Completing the Application, Underwriting, and Delivering the Policy
What entities make up the Medical Information Bureau?
Answer
Insurers
At what point does coverage begin when an agent issues a conditional receipt for a life
insurance policy?
Answer
Either on the date of the application or the date of the medical exam (whichever occurs last)
What is adverse selection?
Answer
People who are more likely to submit insurance claims are seeking insurance more often than
preferred risks.
What risk classification would typically qualify for lower premiums?
Answer
Preferred risk
What is the best way to handle incomplete insurance applications?
Answer
Return the application to the applicant for completion
What type of report provides information about the applicant's hobbies, habits and financial
status?
Answer
Investigative consumer report
What two elements are necessary for a life insurance contract to have a legal purpose?
Answer
Insurable interest and consent
What type of report may be used to assess risks associated with an applicant's lifestyle and
character?
Answer
Investigative Consumer Report
What is a warranty in an insurance contract?
Answer
An absolutely true statement upon which the validity of the insurance contract is based
Who is a field underwriter?
Answer
Agent/Producer
In forming an insurance contract, when does an acceptance usually occur?
Answer
When the insurer approves a prepaid application
When would a misrepresentation on an insurance application be considered fraud?
Answer
When it is intentional and material
If an applicant for a life insurance policy and the potential insured are two different people, what
would be the underwriter's main concern?
Answer
The existence of insurable interest between the applicant and the insured
What do individuals use to transfer their risk of loss to a larger group?
Answer
Insurance
If an agent fails to obtain the applicant's signature on the insurance application, what must the
insurer do?
Answer
Send the application back to the applicant for signature
If an applicant does not receive a copy of the new insurance policy, who would be held
responsible?
Answer
The agent
What are the four elements of an insurance contract?
Answer
Agreement (offer and acceptance), consideration, competent parties, and legal purpose
Insurance contracts are prepared by insurers and must be accepted by the insured on an as-is
basis. This describes what characteristic of an insurance contract?
Answer
Contract of adhesion
What document describes the specific information about a policy?
Answer
Policy summary
What is the purpose of the agent's report during the application process?
Answer
The agent's report discusses the agent's personal observations about the proposed insured that
may help in the underwriting process.
When must insurable interest exist in a life insurance policy?
Answer
At the time of application
When would a misrepresentation be considered material?
Answer
When it may alter the underwriting decision
When a change needs to be made on the application for insurance, which is the best method for
correcting the information?
Answer
Complete a new application or ask the applicant to initial the correction on the original
application
When must the policy summary for a life insurance policy be delivered to the policyowner?
Answer
At the time of policy delivery
Whose responsibility is it to determine that all the questions on an insurance application are
answered?
Answer
The agent's
What term describes the fee a person pays an insurance company to receive coverage?
Answer
Premium
If an insurer needs to obtain information about the applicant from investigators, what is the
insurer required to do?
Answer
Provide the applicant a Disclosure Authorization Notice
What is insurance underwriting?
Answer
The process of risk selection and classification
What is the name of the process that insurance companies use to determine whether or not an
applicant is insurable?
Answer
Underwriting
What are the three types of risk rating classifications in life insurance?
Answer
Standard, substandard and preferred
What are the three main instances when insurable interest exists in life insurance?
Answer
Insuring your own life, the life of a family member, or the life of a business partners or someone
who has a financial obligation to the policy owner
During which stage in the insurance process do insurers evaluate information that identifies
adverse selection risks?
Answer
Underwriting
Insurance is a contract that protects the insured from what?
Answer
Loss
How may insurance policies be delivered to insureds?
Answer
They may be either personally delivered by an agent or mailed.
In insurance contracts, the insured is not legally bound to any particular action; however, the
insurer is obligated to pay for losses covered by the policy. What contract element does this
describe?
Answer
Unilateral
What is policy replacement?
Answer
A new policy is issued while an existing policy is terminated or reissued with a reduction in cash
value
How is the information obtained for an investigative consumer report?
Answer
Through interviews with the applicant's associates, friends and neighbors
Who must have insurable interest in the insured?
Answer
The policyowner
When does an insurance policy go into effect?
Answer
When the policy is delivered and the premium is paid
What is the main responsibility of a company's underwriting unit?
Answer
Risk selection
What law protects consumers from the circulation of inaccurate or obsolete information?
Answer
The Fair Credit Reporting Act
In insurance, when is the offer usually made on a contract?
Answer
When the insurance application is submitted
Insurance contracts are unilateral. What does that mean?
Answer
Only one party makes a legally enforceable promise.
Types of Life Policies
Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary,
the premiums must be paid for what time period?
Answer
For 20 years or until the insured's death, whichever occurs first.
What elements of an adjustable life policy can be changed by the policyowners?
Answer
The amount and payment period of the premium, the face amount, and the period for protection
In a joint life policy, when is the death benefit paid?
Answer
Upon the first death
What type of life insurance is best suited to cover a mortgage?
Answer
Decreasing term
Who bears the investment risk in a fixed annuity?
Answer
The insurer
In what type of life insurance policies can the policyowner skip premium payments without the
policy lapsing?
Answer
Universal life
What is the main reason for purchasing an annuity?
Answer
To provide income that the annuitant cannot outlive
What policy component must decrease in decreasing term insurance?
Answer
Face amount
What type of life insurance policy provides permanent protection?
Answer
Whole life
An individual has just borrowed $10,000 on a 5-year note from his bank. The note is due in
installments. What type of life insurance policy would be best suited to this situation?
Answer
Decreasing term
What type of insurance would perform the function of cash accumulation?
Answer
Whole life insurance
Whole life insurance policies mature when the insured reaches the age of 100. If the owner of a
whole life policy (the insured) dies at age 80, and there are no outstanding loans on the policy,
what portion of the death benefit will be paid to the beneficiary?
Answer
The full death benefit
In annually renewable term policies, what is the annual premium based upon?
Answer
The insured's attained age
What type of annuity requires an agent to have a securities license?
Answer
Variable annuity
Mortality tables are used by insurance companies to predict what?
Answer
Life expectancy and the death rates for specific groups of individuals
In an annuity, the accumulated money is converted into a stream of income during which
phase?
Answer
Annuitization period
In variable universal life insurance, to what policy component does the term "variable" refer?
Answer
Cash value and death benefit
With a single premium deferred annuity, when will the annuity payments become available?
Answer
No sooner than 1 year after the annuity purchase
What does the term "level" refer to in level term insurance?
Answer
Face amount
Regarding annuity payments, what is the difference between the annuitant and the beneficiary
of an annuity?
Answer
The annuitant receives payments from the annuity during the annuitization period; the
beneficiary receives benefits after the annuitant's death.
The death protection component of a universal life policy is expressed as what type of
coverage?
Answer
Annually renewable term
What type of life insurance policy is Life Paid-up at Age 65?
Answer
Limited-pay Whole Life
Who is entitled to the cash values in a life insurance policy?
Answer
The policyowner
If an annuity provides a set amount of income for two or more persons with the income ceasing
upon the first death, what type of annuity is that?
Answer
Joint life annuity
How soon can income payments begin in an immediate annuity?
Answer
No later than 1 year from the time of annuity purchase
Who receives income payments from an annuity?
Answer
Annuitant
When would a 20-pay whole life policy endow?
Answer
When the insured reaches age 100
What universal life option has a gradually increasing cash value and a level death benefit?
Answer
Option A
During partial withdrawal from a universal life policy, what portion, if any, will be taxed?
Answer
Interest earned on the withdrawn cash value
What happens to the cash value when a whole life insurance policy matures?
Answer
Cash value is paid to the policyowner
If the annuitant dies during the accumulation period, who will receive the annuity benefits?
Answer
Beneficiary
What happens to the premium in an annually renewable term life policy?
Answer
The premium increases with each renewal
What type of whole life insurance policies only requires a payment of premium at its inception,
and in addition to providing insurance protection for the life of the insured, endows at the
insured's age 100?
Answer
Single premium whole life
What type of annuity credits its interest based upon an index such as S&P 500?
Answer
Equity indexed annuity
What are the two classifications of annuities according to the time when annuity payments
begin?
Answer
Immediate and deferred
Can a business or a corporation be an annuitant?
Answer
No, an annuitant must always be a natural person.
A policy states that it will pay a specified face amount if the insured dies during the 20-year
premium-paying period and nothing if death occurs after the 20-year period. What type of policy
is this?
Answer
20-year level term
What type of annuity is suitable for someone who wants to select the benefit option that will pay
the largest amount only for as long as the annuitant lives?
Answer
Straight life
An individual has a contract that will provide him with a certain amount of income for the rest of
his life. However, this is not a life insurance policy. What type of contract does this person have?
Answer
Annuity
What type of life insurance policy offers pure death protection?
Answer
Term
What type of premium is charged on a straight life policy?
Answer
A level premium for the life of the insured
What annuity settlement option provides income payments to the annuitant for the duration of
their life, and also guarantees payment for a specified number of years?
Answer
Life income with period certain
What are the death benefit options in universal life policies?
Answer
Option A - level death benefit, and Option B - increasing death benefit
In flexible premium payment annuities, the term flexible refers to what?
Answer
Amount of premium
What type of life insurance offers an applicant a cash value element?
