Life & Health Insurance Exam Life And Health Insurance Practice 4 — Questions and Answers
Question 1: Which of the following best describes a 'participating' life insurance policy?
- A policy that allows the owner to participate in investment decisions
- A policy eligible to receive dividends from the insurer's surplus (Correct answer)
- A policy where premiums vary based on the insured's health
- A policy that participates in a group plan
Correct answer: A policy eligible to receive dividends from the insurer's surplus
Participating policies are issued by mutual insurers and may pay dividends to policyowners when the insurer's actual experience is more favorable than projected.
Question 2: Under a group life insurance plan, the 'conversion privilege' allows a terminated employee to:
- Convert their term coverage to a permanent individual policy without proof of insurability (Correct answer)
- Transfer their group coverage to a new employer's plan automatically
- Convert their policy to a disability income policy
- Increase their coverage amount upon termination
Correct answer: Convert their term coverage to a permanent individual policy without proof of insurability
The conversion privilege gives terminated employees the right to convert their group term life coverage to an individual permanent policy without a medical exam, within 31 days of termination.
Question 3: A long-term care insurance policy that pays a fixed daily benefit regardless of the actual cost of care received is called:
- Reimbursement policy
- Indemnity (per diem) policy (Correct answer)
- Integrated policy
- Expense-incurred policy
Correct answer: Indemnity (per diem) policy
An indemnity or per diem long-term care policy pays a set daily benefit amount regardless of what the actual care costs, while reimbursement policies pay up to the actual expenses incurred.
Question 4: Which of the following is NOT a required benefit under a standard HIPAA special enrollment event?
- Birth of a child
- Adoption of a child
- Loss of other coverage
- Voluntary early retirement (Correct answer)
Correct answer: Voluntary early retirement
HIPAA special enrollment rights apply to qualifying life events like birth, adoption, marriage, and loss of other coverage, but not voluntary early retirement.
Question 5: An annuity that is funded with after-tax dollars and grows tax-deferred, but distributions of gains are taxed as ordinary income, is called a:
- Qualified annuity
- Non-qualified annuity (Correct answer)
- Roth annuity
- Tax-exempt annuity
Correct answer: Non-qualified annuity
Non-qualified annuities are purchased with after-tax dollars; the principal is not taxed again upon withdrawal, but the earnings portion is taxed as ordinary income.
Question 6: A disability income insurance policy that cannot be canceled or have premiums increased by the insurer as long as premiums are paid is classified as:
- Guaranteed renewable
- Conditionally renewable
- Noncancelable and guaranteed renewable (Correct answer)
- Optionally renewable
Correct answer: Noncancelable and guaranteed renewable
A noncancelable and guaranteed renewable policy locks in both the renewal right and the premium rate, giving the insured the strongest protection.
Question 7: When an insured uses the 'settlement option' called 'interest only,' the insurer:
- Pays the death benefit in equal monthly installments for life
- Retains the death benefit principal and pays only the earned interest to the beneficiary (Correct answer)
- Divides the death benefit into a fixed number of payments
- Pays a reduced lump sum and keeps the interest
Correct answer: Retains the death benefit principal and pays only the earned interest to the beneficiary
Under the interest only settlement option, the insurer holds the death benefit proceeds and pays the beneficiary only the interest earned, preserving the principal for a later lump sum withdrawal.
Life & Health Insurance Exam Life And Health Insurance Practice 4
Which of the following best describes a 'participating' life insurance policy?