Life and Health Insurance practice exam

Which of the following situations BEST illustrates the principle of indemnity?

Joanna pays $50 a month for insurance coverage but receives $50,000 after a major surgery. What feature of her insurance contract does this best illustrate?

Julia buys a disability income policy so that a large uncertain loss is replaced by a small certain premium. Which method of managing risk is she using?

Olivia sells her car to eliminate the risk of accidents and costly repairs. Which risk management method is she demonstrating?

An insurer relies on statistics from thousands of policies to guide its pricing and reserve decisions. What does this allow the company to do?

Sarah buys renters insurance so she won’t have to pay out of pocket if her apartment is burglarized. She says the small monthly premium is worth it. What is Sarah doing when she buys the policy?

Daniel receives a check labeled policy dividends from his insurance provider, which is owned by its policyholders. What kind of company is this?

A group of contractors forms an agreement to cover each other’s liability losses by setting up individual accounts that fund claims. The arrangement is managed by a single administrator. What type of insurer is this?

Which statement best describes the McCarran-Ferguson Act of 1945?

After a series of hurricanes causes major claims, a regional insurer avoids collapse because another company had agreed in advance to take on a portion of those losses. What arrangement did the first insurer use to protect itself?

James is an agent whose contract doesn’t mention ordering medical exams for applicants, but he regularly does it to help process applications. The insurer accepts this and allows it. What type of authority is James using in this case?

Ben signs a contract with an insurer that lists the duties he’s allowed to perform, including collecting premiums, delivering policies, and submitting applications. What type of authority is granted in this contract?

Emily applies for auto insurance and sends in her completed application with the first premium. A few days later, the insurer sends her a policy with the coverage terms. In this situation, which part represents the acceptance?

Michael intentionally lies on his life or health insurance application about his smoking habits to get a lower premium. He marks himself as a non-smoker even though he smokes daily. What is this kind of action considered in insurance terms?

Ben applies for a health insurance policy but doesn’t provide the initial premium. Two weeks later, he’s ready to pay. The insurer asks for a signed update on his current condition. What is this extra document called?

Evan, a producer, periodically reviews his clients’ policies to ensure coverage still fits their changing needs. Which duty is he fulfilling?

Julia is an insurance producer advising a client on coverage. She takes time to understand their financial needs and explains all policy terms clearly. What standard of conduct is Julia following by acting this way?

Which of the following statements about binding and conditional receipts is NOT true?

A funeral home offers insurance to cover burial costs. The policy has a low premium and a face amount of $7,500. What type of policy is this, based on face amount?

Monica purchases a whole life policy and chooses to pay her premium once a month. The insurer does not allow weekly or biweekly payments. What does this tell us about the type of policy Monica owns?

Samantha, age 45, is diagnosed with a terminal illness and needs money to cover ongoing medical expenses. Instead of selling her policy to an investor, she chooses to access part of her policy’s death benefit directly from the insurance company while she is still alive. Which feature of her policy is Samantha using?

An employer and employee agree to share the cost of a permanent life insurance policy. The employer pays most of the premium, but the employee owns part of the cash value. What kind of arrangement is this?

Which of the following is required before an HIV-related test can be administered during underwriting?

An agent is explaining to a client how the insurer calculates life insurance premiums. She describes how age, health risk, and insurer costs are factored in. The client then asks, “Do your age or experience affect my premium?” What should the agent say?

After developing a serious illness, Jordan decides he wants permanent life coverage. His term policy includes a convertibility rider, so he switches to whole life without needing a medical exam. What feature did this rider protect?

A bank requires life insurance for a borrower taking out a $50,000 car loan. If the borrower dies, the policy will pay the remaining loan balance. What kind of policy is this?

After buying a family life insurance policy, Chris and Morgan have a baby. They’re surprised to learn the baby is already covered. Why is their newborn covered automatically?

Thomas has a whole life policy with a $250,000 face amount and $80,000 in cash value. His agent refers to the “amount at risk.” What is the amount at risk in Thomas's case?

A married couple wants a single policy that helps with estate needs only after both of them have died. Which policy best fits this goal?

Universal life policies include a minimum guaranteed interest rate. What is the minimum guaranteed interest rate in a universal life policy?

David owns a variable life insurance policy but has grown concerned about market volatility. He’s thinking about adjusting his coverage to avoid investment risk. What option is typically available to him within the first two years of owning the policy?

Cynthia is reviewing her variable life insurance policy and wants to understand where her investment funds are held. Her agent explains that these funds are kept in an account that’s not subject to the insurer’s creditors if the insurer becomes insolvent. What kind of account is Cynthia’s money held in, and what makes it different from the general account?

What happens if an employee leaves a group life plan with a conversion privilege?

Several small businesses in the same industry want to provide group life coverage to employees but can’t meet the insurer’s size requirements individually. What type of arrangement can they form?

A parent gifts their 18-year-old child full rights to a juvenile life insurance policy. What type of assignment has occurred?

A business owner assigns a life insurance policy to a lender while securing a business loan. What is the purpose of this collateral assignment?

Denise buys a life policy but has second thoughts within a week. Which clause allows her to cancel the policy and receive a full refund?

Monica is reading the insuring clause of her life insurance policy and wants to understand its purpose. What does this section typically include?

Samantha dies by suicide three years after purchasing her life insurance policy. How will the insurer handle the claim?

A life insurance applicant mistakenly lists the wrong age on their application. Years later, the insurer discovers the error after the insured passes. What will happen under the misstatement of age clause?

Which of the following situations would most likely NOT be covered by an accidental death benefit rider?

Maria buys a cost of living rider. Why might this rider be especially valuable over time?

What is the accumulate at interest dividend option?

Linda’s life insurance beneficiary chooses to receive $1,000 per month from the insurer until the full death benefit is paid out. What settlement option is being used?

Derek decides to convert his deferred annuity into a lifetime income stream. After receiving his first monthly payment, he contacts the insurer asking to change the payout option and withdraw a large portion of the remaining balance. What will the insurer tell him?

Olivia purchases a Single Premium Immediate Annuity (SPIA) with a lump sum and begins receiving income right away. What distinguishes a SPIA from other types of annuities?

After retiring, Linda begins receiving monthly annuity payments. She is surprised that she no longer pays the 10% early withdrawal penalty, even though she is under age 59½. Why is this the case?

How is the tax liability on annuity payments determined after annuitization?

Ryan pays premiums on his individual life insurance policy. How are those payments treated under federal income tax law?

Clara withdraws money from her annuity at age 50. What tax treatment will apply?

Anthony’s policy has grown in cash value, and he decides to fully surrender the contract. What tax risk does he face?

Lena has been working at her company for several years. Her employer has made contributions to her retirement plan. She asks if she will get to keep that money if she leaves the company. What is she asking about?

Alice works for a nonprofit hospital and contributes to a 403(b) plan. Her spouse works for the local government and contributes to a 457 plan. How do these plans compare to traditional corporate 401(k) plans?

Which of the following is not considered a category of health insurance provider?

A self-employed individual applies for a non-ACA-compliant health insurance plan that uses full medical underwriting. Which factor will most significantly impact the premium offered?

While reviewing her new health insurance policy, Ana notices a section labeled “Uniform Policy Provisions” that outlines requirements like the grace period and claim procedures. What is the primary purpose of these uniform policy provisions?

Marta submitted proof of loss to her health insurer on January 1st. Her claim was denied, and she is considering legal action. Under the uniform Legal Action provision, what is the earliest and latest date she may file a lawsuit against the insurer?

What does the Reinstatement provision require if a policy owner pays the reinstatement premium and the insurer does not respond within 45 days?

An insured with a disability income policy becomes disabled and begins receiving monthly benefits. However, the insurer later finds that the insured’s pre-disability earnings were significantly lower than the benefit amount. What provision allows the insurer to reduce the benefit to align with actual earnings?

After receiving her new health insurance policy in the mail, Sofia reviews the terms and decides it’s not the right fit. A week later, she contacts the insurer to cancel it and asks for a full refund. Which provision gives her the right to do this?

Maria recently enrolled in an HMO plan and wants to take advantage of the preventive services it offers. Which of the following services is she most likely able to receive without additional cost as part of her plan’s preventive care coverage?

After reaching a certain limit in deductibles and coinsurance payments for covered medical expenses, Carlos is relieved to learn that his insurance will now cover 100% of any additional eligible costs for the rest of the year. Which provision in his Major Medical policy triggered this change?

After a car accident, a policyholder needs emergency dental surgery to repair broken teeth. Which of the following would NOT typically be excluded under a standard health insurance policy?

While a patient is receiving inpatient hospital care, the insurance company contacts the attending physician to assess whether continued hospitalization is medically necessary. What type of utilization review is taking place?

John recently joined a company that provides group health insurance. Which of the following statements about group insurance is NOT true?

A group of small business owners forms a professional association to support industry standards and share resources. They now want to purchase group health insurance. Under typical rules, would they qualify?

Sarah is reviewing COBRA eligibility after several changes occurred in her company. Which of the following situations would NOT qualify an employee or dependent for COBRA continuation coverage?

An insurance carrier receives an application from a local construction company with 10 full-time employees seeking group health coverage. Which federal law requires the insurer to offer coverage to this small employer group?

An employee had continuous group coverage for over a year, then switched jobs and enrolled in her new employer’s group plan 30 days later. What will the new plan do about coverage for her pre-existing condition?

For a contributory group health plan, what minimum participation is typically required?

Tanya is receiving partial disability benefits after an injury that limits her to part-time work. Her insurer explains that these benefits are temporary and not meant for long-term income replacement. Based on typical policy terms, how long can partial disability benefits usually last?

Michael bought both a short-term and a long-term disability income policy. Which of the following statements about their coordination is NOT true?

Two partners own a graphic design firm. One of them becomes permanently disabled and can no longer contribute to the business. Which type of policy would provide the funds needed for the remaining partner to buy out the disabled partner’s share?

Which of the following benefits would typically be covered under a standard AD&D policy?

Which of the following is NOT excluded under an AD&D policy?

A client is switching from one long-term care policy to another with no gap in coverage. Which of the following statements is true about how pre-existing conditions are treated in this replacement?

A family is reviewing a long-term care insurance policy for their mother, who was recently diagnosed with early-stage Alzheimer’s disease. Which of the following exclusions would not be allowed in a compliant LTC policy?

Which statement about age and eligibility for LTC insurance benefits is TRUE?

On January 1, James began orthodontic treatment to correct a crossbite. Later that year, his dentist informs him that his dental insurance will no longer cover the remaining adjustments, even though the treatment is medically necessary. What is the most likely reason?

Devon’s dental insurance plan covers routine exams and cleanings every six months. His insurer encourages him to use these benefits, even when he doesn’t have any current dental problems. What is the most likely reason this coverage is included?

Lena participates in her company’s Flexible Spending Account (FSA) program but forgets to use the remaining $600 in her account by the end of the plan year. Her employer does not offer a grace period or carryover option. What will happen to her unused FSA funds?

Which of the following is not part of OASDHI?

Carlos is reviewing Medicare eligibility for several clients at a community clinic. One is a 70-year-old retiree, another is a 58-year-old undergoing regular dialysis, and the third is a 60-year-old who recently retired early. Based on Medicare eligibility rules, which of the following individuals would qualify for Social Security medical expense reimbursement coverage?

Maria enrolls in a Medicare Advantage (Part C) PPO plan that bundles her hospital and medical coverage and adds dental and vision benefits. Which statement correctly describes her situation?

Which of the following statements about Medicare Part C is NOT true?

During a sales meeting, a producer tells a prospect, “I represent Medicare and can enroll you in an official government Medigap plan.” What’s the compliance issue?

A self-employed graphic designer buys an individual disability income insurance policy. When preparing her taxes, she asks whether she can deduct the premium. What is the correct explanation?

An employee is injured while performing regular job duties, and their claim for Workers’ Compensation is approved even though no negligence was found on the employer’s part. What principle allows this benefit to be paid?

A Medigap policy is sold by mail (no producer). When must the Buyer’s Guide and Outline of Coverage be provided, and what is the minimum font size for the Outline?

Charles is enrolled in his company’s group disability income plan, and his employer pays 100% of the premium. He later becomes disabled and begins receiving monthly disability benefits under the policy. How are those benefits treated for tax purposes?

Luca has an individual health insurance policy that he pays for entirely with after-tax dollars. Which of the following statements about the tax treatment of benefits from this policy is NOT true?

Carlos owns a marketing agency and provides group health insurance to his employees. His accountant wants to confirm how the premiums should be treated for tax purposes. How are the premiums paid by Carlos's business treated under tax law?

David owns a business with two partners and has set up a buy-sell agreement funded by life insurance. He’s reviewing the tax treatment of this arrangement with his financial advisor. Which of the following statements correctly describes how the policy is treated for tax purposes?

After losing his job, Brian was offered COBRA coverage through his former employer’s group health plan. He decided to instead purchase an ACA plan through the Marketplace. Which of the following is an advantage of choosing an ACA plan over COBRA?

Jasmine qualifies for a Special Enrollment Period (SEP) after moving to a new state. What is the timeframe she has to enroll in a Marketplace plan?