Answer
Permanent insurance (usually, whole life)
What type of annuity can be purchased with a single premium?
Answer
Immediate annuity
If the annuitant dies before the annuitization period starts, what will the beneficiary receive?
Answer
Either the amount paid into the annuity or the cash value, whichever is greater
What type of whole life insurance policy generates immediate cash value?
Answer
Single premium whole life
Whose life expectancy is taken into consideration in an annuity contract?
Answer
Annuitant
Whole life policies provide protection until the insured reaches what age?
Answer
Age 100
Under Option B in a universal life policy, what happens to the death benefit?
Answer
Under Option B, the death benefit increases each year by the amount of the cash value
increases
A whole life policy that requires that the policyowner only pays premiums for a specified number
of years is known as what kind of policy?
Answer
Limited-pay whole life
What is the purpose of establishing the target premium for a universal life policy?
Answer
To prevent the policy from lapsing
How long will a life annuity with a 15-year period certain pay?
Answer
For the life of the annuitant unless they die within the first 15 years of the annuitization period;
then the payments will last for 15 years.
What is the difference between a single premium and a flexible premium payment options in a
deferred annuity?
Answer
The number of payments that purchase the annuity
An annuity purchased with multiple payments that begin income payments after one year from
the moment of purchase is known as what type of annuity?
Answer
Flexible premium deferred annuity
How is the premium determined in a joint life insurance policy?
Answer
The premium is based on the average age of the insureds.
Why are policy loans not available on term insurance?
Answer
There is no cash value to borrow against.
What type of license(s) is/are required to sell variable annuities?
Answer
A life insurance license and a securities license
If there is no named beneficiary for the annuity benefits, to which entity will the benefits be paid?
Answer
Annuitant's estate
What are the two phases of an annuity?
Answer
Accumulation and annuitization (or pay-in and pay-out)
When does an adjustable life policy accumulate cash value?
Answer
When the premiums paid are more than the cost of the policy
Life Policy Riders, Provisions, Options and Exclusions
​
What are the dividend options in life insurance policies?
Answer
Cash, reduced premium, accumulation at interest, paid-up additions, paid-up option, one-year
term, and acceleration of endowment
What type of assignment is used to secure the payment of a debt with an existing life insurance
policy?
Answer
Collateral assignment
What does the term double indemnity mean?
Answer
The insurer will pay a benefit of twice the face amount.
Who has the right to the cash value of a life insurance policy?
Answer
Policyowner
In the fixed-period settlement option, how will the number of installments for the death benefit
proceeds determine the amount of the installments?
Answer
The longer the period selected, the smaller each installment will be
What term is used to describe methods of payment of the death benefit to the beneficiary upon
the insured's death?
Answer
Settlement options
To meet the requirement of the entire contract policy provision, an insurance policy must contain
what?
Answer
A copy of the original insurance application
What life policy rider allows the company to forgo collecting the premium if the insured becomes
disabled?
Answer
Waiver of premium
An insurer has discovered a representation on a life insurance policy application regarding the
insured's age. The insured is 10 years older than he stated on the application. What will the
insurer do regarding the death benefit?
Answer
Pay a reduced death benefit
If a settlement option is not chosen by the policyowner or the beneficiary, what option will be
used by the insurer?
Answer
Lump-sum payment
An insurer has discovered a representation on a life insurance policy application regarding the
insured's age. The insured is 10 years older than he stated on the application. What will the
insurer do regarding the death benefit?
Answer
Pay a reduced death benefit
What is the purpose of the Automatic Premium Loan provision?
Answer
To prevent the unintentional lapse of a policy because of nonpayment of the premium
What are the most common exclusions in life insurance policies?
Answer
War and military service, hazardous occupation, and aviation
Is the beneficiary required to have insurable interest in the insured?
Answer
No. Beneficiaries do not have insurable interest in the insured.
What type of beneficiary can be changed at any point by the policyowner?
Answer
Revocable
What dividend option is automatically selected by the company if not chosen by the
policyowner?
Answer
Paid-up additions
With the reduction of premium dividend option, how is the dividend used?
Answer
The dividend is applied to the next year's premium (it reduces the next year's premium).
What beneficiary designation has first claim to the death proceeds of a life insurance policy?
Answer
Primary beneficiary
What are the three nonforfeiture options in life insurance policies?
Answer
Cash surrender, reduced paid-up, and extended term
What are policy dividends?
Answer
Return of unused premiums
With the interest only settlement option, what happens to the policy's death benefit?
Answer
Policy proceeds are retained by the insurance company; only the interest is paid to the
beneficiary
What life insurance policy provision states that both the policy and a copy of the application form
the contract between the policyowner and the insurer?
Answer
Entire contract
What is the purpose of a free-look period?
Answer
To allow the insured to return the policy with a full refund
What is the name for a life insurance policy rider that provides coverage on the insured's family
members?
Answer
Other-insured rider
What provision allows the policyowner to reactivate a lapsed life insurance policy within a
specified period of time with proof of insurability?
Answer
Reinstatement
What nonforfeiture option is automatically selected by the company if not chosen by the
policyowner?
Answer
Extended term
What happens to the proceeds of a life insurance policy if there is no named beneficiary?
Answer
The proceeds are paid to the insured's estate.
When can an insurance company use suicide as a defense against paying a death claim?
Answer
When a suicide is committed within a specified period of time after the policy is purchased
(usually 2 years)
Under what nonforfeiture option does the company pay the policy's surrender value and have no
further obligations to the policyowner?
Answer
Cash surrender
What dividend option can increase the death benefit of the existing life policy?
Answer
Paid-up additions
An applicant for life insurance misstated her age on the policy application. How will this affect
the death benefit?
Answer
The death benefit will be adjusted to the amount that the insured could obtain for her correct
age.
What required provision protects against unintentional policy lapse?
Answer
Grace period
What nonforfeiture option provides coverage for the longest period of time?
Answer
Reduced paid-up
The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does
not amend the beneficiary designation, what will happen to the policy's death benefit?
Answer
It will be paid to the insured's estate.
What is the purpose of settlement options in life insurance policies?
Answer
To determine how the death benefit will be paid to the beneficiary
What life insurance policy provision prevents an insurer from disputing or denying a claim due to
misstatements on the application after a certain period of time?
Answer
Incontestability
What settlement options are available in life insurance policies?
Answer
Lump-sum/cash, fixed period, fixed amount, life income, interest only
A policyowner borrowed a portion of cash value from his whole life policy. If the loan is not
repaid, how will that affect the death benefit to the beneficiary?
Answer
The amount of the loan will be subtracted from the death benefit.
Which of the two types of policy assignments requires transfer of all ownership rights in the
policy to a third party?
Answer
Absolute assignment
What happens to a policy's cash value under an extended term nonforfeiture option?
Answer
The cash value is converted to the same face amount as in the whole life policy.
When will a contingent beneficiary receive death benefits from a life insurance policy?
Answer
When the primary beneficiary dies before the insured
Who controls changes in premium payments, face values, and loans in a life insurance policy?
Answer
Policyowner
What type of beneficiary is next in line after the primary beneficiary?
Answer
Contingent beneficiary
What provision in a life insurance policy extends coverage beyond the premium due date?
Answer
Grace period
What is the advantage of reinstating a life insurance policy as opposed to applying for a new
one?
Answer
Policy premium in a reinstated policy will be set according to the insured's original age
Retirement and Other Insurance Concepts
What is the main purpose of the 7-pay Test?
Answer
To determine if a life insurance policy is a Modified Endowment Contract
What type of policy issues certificates of insurance to the insureds?
Answer
Group policy
What are some examples of qualified plans?
Answer
IRA, 401(k), HR10 (Keogh), SEP, SIMPLE
What is the name for an overfunded life insurance policy?
Answer
A Modified Endowment Contract (MEC)
In what form of payment must the contributions to a traditional IRA be made?
Answer
In cash (or cash equivalents)
According to the taxation rules of life insurance policies, how are cash value increases taxed?
Answer
Cash value growth is tax deferred.
What does liquidity mean in a life insurance policy?
Answer
Availability of cash value
What qualified plan is suitable for the self-employed?
Answer
HR-10 or Keogh
If the beneficiary of a life insurance policy receives death benefit payments that consist of
principal and interest, which portion, if any, will be taxed?
Answer
Interest only
If an insured terminates membership in group life insurance, to what type of insurance can the
insured convert the coverage?
Answer
Whole life
What is the general taxation rule for death benefits payable to the beneficiary of a life insurance
policy?
Answer
Death benefits are generally not subject to income taxes.
If a retirement plan is qualified, what does that mean?
Answer
The plan has favorable tax treatment.
What is the penalty for excessive contributions to a traditional IRA?
Answer
6%
Who owns a group life insurance contract?
Answer
The employer (also known as the sponsor of the group)
Why are dividends in life insurance policies not taxable?
Answer
Dividends are not considered income for tax purposes; they are a return of unused premium.
Who would be considered a third-party owner?
Answer
An individual or an entity who is not the insured
What is the main advantage of converting from group life insurance to individual coverage?
Answer
Evidence of insurability is not required
What are the consequences of withdrawing funds from a traditional IRA prior to the age of 59
1/2?
Answer
10% penalty
What is the primary purpose of a 401(k) plan?
Answer
Provide retirement income
Upon surrender of a life insurance policy, what portion of the cash value will be taxed?
Answer
Only the portion in excess of the premium paid
SIMPLE plans are available to groups of how many employees?
Answer
No more than 100
For a retirement plan to be qualified, it must be designed for whose benefit?
Answer
Employees
What type of policy is typically issued without proof of insurability from the insured?
Answer
Group policy
Who may contribute to an HR-10 plan?
Answer
A self-employed individual
What are the most common types of business life insurance?
Answer
Key person insurance, buy-sell agreements, and executive bonuses arrangements
When planning for survivor protection in life insurance, what needs to be considered?
Answer
The insured's current assets, liabilities and survivor's needs
In qualified plans, are employer contributions taxed as income to the employees?
Answer
No, employer contributions are not taxed as income to the employees
What are the characteristics of the group that underwriters will consider before issuing a group
life policy?
Answer
Group's purpose, size, financial strength and turnover
Who qualifies for tax-sheltered annuities, or 403(b) plans?
Answer
Employees of nonprofit organizations under Section 501(c)(3) and employees of public school
systems
Life insurance may be used to pay state inheritance taxes and federal estate taxes eliminating
the need to sell assets from the estate. What is this called?
Answer
Estate conservation
What is required to qualify an individual to contribute to a traditional IRA?
Answer
Earned income
What are the personal uses of life insurance?
Answer
Survivor protection, estate creation and conservation, cash accumulation and liquidity
Is the death benefit of a life insurance policy taxed to the beneficiary if it's received as a lump
sum?
Answer
No, lump-sum benefits are received tax free.
Group life insurance policies are written as what type of insurance?
Answer
Annually renewable term
What are the three types of Social Security benefits?
Answer
Retirement, disability and survivors
Field Underwriting Procedures
When should an agent obtain a Statement of Good Health from the insured?
Answer
When the premium was paid upon policy delivery and not at the time of application
If an insurer decides to obtain medical information from different sources in order to determine
the insurability of an applicant, who must be notified of the investigation?
Answer
The applicant
What is the best way to make a change on an application for insurance?
Answer
Start over with a fresh application
In health insurance, the policy itself and the insurance application form what?
Answer
The entire contract
What information are the members of the Medical Information Bureau required to report?
Answer
Adverse medical information about the applicants or insured
What is the term used for a written request for an insurer to issue an insurance contract based
on the provided information?
Answer
Application
If an underwriter requires extensive information about the applicant's medical history, what
report will best serve this purpose?
Answer
Attending Physician's Statement
If an agent makes a correction on the application for health insurance, who must initial the
correct answer?
Answer
The applicant
What is the entire contract in health insurance underwriting?
Answer
The application and the policy issued
What entities make up the Medical Information Bureau?
Answer
Insurers
Who is responsible for paying the cost of a medical examination required in the process of
underwriting?
Answer
Insurer
Who must sign a health insurance application?
Answer
The policyowner, the insured (if different), and the agent
Whose responsibility is it to inform an applicant for health insurance about the insurer's
information gathering practices?
Answer
The agent
Types of Health Policies
Who are the parties in a group health contract?
Answer
The employer and the insurer
Who chooses a primary care physician in an HMO plan?
Answer
The individual member
In what type of health plans are providers paid for services in advance, regardless of the
services provided?
Answer
Prepaid plans
Why do HMOs encourage members to get regular checkups?
Answer
To help catch health problems early when treatment has the greatest chance for success (i.e.,
preventive care)
What is the main principle of an HMO plan?
Answer
Preventive care
In group insurance, what is the name of the policy?
Answer
Master policy
What is the term for a period of time immediately following a disability during which benefits are
not payable?
Answer
Elimination period
Can an insured who belongs to a POS plan use an out-of-network physician?
Answer
Yes, but the copays and deductibles may be higher
What type of hospital policy pays a fixed amount each day that the insured is in the hospital?
Answer
Hospital indemnity
Under what type of care do insurers negotiate contracts with health care providers to allow
subscribers access to health care services at a favorable cost?
Answer
Preferred Provider Organization (PPO)
What is the primary purpose of disability income insurance?
Answer
To replace income lost due to a disability
What are the three types of basic medical expense insurance?
Answer
Hospital, surgical and medical
What is the purpose of a buy-sell agreement for health insurance policies?
Answer
To specify how the business will pass between owners when one of them dies or becomes
disabled
What does the amount of disability benefit that an insured can receive depend on?
Answer
The insured's income at the time of policy application
How are HMO territories typically divided?
Answer
Geographic areas
What type of health insurance would pay for hiring a replacement for an important employee
who becomes disabled?
Answer
Key-person disability insurance
With key person disability insurance, who pays the policy premiums?
Answer
The business (employer)
What is the capital sum in Accidental Death and Dismemberment (AD&D) coverage?
Answer
A percentage of the principal sum
What do individual insureds receive as proof of their group health coverage?
Answer
Certificate of Insurance
What types of injuries and services will be excluded from major medical coverage?
Answer
Injuries caused by war, intentionally self-inflicted injuries, injuries covered by workers
compensation, regular dental/vision/hearing care, custodial care, and elective cosmetic surgery
What are the two types of Flexible Spending Accounts?
Answer
Health care accounts and dependent care accounts
How can an HMO member see a specialist?
Answer
Referral by the primary care physician
Can Alzheimer's disease be excluded from coverage under a long-term care policy?
Answer
No, organic cognitive disorders, such as Alzheimer's or Parkinson's must be covered
What types of groups are eligible for group health insurance?
Answer
Employer-sponsored and association-sponsored groups
What is the purpose of COBRA?
Answer
To allow continuation of health insurance coverage for terminated employees
In health insurance, what is considered a sickness?
Answer
An illness that first arises while the policy is in force
In order to be eligible for coverage by an HSA, an individual must also be covered by what type
of health plan?
Answer
High Deductible Health Plan (HDHP)
What is a fee-for-service health plan?
Answer
Under a fee-for-service plan, providers receive payments for each service provided
What is the role of the gatekeeper in an HMO plan?
Answer
To control costs for the services of specialists
What is the purpose of respite care in long-term care insurance?
Answer
To provide relief for a major caregiver (usually a family member)
Health Policy Provisions, Clauses, and Riders
How can an irrevocable beneficiary be changed?
Answer
With the written consent of the beneficiary
What will happen to a health insurance policy if the premium has not been paid by the end of
the grace period?
Answer
The policy will be cancelled
What provision provides for the sharing of expenses between the insured and the insurance
company?
Answer
Coinsurance
What does the free-look period allow the insured to do?
Answer
Return the policy for a full refund of premium within a specified time period (usually 10 days)
What is the main difference between coinsurance and copay?
Answer
Copay is a set dollar amount; coinsurance is a percentage of the expenses
What will determine the length of the grace period in a health insurance policy?
Answer
The mode of the premium payment
If the insured pays a monthly premium for health insurance, how long would the grace period be
on the policy?
Answer
10 days
A waiver of premium provision may be included with what type of health insurance policies?
Answer
Disability Income
Under an individual disability income policy, the benefits must be paid on at least what
schedule?
Answer
Monthly
What section of a health insurance policy lists the services for which the insurer will not provide
coverage?
Answer
Exclusions
What health policy provision prevents the insured from bringing a lawsuit against the insurance
company for at least 60 days after proof of loss is provided?
Answer
Legal actions
Who pays the expense for an autopsy under the physical examination and autopsy provision?
Answer
The insurer
What is the purpose of the coinsurance provision in health insurance policies?
Answer
To prevent overutilization of the policy benefits
What health policy provision describes the insured's right to cancel coverage?
Answer
Renewability provision
What is a probationary period in group health insurance?
Answer
The period of time that must lapse before an employee is eligible for group health coverage
Who decides which optional provisions would be included in a health policy?
Answer
The insurance company
After the elimination period, a totally disabled insured qualified for benefits from a disability
income policy that has a waiver of premium rider. What will happen to the premium that was
paid into the policy during the elimination period?
Answer
Premium will be refunded
What are usual/reasonable and customary charges based on?
Answer
Average charge for a given procedure in the specific geographic area
The insured on a health policy misstated his age on the insurance application. If this
misrepresentation is discovered, what will happen to the policy?
Answer
The benefit amount payable under the policy will be adjusted to the insured's correct age.
How will changing one's occupation to be more hazardous affect the health insurance policy in
force?
Answer
Claim benefits will be reduced to what the premium would have bought for a more hazardous
occupation
According to the Time Limit on Certain Defenses provision in health insurance policies, when
can an insurer contest fraudulent misstatements on a health insurance application?
Answer
Any time while the policy is in force
What health policy provision defines the insured's duty to provide the insurer with reasonable
notice in the event of a loss?
Answer
Notice of claim
What health policy provision allows the insured a period of time to examine the policy and
determine whether keep it?
Answer
Free-look period
What health policy provision states to whom the claim benefits must be paid?
Answer
Payment of claims
What is the name of the act by the insured to voluntarily give up insurance?
Answer
Cancellation
If a health insurance policy has a 31-day grace period, what does that mean?
Answer
The policy remains in effect for 31 days after the premium is due and not paid
According to the Reinstatement provision, once a lapsed policy is reinstated, how soon will
coverage be available for accidents?
Answer
Immediately
What is a deductible in a health insurance policy?
Answer
A specified dollar amount that the insured must pay before the insurer will pay the policy
benefits
Which health insurance provision describes the insured’s right to cancel coverage?
Answer
Renewal provision
Social Insurance
How is Part B Medicare funded?
Answer
By monthly premiums and from the general revenues of the federal government
What benefits are provided by Medicare Part C?
Answer
Expanded benefits for a fee through private insurance programs such as HMOs or PPOs.
What is the required free-look period for Medicare Supplement policies?
Answer
30 days
What benefit is based on a primary insurance amount (PIA)?
Answer
Social Security disability benefit
When is the initial enrollment period for Medicare Part A?
Answer
When an individual first becomes eligible for Medicare, starting 3 months before turning age 65
and ending 3 months after the 65th birthday
What is the purpose of Medicare Supplement plans?
Answer
To fill in the gaps in Medicare coverage
How many pints of blood will be paid for by Medicare Supplement core benefits?
Answer
First 3 pints
What is another name for Medicare Supplement plans?
Answer
Medigap
How many parts does Medicare have?
Answer
Four: Parts A - D
What part of Medicare is known as medical insurance?
Answer
Part B
If an individual is covered by Medicare, and is also covered by his employer's health plan, which
plan would be considered primary?
Answer
The employer plan
What is another name for Medicare Advantage plans?
Answer
Part C
Who qualifies for Medicaid?
Answer
Persons with insufficient income
What is another name for Old Age, Survivors, and Disability Insurance benefits?
Answer
Social Security
At what age do individuals qualify for Medicare?
Answer
Age 65
How does someone qualify for Social Security disability income benefits?
Answer
The insured must have the proper insured status (such as fully insured), meet the definition of
disability, and satisfy the waiting period
Medicare Part A will pay for what type of services?
Answer
Inpatient hospital care, skilled nursing facility care, home health care and hospice care
Who is eligible for Part B Medicare?
Answer
Part B is optional, and is offered to everyone who enrolls in Part A
Who issues Medigap policies?
Answer
Private insurers
What Medicare part helps pay for inpatient hospital care, inpatient care in a skilled nursing
facility, home health care and hospice care?
Answer
Part A
What Medicare part provides a prescription drugs benefit?
Answer
Part D
Who qualifies for Medicare coverage?
Answer
People age 65 or older, or anyone who has been entitled to Social Security disability income
benefits for 2 years, or who has chronic kidney disease
In which Medicare supplemental policies are the core benefits found?
Answer
All plans (A-N)
An insured with Medicare Part D has reached the initial benefit limit and must now pay a portion
of prescription drugs costs. What is the term for this gap in coverage?
Answer
The donut hole
What Medicare part will cover lab services or diagnostic tests?
Answer
Part B
What part of Medicare is known as hospital insurance?
Answer
Part A
Other Health Insurance Concepts
According to the Coordination of Benefits provision, if both parents have coverage for a child
from their employers' policies, which policy will pay first?
Answer
The order of payment will be determined by the birthday rule: the coverage of the parent whose
birthday is earlier in the year will be considered primary
What is subrogation in health insurance?
Answer
The legal process that gives the insurer the right to seek recovery from a third party that was
responsible for the loss after the insurer has paid the insured for the loss
What type of health insurance covers partners or corporate officers of a closely held business?
Answer
Disability buy-sell
What type of health insurance is sold to small business owners to reimburse them for the
overhead expenses?
Answer
BOE - Business Overhead Expense insurance
What is a birthday rule in a coordination of benefits provision?
Answer
The coverage of the parent whose birthday is earlier in the year is considered primary
Under a fully contributory health plan, how are benefits received by the employee?
Answer
Income tax free
How are individually-owned disability income benefits taxed once received by the insured?
Answer
Disability benefits are not taxed; they are received income tax free
What is the tax advantage of the employer paying premiums for its employees for disability
income insurance?
Answer
Premiums are deductible as a business expense
What are the five basic characteristics of managed care plans?
Answer
Controlled access to providers, comprehensive case management, preventive care, risk
sharing, and high quality care
Under what employer-provided plan are the benefits taxable to an employee in proportion to the
amount of premium paid by the employer?
Answer
Disability income
When a business receives benefits from its key person disability insurance, how are those
benefits taxed?
Answer
The key person disability insurance benefits are received tax free.
What are the four types of workers compensation benefits?
Answer
Medical, income, rehabilitation and death benefits
What type of disabilities will be covered by occupational coverage?
Answer
Disabilities that result from accidents or sicknesses that occur on or off the job
In health insurance, when would an excess plan pay benefits?
Answer
After the primary plan has paid its full promised benefit, the excess plan will pay the balance
If the insureds share in the cost of health insurance premiums with the employer, this would be
known as what type of group health plan?
Answer
Contributory
How are benefits received by the business from a key person disability insurance?
Answer
Income tax free
In group medical and dental expense insurance, what percentage of premium paid by the
employer is deductible as a business expense?
Answer
100%
What is the purpose of managed care health insurance plans?
Answer
To control health insurance claims expenses
What type of insurance covers an employee who is hurt on the job?
Answer
Workers compensation
For how long do short-term disability group plans pay benefits?
Answer
For up to 52 weeks
Texas Statutes and Rules Common to Life and Health Insurance
What type of misrepresentation persuades an insured, to their detriment, to cancel, lapse, or
switch policies from one to another?
Answer
Twisting
What type of licensee represents the insurance company?
Answer
The agent
Who owns stock companies?
Answer
Stockholders
What are the most common penalties for violations of insurance statutes?
Answer
A cease and desist order, a fine, and license suspension or revocation
If an insurer holds a Certificate of Authority, it is known as what type of insurer?
Answer
Authorized or admitted
If the Commissioner/Superintendent finds a licensee engaging in an unfair method of
competition or an unfair practice, what order will be issued?
Answer
Cease and desist order
To whom may a certificate of authority be issued?
Answer
To an insurer authorized to transact business in this state
What illegal act does a producer commit when the producer represents a policy in a more
favorable light than the policy really is?
Answer
Misrepresentation
Who is responsible for the contents of insurance advertisements?
Answer
The insurance company
When can the Commissioner or Director examine insurers?
Answer
Whenever deemed necessary, but at least once every few years (please check your state
regulations for specific time requirement)
What type of licensee represents the insured?
Answer
Broker
What is controlled business?
Answer
Insurance on the producer's own life or property, or the lives or property of the producer's family
or business associates
Who must be a member of insurance guaranty associations?
Answer
All insurers authorized to write insurance within a state
Two individuals who are in the same risk and age class are charged different rates for their
insurance policies due to an insignificant factor. What is this called?
Answer
Discrimination
If a producer makes maliciously critical statements about another insurer, what is this illegal
practice called?
Answer
Defamation
In the agent/insurer relationship, who is considered the principal?
Answer
Insurer
If an insurer meets the state's financial requirements and is approved to transact business in the
state, it is considered what type of insurer?
Answer
Authorized or admitted
Who may share in the commission from the sale of a life insurance policy?
Answer
Only producers properly licensed for the type of insurance transaction
When is controlled business legal?
Answer
When the commissions from controlled business do not exceed the aggregate commissions on
all the other business (specific limits may vary from state to state)
What document is required for an insurance company to transact insurance?
Answer
Certificate of Authority
Insurers are classified according to their domicile. What are the three types of insurers?
Answer
Domestic, foreign, and alien
Who is an insurance agent?
Answer
A person authorized to sell, solicit and negotiate insurance contracts
In general, who can be excluded from producer licensing and examination requirements?
Answer
Insurance company officers, directors, or any other employees who do not transact insurance
and who do not receive commissions for their services (usually, their responsibilities include
administrative, executive or clerical).
For what reason can a temporary license be issued?
Answer
For continuation of business in case the licensed producer dies or becomes disabled
Can insurers advertise the existence of the guaranty association during solicitation and sale of
insurance policies?
Answer
No, advertising of the existence of the guaranty association for the purposes of solicitation and
sale of insurance policies by insurers is an illegal business practice.
Who is responsible for the costs associated with the examination of insurers?
Answer
The insurer who is being examined
Who is considered a nonresident agent?
Answer
An agent who resides and is licensed in another state, but who is authorized to transact
insurance in this state
Who must be notified of a producer's change of address?
Answer
The Department of Insurance (Commissioner/Director/Superintendent)
On its advertisement, a company claims that it has funds in its possession that are, in fact, not
available for the payment of losses or claims. What is the company guilty of?
Answer
Misrepresentation
What is the purpose of insurance guaranty associations?
Answer
To protect policyowners, insureds and beneficiaries from financial losses caused by insolvent
insurers
What is the purpose of a cease and desist order?
Answer
To prevent a producer or insurer from further violating laws for transacting insurance
An agent offers a client free tickets to a sporting event in exchange for the purchase of an
insurance policy. What is the agent guilty of?
Answer
Rebating
What are producers required to do in order to renew their license?
Answer
Complete continuing education hours and pay a renewal fee
Who can usually be granted a temporary license?
Answer
Producer's spouse or designee in case the licensed producer dies or becomes disabled