Life & Health Insurance Exam Life and Health Insurance Random 5 — Questions and Answers
Question 1: Under the Health Insurance Portability and Accountability Act (HIPAA), a special enrollment period is triggered when:
- An employee requests additional coverage during open enrollment
- An employee gains a new dependent through marriage or birth (Correct answer)
- An employee's income drops below the poverty level
- An employer reduces the employee's working hours
Correct answer: An employee gains a new dependent through marriage or birth
HIPAA requires group health plans to offer special enrollment periods when employees experience qualifying life events such as marriage, birth, or adoption of a child.
Question 2: In a whole life insurance policy, what is the relationship between cash value growth and the net amount at risk for the insurer?
- As cash value increases, the net amount at risk also increases
- Cash value and the net amount at risk always remain equal
- As cash value increases, the net amount at risk decreases (Correct answer)
- Cash value growth has no effect on the net amount at risk
Correct answer: As cash value increases, the net amount at risk decreases
As the policy's cash value builds over time, the amount the insurer is actually at risk (death benefit minus cash value) decreases correspondingly.
Question 3: Which of the following is an example of a third-party ownership arrangement in life insurance?
- A husband owns a policy on his own life naming his wife as beneficiary
- A business owns a life insurance policy on a key employee (Correct answer)
- A child names a parent as beneficiary on a student policy
- A policyholder assigns benefits to a hospital after admission
Correct answer: A business owns a life insurance policy on a key employee
Third-party ownership occurs when the policy owner and the insured are different parties, such as a business owning a key person policy on an employee.
Question 4: A health insurance policy with an '80/20 coinsurance' provision means:
- The insurer covers 80% of the premium and the insured pays 20%
- After the deductible, the insurer pays 80% of covered expenses and the insured pays 20% (Correct answer)
- The insured must use in-network providers 80% of the time
- The policy covers 80% of all medical conditions with 20% exclusions
Correct answer: After the deductible, the insurer pays 80% of covered expenses and the insured pays 20%
An 80/20 coinsurance split means that after the deductible is satisfied, the health plan pays 80% of covered costs and the insured is responsible for the remaining 20%.
Question 5: Which of the following would most likely cause an insurance company to rescind a health insurance policy?
- The insured files more than three claims in one year
- The insured fails to disclose a material pre-existing condition on the application (Correct answer)
- The insured switches doctors without notifying the insurer
- The insured moves to a different state after the policy is issued
Correct answer: The insured fails to disclose a material pre-existing condition on the application
Rescission is allowed when an applicant intentionally misrepresents or conceals a material fact, such as a significant pre-existing health condition, on the application.
Question 6: The 'waiver of premium' rider in a life insurance policy provides that:
- The premium is waived if the insured reaches age 65 in good health
- Premiums are waived if the insured becomes totally disabled for a specified period (Correct answer)
- The premium is waived if the policy accumulates sufficient cash value
- The beneficiary is not required to pay any premiums after the insured dies
Correct answer: Premiums are waived if the insured becomes totally disabled for a specified period
A waiver of premium rider keeps the policy in force without premium payments if the insured suffers a qualifying total disability, typically after a 6-month elimination period.
Question 7: What is the purpose of the 'misstatement of age or sex' provision in a life insurance policy?
- It voids the policy if the insured misstates their age at application
- It adjusts the death benefit to the amount the premium would have purchased at the correct age or sex (Correct answer)
- It requires the insurer to refund all premiums if age or sex was misstated
- It allows the insurer to charge back-premiums to correct the error
Correct answer: It adjusts the death benefit to the amount the premium would have purchased at the correct age or sex
Rather than voiding the policy, the misstatement of age or sex provision adjusts the death benefit to what the actual premium paid would have bought at the insured's true age and sex.
Life & Health Insurance Exam Life and Health Insurance Random 5
Under the Health Insurance Portability and Accountability Act (HIPAA), a special enrollment period is triggered when: