Life Insurance Policies and Contract Fundamentals

Question An underwriter determines that an applicant's risk should be recategorized due to a health issue. This policy may be issued with a(n): ▪️delayed effective date ▪️exclusion for the medical condition ▪️extended Contestable period ◾️Concealment clause Which statement is correct regarding the premium payment schedule for whole life policies? -Premiums are payable throughout the insured's lifetime/ coverage lasts until death of the insured -Premiums are payable for a set period/ coverage expires at that A nonprofit incorporated society that does not have capital stock and operates for the sole benefit of its members is known as: -a fraternal benefit society -a stock insurer -a mutual insurer -the Life and Health Insurance Guaranty Association Which type of contract liquidates an estate through recurrent payments? -Universal life insurance -Whole life insurance -Annuity -401(k) A life insurance application must be signed by all of these, EXCEPT: -the policyowner -the agent -the insured (if an adult) -beneficiary W is a 39-year old female who just purchased an annuity to provide income for life starting at age 60. All of these would be acceptable annuity choices, EXCEPT a(n): Flexible Premium Deferred annuity -Variable annuity Immediate annuity -Straight Life a Which of the following is TRUE if the owner of an IRA names their spouse as beneficiary, but then dies before any distributions are made? -Surrender charge is applied -The account can be rolled into the surviving spouse's IRA -Distributions will be recei Under the Texas insurance code, an insurance company must pay death benefits for suicide if the policy has been in force for a MINIMUM of: -six months -one year -two years -three years Which of the following statements about the classification of applicants is INCORRECT? -Substandard applicants are never declined by underwriters Substandard applicants are occasionally declined by underwriters -Preferred risk applicants typically have Agent J takes an application and initial premium from an applicant and sends the application and premium check to the insurance company. The insurance company returns the check back to J because the check is made out to J instead of the insurance company. Medicaid was designed to assist individuals who are: Federal employees -disabled -in poor health -below a specific income limit A policyowner's rights are limited under which beneficiary designation? -Revocable -Tertiary Contingent -Irrevocable An agent would be guilty of rebating by -returning a portion of a premium as inducement to purchase insurance -cancelling a client's insurance policy without cause -selling mass-marketed insurance products offering temporary insurance coverage Tom has a qualified retirement plan with his employer that is currently considered to be 80% "vested". How can this be interpreted? -20% of the funds are subject to taxes -80% of the funds are invested in a separate account -If Tom's employment is termin Answer Exclusion for the medical condition In this situation, the policy may be issued with an exclusion for the medical problem. ANSWER: Premiums are payable throughout the insured’s lifetime/coverage last until death of the insured With whole life insurance, premiums are payable throughout the insured's lifetime, and coverage continues until the insured's death. ANSWER: a fraternal benefit society A nonprofit incorporated society that does not have capital stock and operates for the sole benefit of its members is known as a fraternal benefit society. ANSWER: Annuity A contract that provides for the liquidation of all or part of an estate through periodic payments is known as an annuity. ANSWER: Beneficiary Beneficiaries are not required to sign an insurance application. ANSWER: Immediate annuity Immediate annuities start providing income payments usually starting within 30 days from the purchase date. ANSWER: The account can be rolled into the surviving spouse's IRA A surviving spouse who inherits IRA benefits or benefits from the deceased spouse's qualified plan is eligible to establish a rollover IRA in the surviving spouse's own name. ANSWER: two years An insurance company cannot contest a death benefit claim from suicide if it occurred after the policy was in force for a minimum of two years (incontestability period). ANSWER: Substandard applicants are never declined by underwriters This is false. An individual can be rated substandard for a number of reasons and can even be rejected outright. ANSWER: Return to the customer, collect a new check made out to the insurance company, and send the new check out to the insurance company If an agent receives a check made out to them instead of the insurance company, they should return the check to the ANSWER: below a specific income limit Medicaid was enacted to provide medical assistance to those whose income is below a specific limit. ANSWER: Irrevocable An irrevocable beneficiary designation requires the consent and signature of that named beneficiary before a change of beneficiary occurs. ANSWER: returning a portion of a premium as inducement to purchase insurance Returning a portion of a premium as inducement to purchase insurance is an example of rebating. ANSWER: If Tom's employment is terminated, 20% of the funds would be forfeited In this situation, 80% "vested" means that 20% of the funds could be forfeited if Tom's employment is terminated. Which of these is NOT considered to be a right given to a policyowner? -Surrendering the policy's cash value Modify a provision in the insurance contract -Assignment of ownership -Change the beneficiary, if revocable Which of these is an element of a Variable Life policy? -A fixed, level premium -Insurer assumes the investment risk -No investment risk to the policyowner -Rate of returns are guaranteed Which of the following situations does a Critical Illness plan cover? -Asthma -Leukemia -Alcohol rehabilitation Severe car accident Which of the following characteristics is associated with a large group disability income policy? -No waiting periods -No medical underwriting -No elimination periods -No limit of benefits An assignment of benefits of a Health Policy: -transfers payments to someone other than the policyowner -is prohibited by state law -is allowed only on policies dates after 1992 -transfers rights from the company to the policyholder How long is the typical free look period for Long Term care insurance policies? -20 days -30 days -40 days -50 days Which of the following correctly explains the actions an agent should take if a customer wants to apply for an insurance policy? -Have the customer sign a blank application, then take the application back to his office to complete prior to sending it off What is the consideration given by an insurer in the Consideration clause of a life policy? -Promise to never cancel coverage -Promise to pay a death benefit to a named beneficiary -Promise to not raise premiums Promise to accept an insured's assignment If the insured and primary beneficiary are both killed in the same accident and it cannot be determined who died first, where are the death proceeds to be directed under the Uniform Simultaneous Death Act? -Primary beneficiary's estate -Primary beneficia P and Q are married and have three children. P is the primary beneficiary on Q's Accidental Death and Dismemberment (AD&D) policy and Q's sister R is the contingent beneficiary. P, Q, and R are involved in a car accident and Q and R are killed instantly. The Accidental Death and Dismemberment (AD&D) provision in a life insurance policy would pay additional benefits if the insured: -dies of natural causes -becomes critically ill -becomes chronically ill -is blinded in an accident Which type of life insurance beneficiary requires his/her consent when a change of beneficiary is attempted by the policyowner? -Irrevocable beneficiary -Tertiary beneficiary -Primary beneficiary -Revocable beneficiary An incomplete life insurance application submitted to an insurer will result in which of these actions? -Application will be returned to the writing agent -Application will be approved with restrictions -Application will be pending until a MIB report is The policy provision that entitles the insurer to establish conditions the insured must meet while a claim is pending is: -Grace Period -Physical Examination and Autopsy -Entire Contract -Time Limit on Certain Defenses The premiums paid by an employer for his employee's group life insurance are usually considered to be: -taxdeductible to the employer -partially deductible to the ANSWER: Modify a provision in the insurance contract Changing contract provisions is not a policyowner right. ANSWER: A fixed, level premium Variable Whole Life policies have a fixed, level premium. ANSWER: Leukemia Leukemia is a type of cancer and would be covered under a Critical Illness plan. ANSWER: No medical underwriting A large group disability income policy can be distinguished by no medical underwriting. ANSWER: transfers payments to someone other than the policyowner An assignment of benefits of a Health Policy transfers payments to someone other than the policyowner. ANSWER: 30 days Most Long Term Care policies require a 30-day free look period. ANSWER: Complete the application and review the information with the customer prior to obtaining the customer's signature, then send the application off to the insurance company If a customer wants to apply for an insurance policy, the agent should compl ANSWER: Promise to pay a death benefit to a named beneficiary Consideration is given by the insurer by promising to pay a death benefit to a named beneficiary. ANSWER: Insured's contingent beneficiary Under the Uniform Simultaneous Death Act, if both insured and primary beneficiary are killed in the same accident and there is insufficient evidence to show who died first, policy proceeds will be paid as if the i ANSWER: P only In this situation, benefits will be paid to P because P survived the accident and is the primary beneficiary. ANSWER: is blinded in an accident The Accidental Death and Dismemberment (AD&D) provision in a life insurance policy would pay additional benefits if the insured is blinded in an accident. ANSWER: Irrevocable beneficiary An irrevocable designation may not be changed without the written consent of the beneficiary. ANSWER: Application will be returned to the writing agent If the company discovers a mistake or incompletion, it usually returns the application to the producer. ANSWER: Time Limit on Certain Defenses This provision limits the period during which an insurer can deny a claim based on a misstatement made by the insured. ANSWER: tax-deductible to the employer The amount an employer pays for his employee's life insurance is typically deductible to the business. employee -tax-deductible to the employee -taxable income to the employee What type of life insurance gives the greatest amount of coverage for a limited period of time? -Term life -Graded Premium Whole life -Whole life -Endowment policy The Notice of Claims provision requires a policyowner to: -provide proof of loss to an insurer within a specified time -notify an insurer of a claim within a specified time wait 60 days after filing a claim to initiate a lawsuit against an insure Which of the following BEST describes a Hospital Indemnity policy? -Coverage that reimburses an insured for surgeon expenses -Coverage that pays a stated amount per day of a covered hospitalization -Coverage that replaces lost income due to hospitaliz ____ of continuing education MUST be completed in the classroom or classroom equivalent. -20% -50% -80% -100% Life insurance that covers an insured's whole life with level premiums paid over a limited time is called: Adjustable Life -Renewable Term -Limited Pay Life -Joint Life The Legal Actions provision of an insurance contract is designed to do all of the following, EXCEPT: -provide the insurer adequate time to research a claim -protect the insured from having claim research delayed -protect the producer -give the insure A whole life insurance policyowner does not wish to continue making premium payments. Which of the following enables the policyowner to sell the policy for more than its cash value? -Cash surrender -Life settlement contract -Buy-sell arrangement Under a Renewable Term policy, -the face amount is automatically adjusted at the time of renewal -evidence of insurability must be provided at each renewal -the renewal premium is calculated on the basis of the insured's attained age -a new applicat K is the insured and P is the sole beneficiary on a life insurance policy. Both are involved in a fatal accident where K dies before P. Under the Common Disaster provision, which of these statements is true? -Proceeds will be paid to P's estate -Proce What is the purpose of the U.S.A. Patriot Act? -detect and deter fraud -detect and deter alien insurance companies detect and deter terrorism -detect and deter misrepresentation A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct? Straight life accumulates faster Which of these statements is INCORRECT regarding a Preferred Provider Organization (PPO)? -PPO's normally have more providers to chose from as compared to an HMO -Prices are negotiated in advance for PPO providers -In-network PPO providers offer membe M’s insurance company denied a reinstatement application for her lapsed health insurance policy. The company did not notify M of this denial. How many days from the reinstatement application date does the insurance company have to notify M of the denial b An insurance company which engages in boycott, coercion, and intimidation that results in the unreasonable restraint of trade is committing a ANSWER: Term life Term insurance would provide the greatest amount of protection for a limited period of time. ANSWER: notify an insurer of a claim within a specified time The Notice of Claims provision spells out the insured's duty to provide the insurer with reasonable notice in the event of a loss. ANSWER: Coverage that pays a stated amount per day of a covered hospitalization The typical Hospital Indemnity policy pays a stated amount per day of a covered hospitalization. ANSWER: 50% 50% of continuing education requirement must be spent in a classroom setting. ANSWER: Limited Pay Life Life insurance that covers an insured's whole life with level premiums paid over a limited time is called Limited Pay Life. ANSWER: protect the producer The Legal Actions provision is designed to do all of these EXCEPT protect the producer. ANSWER: Life settlement contract A Life settlement contract allows a policyowner to sell a life insurance policy for more than its cash value. ANSWER: the renewal premium is calculated on the basis of the insured's attained age Under a Renewable Term policy, the renewal premium is calculated on the basis of the insured's attained age. ANSWER: Proceeds will be payable to K's estate if P dies within a specified time Under the Common Disaster provision, proceeds will be payable to K's estate if P dies within a specified time. ANSWER: detect and deter terrorism The purpose of the U.S.A. Patriot Act is to detect and deter terrorism. ANSWER: 20-Pay Life accumulates cash value faster than Straight Life In this situation, the statement "20Pay Life accumulates cash value faster than Straight Life" would be correct. ANSWER: PPO's are NOT a type of managed care systems This is incorrect. PPO's ARE considered to be a managed health care system. ANSWER: 45 days Health insurance will automatically be placed back in force if the insurer fails to notify an applicant within 45 days that the reinstatement application was denied. ANSWER: unfair methods of competition Boycott, coercion, and intimidation that result in the unreasonable restraint of trade are prohibited under prohibited act under Texas insurance laws covering rebating -false advertising -discrimination -unfair meth What type of policy would offer a 40-year old the quickest accumulation of cash value? -Paid-up at 65 -20pay life -30-pay life -Straight whole life J chooses a monthly premium payment mode on his Whole Life insurance policy. Which of these statements is correct? -The gross premium is higher on a monthly payment mode as compared to being paid annually -The gross premium is lower on a monthly paymen N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take? Claim will be denied -Claim will be paid in full -Claim will be partially paid -Claim w Which of the following characteristics is CORRECT about Interest Sensitive Whole Life? -There is a flexible premium payment -There are no guaranteed minimum interest rates -Mortality charges do not impact the investment amount -Interest rates determi What determines the full amount of Social Security retirement benefits a qualified individual is entitled to receive? -Primary Insurance Amount (PIA) -Total taxes paid into FICA -Number of dependents -State of residence After an insured gives notice of loss, what must he/she do if the insurer does not furnish forms? -File a lawsuit Contact the insurer again requesting forms -Nothing File written proof of loss T applies for a life insurance policy and is told by the producer that the insurer is bound to the coverage as of the date of the application or medical examination, whichever is later. Assuming that T is an acceptable risk, what item is given to T? -Bi Q applied for life insurance and submitted the initial premium on January 1. The policy was issued February 1, but it was not delivered by the agent until February 7. Q is dissatisfied and returns the policy February 13. How will the insurer handle this Who can purchase a plan through the Marketplace? Anyone -Any legal resident except those incarcerated Only those who do not have access to employersponsored coverage -Only those who might be eligible for tax credits Basic Hospital and Surgical policy benefits are: -lower than the actual expenses incurred -higher than the actual expenses incurred -normally subject to deductibles normally subject to coinsurance Which of the following actions does the Commissioner of Insurance NOT have the power to conduct? -Activate insurance companies' financial reserves -Compute insurance companies' required financial reserves -Issue insurance licenses -Handle insurance-r When an individual is planning to protect his family with life insurance, one method of doing so is called needs analysis. What exactly does needs analysis involve? Establishes the needs of the individual and his dependents -Takes into account the pre What type of reinsurance contract involves two companies automatically sharing their risk exposure? Arbitrage -Facultative -Excess -Treaty Which of the following is TRUE about a qualified retirement that is "top heavy"? -More than 30% of plan assets are in key employee accounts -More than 40% of the Texas Insurance Code covering unfair methods of competition. ANSWER: 20-pay Life In this situation, a 20-pay life policy offers the quickest accumulation of cash value. ANSWER: The gross premium is higher on a monthly payment mode as compared to being paid annually A premium payment mode that is more frequent than an annual payment will result in a higher gross premium. ANSWER: Claim will be denied In this situation, the insurance company will deny the claim, as the policy would have lapsed due to nonpayment by September 15. ANSWER: There is a flexible premium payment An Interest-Sensitive Whole Life policy is characterized by premiums that vary to reflect the insurer's changing assumptions regarding its death, investment, and expense factors. ANSWER: Primary Insurance Amount (PIA) The Primary Insurance Amount (PIA) determines the full amount of retirement benefits for an eligible person. ANSWER: File written proof of loss The insured may file written proof of loss in any form if the insurer does NOT furnish forms after the insured gives notice of loss. ANSWER: Conditional receipt A conditional receipt binds the insurer to coverage as of the date of the application or medical exam, provided the proposed insured is determined to be an acceptable risk. ANSWER: Policy was returned within the free-look period, premium will be fully refunded The free-look period begins when the policy is delivered to policyowner. ANSWER: Any legal resident except those incarcerated Any legal resident, except those incarcerated, can purchase a plan through the Marketplace. ANSWER: lower than the actual expenses incurred Basic Hospital and Surgical policy benefits are typically lower than the actual expenses incurred. ANSWER: Activate insurance companies' financial reserves The Commissioner of Insurance has the power and duty to take all of these actions EXCEPT activate insurance companies' financial reserves. ANSWER: Establishes the needs of the individual and his dependents Needs analysis is a method of life insurance planning which identifies the needs of an individual and the individual's dependents. ANSWER: Treaty Under treaty reinsurance, each party automatically accepts specific percentages of the insurer's business. ANSWER: More than 60% of plan assets are in key employee accounts A plan is considered to be top heavy if more than 60% of plan assets are attributable to “key employees” as of the last day of the prior plan year. annual additions are for key employee accounts -More than 50% of plan assets are in key emplo Which of these factors does NOT influence an applicant's need for life insurance? -Lifestyle of the applicant Number of dependents -Future educational costs of the dependents -Self-maintenance expenses An enrollee of a Health Maintenance Organization (HMO) may be cancelled or nonrenewed for which of the following reasons? -Failure to pay for coverage -Marriage to a person with a pre-existing condition -Excessive use of health care benefits -Refusin K is an agent who takes an application for individual life insurance and accepts a check from the client. He submits the application and check to the insurance company, however the check was never signed by the applicant. If the application is approved, w ANSWER: self-maintenance expenses An individual's need for a death benefit for survivors is influenced by all of the following factors EXCEPT self-maintenance expenses. ANSWER: Failure to pay for coverage An enrollee of a Health Maintenance Organization (HMO) may be cancelled or nonrenewed for failure to pay for coverage. ANSWER: The date the agent delivered the policy, collected the initial premium, and obtained a good health statement from the insured In this situation, coverage will go into effect the date the agent delivers the policy, collects the initial premium, an