Insurance Life & Health Insurance 3

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?

Accepted Answer

Variable life

Answer

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?

Accepted Answer

Waiting period / deductible in time

Answer

The elimination period in disability and long-term care insurance functions like a time deductible—the 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:

Accepted Answer

The named beneficiary has predeceased the insured and no contingent beneficiary exists

Answer

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?

Accepted Answer

It maintains the required difference between the death benefit and the cash value to preserve the policy's tax status

Answer

IRC Section 7702 requires a corridor—a minimum gap between the death benefit and accumulated cash value—so the policy qualifies as life insurance rather than a modified endowment contract.

Question 5

A hospital indemnity plan pays benefits:

Accepted Answer

A fixed daily amount for each day the insured is hospitalized, regardless of actual costs

Answer

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.

Insurance Practice Test

Insurance Practice Test

Insurance Life & Health Insurance 3