Both Iii

Front 1

A beneficiary receives the proceeds from a life insurance policy in a lump sum payment. Which of the following statements best explains how the proceeds will be treated in relation to the debts of the beneficiary?

* A) It is not subject to the beneficiary's debts and creditors.
* B) It is protected from the beneficiary's creditors as long as it is paid in a lump sum.
* C) It is protected from the beneficiary's creditors once it is paid to a beneficiary.
* D) It can be subject to the beneficiary's debts and creditors.

Back 1

d

When proceeds of a life insurance policy are payable to a beneficiary but held in trust by the insurer, the beneficiary has an exclusive right to the proceeds. These payments are not subject to the beneficiary's debts and cannot be reached by creditors. This protection only applies to policies in which the proceeds are payable in installments. It does not protect proceeds paid in a lump sum. The protection also does not extend to proceeds once they are paid to a beneficiary.

Front 2

When a group disability insurance plan is paid entirely by the employer, benefits paid to disabled employees are:

* A) deductible business expenses to the employer.
* B) taxable income to the employee.
* C) taxable income to the employer.
* D) deductible income to the employee.

Back 2

b

Disability benefit payments that are attributed to employee contributions are not taxable, but benefit payments that are attributed to employer contributions are taxable.

Front 3

Which of the following statements about state guaranty associations is CORRECT?

* A) They cover consumers' unpaid claims if an insurer becomes insolvent.
* B) They only help impaired but not insolvent insurers.
* C) They have been established in most states.
* D) Each state funds its own association.

Back 3

a

All states have established guaranty funds or associations. If an insurer becomes financially unable to pay its claims, the state guaranty association will cover the consumers' unpaid claims. Insurance companies fund state guaranty associations through assessments.

Front 4

Which of the following statements regarding representations is CORRECT?

* A) A representation is guaranteed to be true.
* B) A representation may not be altered after the insurance is in effect.
* C) Only written statements are considered representations.
* D) If a representation is false on a material point, the insurer may alter the contract but may not rescind it.

Back 4

b

A representation may be altered or withdrawn before the insurance is in force, but not afterward.

Front 5

The privilege of accessing the cash value of an insurance policy if it is surrendered is known as the:

* A) entire contract provision.
* B) nonforfeiture provision.
* C) conversion privilege.
* D) reinstatement provision.

Back 5

b

After a life insurance policy has been in effect for a specified amount of time, the policy may provide for access to the policy's cash value. Under certain circumstances, the money can be used to pay for a premium that is in default, paid as a lump sum in cash or paid as a cash amount in return for the surrender of the policy. Policies must explain the mortality table and interest rate used to calculate the cash surrender values. A conversion privilege is found in a group life policy. It allows for a terminated plan member to convert the group policy to an individual policy under certain circumstances. The reinstatement provision allows for the reinstatement of a lapsed policy. The entire contract provision stipulates that the application and policy itself comprise the entire contract of insurance.

Front 6

If an insured under a group health insurance plan claimed a $1,000 income tax deduction for medical expenses but then was reimbursed for the same expenses the following year, the insured:

* A) is not required to include the $1,000 in income.
* B) must include the $1,000 in income if it exceeds 7.5% of adjusted gross income.
* C) must pay back the money.
* D) must include the $1,000 in gross income.

Back 6

d

Benefits that an insured receives under a medical expense policy are not included in gross income because they are paid to offset losses incurred. However, medical expense insurance benefits must be included in gross income to the extent that reimbursement is received for medical expenses deducted in an earlier year.

Front 7

All of the following group health coverages include a conversion privilege EXCEPT:

* A) Disability income.
* B) Basic medical expense.
* C) Comprehensive medical expense.
* D) Accidental death and dismemberment.

Back 7

d

Group basic medical expense, comprehensive medical expense, and disability income insurance typically include a conversion privilege. This allows the insureds to convert their group certificates to individual policies when they leave an employer. Group AD&D policies, however, do not contain a conversion privilege.

Front 8

Which of the following statements is CORRECT about a group life insurance plan that is contributory?

* A) At least 70% of eligible employees must participate in the plan.
* B) All eligible employees must participate in the plan.
* C) The employees must pay for part of the cost of the insurance program.
* D) The employer must pay for the entire cost of the insurance program.

Back 8

c

In a contributory group life insurance plan, employees must pay for part of the cost of the insurance. Payments are usually made through payroll deductions.

Front 9

With regard to life insurance, all of the following statements are correct EXCEPT:

* A) spouses are automatically considered to have insurable interest in each other.
* B) all individuals are considered to have insurable interest in themselves.
* C) insurable interest must be maintained throughout the life of the contract.
* D) a creditor has an insurable interest in a debtor.

Back 9

c

For life and health insurance policies, insurable interest is required only when the contract is issued. It does not have to be maintained throughout the life of the contract nor is it necessary at the time of a claim.

Front 10

Kelly, age 48, owns a universal life insurance policy (non-MEC) with a current death benefit of $270,000 and a cash value of $20,000. Her basis in the policy is $12,000. Kelly is interested in either borrowing or withdrawing $15,000 from this policy. What would be the tax consequences if she were to borrow the $15,000 through a policy loan?

* A) Of the amount borrowed, $12,000 would be income tax free and $3,000 would be subject to income taxation.
* B) There would be no income taxation on any portion of the amount borrowed, but if she did not repay the loan, $3,000 would be subject to income taxation.
* C) Of the amount borrowed, $12,000 would be income tax free, $3,000 would be subject to income taxation, and there would be an additional penalty tax.
* D) There would be no income taxation on any portion of the amount borrowed, whether or not she repaid the policy loan.

Back 10

b

Except in the case of a MEC, life insurance policy loans are income tax free.

Front 11

If a life insurance applicant is given a binding receipt, when does his or her coverage become effective?

* A) Date the policy is issued.
* B) Date the applicant proves to be insurable.
* C) Date the receipt is given.
* D) Date the policy is delivered.

Back 11

c

Under a binding receipt (or temporary insurance agreement), coverage is guaranteed at the time of application for the amount of insurance applied for. The temporary coverage continues until the policy is issued as requested, until the company offers a different policy or until the company rejects the application, but in no event for more than 60 days from the date the agreement was signed.

Front 12

Ron is eligible for full death, retirement, and disability benefits under Social Security. His work status is:

* A) fully insured.
* B) completely insured.
* C) currently insured.
* D) partially insured.

Back 12

a

Fully insured is a status of complete eligibility that provides benefits for retirement, disability and death. A worker who is currently insured is not eligible for all Social Security insurance benefits.

Front 13

When indebtedness is discharged before the scheduled maturity date, credit insurance is:

* A) terminated and a refund paid to the insured.
* B) extended for the length of the loan, at additional cost to the insured.
* C) prorated for the actual length of the payment period with premiums adjusted accordingly.
* D) transferred to another debt which is still owed.

Back 13

a

When a debt is paid off before the scheduled maturity date, through renewal or refinancing, the insurance coverage must be ended and a refund paid to the insured.

Front 14

Lisa's private dental expense plan might deny a portion of her claim for all the following reasons EXCEPT:

* A) the claim was for replacement of lost dentures.
* B) her teeth were injured in an occupational accident.
* C) she did not comply with the predetermination of benefits provision in her policy.
* D) her care was diagnostic.

Back 14

d

Under many dental expense plans, diagnostic care is covered. A portion of claims may be denied, however, if she does not follow the predetermination (prior authorization) requirements. Also, most policies exclude costs for replacement of lost dentures.

Front 15

When establishing premiums, insurers express the rate as a:

* A) flat rate per risk.
* B) cost per $1,000 of face amount.
* C) percentage of the policy's face amount.
* D) cost per insured individual.

Back 15

b

Premium rates for life insurance are expressed as an annual cost per $1,000 of face amount. Thus, if the cost is $12 per $1,000, the annual premium for a $50,000 policy would be $600 ($12 x 50).

Front 16

Health policies classified as "nonoccupational" normally provide coverage for:

* A) losses both on and off the job.
* B) losses due to sickness or accidents that are not work-related.
* C) sickness but not for accidental injuries.
* D) persons in nonhazardous jobs.

Back 16

b

Front 17

A company with three partners is considering a buy-sell plan. All of the following statements pertaining to buy-sell plans and this partnership are correct EXCEPT:

* A) an insured entity buy-sell agreement designates the partnership as the beneficiary.
* B) if they choose an entity buy-sell agreement, the business would be party to the agreement.
* C) no benefits will accrue to the partnership from the buy-sell agreement until one of the partners dies.
* D) if they choose a cross-purchase plan, each partner would have to purchase two policies for a total of six plans.

Back 17

c

A buy-sell plan offers several advantages to the partners while they are all living. The partners know they will have a legal right to buy a deceased partner's share of the business, and the family and heirs of the partners know that the partnership interest will be disposed of at a fair price. Further, the money needed to purchase the deceased partner's interest will be available when needed. All this adds up to security and peace of mind for all involved, including employees of the business.

Front 18

All of the following are acceptable characteristics that an insurer can consider when rating a small employer group plan EXCEPT:

* A) location.
* B) 10-year medical histories.
* C) age.
* D) family composition.

Back 18

b

Small employer insurers must apply consistent rating factors with all small employers. The insurer must not use case characteristics other than age, geographic area, and family composition. In addition, it may not use any rating factors other than actual claims experience without prior approval of the Commissioner.

Front 19

Annuity payments are taxable to the extent that they represent interest earned rather than capital returned. What method is used to determine the taxable portion of each payment?

* A) Exclusion ratio.
* B) Annuitization ratio.
* C) Marginal tax formula.
* D) Surtax ratio.

Back 19

a

An exclusion ratio is applied to each benefit payment the annuitant receives to determine the amount that is excluded from taxation: investment in the contract is equal to exclusion ratio divided by expected return. The investment in the contract is the amount of money paid into the annuity. The expected return is the annual guaranteed benefit the annuitant receives, multiplied by the number of years he or she will receive benefits.

Front 20

All of the following statements regarding multiple-employer trusts (METs) are correct EXCEPT:

* A) they are established to provide group benefits to employers within a specific industry, such as construction.
* B) METs provide coverage only on a self-funded basis.
* C) METs are most typically used by smaller employers.
* D) an employer desiring coverage for its employees from a MET must subscribe by becoming a member of the trust.

Back 20

b

METs can provide benefits on a self-funded basis, or they can add benefits through a contract issued by an insurance company. In the latter case, the trust itself, rather than the subscribing employers, is the master contract holder.

Front 21

Which annuity settlement arrangement guarantees to pay at least a minimum amount equal to the original investment?

* A) Pure life annuity.
* B) Period certain annuity.
* C) Installment refund annuity.
* D) Joint and full survivor annuity.

Back 21

c

An installment refund annuity assumes that the total annuity fund will be paid to the annuitant, his or her beneficiary, or both.

Front 22

Who are the parties to a life insurance contract?

* A) Applicant and the beneficiary.
* B) Agent, the applicant and the beneficiary.
* C) Applicant and the insuring company.
* D) Agent and the applicant.

Back 22

c

The parties to a life insurance contract are the applicant and the insuring company. Neither the beneficiary nor the agent is a contracting party.