Mixed Deck — All Life & Health Insurance Exam Topics Flashcards
100 cards from real Life & Health Insurance Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 20 Mixed Deck — All Life & Health Insurance Exam Topics flashcards as text
A life insurer discovers that an insured misrepresented their age on the application. What will the insurer most likely do?
Answer: Adjust the benefit to what the correct premium would have purchased
When age is misstated, insurers adjust the death benefit to the amount the actual premium would have purchased at the correct age rather than voiding the policy.
A disability income policy pays 60% of pre-disability earnings. This percentage is referred to as the:
Answer: Replacement ratio
The replacement ratio is the proportion of pre-disability income that a disability policy replaces, typically ranging from 50–80%.
Dividends paid on a participating whole life policy are considered by the IRS as:
Answer: A return of premium and generally not taxable until they exceed premiums paid
Policy dividends are treated as a return of the premium (cost basis) and are not taxable income unless they exceed the total premiums paid.
A Qualified Health Plan is considered "affordable" as of January 2025 if the individual's premium contribution for the lowest priced plan does not exceed:
Answer: 9.12% of the employee’s household income
Under the Affordable Care Act (ACA), a Qualified Health Plan (QHP) is considered 'affordable' if the employee's required contribution for self-only coverage does not exceed a certain percentage of their household income. This percentage is adjusted annually. For 2025, the affordability threshold is set at 9.12% of the employee's household income, meaning if the premium exceeds this, the coverage is deemed unaffordable.
Under the 'Legal Actions' provision in a health insurance policy, what is the minimum time period an insured must wait after submitting proof of loss before filing suit?
Answer: 60 days
The Legal Actions provision typically requires the insured to wait at least 60 days after submitting proof of loss before initiating legal action against the insurer.
In what capacity does an agent who is also a broker, attorney, life agent, or bail agent handle premiums and returns for their insured clients?
Answer: Fiduciary
A fiduciary is a person or organization that acts on behalf of another person or persons, putting their clients' interests ahead of their own, with a duty to preserve good faith and trust. Insurance agents, when handling client premiums and returns, are acting in a position of trust and are legally considered fiduciaries, meaning they must handle these funds responsibly and ethically.
The insurer has the right to investigate the application for life insurance during the first two years after the policy's effective date and refuse to pay death benefits if any false or misleading information was submitted. This time frame is known as the:
Answer: Contestable period
The contestable period is a specific timeframe, usually the first two years after a life insurance policy is issued, during which the insurer can investigate the application for material misrepresentations. If false or misleading information is found, the insurer may have the right to deny a claim or void the policy.
Which provision in a life insurance policy prevents the insurer from denying a claim based on misrepresentation after a specified period?
Answer: Incontestability clause
The incontestability clause (typically 2 years) bars the insurer from voiding a policy due to misrepresentation after that period has elapsed.
An indexed universal life (IUL) policy credits interest based on:
Answer: A stock market index such as the S&P 500, subject to a cap and floor
IUL policies link interest crediting to a market index but protect against loss with a floor (often 0%) while limiting upside with a cap rate.
A non-cancelable disability income policy guarantees which of the following?
Answer: The insurer cannot raise premiums or reduce benefits as long as premiums are paid
A non-cancelable policy locks in both the premium and the benefit amount, preventing the insurer from changing terms as long as the policyholder continues paying premiums.
For a life annuity with payments already in the distribution phase, the 'exclusion ratio' determines:
Answer: The portion of each annuity payment that is tax-free return of investment
The exclusion ratio (investment ÷ expected return) calculates the non-taxable portion of each annuity payment that represents the return of the original cost basis.
Which of the following is a key difference between 'simplified issue' and 'guaranteed issue' life insurance underwriting?
Answer: Simplified issue uses health questions but no exam; guaranteed issue accepts all applicants regardless of health
Simplified issue requires applicants to answer health questions but skips the medical exam, while guaranteed issue accepts all applicants without any health questions.
Which insurance policy pays the replacement costs of hiring a new employee or business owner?
Answer: Key person replacement
Key person replacement insurance provides funds to a business to cover the costs associated with replacing a crucial employee or business owner who dies or becomes disabled. This includes expenses like recruiting, hiring, and training a successor, as well as compensating for potential lost revenue during the transition. It helps the business mitigate financial losses and maintain continuity.
Which settlement option pays the beneficiary a fixed dollar amount each period until both principal and interest are exhausted?
Answer: Fixed Amount option
The Fixed Amount option pays a specified dollar amount per period until the proceeds and accumulated interest are depleted.
What is the primary purpose of the Medical Information Bureau (MIB) in life insurance underwriting?
Answer: To share coded medical data among member insurers to detect omissions
The MIB allows member insurers to share coded medical information to identify inconsistencies or omissions in insurance applications.
Which of the following best defines the principle of 'adverse selection' from an insurer's perspective?
Answer: The tendency for individuals with a higher-than-average risk of loss to seek insurance coverage.
Adverse selection describes a situation where individuals who know they are at a high risk of loss (e.g., those with health problems) are more likely to apply for insurance than those at average or low risk. The underwriting process is the primary tool insurers use to mitigate the effects of adverse selection by properly identifying and pricing risk.
Which of the following is a primary characteristic of a Whole Life insurance policy?
Answer: Fixed premiums and a guaranteed death benefit and cash value growth
Whole Life insurance is characterized by its fixed, level premiums, a guaranteed death benefit for the insured's entire life (as long as premiums are paid), and a cash value component that grows at a guaranteed rate.
New Zealand studies show that in general:
Answer: Kiwis have chronic levels of underinsurance when it comes to life cover
Studies in New Zealand, like those conducted by the Financial Services Council, consistently show that a significant portion of the population is underinsured for life cover. This means many individuals and families would face substantial financial hardship if a primary earner were to pass away. This underinsurance highlights a critical gap in financial planning for many Kiwis.
Which of the following suggestions would be the LEAST useful when advising customers on choosing a medical insurance plan?
Answer: Identify the insurer’s stop-loss coverage provider
When choosing a medical insurance plan, customers should prioritize factors directly impacting their out-of-pocket costs and access to care, such as deductibles, prescription coverage, and in-network providers. Identifying the insurer's stop-loss coverage provider is generally irrelevant to an individual policyholder. Stop-loss coverage is a type of insurance purchased by self-funded employers to protect themselves from catastrophic claims, not a concern for individual consumers selecting a plan.
Workers' compensation insurance covers lost wages and medical expenses resulting from workplace injuries. As a result, the worker gives up?
Answer: Their right to sue for negligence
Workers' compensation operates as a no-fault system, meaning injured employees receive benefits regardless of who was at fault for the injury. In exchange for this guaranteed coverage of lost wages and medical expenses, the worker gives up their right to sue their employer for negligence. This trade-off ensures prompt care and financial support without the need for lengthy legal battles.