Insurance Life & Health Insurance 3 ā Questions and Answers
Question 1: Which type of life insurance policy provides a death benefit and accumulates cash value based on the performance of separate investment accounts chosen by the policyowner?
- Universal life
- Whole life
- Variable life (Correct answer)
- Term life
Correct answer: Variable life
Variable life insurance ties the cash value and potentially the death benefit to separate investment sub-accounts, giving the policyowner investment choices along with market risk.
Question 2: A health insurance policy's 'elimination period' is most analogous to which life insurance concept?
- Incontestability period
- Waiting period / deductible in time (Correct answer)
- Grace period
- Free-look period
Correct answer: Waiting period / deductible in time
The elimination period in disability and long-term care insurance functions like a time deductibleāthe insured must be disabled for that period before benefits begin.
Question 3: Under the 'facility of payment' provision in a life insurance policy, proceeds may be paid to a relative or another person if:
- The named beneficiary has predeceased the insured and no contingent beneficiary exists (Correct answer)
- The insured requests it before death
- The policy is a group certificate
- The estate tax exceeds the death benefit
Correct answer: The named beneficiary has predeceased the insured and no contingent beneficiary exists
The facility of payment clause allows the insurer to pay a small death benefit (often under $2,000) to a person who paid burial expenses when no named beneficiary survives.
Question 4: What is the significance of the 'corridor' in a universal life insurance policy?
- It sets the premium payment corridor between minimum and maximum amounts
- It maintains the required difference between the death benefit and the cash value to preserve the policy's tax status (Correct answer)
- It limits the insurer's interest crediting corridor above a minimum rate
- It defines the acceptable range of investment risk in sub-accounts
Correct answer: It maintains the required difference between the death benefit and the cash value to preserve the policy's tax status
IRC Section 7702 requires a corridorāa minimum gap between the death benefit and accumulated cash valueāso the policy qualifies as life insurance rather than a modified endowment contract.
Question 5: A hospital indemnity plan pays benefits:
- Based on the actual cost of hospitalization after deductibles
- A fixed daily amount for each day the insured is hospitalized, regardless of actual costs (Correct answer)
- Only for surgical procedures performed during hospitalization
- As a percentage of the insured's annual salary while hospitalized
Correct answer: A fixed daily amount for each day the insured is hospitalized, regardless of actual costs
Hospital indemnity insurance pays a predetermined flat amount per day of hospitalization, providing cash the insured can use for any purpose regardless of actual medical bills.
Question 6: Which Medicare part covers outpatient prescription drugs?
- Part A
- Part B
- Part C
- Part D (Correct answer)
Correct answer: Part D
Medicare Part D is the voluntary prescription drug benefit added by the Medicare Modernization Act of 2003, offered through private insurance plans.
Question 7: In a group life insurance plan, the 'conversion privilege' allows a terminating employee to:
- Roll over the group policy's cash value into an IRA
- Convert their group coverage to an individual permanent policy without evidence of insurability (Correct answer)
- Transfer the group policy to a new employer's plan
- Convert term to group paid-up insurance
Correct answer: Convert their group coverage to an individual permanent policy without evidence of insurability
The conversion privilege lets an employee who loses group coverage convert to an individual whole-life policy within 31 days of termination without a medical exam.
Insurance Life & Health Insurance 3
Which type of life insurance policy provides a death benefit and accumulates cash value based on the performance of separate investment accounts chosen by the policyowner?