The Final Insurance

question

Which of the following types of coverage is best used to protect the beneficiary, and to provide a living benefit for the policyowner?
answer

Permanent. Permanent insurance is designed not only to provide the beneficiary a death benefit if the insured dies, but also to provide the insured/owner a build up of cash value from which they may borrow for emergency expenses.
question

Under an Entity Plan funding of a Buy-Sell Agreement, the business is all of the following:
answer

Premium payor, Beneficiary, Policyholder. Under an Entity Plan funding of a Buy-Sell Agreement, the business is the owner, premium payer, and beneficiary of a policy written upon each of the partners or shareholders who are the insureds.
question

All of the following are characteristics of a Deferred Compensation Plan, except:
answer

The employer is both the policyowner and beneficiary of a Deferred Compensation Plan. The employee is the insured.
question

Which of the following is true regarding Split-Dollar plans?
answer

When death occurs, the employer receives a portion of the death benefit equal to the cash value of the policy or the total of premiums paid. The premium payments are split between the employee and employer. Split-Dollar plans are not tax-qualified. Since an individual life insurance policy is being issued, proof of insurability is required.
question

Which of the following statements is True?
answer

The value of all personal assets is taken into account when using the Human Life Value Approach. There is more than one approach to determine the amount of life insurance needed. When using the Needs Analysis Approach, all financial needs caused by an immediate death must be calculated. The Human Life Value Approach concerns itself with the replacement of future earnings and services of the insured in the event of a premature death, not past earnings.
question

Which of the following statements is True?
answer

The time limit for any legal action to be taken shall not be less than one year. Provisions shall not designate the agent as the representative of the insured. A life insurance provision shall not allow the settlement to be less than the face value, minus indebtedness upon the policy’s maturity date.
question

What are the two types of life insurance assignments?
answer

Absolute and collateral. The two types of assignment are Collateral (partial), and Absolute (entire face amount).
question

David’s Family Income Policy will provide an income for 10 years. If David dies on the policy’s seventh anniversary, how many years will the family receive an income benefit?
answer

3 years. If the insured dies during the income period, a specified monthly income is paid from the date of the insured’s death until a specified future date. Since David died seven years into the ten-year income period, his family would receive an income for three years.
question

Which of the following are types of Whole Life policies?
answer

Continuous, Limited pay, Single premium. Since all Whole Life policies mature at age 100, Continuous, Limited Pay, and Single Premium simply describe how long premiums will be paid.
question

All of the following are characteristics of a Family Income Policy, except:
answer

Family Income is more expensive than Family Maintenance. Family Income would be less expensive than Family Maintenance for a like amount of insurance because it uses Decreasing Term as opposed to Level Term to accomplish its objective. In addition, the term benefit is payable only until a specified future date as opposed to a selected period of years beginning with the insured’s death.
question

Under which rider are the insured and owner two different individuals?
answer

Waiver of Payors Premium. Under the Waiver of Payors Premium Rider, the insured is typically a child and the owner is the adult parent. If the adult owner and premium payor becomes disabled, the premiums are waived, sparing the policy from lapse.
question

Which of the following are traits of an Endowment Policy?
answer

The shorter the premium-paying period, the higher the premium. Normally, premiums are higher than the premium for other types of life insurance. Policy builds cash, loan, and nonforfeiture values prior to age 100. Endowment policies place greater emphasis on savings than on the death benefit.
question

Which of the following are characteristics of a Universal Life policy?
answer

The policyowner may determine the amount and mode of premium payments and adjust the face amount to reflect needs as they change. Each month a mortality charge is deducted from the policy’s cash value for the cost of the insurance protection and expenses. It is a combination of life insurance and a current interest savings plan. The owner of the policy receives an annual statement detailing expenses, mortality, and interest earnings.
question

The premium charged for exercising the Guaranteed Insurability Rider is based upon:
answer

Attained age. Anytime the Guaranteed Insurability Rider is exercised, the premium charged for the additional amount of insurance is based on the attained age of the insured.
question

Which of the following are types of Term Policies?
answer

Increasing, Decreasing, Re-entry, Level and Life-Expectancy. The question asks about types of Term Policies, not options available to Term Policies. Straight is a type of permanent insurance, not term insurance.
question

All of the following statements regarding the Living Need Rider are true.
answer

It could also include nursing home benefits and dreaded disease benefits. At death, the early payment is deducted from the beneficiary’s benefit. Allows a partial payment of the face amount before death if the insured becomes terminally ill. A monthly report details the benefit amount remaining, not an annual report.
question

Individual Term policies are generally stand-alone policies, but may be written with other types of policies as a/an:
answer

Rider. Through a rider, term coverage may be added to a Permanent Policy. A Term Rider cannot be added to a Term Policy.
question

The Double Indemnity Rider expires within _____ days of the accident.
answer

90. Death must occur within 90 days of the accident for the Accidental Death (Double Indemnity) Rider benefit to be paid.
question

Alice finds she no longer is able to pay premiums on her $50,000 Whole Life Policy, but needs that amount of protection for her family. Which Nonforfeiture Option provides this protection?
answer

Extended Term. Extended Term would allow the present cash value of the policy to buy a single premium term policy of the same face amount for as long a period as it will buy. Fixed Amount is a Settlement Option, and Paid-Up Option is a Dividend Option.
question

An investor receives ample income each month from the interest earned while retaining his/her principal. This is referred to as which of the following?
answer

Capital Conservation. The Interest Option of settlement leaves the principal (capital) with the insurer, thus conserving the capital, and the interest income generated is taxed as ordinary income.
question

There are considerable differences in life insurance policies. Which of the following helps to establish basic continuity?
answer

Options. Life insurance policy options (Settlement, Nonforfeiture, and Dividend) establish basic continuity to the interpretation of life insurance policies.
question

What are the Nonforfeiture Options in a Decreasing Term Policy?
answer

There are none. There are no Nonforfeiture Options in a Term Policy, as Term policies do not accumulate a cash value.
question

All are characteristics of Franchise Insurance:
answer

The employer handles most of the administrative responsibilities, which makes franchise less expensive than individual insurance. The group must be together for a reason other than purchasing cheaper insurance. Premiums are paid by the employer or shared with the employee. No Master Policy or Certificates of Insurance are issued as compared to formal group. Although a group is being written, it is through individual policies.
question

Social Security Benefits provided are:
answer

Retirement, Death, Disability Income and Medicare. The Social Security System provides benefits in four areas, retirement, death, disability income, and Medicare.
question

The Facility of Payment Clause allows an insurer to pay anyone it deems entitled in the absence of a designated beneficiary. This Clause is found in which policy?
answer

Industrial. The Industrial (Home Service) policies contain a Facility of Payment Clause, due in part to the lower face value of the policy, and that the policy is usually associated with reducing funeral costs.
question

All are true regarding funding of Social Security:
answer

The funds are kept in a trust fund and invested in government securities. The employer withholds the employee’s tax and remits it with the employer’s portion. Self-employed individuals pay both the employer and employee amounts. The actuarial value of contributions is not related to the actuarial value of benefits.
question

The Social Security Survivor Benefit is computed using which of the following?
answer

PIA. The Social Security Survivor Benefit is the amount of income that may be expected from the Primary Insurance Amount (PIA) of the insured.
question

What are the requirements for currently insured status by Social Security?
answer

Covered for six quarters out of the last 13 quarters, counting the present quarter. The question addresses currently insured status, not fully insured status. Currently insured status is achieved by a worker being covered at least six quarters during the full 13-quarter period, ending with the quarter in which he/she dies, becomes disabled, or is entitled to retirement benefits.
question

How is the funding for Social Security provided?
answer

Through FICA taxes that are paid by both employers and employees. Unless one is self-employed, both the employer and employee fund Social Security through paying FICA taxes.
question

All are characteristics of Group Insurance:
answer

Claims are not contestable after two years. Evidence of insurability is usually not required. Most states require a minimum number of enrollees at date of issue. Group Insurance is typically written on a Renewable Term basis. However, some insurers do make Permanent Insurance available.
question

All are characteristics of Home Service (Industrial) Insurance:
answer

Industrial policies generally have face amount of $1,000 or less. Premiums are collected. A Debit Agent sells policies house-to-house. The Grace Period under industrial policies is four weeks, not 10 days.
question

Social Security pays an eligible surviving spouse a one-time benefit upon the death of the first spouse. Which of the following is the correct amount?
answer

$255. A one-time benefit of $255 is paid to a surviving spouse or child if eligible for Social Security benefits.
question

To be fully insured for Social Security, a person that attained age 21 prior to 1950 must have been covered by Social Security for_____ quarters.
answer

40. To be fully insured for Social Security if one attained age 21 prior to 1950, they must have been covered by Social Security for 40 quarters.
question

When you own a Single Premium Immediate Annuity (SPIA), this means you begin receiving payments:
answer

Within 1 year. Under a SPIA, the idea is to have immediate access to income. There is essentially no accumulation period, benefits begin within one year of the issue date.
question

Which are traits of a Fixed Annuity?
answer

A 20-year projected schedule of cash availability must be shown of each anniversary. The insurer’s assets guarantee the fixed annuity contract.
question

What are the different methods of purchasing annuities?
answer

Single Premium Immediate, Single Premium Deferred, Flexible Premium Deferred.
question

An annuity pays a benefit to a named beneficiary:
answer

When the annuitant dies before receiving any annuity payments. If the annuitant dies after receiving any annuity payments, then the payment option chosen determines the receipt of any annuity payment.
question

You may deposit your lump sum or ongoing contributions in four types of annuities. What are they?
answer

Variable, Fixed, Equity Indexed and Market Value. The question references types of annuities, not qualified plans, or dates that benefits begin, or methods of purchase.
question

What do both life insurance and annuities have in common?
answer

Both use the pooling technique to spread the risk. Annuity mortality tables reflect a greater life expectancy than do life insurance tables, and annuities are sold to give a greater income at an older age, whereas life insurance is sold to create an immediate income in the case of premature death.
question

A fringe benefit of life insurance on a retirement plan with the insurance premium noncontributory, the amount of premium reported as income to the employee each year of the plan is:
answer

100%. Since the plan is noncontributory, all premiums are taxable as income to the employee for the year in which the premium was paid.
question

After June 20, 1988, all life insurance contracts that do not pass the 7-Pay Test are identified as Modified Endowment Contracts and they lose many of their tax advantages. Which statements are true?
answer

Taxable distributions include cash value surrenders and policy loans. Funds distributed before age 59 1/2 are subject to a 10% penalty on any gains. The 7-Pay Test compares the premiums paid for the policy during the first seven years with seven annual net level premiums for a 7-Pay Policy. Any funds distributed are subject to a last in, first-out tax treatment.
question

Janice is a teacher at the local school. Her employer has agreed for the past 3 years to reduce her pay by a specified amount and invest it for her. She has a:
answer

TSA. The question describes a TSA (Tax-Sheltered Annuity), a plan whereby a teacher participates through a reduction in pay by a specified amount to accommodate his/her future retirement.
question

The tax laws allow an employer to set up a S.I.M.P.L.E retirement program. What are the two retirement plans available to use for this retirement program?
answer

401(k) or IRA. A S.I.M.P.L.E. may be written as a 401(k) or IRA.
question

When group health insurance is being replaced, ongoing claims under the former policy must continue under the new policy, overriding any preexisting condition exclusion. This is stated under which requirement?
answer

No Loss – No Gain. The question is describing the No Loss-No Gain Legislation, sometimes called a Hold-Harmless Agreement.
question

How long may an insurer exclude preexisting conditions under Small Employer Medical Expense Group Coverage?
answer

12 months. Preexisting conditions may not be excluded for any longer than 12 months.
question

COBRA is a federal law requiring employers with _____ or more employees to provide the option to continue the employee’s existing health coverage for dependents for up to _____ months following qualifying events.
answer

20, 36. The question specifies coverage for dependents (36 months), not employee and dependents (18 months).
question

Each small employer carrier shall offer at least two health benefit plans, these plans are:
answer

Essential and Standard Health Plan. Every small employer carrier must offer Essential (Basic) and Standard Health Plans.
question

Which event does cause termination of continuing coverage by COBRA?
answer

Employee becomes eligible for Medicare benefits. Employer ceases to maintain any group health plan. Employee becomes covered by any other group health plan. The submission of timely premium payments would not cause termination of continuing coverage; not paying timely would be cause for termination of coverage.
question

A group Medical Expense Policy is terminated. The benefits to a disabled employee are extended for three months with Basic Medical Expenses and 12 months for Major Medical Expenses, due to the:
answer

Extension of Benefits. Since the disability occurred while covered by the terminated policy, benefits are extended for either 3 or 12 months, depending on whether the plan is Basic Medical or Major Medical.
question

Which is not a qualifying event for the continuation of dependent coverage under the Consolidated Omnibus Budget Reconciliation Act?
answer

Termination of employee for theft. This would be termination for cause and neither employee nor dependent would be covered.
question

Under HIPAA, coverage may be nonrenewed for all of the following reasons:
answer

Noncompliance with plan provisions. Participation requirements not fulfilled. Nonpayment of premium. Under HIPAA, all answers listed are a basis for nonrenewal, except frequency of claims.
question

Which provision covers disabled children who are fully dependent upon the insured and incapable of self-support due to a physical or mental handicap?
answer

Continuation of Coverage. The question is specifically describing a Continuation of Coverage Provision.
question

When replacing a group policy, it is important to know which of the following?
answer

The replacement is/is not within 60 days of the prior policy’s termination. If the replacement is not within 60 days of the previous policy’s termination, the carrier replacing the coverage is not required to cover all employees and dependents covered by, or eligible for, coverage under the previous policy as of the date of discontinuance.
question

When a group is covered by a MET, who is issued the Master Policy?
answer

The trust. The sponsor develops the plan, sets the underwriting rules and administers the plan, but the trust itself is the Master Policyowner.
question

Under which arrangement is it that the insurer charges the employer an initial premium that is less than would be justified by the expected claims for the year?
answer

Retrospective Rating Arrangement. The question is describing a Retrospective Rating Arrangement available under a Modified Fully-Insured Plan or Self-Insured Provider.
question

The civilian health and medical program of the uniformed services (CHAMPUS) was recently replaced by a 3 tier health plan named:
answer

Tri-Care. As the name implies, Tri-Care is a three tier plan.
question

The HMO model giving members the maximum freedom of choice of physicians and locations contracting separately with any combination of individual physicians, medical groups, or physician’s associations is what type of HMO?
answer

Independent Practice Association. The limitations of the earlier Group model and Staff model HMOs led to the IPA.
question

What model of HMO fits the following definition? Physicians operate out of their own private offices, and their patients may be individuals the physicians were already attending.
answer

Independent Practice Association. The statement is one of the founding premises of the IPA model to allow flexibility.
question

Blue Cross and Blue Shield have traditionally offered benefits under the form of:
answer

Service contracts. Blue Cross and Blue Shield have traditionally paid directly to the provider of the service(s) under a contractual agreement.
question

Under Health Maintenance and Preferred Provider Organizations, claim payments are made by:
answer

Service. As service providers, they pay benefits to the provider(s) of health care services rather than to the subscribers.
question

Fred’s group health offers prepaid routine medical exams to provide early treatment and preventive care. He has what type of coverage?
answer

HMO. HMOs emphasize preventive medicine and early treatment with prepaid routine medical exams, stress management, and diagnostic screening techniques.
question

HMOs offer a comprehensive health care plan and target what segment of the market?
answer

Employee/Employer groups. The target market of HMOs is employer/employee groups; however, many HMOs offer individual plans as well.
question

Which statements are correct regarding Blue Cross and Blue Shield?
answer

Blue Cross and Blue Shield are called prepaid plans since plan subscribers pay a set fee for services. In most states, Blue Cross and Blue Shield are considered not for profit organizations and are regulated under special legislation. Each local Blue Cross and Blue Shield is an entity operated by a governing board. Blue Cross and Blue Shield have traditionally offered benefits in the form of services, not indemnity plans.
question

An HMO health plan states that it may pay either by capitation or on a fee-for-service basis. This is a ____ model HMO.
answer

Independent Practice Association. One of the flexibilities of an IPA model is to allow physicians to be paid by capitation or on a fee-for-service basis.
question

HMOs are established as either ____ ____, which means the doctor can work with anyone, including HMO members, or ____ ____, which means the doctor, can only work with HMO members.
answer

Open panel, closed panel. As the terms imply, open and closed only.
question

Services are covered in or out of a network by a combination plan of medical expense and/or HMO. What type of health care provider is it?
answer

POS. The question is describing a POS (Point of Service). POS plans were developed to enlarge the number of providers over the HMO plans.

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