Life & Health Insurance Exam Life and Health Insurance Random 2 — Questions and Answers
Question 1: Under COBRA, how long must a qualified beneficiary who loses coverage due to divorce be offered continuation coverage?
- 18 months
- 29 months
- 36 months (Correct answer)
- 60 months
Correct answer: 36 months
Divorce or legal separation is a qualifying event that entitles the spouse to 36 months of COBRA continuation coverage.
Question 2: Which provision in a life insurance policy prevents the insurer from denying a claim based on misrepresentation after a specified period?
- Grace period
- Incontestability clause (Correct answer)
- Reinstatement clause
- Free-look provision
Correct answer: Incontestability clause
The incontestability clause (typically 2 years) bars the insurer from voiding a policy due to misrepresentation after that period has elapsed.
Question 3: A Health Maintenance Organization (HMO) plan differs from a Preferred Provider Organization (PPO) primarily because HMOs:
- Offer lower premiums with no network restrictions
- Require a referral from a PCP to see a specialist (Correct answer)
- Always cover out-of-network providers at the same rate
- Do not require any copayments for services
Correct answer: Require a referral from a PCP to see a specialist
HMOs typically require members to select a primary care physician who must provide referrals to specialists within the network.
Question 4: What is the primary purpose of a 'spendthrift' clause in a life insurance policy?
- To allow the insurer to reduce benefits if the insured overspends
- To protect policy proceeds from being claimed by the beneficiary's creditors (Correct answer)
- To limit the amount the policyholder can borrow against cash value
- To require the insurer to pay benefits in installments only
Correct answer: To protect policy proceeds from being claimed by the beneficiary's creditors
A spendthrift clause protects beneficiaries by preventing their creditors from attaching or garnishing insurance proceeds before they are received.
Question 5: Which type of annuity allows the contract owner to allocate premium payments among various sub-accounts tied to market investments?
- Fixed annuity
- Indexed annuity
- Variable annuity (Correct answer)
- Immediate annuity
Correct answer: Variable annuity
A variable annuity lets the owner invest in sub-accounts (similar to mutual funds), so the accumulation value and income payments can vary with market performance.
Question 6: Under the Affordable Care Act, what is the maximum out-of-pocket limit designed to protect consumers from catastrophic healthcare costs?
- It applies only to prescription drug costs
- It is set individually by each insurer with no federal cap
- It limits total annual cost-sharing for covered in-network services (Correct answer)
- It applies only to deductibles, not copayments or coinsurance
Correct answer: It limits total annual cost-sharing for covered in-network services
The ACA establishes an annual out-of-pocket maximum that caps the total amount a consumer pays for covered in-network services, including deductibles, copays, and coinsurance.
Question 7: When a term life insurance policy contains a 'return of premium' rider, what happens if the insured outlives the policy term?
- The policy automatically converts to whole life at no extra cost
- All premiums paid are returned to the policyholder tax-free (Correct answer)
- Only half the premiums paid are refunded
- The insurer retains all premiums as profit
Correct answer: All premiums paid are returned to the policyholder tax-free
A return of premium rider refunds all premiums paid if the insured survives the full term, making it a more expensive but potentially attractive option.
Life & Health Insurance Exam Life and Health Insurance Random 2
Under COBRA, how long must a qualified beneficiary who loses coverage due to divorce be offered continuation coverage?