Insurance Life & Health Insurance 5 — Questions and Answers
Question 1: A 'spendthrift clause' in a life insurance policy is designed to:
- Prevent the insured from taking excessive policy loans
- Protect proceeds from the beneficiary's creditors by restricting their ability to assign or accelerate benefits (Correct answer)
- Limit the policyowner's ability to surrender the policy for cash
- Ensure premiums are paid on time by triggering automatic loans
Correct answer: Protect proceeds from the beneficiary's creditors by restricting their ability to assign or accelerate benefits
The spendthrift clause prevents a beneficiary from assigning future installment payments and shields those payments from the beneficiary's creditors.
Question 2: Which long-term care insurance benefit trigger is NOT typically required for benefits to begin?
- Inability to perform 2 of 6 Activities of Daily Living (ADLs)
- Severe cognitive impairment
- A physician's certification of need
- Hospitalization for at least 3 consecutive days (Correct answer)
Correct answer: Hospitalization for at least 3 consecutive days
Modern long-term care policies (post-HIPAA) require only an ADL or cognitive impairment trigger; they do not require prior hospitalization, which was a common requirement under older policies.
Question 3: An 'accelerated death benefit' rider allows a terminally ill insured to:
- Transfer the policy to a viatical settlement company for cash
- Receive a portion of the policy's death benefit while still living (Correct answer)
- Convert the policy to a paid-up annuity
- Increase the death benefit based on inflation
Correct answer: Receive a portion of the policy's death benefit while still living
The accelerated (or living) benefit rider lets a terminally ill insured access a portion of the death benefit early, typically when life expectancy is 12–24 months or less.
Question 4: Which of the following best describes the 'coordination of benefits' (COB) rule in group health insurance?
- It requires that each insurer pay its full policy limits regardless of other coverage
- It prevents duplicate payment so that total benefits from all policies do not exceed 100% of covered expenses (Correct answer)
- It allows an insured to choose which insurer pays first
- It requires both insurers to split claims equally
Correct answer: It prevents duplicate payment so that total benefits from all policies do not exceed 100% of covered expenses
COB rules determine which plan is primary and which is secondary, ensuring the combined payment does not exceed the actual claim amount.
Question 5: What is the purpose of the 'entire contract' provision in an insurance policy?
- It limits the contract to the state where it was issued
- It states that the policy and attached application constitute the complete agreement between the parties (Correct answer)
- It allows the insurer to modify the policy terms at renewal
- It defines the insurer's right to inspect the insured's medical records
Correct answer: It states that the policy and attached application constitute the complete agreement between the parties
The entire contract provision prevents the insurer from using documents other than the policy and the signed application as evidence of the contract's terms, protecting the insured from unknown internal underwriting guidelines.
Question 6: In which situation would the 'misstatement of age' provision apply to a life insurance policy?
- The insured dies within the contestability period
- The insured provided an incorrect birth date on the application, affecting the premium (Correct answer)
- The beneficiary's age is listed incorrectly on the policy
- The insured outlives the policy's maturity date
Correct answer: The insured provided an incorrect birth date on the application, affecting the premium
If the insured misstated their age, the insurer adjusts the death benefit to what the correct premium would have purchased at the right age, rather than voiding the policy.
Question 7: Which type of health insurance plan typically requires members to select a primary care physician (PCP) who coordinates all specialist referrals?
- Preferred Provider Organization (PPO)
- Health Maintenance Organization (HMO) (Correct answer)
- High-Deductible Health Plan (HDHP)
- Indemnity plan
Correct answer: Health Maintenance Organization (HMO)
HMOs require members to choose a PCP who acts as a 'gatekeeper,' providing referrals to in-network specialists and coordinating care within the network.
Insurance Life & Health Insurance 5
A 'spendthrift clause' in a life insurance policy is designed to: