Life & Health Insurance Exam Life and Health Insurance Guide Exam 2 — Questions and Answers
Question 1: A policyholder converts a term life insurance policy to a permanent policy without providing evidence of insurability. This right is known as:
- Reinstatement privilege
- Conversion privilege (Correct answer)
- Waiver of premium
- Guaranteed insurability rider
Correct answer: Conversion privilege
The conversion privilege allows a term policyholder to convert to permanent coverage without proving insurability, typically within a specified period.
Question 2: Under the Affordable Care Act, what is the maximum percentage of household income that an individual's health insurance premium can cost before subsidies apply (affordability threshold)?
- 8.5%
- 9.12% (Correct answer)
- 10.5%
- 12%
Correct answer: 9.12%
The ACA affordability threshold is 9.12% of household income for 2023; if employer coverage exceeds this, employees may qualify for marketplace subsidies.
Question 3: A disability income policy pays 60% of pre-disability earnings. This percentage is referred to as the:
- Benefit ratio
- Replacement ratio (Correct answer)
- Indemnity percentage
- Benefit period
Correct answer: Replacement ratio
The replacement ratio is the proportion of pre-disability income that a disability policy replaces, typically ranging from 50–80%.
Question 4: 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 program administered through private insurance plans.
Question 5: An insured under a whole life policy borrows against the cash value and dies before repaying the loan. The insurer will:
- Deny the claim due to outstanding debt
- Pay the full face amount to the beneficiary
- Deduct the outstanding loan balance plus interest from the death benefit (Correct answer)
- Refund premiums paid minus the loan amount
Correct answer: Deduct the outstanding loan balance plus interest from the death benefit
Policy loans reduce the death benefit paid to beneficiaries by the amount of the unpaid loan plus any accrued interest.
Question 6: A health insurance policy that requires the insured to pay a fixed dollar amount per covered service, regardless of the total cost, is collecting a:
- Deductible
- Coinsurance payment
- Copayment (Correct answer)
- Premium
Correct answer: Copayment
A copayment (copay) is a fixed dollar amount paid by the insured each time a covered service is used.
Question 7: The insuring clause in a life insurance policy specifies:
- The premium payment schedule
- The insurer's promise to pay the death benefit upon the insured's death (Correct answer)
- Exclusions from coverage
- The policyowner's rights and privileges
Correct answer: The insurer's promise to pay the death benefit upon the insured's death
The insuring clause is the fundamental promise of the policy, stating the insurer's obligation to pay the specified benefit upon the occurrence of a covered event.
Life & Health Insurance Exam Life and Health Insurance Guide Exam 2
A policyholder converts a term life insurance policy to a permanent policy without providing evidence of insurability.
This right is known as: