EXAMFX Life and Health Insurance (Combined) 3 — Questions and Answers
Question 1: A hospital indemnity policy pays benefits:
- Based on actual charges submitted by the hospital
- Only after the major medical plan has paid its portion
- A fixed daily or weekly amount regardless of actual costs (Correct answer)
- According to a schedule tied to the DRG system
Correct answer: A fixed daily or weekly amount regardless of actual costs
Hospital indemnity (or hospital confinement) policies pay a flat per-day or per-week benefit regardless of actual medical expenses incurred.
Question 2: Which settlement option provides a life insurance beneficiary with income for a guaranteed period AND for life, whichever is longer?
- Life income only
- Fixed period installments
- Life income with period certain (Correct answer)
- Joint and survivor annuity
Correct answer: Life income with period certain
Life income with period certain guarantees payments for life but also ensures a minimum number of years of payments even if the beneficiary dies early.
Question 3: An insurer that is incorporated in another state but licensed to do business in your state is called a/an:
- Alien insurer
- Domestic insurer
- Admitted insurer
- Foreign insurer (Correct answer)
Correct answer: Foreign insurer
A foreign insurer is one that is incorporated in a different state from where it is currently operating and selling policies.
Question 4: Under a disability income policy, the 'elimination period' functions most like a:
- Grace period for premium payment
- Deductible measured in time rather than dollars (Correct answer)
- Coinsurance clause for medical costs
- Maximum benefit limit
Correct answer: Deductible measured in time rather than dollars
The elimination period is a waiting period before benefits begin—similar to a time-based deductible—during which the insured receives no benefit payments.
Question 5: A policyowner surrenders a whole life policy that has accumulated significant cash value. The IRS taxes the gain as:
- Capital gains at preferential rates
- Ordinary income on the amount exceeding the policy's cost basis (Correct answer)
- Tax-free income under the life insurance exclusion
- A 10% early withdrawal penalty plus income tax
Correct answer: Ordinary income on the amount exceeding the policy's cost basis
When a life policy is surrendered, any gain (cash value minus premiums paid) is taxed as ordinary income; no capital-gains rate applies.
Question 6: A 'guaranteed renewable' health insurance policy means the insurer:
- Cannot raise premiums under any circumstance
- Must renew the policy but may increase rates for the insured's rate class (Correct answer)
- Must keep the premium level for the insured's lifetime
- Can cancel the policy only for nonpayment of premium
Correct answer: Must renew the policy but may increase rates for the insured's rate class
Guaranteed renewable policies must be renewed at the insured's option, but the insurer may raise premiums on a class-wide basis—not singling out the individual.
Question 7: Which type of annuity allows the owner to participate in market gains while protecting against market losses through a 'floor' guarantee?
- Fixed annuity
- Variable annuity
- Equity-indexed (fixed-indexed) annuity (Correct answer)
- Immediate annuity
Correct answer: Equity-indexed (fixed-indexed) annuity
An equity-indexed annuity credits interest based on an external index (e.g., S&P 500) but guarantees the account will not lose value due to market downturns.
EXAMFX Life and Health Insurance (Combined) 3
A hospital indemnity policy pays benefits: