Life & Health Insurance Exam, General, Practice Exams

An 'own-occupation' definition in a disability income policy pays benefits when the insured cannot perform:

1. Any job for which they are reasonably suited
2. The duties of their own occupation ✓
3. activities of daily living
4. household chores

Why: Own-occupation pays if the insured cannot do their own job, even if able to work elsewhere; it is more generous than any-occupation.

A variable life insurance policy typically guarantees:

1. A minimum death benefit regardless of separate-account performance ✓
2. A fixed cash value that can never decline in any market
3. A level premium that is invested entirely in government bonds
4. That the policy can never become a modified endowment contract

Why: Variable life guarantees a minimum death benefit, but the cash value (and any benefit above the minimum) varies with the separate accounts the owner directs.

A distinguishing feature of adjustable life insurance is that the owner can:

1. Invest the cash value directly in stocks and bonds of their choosing
2. Change the premium, face amount, or coverage period as needs change ✓
3. Only ever convert it into a fixed single-premium immediate annuity
4. Receive guaranteed dividends regardless of the insurer's experience

Why: Adjustable life lets the owner modify premium, face amount, and protection period, effectively shifting between term and permanent coverage.

A two-tier annuity is one in which the contract has:

1. A higher value if annuitized and a lower value if surrendered for cash ✓
2. Two separate annuitants who must both survive to receive income
3. Two guaranteed interest rates that the owner alternates between
4. A death benefit that pays out twice over the contract's life

Why: A two-tier annuity credits a higher value when the owner annuitizes and a lower value on cash surrender, incentivizing annuitization.

An insurer holding a certificate of authority to transact business in a state is said to be:

1. Admitted (authorized) ✓
2. Nonadmitted (unauthorized)
3. Alien
4. Reciprocal

Why: An admitted/authorized insurer holds a certificate of authority; a nonadmitted insurer does not.

A client wants to move funds from an old annuity into an LTC insurance policy tax-free. Under Section 1035, this is:

1. Permitted (annuity-to-LTC is a valid 1035 exchange) ✓
2. Not permitted under any circumstances in most situations
3. Allowed only for term life policies
4. Taxable as a full surrender

Why: Section 1035 permits tax-free exchanges from an annuity to a qualified long-term care policy.

An insured can perform some but not all job duties and returns to work part-time at reduced pay. The benefit that responds is:

1. Residual or partial disability benefit ✓
2. Presumptive disability benefit
3. Accidental death benefit
4. Waiver of premium only

Why: Residual/partial disability pays a reduced benefit when the insured can work partially or at reduced earnings.

An insured stops paying premiums and wants the largest amount of continued coverage for the shortest time, with no further premiums. The nonforfeiture option is:

1. Extended term insurance ✓
2. Reduced paid-up insurance
3. Cash surrender
4. A policy loan

Why: Extended term keeps the full face amount in force as term for a limited period; reduced paid-up gives a smaller amount but for life.

A whole life policyowner borrows against the cash value and does not repay it. At death, the death benefit is:

1. Reduced by the outstanding loan and interest ✓
2. Paid in full, with the loan forgiven
3. Forfeited entirely because of the loan
4. Replaced by a refund of premiums

Why: An unpaid policy loan plus interest is subtracted from the death benefit paid to the beneficiary.

A waiver of premium provision in a long-term care policy:

1. Stops premium payments while the insured is receiving covered benefits ✓
2. Refunds every premium the insured has paid once they reach the age of eighty
3. Cancels the policy automatically after the first claim
4. Lowers the premium each year the insured stays healthy

Why: LTC waiver of premium suspends premium payments while the insured is confined or receiving qualifying benefits.

While a permanent life policy is in force, the growth of its cash value is:

1. Tax-deferred (not taxed as it accrues) ✓
2. Taxed annually as ordinary income
3. Taxed annually as a capital gain
4. Subject to an annual excise tax

Why: Inside-buildup of cash value grows tax-deferred; tax may apply only on surrender of a gain or in a MEC.

The Medicare General Enrollment Period (GEP) runs:

1. January 1 through March 31 each year ✓
2. Only during the week of the beneficiary's birthday
3. From October 15 to December 7 every year
4. On a single fixed date set individually by each state

Why: Those who miss their IEP can sign up during the GEP (Jan 1–Mar 31), with coverage beginning later and a possible late penalty.

A Medicare SELECT policy is a type of Medigap that:

1. Charges a lower premium in exchange for using a provider network ✓
2. Pays cash directly to enrollees regardless of where they get care
3. Covers only long-term custodial nursing-home expenses
4. Replaces both Medicare Part A and Part B entirely

Why: Medicare SELECT is a Medigap policy that requires using network providers (except emergencies) in return for a lower premium.

A Medicare Advantage plan (Part C):

1. Is offered by private insurers and bundles Part A and B benefits, often with drugs ✓
2. Is a government-run supplement plan that fills the gaps left by Original Medicare coverage
3. Provides only prescription drug coverage and nothing else at all
4. Replaces Medicaid for people who have very limited financial means

Why: Part C (Medicare Advantage) plans are offered by private insurers approved by Medicare and combine Part A and B (usually Part D) coverage.

A disability policy's benefits are paid monthly. The 'time of payment of claims' provision requires disability benefits to be paid at least:

1. Monthly ✓
2. Once per year
3. Within 24 hours of each loss
4. At the end of the benefit period

Why: For periodic (disability) claims, benefits must be paid at least monthly under the uniform provision.

In an equity-indexed annuity using the 'annual point-to-point' crediting method, interest is based on the index value:

1. At the start of the year compared to the end of the year ✓
2. Measured continuously on every single trading day of the year
3. At the single highest point the index reached during the term
4. Averaged across all twelve monthly closing values of the year

Why: Annual point-to-point compares the index at the beginning and end of the year; high-water mark and monthly averaging are alternative methods.

In a variable life insurance policy, the investment risk on the cash value is borne by:

1. The policyowner ✓
2. The insurance company, which guarantees the cash value in full
3. The state insurance guaranty association at all times
4. The producer who originally sold the policy contract

Why: In variable life the cash value is held in separate accounts the owner directs, so the policyowner assumes the investment risk (a minimum death benefit is usually guaranteed).

Premiums an individual pays for their own personal life insurance are:

1. Not deductible for federal income-tax purposes ✓
2. Fully deductible as an itemized personal expense
3. Deductible only if the policy is term insurance
4. Deductible up to an annual IRS-set dollar limit

Why: Personal life insurance premiums are a personal expense and are not income-tax deductible.

A consumer who buys insurance through a producer representing the buyer (not the insurer) is working with a(n):

1. Broker ✓
2. Captive agent
3. Underwriter
4. Adjuster

Why: A broker legally represents the insurance buyer; an agent represents the insurer.

A graded-premium whole life policy charges premiums that:

1. Start low and increase for a period, then level off ✓
2. Stay exactly the same for the entire life of the policy
3. Are invested in equity sub-accounts chosen by the policyowner each year
4. Decrease every year until the coverage is fully paid up

Why: Graded-premium whole life begins with low premiums that rise over an initial period before leveling, easing early affordability.

A person under age 65 qualifies for Medicare immediately (no 24-month wait) if they have:

1. End-stage renal disease or ALS ✓
2. Any pre-existing chronic condition
3. Enrolled in a Medigap policy
4. Reached full retirement age early

Why: ESRD (with conditions) and ALS confer Medicare eligibility without the 24-month disability waiting period.

Concealment in the context of an insurance application is best described as:

1. A statement guaranteed by the applicant to be literally true
2. The deliberate withholding of a known material fact ✓
3. An honest answer that later turns out to be incorrect
4. A clause that voids coverage after two years in force

Why: Concealment is the intentional failure to disclose a known material fact that would affect underwriting.

The federal Genetic Information Nondiscrimination Act (GINA) generally restricts the use of genetic information in:

1. Health insurance and employment decisions ✓
2. Property and casualty insurance underwriting only
3. Setting state automobile insurance premium rates
4. Determining eligibility for federal student loans

Why: GINA limits how genetic information may be used in health coverage and employment, prohibiting discrimination based on genetic test results.

In a variable annuity, the assumed interest rate (AIR) is used to:

1. Benchmark whether each payout rises or falls during the annuity period ✓
2. Guarantee the contract a fixed minimum return every single year
3. Set the surrender charge applied during the first contract year
4. Determine the commission paid to the selling producer

Why: The AIR is a benchmark: if separate-account performance exceeds the AIR, the next variable payment rises; if it lags, the payment falls.

An annuitant has a $30,000 basis and a $120,000 expected return. Of each $6,000 payment, the taxable amount is:

1. $4,500 ✓
2. $1,500
3. $6,000
4. $3,000

Why: Exclusion ratio = 30,000/120,000 = 25%; $1,500 excluded, $4,500 taxable.

An applicant who regularly scuba dives in caves is most likely to be:

1. Charged a higher (rated) premium or have the avocation excluded ✓
2. Declined for any coverage of any kind
3. Given the lowest preferred premium available under the policy's terms
4. Required to convert to an annuity instead

Why: Hazardous avocations increase risk; insurers respond with a rating, an exclusion rider, or a higher premium.

A survivorship (second-to-die) life policy pays the death benefit when:

1. The first insured dies
2. The second insured dies ✓
3. Either insured becomes disabled
4. The policy is surrendered

Why: Survivorship pays at the second death; it is common in estate planning to fund estate taxes.