Insurance Life & Health Insurance 2 — Questions and Answers
Question 1: Which provision in a life insurance policy allows the policyowner to reinstate a lapsed policy within a specified period?
- Incontestability clause
- Reinstatement provision (Correct answer)
- Grace period clause
- Waiver of premium rider
Correct answer: Reinstatement provision
The reinstatement provision allows a policyowner to restore a lapsed policy, typically within 3 years, by paying overdue premiums with interest and proving insurability.
Question 2: What does the term 'subrogation' mean in health insurance?
- The insurer's right to recover payments from a liable third party (Correct answer)
- The insured's right to appeal a denied claim
- The process of coordinating benefits between two insurers
- The assignment of benefits to a healthcare provider
Correct answer: The insurer's right to recover payments from a liable third party
Subrogation gives the health insurer the legal right to seek reimbursement from a third party who was responsible for the insured's injury or illness.
Question 3: A 'guaranteed insurability' rider on a life insurance policy allows the policyowner to:
- Convert term insurance to permanent without a medical exam
- Purchase additional coverage at specified times without proof of insurability (Correct answer)
- Waive premiums if totally disabled
- Name an irrevocable beneficiary
Correct answer: Purchase additional coverage at specified times without proof of insurability
The guaranteed insurability rider lets the insured buy additional life insurance at future option dates without having to prove insurability.
Question 4: Under the ACA, what is the maximum out-of-pocket limit designed to protect?
- The insurer's total claims liability
- Insureds from catastrophic annual medical costs (Correct answer)
- The employer's contribution to group plans
- Providers from billing disputes
Correct answer: Insureds from catastrophic annual medical costs
The ACA's out-of-pocket maximum caps the total amount an insured must pay in a plan year, protecting individuals from catastrophic medical expenses.
Question 5: Which of the following best describes a 'self-funded' (self-insured) employer health plan?
- The employer buys a group policy from a licensed insurer
- The employer pays claims directly from its own funds rather than paying insurance premiums (Correct answer)
- Employees pay all premiums without employer contribution
- The plan is funded by state-run reinsurance pools
Correct answer: The employer pays claims directly from its own funds rather than paying insurance premiums
In a self-funded plan, the employer assumes the financial risk and pays medical claims directly, often using a third-party administrator to process claims.
Question 6: What is the primary purpose of a 'cost of living adjustment' (COLA) rider on a disability income policy?
- To reduce premiums as the insured ages
- To increase the benefit amount periodically to keep pace with inflation (Correct answer)
- To extend the benefit period automatically
- To waive premiums during total disability
Correct answer: To increase the benefit amount periodically to keep pace with inflation
A COLA rider adjusts disability income benefits upward—often tied to the CPI—so that purchasing power is maintained during a long-term disability.
Question 7: Under HIPAA portability rules, a 'certificate of creditable coverage' was primarily used to:
- Prove premium payment history to a new insurer
- Reduce or eliminate pre-existing condition exclusion waiting periods when changing group plans (Correct answer)
- Qualify an individual for Medicare early
- Establish COBRA continuation eligibility
Correct answer: Reduce or eliminate pre-existing condition exclusion waiting periods when changing group plans
HIPAA required insurers to provide certificates of creditable coverage so enrollees could offset pre-existing condition waiting periods at a new group plan, though the ACA largely eliminated these exclusions for most plans.
Insurance Life & Health Insurance 2
Which provision in a life insurance policy allows the policyowner to reinstate a lapsed policy within a specified period?