOT correct? - By using the interest-only option, two or more settlement options can be combined for added flexibility - Payments under the interest-only option may be made at a rate higher than the guaranteed minimum - Diane and Rhonda each are receiving monthly income from their deceased husbands’ identical life insurance policies under the fixed-period option. Diane's payments are to be made for 15 years and Rhonda does for 20 years. - Diane receives the larger monthly payments. Under the fixed-period option, the payment of access interest will lengthen the payment period 44. Under which option does the insurer hold the death proceeds for a specified period of time and, at regular intervals, pay the beneficiary interest on the proceeds. - Fixed-period - Interest-only - Fixed-amount - Life-income 45. Bill named his church as the beneficiary of his $300k life insurance policy. When bill dies, who is responsible for the income taxes payable on the lump-sum proceeds received by the church? - His estate is responsible - His church is responsible - No income tax is payable on the death proceeds - His estate and the beneficiary share the tax liability equally 46. All of the following statements about the taxation of insurance proceeds are correct EXCEPT? - Interest earned on policy dividends is exempt from income tax - A beneficiary will not be taxed an insurance proceeds paid as a lump sum death benefit - A policy owner who receives the cash value for a surrendered policy must pay taxes on any gain - Generally, no gain or loss is recognized when one insurance policy is exchanged for another 47. Which of the following statements regarding the Fair Credit Reporting Act (FCRA) is CORRECT? - Applicants must be notified within a short period of time that their credit report has been requested - If an applicant for insurance is rejected based on a consumer report, the name of the reporting agency must be kept confidential - If requested to do so, the insurance company must provide the actual consumer report to the applicant - Consumer reports are final in nature and cannot de disputed by an applicant 48. The primary distinction between the insurability and approval types of conditional receipts is when - The applicant pays the initial premium - The coverage foes into effect - The medical exam is given - The applicant proved insurable 49. What annuity payout option provides for lifetime payments to the annuitant but guarantees a certain minimum term of payments, whether or not the annuitant is living? - Installment refund option - Life with period certain - Joint and survivor - Straight life income 50. James died after receiving $180 monthly for six years from a $25,000 installment refunds annuity. His wife Lucy, as beneficiary, now will receive the same monthly income until her payments total - $2,160 - $12,040 - $12,960 - $25,000 51. Which of the following statements regarding indexed contract factors is more CORRECT? - Indexed contracts usually follow all stock market changes exactly - All indexed contracts guarantee that cash values will grow a minimum amount each year - Most indexed contracts are backed by separate accounts and are variable products - Cash values of indexed contracts usually grow at a minimum interest rate 52. Which of the following statements best describes indexed contracts? - Indexed contracts are always backed by investments in stocks - Selling indexed contracts always requires a license for variable products - Most of the investments backing indexed contracts are similar to those for nonindexed contracts - Cash values of indexed contracts mirror all changes in stock market values 53. Ellen works part time to supplement her family’s income. Last year she earned $6,500 and worked at least part of every month. With how many quarters of coverage will she be credited? - 1 - 2 - 3 - 4 54. If David sets up a traditional IRA, what is the maximum contributions he can make and deduct from adjusted gross income for 2020? - $1k - $3k - $4k - $6k 55. Herbert and Olga, both age 48, have been married for 10 years. They have no children, and each has by an employer retirement plan. What is the maximum amount they may set aside together in tax-deductible, traditional IRA funds in 2020? - $4k - $5k - $8k - $12k 56. All of the following should be eligible to establish a Keogh retirement plan EXCEPT - A dentist in a private practice - Partners in a furniture store - A sole proprietor of a jewelry store - A major stockholder-employee in a family corporation 57. Which of the following statements about 401(k) plans is CORRECT? - All of a company’s employees must participate in the plan - An employee’s deferred contributions become nonforfeitable according to the plan’s vesting schedule - Employer contributions are included in the employee’s income for the year - There is a limit on employee deferrals 58. Which of the following statements regarding health insurance is CORRECT? - Once issued, health insurance policies cannot be cancelled by the insurer - There are many premium-payment options available with health insurance policies - Medical expense policies reimburse the insured for the costs of medical care - Disability income policies are designed to pay hospital expenses associated with a disability 59. Assume a health insurance contract states that it will pay $350 a month to the insured, should she become totally disabled. Which term most aptly defines this kind of contract? - Participating - Valued - Inclusive - Reimbursement 60. Fred owns a small hardware store and is covered under a business overhead expense policy. If he becomes disabled, he can expect all the following expenses to be covered EXCEPT - His employee’s salaries - His salary - Utility bills - Property and liability insurance premiums 61. What is the income tax consequence if Marie’s employer pays for her group disability income coverage? - Marie must pay taxes on the premiums - Marie can deduct the premium payments - The employer receives the disability income benefits tax free - The employer can deduct the premium payments 62. With regard to health insurance policies, which of the following statements is CORRECT? - A major medical plan with a $1k deductible is less expensive than one with a $5k deductible - More Americans are covered by an individual medical expense policy than a group policy - The appropriate benefit payable under a disability income policy should equal the insured’s monthly gross income - A disability with a 6-month elimination period is less expensive than one with a 60day elimination period, all other factors being equal 63. An individual purchased group credit accident and health insurance to cover a car loan. Following an accident, the individual was disabled for eight months. Which of the following benefits were paid under the policy? - Monthly income benefits to the insured - An amount equal to 8 months of the loan payment to the insured’s creditor - An amount equal to 10 months of the loan payment to the insured’s creditor - Monthly income benefits to the insured and an amount equal to 8 months of the loan payment to the insured’s creditor 64. Sally is covered by her employer’s noncontributory group disability income plan, the premium for which is $50 month. If she were to become disabled and receive $1k a month, how much of each benefit payment would be taxable income to her? - $0 - $50 - $950 - $1k 65. Which of the following organizations would make reimbursement payments directly to the insured individual for covered medical expenditures? - Administrative-service-only plan - Commercial insurer - Preferred provider organization - Health maintenance organization 66. Marty just received his fist Social Security disability payment. From this, we can assume - He had previously applied for Medicaid - He is at least 65 years of age - His disability is expected to last at least 12 months - His disability commenced 3 months ago 67. The waiting period before qualifying for Social Security disability benefits is how many months? - 3 - 5 - 6 - 12 68. Which of the following individuals would probably qualify for Social Security disability benefits? - George, a ski instructor who breaks his leg - Carl, who becomes ill with a viral infection and is not expected to be able to work for the next 6 months - Make, a mechanic who loses his dominant hand in an accident - John, who experiences serious early-onset Alzheimer’s and is unable to remember how to get to work 69. Under Medicare Part B, the participant must pay all of the following EXCEPT - An annual deductible - A per benefit deductible - 20% of covered charges above the deductible - A monthly premium 70. Which of the following statements about Medicare B is NOT correct? - It is a compulsory program - It covers services and supplies not covered by Part A - It is financed by monthly premiums - It is financed by tax revenues 71. For how many days of skilled nursing facility care will Medicare pay benefits? - 25 - 60 - 75 - 100 72. The written agreement between the subscriber and the HMO is called - A health care contract - A health insurance policy - A health maintenance agreement - A health maintenance contract 73. The Office of Insurance Regulation will NOT issue a Certificate of Authority to an HMO until it has - 500 prospective members - Deposited capital and surplus in the amount of $1 million - Received a valid Health Care Provider Certificate from the Agency for Health Care Administration of Florida - Been inspected and approved by the Florida Medical Association 74. The Florida HMO Consumer Assistance Plan - Helps low-income families secure HMO coverage - Assists consumers in understanding their HMO coverage - Adjudicates contested claims by subscribers against HMO - Provides coverage for subscribers to HMOs that become insolvent 75. What is the grace period for paying premiums on an HMO contract? - There is a 10-day grace period - ... 30-day ... - ... 60-day ... - ... no grace period for HMO contracts 76. An HMO contract must contain all of the following EXCEPT - A listing of the surgical schedules by which surgeons are paid - The premium because it is subject to change - The length of the grace period - Procedures to be followed for emergencies 77. The miscellaneous expense benefit in a basic hospital expense policy normally will occur - Physicians’ bedside visits - The administering of anesthesia - Drugs and medicine administrated in the hospital - Hospital room and board 78. Which of the following statements about deductibles provisions in medical insurance policies is NOT correct? - They help to eliminate small claims - They provide that initial expenses up to a specified amount are to be paid by the insured - They are most common in basic medical expenses policies - They help to hold down premium rates 79. When a medical expense policy pays benefits on a fixed-rate basis, it pays - A certain percentage of whatever the hospital room charges are - For total hospital expenses, less a deductible - A flat amount per day for hospital room and board - Only for surgery and miscellaneous hospital expenses 80. Which of the following examples pertaining to major medical policy deductibles is CORRECT? - Eric's major medical policy has a $500 flat deductible provision. He incurs covered expenses totaling $350. He will pay nothing, and his major medical policy will pay $350. - Sarah has a major medical policy with a $500 flat deductible and an 80/20 coinsurance provision. her covered expenses total $1800. Of that amount she will pay $500, and her insurance will pay $1300 - Valerie incurs a hospital bill of $8300. Her basic medical expense insurance pays $2400. Valerie pays a $200 deductible, and her major medical plan takes care of the balance of covered expenses. Her deductible would be classified as a corridor deductible. - In integrated deductible amount is $2000. With this deductible after the basic policy benefits are exhausted, the insured pays the full $2000 deductible, and then the major medical benefits are payable. 81. Arthur incurs total hospital expenses of $9,500, all of which are covered by his major medical policy. The policy includes a $500 deductible and a 75/25 coinsurance feature. Of the total expense, how much will Arthur have to pay? - $2,375 - $2,750 - $2,875 - $6,675 82. If the coinsurance feature in a major medical insurance policy is 75/25 with a $100 deductible, how much of a $2,100 bill would the insured pay? - $100 - $500 - $600 - $1,500 83. Theodore received a $15,000 cash benefit from his $50,000 accidental death and dismemberment policy for the accidental loss of one eye. The amount he received could be identified as the policy’s - Principal sum - Secondary sum - Capital sum - Contingent amount 84. Assume an insurer will issue a maximum monthly disability income benefit of $5,000, provided the total of such benefits payable by all companies does not exceed 60% of the insured’s regular monthly income. Ted earns $4,500 per month and has no existing disability income policy. The maximum monthly disability income benefits this insurer would issue to Ted is - $2,500 - $2,700 - $4,500 - $5,000 85. Which of the following statements about elimination period in disability income policies is NOT correct? - Elimination periods may apply to disabilities due to sickness and not accidents - Benefits are not payable during an elimination period but are paid retroactively to the beginning of the period if the insured remains disabled throughout the period - An elimination period follows the start of a disability - Elimination periods help keep premiums down 86. Benefit periods for individual short-term disability policies typically vary from - 1 – 12 months - 3 months – years - 6 months – 2 years - 1 – 5 years 87. Which of the following statements about waiver of premium in health insurance policies is NOT correct? - It exempts an insured from paying premiums during period of permanent and total disability - It may apply retroactively - It generally drops off after the insured reaches age 60 or 65 - It normally applies to both medical expense and disability income policies 88. Which of the following terms relates to disability income insurance? - Service basis - First-dollar - Residual amount benefit - Coinsurance 89. Which definition of total disability is more favorable to the insured? - Own occupation - Any occupation - They are the same in terms of benefits to the insured - There is no way to determine from the information provided 90. What is the initial period of time specified in a disability income policy that must pass after a policy is in force, before a loos due to sickness can be covered? - Preexisting term - Probationary period - Temporary interval - Elimination period 91. The core policy (Plan A) developed by the NAIC as a standard Medicare supplement policy includes all of the following EXCEPT? - The Medicare Part A deductible - Part A coinsurance amounts - The first 3 pints of blood each yr. - The 20% Part B coinsurance amounts for Medicare-approval services 92. A company may change the wording of a uniform policy provision in its health insurance policies only if the - Company’s board of directions approves the change - Modified provision is not less favorable to the insurer - Applicant directs that it be changed - Modified provision is not less favorable to the insured 93. Diana, the beneficiary under her husband’s AD&D policy, submits an accidental death claim on May 1, following his death. However, the company denies the claim on the basis that death was due to natural causes. She decides to talk to her attorney. What is the earliest date for taking legal action against the insurer? - May 2 - June 1 - July 1 - May 1 of the following year 94. In individual plans, premiums paid for personal disability income insurance by an individual are nontaxable - True - False 95. Susan is covered under her employer-sponsored disability group plan. The premium is $50 a month: Susan pays $10, and the employer pays $40. Assuming Susan were to become disabled and receive monthly disability benefits of $700 from the plan, how much, if any, of the monthly benefit would be taxable income? - $0 - $70 - $140 - $ 560 96. Rick, who has no health insurance, experienced $3,000 in medical expenses this year. Assuming his adjusted gross income was $29,000, how much of those medical expenses can be deduct from his adjusted gross income, if any? - $0 - $100 - $2,175 - $3,000 97. A violation of a cease-and-desist order by the Chief Financial Officer carries a fine of up to: - $50 - $500 - $5,000 - $50,000 98. Insurance agents must keep records for at least ___ years if the transaction pertains to premium payments. - 10 - 7 - 5 - 3 99. Conversion privileges afforded by COBRA pertain only to health insurance, not to group life insurance. - True - False 100. Qualified retirement plans receive favorable tax treatment. Employer contributions are ____, the investment earnings are ___, and employer contributions are ___ to employees until benefits are received. Word Bank: nontaxable, nontaxable, and tax deductible 101. The Florida Employee Health Care Access Act identifies a full-time employee as one who works at least ___ hours per week. - 40 - 35 - 25 - 20 102. Modified Community Rating stipulates renewal cost changes cannot exceed ___ annually for health status. - 2% - 5% - 8% - 10%
