ALABAMA LIFE AND HEALTH INSUARANCE
EXAM COMPLETE AND ACCURATE.
Which of the following would be considered a speculative risk? Correct Answer The possibility the painting you bought might be a long-lost masterpiece
A speculative risk is one in which there is a chance for either loss or gain.
Example: Gambling, Casino's, Lottery, etc. All of the other choices describe pure
risk, where there is no chance of gain, only a chance of loss exists.
Which is the proper term for a company owned by its policy owners? Correct
Answer -A mutual insurance company
A producer who is acting as an agent is representing: Correct Answer -Always
the insurer
All of the following are elements of a contract, except: Correct Answer Authority
All enforceable contracts must include these characteristics: offer and acceptance
(agreement), considerations, competent parties, and legal purpose. Authority is not
considered one of the elements of a legal contract.
Each of the following would be an element in the definition of fraud, except:
Correct Answer -An individual warrants a fact stated on the application
A warranted fact is one guaranteed to be true. Although no statement on an
application is regarded as warranty, no fraud is involved if a statement is
guaranteed to be true.
Examples of Fraud Correct Answer -Intentional material misrepresentation with
the intent of causing injury to another party
Withholding of known material facts
A false statement on the application that is material to the acceptance of the risk
A company that is licensed to sell insurance in a particular state is: Correct
Answer -An authorized Company
In order to be valid, a contract must be between individuals considered legally able
to enter into an agreement. This principle is known as: Correct Answer Competent parties
An insurance contract is an aleatory contract. This means: Correct Answer -Equal
value is not given by both parties to the contract
Aleatory: contract of unequal values exchanged
The ____________ market is a private source of coverage of last resort for
individuals or businesses that have been rejected by voluntary market insurers.
Correct Answer -Residual
To address adverse selection what can an insurer legally do? Correct Answer Establish and enforce sound underwriting practices
Underwriting helps to protect the insurer against adverse selection and accepting
risks that are more likely than average to suffer losses.
A contract that is drafted by an insurer and receives no input or alteration from the
insured, is considered a(n): Correct Answer -Contract of Adhesion
_________ refers to the jurisdiction where an insurer was formed or incorporated.
Correct Answer -Domicile: Domicile refers to the jurisdiction either state or
country where an insurer was formed or incorporated.
_____________ insurance allows for insurance coverage to be obtained when not
available from admitted carriers. Correct Answer -Surplus Lines
Insurance can be obtained through surplus lines brokers (producers) from nonadmitted insurers.
To make insurance more affordable and protect the insurance company from
paying out too much in claims, insurers will: Correct Answer -Reinsure the risk
Reinsurance is what makes insurance affordable. Reinsurance companies are
insurance companies that accept all or a portion of the financial risk of loss from
the insurance company.
The field underwriter is the _________ and is not a determiner of insurability.
Correct Answer -Producer
The producer is in the field soliciting applications for insurance and in effect is
another pair of eyes and ears for the insurer in helping to issue policies to insurable
prospects.
Third-party ownership refers to: Correct Answer -A situation where the
policyowner is someone other than the insured
Which statement best describes the term reserve? Correct Answer -That amount
that, when increased by future premiums on outstanding policies, and interest on
those premiums will enable the company to meet future death claims
The applicant, if other than the proposed insured, must have: Correct Answer -An
insurable interest in the life of the insured
Controlled business may be defined as insurance sold: Correct Answer -To the
producer, the producer's family and friends, and the producer's business associates
With regard to life insurance policies, loading refers to: Correct Answer Assignment of the appropriate share of the company's operating expenses to each
policy
Which of the following statements about the average number of people who die
each year is true? Correct Answer -It is called the mortality rate
Mortality Rate: which is the statistical probability of death in a large population of
insureds.
Which of the following is NOT a characteristic of life insurance as property?
Correct Answer -It requires a fund portfolio manager
Characteristics:
It creates an immediate estate
It requires no physical maintenance
It may be paid for in installments
The most effective way to ensure that the applicant will accept the policy when it is
issued is: Correct Answer -To have the applicant pay the initial premium at the
time of application
Allen purchases an estate builder (jumping juvenile) policy for his 5-year old son,
Donald. Suppose that when Donald reaches age 21 his father presents him with the
policy as a gift. Which of the following statements is NOT correct? Correct
Answer -Donald must change the beneficiaries immediately
CORRECT:
The premium will continue to be based on his original age of 5
Donald has enjoyed protection against the problems of premature death
The face value of Donald's policy has increased by 5 times
Term insurance differs from permanent insurance in that term: Correct Answer Builds no cash value, pays a death benefit only
An indeterminate premium policy offers: Correct Answer -A low initial premium
with succeeding premiums based on the company's investment return, mortality
and expenses
With regard to the waiver of premium rider, after the disability a policyowner
normally: Correct Answer -Need not repay the premiums paid by the company
during disability
In many jurisdictions, permanent policies are required to have some cash value by
the end of: Correct Answer -The Third Year
Loan values and retirement income are: Correct Answer -Called the living
benefits of life insurance
With a modified premium whole life contract, premium payments: Correct
Answer -Are lower in the early years of the contract
A variable life policy: Correct Answer -Death benefit varies to reflect the
investment results of the underlying separate account, but never falls below a
guaranteed minimum
The type of policy that can be changed from one that does not accumulate cash
values to one that does is a: Correct Answer -Convertible term policy
A limited pay life policy: Correct Answer -Requires premium payments for a
specified number of years or until a specified age is reached
Should an insured become totally and permanently disabled two months before the
cut-off date for the waiver of premium rider: Correct Answer -The insured
remains eligible for all provisions
Warren and Wilma have a joint life policy. Warren dies and the policy pays
nothing. Later on, Wilma dies and the policy death benefit is paid to the
beneficiary. This is called a: Correct Answer -Survivorship or second-to-die
policy
A whole life policy: Correct Answer -Requires the insured to pay premiums for
life and endows at age 100
If Greg's policy on his own life has a guaranteed insurability rider, it means that he
can purchase more insurance: Correct Answer -On his own life at certain
specified ages without proof of insurability
Any extra premium charged for the waiver of premium rider: Correct Answer Does not apply to the policy's cash value
If a policyowner has a $100,000 policy with an accumulated cash value of $6,000,
the policyowner can borrow up to: Correct Answer -The entire accumulated cash
value of $6,000, less interest for 1 year
An insured allows a permanent policy to lapse. Unless otherwise instructed, the
insurance company: Correct Answer -Will automatically institute the extended
term option
Each of the following statements about policy loans is correct, except: Correct
Answer -Policy loans may be made on any type of policy
What is a postmortem dividend? Correct Answer -A dividend earned, but not yet
paid, in the year of the insured's death and paid with the death claim
The factors that determine the amount of each payment under the fixed period
settlement option are: Correct Answer -Length of the fixed period, face amount
of the policy and interest
Fred purchased a $100,000 policy naming his wife, Wilma, as primary beneficiary,
and his only child, Pebbles, to receive any proceeds if Wilma dies before Fred, or if
she dies after Fred, but before receiving all the policy proceeds. Fred elected the
interest settlement option for Wilma, with the right of withdrawal after 5 years. No
settlement option was stipulated for Pebbles. Fred dies on May 6th, 1991. When
Fred dies, his insurance company will make settlement by paying: Correct
Answer -Interest in periodic payments to Wilma
Each of the following is a source of life insurance policy dividends, except:
Correct Answer -Guaranteed cash value accumulations
Why should a policyowner be especially careful when deciding to increase the
amount of an outstanding policy loan? Correct Answer -If the outstanding loan
balance, plus interest, equals or exceeds the cash value of the policy, the company
could cancel the insurance
The main purpose of the spendthrift clause contained in a settlement option is to
prevent the beneficiary from doing all of the following, except: Correct Answer Purchasing a new car once the claim has been settled and proceeds have been paid
out according to the beneficiary designations
Collateral for a policy loan is: Correct Answer -The cash value of the policy itself
If an insured has an outstanding loan of $5,000 on a policy with a face amount of
$25,000, at death the company will: Correct Answer -Pay the beneficiary
$20,000, after subtracting the amount of the outstanding loan
The nonforfeiture option that provides the most life insurance protection is the:
Correct Answer -Extended Term Option
The extended term option provides the most life insurance protection of the
available nonforfeiture options. Paid up additions are considered dividend options
and are not considered a nonforfeiture option.
The settlement option that provides for the proceeds plus interest to be paid in
installments for a specified period of time is called the: Correct Answer -Fixed
Period Option
All of the following are situations in which the insurer is obligated to pay out a
death benefit after the insured has died, except: Correct Answer -The premiums
have not been paid and have been overdue for 3 years
A client purchases an individual disability income policy and receives the policy
from the insurer 45 days after application. Upon receipt of the policy, the client
typically has ______days to review and return the policy to receive a full refund
for any reason. Correct Answer -10
An annuitant has a temporary annuity certain, and dies shortly after the payments
start but before the certain period of 10 years has elapsed. Any money remaining
is: Correct Answer -Paid to the beneficiary for the rest of the certain period
The type of annuity that guarantees to pay total income at least equal to the
purchase price of the contract is a: Correct Answer -Refund life annuity
'Annuity Period' refers to which of the following? Correct Answer -The time
during which payments are made to the annuitant
The annuity period begins when the annuitant starts to receive payments from the
accumulated funds in the annuity policy. This is also referred to as 'the
Annuitization period'.
An annuity owner can change all of the following in an annuity, except: Correct
Answer -Mortality Table
Which of the following will receive the smallest monthly income benefit check if
an annuity is annuitized? Correct Answer -50 year old female
Which of the following Annuities is generally not backed by the insurer's general
account assets? Correct Answer -Variable
When converting a group life policy to an individual policy, the departing group
member's new policy must be a: Correct Answer -Permanent or whole life policy
When underwriting group life insurance: Correct Answer -The underwriter
generally focuses on the group as a whole, rather than on individual members
Which of the following statements is NOT true about the tax treatment of Social
Security? Correct Answer -Employee paid payroll deductions for Social Security
are tax deductible to the employee
Split-dollar plan Correct Answer -Divides the cost of additional insurance for an
employee between that employee and the company
George, who has a group policy, may upon leaving his place of employment:
Correct Answer -Convert it to permanent insurance without proof of insurability,
within a specified period
The Lucrative Lozenge Company provides a $5,000 monthly income to retirees
who served as senior executives. This benefit is not available to other retirees of
the company. This is an example of a: Correct Answer -Non-qualified plan
Incidental limitations refer to which of the following? Correct Answer -The
amount of life insurance that may be included in a qualified retirement plan
If a policyowner paid $18,000 in premiums for a policy that is cashed in for
$21,000, how much of the policy's cash surrender value would be subject to federal
income tax? Correct Answer -$3,000
Any proceeds from a surrendered or matured life insurance policy that exceed
policy costs are subject to federal income tax. This is referred to as the cost
recovery rule.
Distributions from a qualified retirement plan: Correct Answer -Are received taxfree only if they result from previously taxed contributions
A group deferred annuity or an individual deferred annuity would be most likely
used: Correct Answer -To fund a defined benefit plan
When a group deferred annuity is used to fund a defined benefit plan, specified
amounts of deferred annuity are bought by the employer each year to provide the
'defined benefit' for the employee at retirement, thus providing a guaranteed
defined benefit at retirement.
Defined Contribution Plan Correct Answer -
Which of the following would NOT be permitted as a Section 1035 policy
exchange? Correct Answer -An annuity contract exchanged for a life contract
TSAs are tax-sheltered retirement programs for employees of all the following
kinds of organizations, except: Correct Answer -Corporations
How are employer paid premiums on a group life insurance plan treated for tax
purposes? Correct Answer -As an ordinary and necessary business expense
With a Profit Sharing Plan contributions must generally be made in at least
________ consecutive years. Correct Answer -3 out of last 5
A stay at home father wants to open up an IRA. What is required in order for him
to do so? Correct Answer -Be married to a spouse that has earned income
The tendency for poor risks to seek and be covered for insurance more than
average risks is known as: Correct Answer -Adverse Selection
What type of policy pays weekly or monthly benefits for loss of income due to
sickness or injury? Correct Answer -Disability Income
Disability income pays benefits either weekly or monthly when an insured
becomes disabled and unable to perform some or all of their job duties, due to a
sickness or injury.
The specified period that must elapse before new coverage is effective for
nonaccidental losses is known as which of the following? Correct Answer Probationary Period
All of the following statements regarding an insurance application are correct,
except: Correct Answer -It is not included as part of the contract
Correct:
It is a formal written request by an applicant to an insurer requesting a policy
It is the primary source of information for underwriting purposes
It must be signed by at least the applicant and producer
If a policy was issued at a higher premium due to a higher risk exposure, all of the
following can be used to reflect the higher risk, except: Correct Answer Declined
Information about an applicant's work behavior or character gathered from
neighbors or co-workers would be included on an? Correct Answer -Inspection
Report
Timothy owns an individual A&H policy, and in the event of an accident, he is
required to prove only that the injury itself is unforeseen and unintended. Tim's
policy is based on which of the following definitions of accident? Correct
Answer -Accidental Bodily Injury
If the insurer issues a health insurance policy without an initial premium, the
producer must obtain a signed: Correct Answer -Statement of Good Health
Comprehensive dental plans usually provide: Correct Answer -Routine dental
care services without deductibles or coinsurance
Which of the following is NOT a common exclusion for a dental expense policy?
Correct Answer -The preventative care exclusion
Common Exclusions:
The 5-year replacement exclusion
The missing tooth exclusion
The cosmetic exclusion
Under a credit health policy, what is the maximum amount of any accidental death
benefit included? Correct Answer -The amount of outstanding indebtedness at
any given time
Dental policies that limit benefits to specified maximums per procedure, with first
dollar coverage are: Correct Answer -Scheduled: policies provide first dollar
coverage, but limit benefits to specified maximums per procedure.
A policy that pays surgical expense benefits does not schedule the approved benefit
payable for every type of surgery. Instead, surgeries not listed are paid on the basis
of a comparison to one or more types of commonly-performed major surgeries that
are scheduled. Under this arrangement, the unscheduled surgeries are paid on the
basis of: Correct Answer -Their relative value
Which of the following statements is FALSE regarding credit health insurance?
Correct Answer -Credit health insurance operates like an HMO and provides death
benefit protection regardless of the cause of death
Which provision allows medical expenses from the last 3 months of a calendar
year to be used during the next calendar year to meet a deductible? Correct
Answer -Carryover provision
For nonroutine treatments, a comprehensive policy generally pays: Correct
Answer -A specified percentage of the reasonable and customary charges
A certain major medical policy states a maximum number of days for which
convalescent care will be paid as well as a maximum number of X-rays that will be
paid for under any one claim. These are examples of: Correct Answer -Inside
Limits
The limits sometimes placed on specific coverages in a major medical policy are
called inside or internal limits. These limits resemble scheduled benefits, as to the
fact that they are stated in the policy as either maximum lifetime limits or limits
per policy period. Either way they are stated inside the policy.
Which of the following is true about a policy that pays for room and board
expenses on a indemnity basis? Correct Answer -The policy pays a specified,
pre-established amount per day for a maximum number of days
Before Cranston was disabled, he was a full time engineer earning about $70,000
annually. Now, two years later, he is able to work part-time, earning about $25,000
annually. It is likely that Cranston would be classified as: Correct Answer Partially Disabled
As compared to individual disability income policies, group disability income
policies are generally: Correct Answer -Less costly and have more liberal
provisions
Which of the following is NOT one of the categories of benefits incorporated by
State Workers' Compensation Laws? Correct Answer -Long-term care coverage
All state Workers' Compensation laws incorporate for categories of benefits:
disability (loss of income), benefits, medical bills, survivor (death) benefits, and
rehabilitation benefits. No long-term care coverage applies.
Under Workers' Compensation, a disability that is a permanent physical
impairment leaving the individual incapable of performing the previous regular
occupation, but capable of performing some other type of work, is a: Correct
Answer -Permanent partial disability
What type of disability income policies are most likely used to cover only
nonoccupational disability as opposed to both occupational and nonoccupational?
Correct Answer -Short-term disability policies
Social Security disability benefits become available to eligible workers after a
waiting period of: Correct Answer -5 months
In Individual Disability Income underwriting, the single most important rating
factor from an underwriting standpoint is the applicant's: Correct Answer Occupation
Under a Key Employee Disability Income Policy, the employer is the: Correct
Answer -Policy Owner
Recipient of proceeds
Premium Payor
What type of disability income insurance pays a benefit to a business to help in the
search, cost, and hiring of a replacement when an employee becomes disabled and
is unable to work for the company? Correct Answer -Key Employee
For hospital stays of over 90 days, patients can draw from a pool of 60 reserve
days that may be used: Correct Answer -Once in a lifetime
Which of the following statements is FALSE regarding Medigap policies?
Correct Answer -A Medigap policy provides the same coverage as a Medicare
policy
A Medigap policy supplements and fills the gaps of Medicare, it never duplicates
Medicare.
Medicare supplement policies must provide a 'free look' period of: Correct
Answer -30 days
The Medicare home health care benefit will provide for which of the following
services? Correct Answer -Medical Supplies
A Medicare SELECT policy differs from a regular Medicare Supplement
(Medigap) policy in that it: Correct Answer -Is a managed care version of the
traditional Medicare Supplement policy
Which part of Medicare requires premium payments by most eligible participants?
Correct Answer -Part B Medical Insurance/ Outpatient
All Medicare supplement (or Medigap) policies must: Correct Answer -Have the
same core benefits
The first year commission for the sale of a Medicare supplement policy may be no
more than ________ of the commission paid for selling or servicing the policy in
the second year. Correct Answer -200%
Michelle is 65 and starting to receive Social Security benefits. To receive Medicare
Part A, she needs to: Correct Answer -Do nothing
A Medicare supplement policy may not limit benefits for losses incurred more than
________ from the effective date of coverage because they involve a preexisting
condition. Correct Answer -6 months
Primary support for Medicare Part A comes from: Correct Answer -Social
Security payroll taxes
Part B of Medicare excludes which of the following medical expenses? Correct
Answer -A regular dental checkup
Which of the following is true of Medicare Part A, in terms of coverage? Correct
Answer -Helps pay for hospital care and skilled nursing facility care as an inpatient
plus home or hospice care
Policies are considered incontestable after: Correct Answer -2 years
All of the following statements about noncancellable policies are true, except:
Correct Answer -The insurer may choose not to renew the policy, but only on the
policy renewal or anniversary date
The only right to cancel a noncancellable policy is nonpayment of premium,
because it is guaranteed renewable to age 65. The only type of renewal provision
that allows an insurer the right not to renew on the policy anniversary is the
optionally renewable option.
Required/Mandatory Provision 'Proof of Loss' indicates that except in the absence
of the insured's legal capacity, if it was not reasonably possible for the insured to
provide proof of loss as required in a policy, the latest time the proof of loss may
be furnished is: Correct Answer -1 year from the time proof is otherwise required
Each of the following would be found in the insuring clause of an insurance policy,
except: Correct Answer -General information about the named insured
Under Optional Provision 'Unpaid Premiums', when premiums are unpaid at the
time a claim is submitted, the insurer may: Correct Answer -Deduct unpaid
premiums from benefits before paying the claim
Required Provision 'Reinstatement' addresses reinstatement of a lapsed policy.
According to this provision, when an insured applies for reinstatement and receives
a conditional receipt, how long does the insurer have to approve or deny
reinstatement before the policy will be automatically reinstated? Correct Answer
-45 days from the date of the conditional receipt
The Time Limit on Certain Defenses (Incontestable) period is _____ years under
individual health and disability contracts. Correct Answer -2
Under the Legal Actions Mandatory Uniform Provision, an insured must wait at
least _____ days after providing proof of loss before he or she can take legal action
against the insurer. Correct Answer -60 days
John has had his individual Health and Disability Income policies for many years.
While intoxicated, he was injured as the driver in a single car accident. Who covers
the medical expenses for John? Correct Answer -John is liable for all expenses
According to the Intoxicants and Narcotics Provision (an Optional Uniform
Provision), the insurer may deny coverage for John's injuries, making John liable
for all expenses.
An insured should receive necessary claim forms within _____ days after notice of
claim. Correct Answer -15
Which of the following is not a Mandatory Uniform Provision of an Accident and
Health policy? Correct Answer -Waiver of Premium
Precertification, Mandatory Second Surgical Opinion, and Concurrent Review are
provisions in health insurance policies known as: Correct Answer -Case
Management Provisions
Managed Health Care attempts to contain costs by controlling the behavior of
participants in all of the following ways, except: Correct Answer -Partial Case
Management
Which statement concerning individual A&H policy renewal provisions is most
correct from the perspective of the insured? Correct Answer -The more favorable
the renewal provision to the insured, the higher the cost
The more favorable a renewal provision is to the insured, the higher the premium
will be. A Noncancellable policy will cost the most because its premium may not
be changed in the future.
Which of these is a Mandatory Uniform Provision? Correct Answer -Legal
Actions
The Coordination of Benefits Provision is designed to: Correct Answer -Give
insureds as much coverage as possible while eliminating overinsurance
Which of the following statements is NOT true concerning a coordination of
benefits situation? Correct Answer -Where children are involved, the primary
group insurer is the insurer for the parent who is oldest by age at the time of claim
When double coverage exists, the coordination of benefits provision simply steps
in and stipulates which insurer pays and when. The insured's plan is always
primary, the spouses plan is secondary, the parent whose birthday comes first in the
calendar year is primary for the children, not who is oldest. The purpose of this
provision is to provide the most possible coverage without allowing any
overinsurance from occurring.
A plan in which employees select health benefits from a variety of coverage
options, based on their individual coverage needs is a: Correct Answer -Cafeteria
Plan
The main benefit of 501(c)9 trusts is: Correct Answer -Contributions to these
trusts may be deducted immediately, instead of when benefits are distributed
Contributions to a 501(c)9 trust can be deducted immediately, where as
contributions to regular self-funded plans may not be deducted until benefits are
distributed. Maintaining these trusts may be high enough to eliminate any tax
advantages offered. Distributions may be taxable.
Which of the following would NOT be a likely consideration in determining
premium rates for group health insurance? Correct Answer -Whether the
company produced a profit or a loss in the previous year
What would?
Degree of occupational hazard associated with the group
Length of the waiting period
Maximum indemnity period
The federal law that governs employer-sponsored employee retirement and welfare
and benefit plans is: Correct Answer -ERISA
The Employee Retirement Income Security Act (ERISA) of 1974 is the federal law
that governs employer-sponsored employee retirement and welfare and benefit
plans. Among other things, ERISA provides protections for participants and
beneficiaries in employee benefit plans (participant rights), including providing
access to plan information.
Which of the following policies would allow the business to deduct premiums
paid? Correct Answer -Business overhead expense insurance
Premiums paid for disability policies, whether held on key employees or put in
place to fund a buy-sell agreement, are not deductible. A business overhead
expense policy is sold and marketed as a business loss income policy and therefore
qualifies as a tax deductible business expense.
Buy Sell Agreement Correct Answer -
When an employee pays part of the premiums for group disability insurance:
Correct Answer -The benefits are received tax free to the extent that the employee
paid the premiums
Which of the following might be eligible to participate in an MSA? Correct
Answer -Charles, who works for a small bakery with only 15 employees
MSA: are limited to self-employed individuals or individuals employed by a small
employer having 50 or fewer employees.
On which of the following policies would any proceeds be taxable? Correct
Answer -Business overhead expense insurance
Generally, when premiums are deductible, the policy proceeds will be taxed. When
premiums are not deductible, proceeds are generally received tax free. When the
business is also the beneficiary, typically the premiums are not tax deductible to the
business.
All of the groups are considered to be exempt from the Affordable Care Act's
requirement to purchase coverage, except: Correct Answer -Those who must pay
less than 9.5% of their income for health insurance
Those that must pay more than 9.5%, even after subsidies, are exempt.
EXEMPT:
Those whose household income does not require the filing of a tax return
Undocumented immigrants
Members of a religion opposed to acceptance of health care benefits
Benefits received from an individual Long-Term Care Policy are not subject to
______, regardless of the deductibility of the premiums paid for the plan. Correct
Answer -Income Tax
A minor aged ______ years or older may contract for insurance on his or her own
life. Correct Answer -15
To receive a license as a resident insurance producer, an applicant must be at least:
Correct Answer -18 years old
Which of the following acts established the Federal Government's right to regulate
the insurance industry in situations involving fraud and false statements made in
insurance transactions which might lead to jeopardizing the financial soundness of
an insurance company? Correct Answer -McCarran-Ferguson Act
HIPAA Correct Answer -
COBRA Correct Answer Which of the following describes why Alabama encourages the purchase of LongTerm Care Insurance through its LTC 'Partnership Program'? Correct Answer Provides you with asset protection
Allows Medicaid to disregard some or all of your assets for Medicaid eligibility
Requires Medicaid to disregard some or all of your assets during estate recovery
In Alabama, the Commissioner of insurance is: Correct Answer -Appointed by
governor
An individual long-term care insurance policy may not be terminated for
nonpayment of premium unless the insurer has give notice to the insured and any
designated persons at least _____ days before the effective date of the termination.
Correct Answer -30
The notice must provide a 30 day grace period from the date of its mailing. Every
insured may designate at least 1 additional person to receive notice of a lapse or of
termination for nonpayment of premium.
An insurer may reserve the right to defer the payment of a cash surrender value for
up to _________ months after demand is made and the policy is surrendered.
Correct Answer -6 months
All of the following are true regarding advertising in life insurance, except:
Correct Answer -Premiums cannot be mentioned in an advertisement at all
Premiums MAY be mentioned, but only as premiums. NOT as Deposits, Deposit
premiums or Investments. Advertisements MUST indicate clearly what the product
is advertising. Dividends MUST state that they are Not Guaranteed.
TRUE:
Premiums cannot be referred to as 'deposits', 'deposit premiums', or 'investments',
they may be referred to as 'premiums' only
Advertisements may not omit the words 'life insurance' or 'annuity' from a policy's
name
Any reference to policy dividends must state that they are not guaranteed
An annuity or pure endowment contract may be reinstated within __________
from the default in premium payments, unless the cash surrender value has been
paid. Correct Answer -1 year
A licensee must inform the Commissioner of a change of legal name or address
within ______ days of the change. Correct Answer -30
The head of the state department of insurance has all of the following powers,
except: Correct Answer -Creating and establishing new premium rates for
insurance companies operating in the state
Powers:
Imposing penalties for violations of the insurance code, including but not limited to
fines, suspensions or revocations of licenses and Certificates of Authority, and
requesting that the Attorney General prosecute a violator
Approving rates and rate increases for regulated lines of insurance
Subpoenaing witnesses and administering oaths in order to further any
examination, investigation, or hearing on insurance matters
Which of the following can be listed on an illustration? Correct Answer -The
insurer's name, producers name, address, and the policy generic name
The proposed insured's name, age, gender, and the initial death benefit
The dividend option selected or any nonguaranteed elements
Non-financial regulatory activities are known as: Correct Answer -Market
conduct
Non-financial regulatory activities of an insurance department fall under the broad
heading of market conduct. Proper market conduct means conducting insurance
business fairly and responsibly.
Which of the following IS true about an HMO under Alabama Law? Correct
Answer -The Commissioner of insurance can regulate them but cannot impose a
fine
HMOs are already Government regulated both at the State and Federal levels.
However, the Commissioner does have the right to regulate all insurers in their
state, but they cannot impose a fine. That would be equivalent to the State
government issuing a fine to themselves and the federal government. The
Commissioner may certainly accept an examination from the HMO's home states
insurance commissioner and may examine any company in its own state as it
relates to protecting the general public
Which of the following IS NOT a type of illustration under the Alabama regulation
governing life insurance illustrations? Correct Answer -Annualized Illustration
TYPES:
In force illustration
Supplemental illustration
Basic illustration
Which of the following provided the federal government the right to regulate the
insurance industry, regarding fraud and false statements? Correct Answer McCarran/Ferguson Act
Jay, who is employed by Carson Company, is assigned to work temporarily in
another state. While in the other state, Jay is injured on the job. He is entitled to
benefits of the Workers' Compensation law in the state in which he was hired even
though his injury occurred in a different state. This indicates that the Workers'
Compensation law in the state where Jay was hired: Correct Answer -Includes
extraterritorial provisions
TEFRA is intended to: Correct Answer -Prevent group plans from discriminating
in favor of key employees
The minimum capital required to form and organize a new domestic stock life
insurance company in Alabama is: Correct Answer -$1,000,000
To be able to start operations, a mutual company must have all of the following,
except: Correct Answer -Min number of stockholders
Must have:
The advanced premium payment for each application
A minimum surplus as specified by the state
A minimum number of applications for insurance
A licensee must inform the Commissioner of a change of legal name or address
within ______ days of the change. Correct Answer -30
The maximum liability of the Life and Disability Insurance Guaranty Association
for all benefits, including cash values, for any one life is: Correct Answer $300,000
The Life and Disability Insurance Guaranty Association protects insureds,
beneficiaries, annuitants, and their assignees from insurer insolvency. Its aggregate
limit of liability may not exceed $100,000 in cash values or $300,000 for all
benefits including cash values, with respect to any one life.
An insurer can deny an otherwise valid claim under a long-term care insurance
policy solely on the basis of a misrepresentation that is material to the acceptance
for coverage: Correct Answer -If the policy has been in force for less than 6
months
A life insurance policy is incontestable, except for nonpayment of premiums, after
it has been in force during the lifetime of the insured for ______ from its date of
issue. Correct Answer -2 years
When the owner of the policy and insurer must meet certain conditions in order for
the health insurance policy to be enforceable, it is referred to as a(n): Correct
Answer -Conditional Contract
A Conditional Contract is one in which both parties to a contract must perform
certain duties to make the contract enforceable.
Contract of Adhesion Correct Answer Unilateral Contract Correct Answer -
When an applicant for life insurance faces potential financial loss in the event of
injury or sickness of an insured, it is said the applicant has: Correct Answer Insurable Interest
Insurable interest in life insurance is based upon a reasonable expectation of
pecuniary advantage through the continued life of another person and consequent
loss by reason of that person's death or a substantial interest engendered by love
and affection in the case of individuals closely related by blood or law.
The reinsurance agreement that automatically accepts all new risks presented by
the company seeking or requesting reinsurance from the reinsurer is known as a
____________ agreement. Correct Answer -Treaty
In a whole life insurance policy: Correct Answer -The cash value is greatest at
the end of the policy period, and the insurance protection is greatest at the start of
the policy
Concerning the Paid-Up Additions Dividend Option, all of the following are true,
except: Correct Answer -Eventually, no more premiums will be due on the policy
The Paid-Up Additions purchased under this Option have their own values and do
not change the face amount of the original policy. Each additional segment of
insurance contains both a death benefit and increasing cash surrender value, and by
purchasing paid-up additions, larger dividends may be paid ins the future. Paid up
additions do not eliminate need to pay premiums on the original policy.
Which of the following death benefits is paid out to the beneficiary income tax
free? Correct Answer -Life insurance when the insured dies while the policy is in
force
Generally, which of the following Annuities is not designed to guarantee the
principal value of the policy in stable interest rate environments? Correct Answer
-Variable
Variable annuities have no minimum guarantee of interest or gains, and may lose
value in a declining market.
In group insurance, the evidence of a contract between the insurer and the
employer or association is: Correct Answer -The policy
The policy itself is the evidence that a contract exists, whether it is an individual,
association or group policy. In group insurance the policy is referred to as the
master policy. Individual insureds do not receive a copy of the policy, since there is
no agreement between the insureds and the insurer.
A non-school employer can set up a TSA plan for their employees under which of
the following IRC section? Correct Answer -503 (c)(3)
The mathematical probability table used by insurance companies to determine loss
due to sickness or injury is the: Correct Answer -Morbidity Table
Which of the following is required to sign the application for insurance? Correct
Answer -Producer and applicant
A policy that pays surgical expense benefits does not schedule the approved benefit
payable for every type of surgery. Instead, surgeries not listed are paid on the basis
of a comparison to one or more types of commonly-performed major surgeries that
are scheduled. Under this arrangement, the unscheduled surgeries are paid on the
basis of: Correct Answer -Their relative value
Which of the following statements is FALSE regarding Medigap policies?
Correct Answer -A Medigap policy provides the same coverage as a Medicare
policy
All of the following statements about noncancellable policies are true, except:
Correct Answer -The insurer may choose not to renew the policy, but only on the
policy renewal or anniversary date
Guaranteed Renewable means: Correct Answer -Renewable with adjustable
premiums, by classification only
The grace period for an individual health insurance policy being paid on a
quarterly basis is: Correct Answer -31 days
One of your clients just reinstated his health insurance plan. When is coverage
effective for sickness and accident? Correct Answer -10 days for sickness, and
immediately for accidental injuries
The Coordination of Benefits Provision is designed to: Correct Answer -Give
insureds as much coverage as possible while eliminating overinsurance
Experience rating utilizes _______ in determining the rate the insurer will charge
for group coverage in each year of coverage. Correct Answer -Actual loss
experience of the group
The following statement is true concerning the income received from an
individually owned disability income policy: Correct Answer -Premiums paid
with after tax dollars, Income benefit not taxable
An insured with an individual LTC policy is deducting the premiums he is paying
for the plan on his income taxes. Once he begins to receive benefits from this plan,
what will be the tax consequences on this income? Correct Answer -Not taxable
The maximum liability of the Life and Disability Insurance Guaranty Association
for cash values, for any one life is: Correct Answer -$100,000