Texas Life & Health Insurance License, Practice Exams

Errors and omissions (E&O) insurance protects a producer against:

1. Losses caused by the producer's own intentional fraud, theft, or conversion of client premium funds
2. Claims arising from negligent acts or mistakes in their professional work ✓
3. The cost of premiums owed by clients who fail to pay before the grace period expires
4. Penalties for selling without a valid state license

Why: E&O is professional liability coverage for negligent errors or omissions; it excludes intentional or fraudulent conduct.

The 'insuring clause' of a health or life policy is the part that:

1. Permits the insurer to raise premiums for the entire class of insureds
2. Lists every condition and circumstance the policy will not cover
3. Allows the policyowner to examine and return the policy for a refund
4. States the insurer's basic promise to pay benefits ✓

Why: The insuring clause (insuring agreement) sets out the insurer's fundamental promise to pay covered benefits.

A 'nondisabling injury' benefit in a disability income policy pays:

1. Double the monthly benefit for any disabling accident
2. A lump-sum death benefit if the insured dies from the injury
3. Medical expenses for an injury that does not cause disability ✓
4. The insured's full salary during a brief hospital stay

Why: This benefit reimburses medical costs of an injury that requires treatment but does not actually disable the insured, up to a stated limit.

A Texas producer keeps premium money collected from clients for personal use instead of sending it to the insurer. The department may discipline the producer because this is:

1. Rebating
2. Unfair discrimination
3. Misappropriating or converting money belonging to an insurer or insured ✓
4. Twisting

Why: Sec. 4005.101(b)(4) lets the department deny or discipline a license holder who has misappropriated, converted to their own use, or illegally withheld money belonging to an insurer, HMO, or insured.

In a disability income policy, the 'benefit period' is:

1. The waiting time after a disability before any benefit is payable
2. The maximum length of time benefits will be paid for a disability ✓
3. The number of days the insured has to file written proof of loss
4. The period after issue during which sickness claims are excluded

Why: The benefit period is the maximum duration benefits are paid (e.g., 2 years, 5 years, to age 65); the elimination period is the waiting time before they start.

A single-premium deferred annuity (SPDA) is funded by:

1. Premiums that the insurer deducts directly from Social Security checks
2. A series of flexible payments made over the annuitant's working years
3. One lump-sum payment, with income beginning at a later date ✓
4. Mandatory monthly payroll deductions required by the employer plan

Why: An SPDA is purchased with one lump sum; the accumulation grows tax-deferred until payouts begin at a future date.

Under Texas law, interest on life insurance proceeds accrues from what date until the company accepts the claim and offers to pay?

1. The date the company receives due proof of loss ✓
2. The date the beneficiary files suit
3. The date the policy was originally issued
4. The date of the insured's death

Why: Sec. 1103.104(a) provides interest accrues from the date the company receives due proof of loss until the date it accepts the claim and offers to pay.

A Texas Medicare supplement plan may not impose a preexisting-condition exclusion on a loss incurred more than:

1. Twenty-four months after the effective date of coverage
2. Six months after the effective date of coverage ✓
3. Three months after the effective date of coverage
4. Twelve months after the effective date of coverage

Why: Sec. 1652.058 bars excluding coverage for a loss incurred more than six months after the effective date of coverage for a preexisting condition, and bars defining such a condition more restrictively than a 6-month look-back.

An applicant pays the initial premium and receives a conditional receipt, then dies before the policy is issued — but would have been insurable. The insurer:

1. Pays the death claim ✓
2. Denies the claim because no policy issued
3. Pays half pending an investigation
4. Refunds the premium and pays nothing

Why: Under a conditional receipt, coverage is effective as of the receipt (or exam) date if the applicant was insurable as applied for, so the claim is paid.

The Medicare Part D Low-Income Subsidy ('Extra Help') assists eligible beneficiaries with:

1. Premiums for a private Medicare Supplement policy
2. Prescription drug costs such as premiums and copays ✓
3. The cost of long-term custodial nursing-home care
4. Hospital room-and-board charges under Part A

Why: Extra Help (LIS) lowers Part D premiums, deductibles, and copays for beneficiaries with limited income and resources.

A convertible term policyholder converts to whole life before the conversion deadline. They:

1. Can only convert to another term policy
2. Need not provide new evidence of insurability ✓
3. Forfeit all prior premiums paid
4. Must pass a new medical exam

Why: A conversion privilege lets the insured switch term to permanent coverage without new evidence of insurability.

A Medicare Part B late enrollment penalty generally:

1. Applies as a one-time fee at the first physician visit
2. Is automatically waived after the first two years of coverage
3. Blocks the person from ever enrolling in Part B in the future
4. Permanently raises the monthly Part B premium ✓

Why: Delaying Part B without creditable coverage adds a lifetime surcharge (about 10% per 12 months of delay) to the premium.

What grace period must a group life insurance policy provide for payment of any premium other than the first?

1. 7 days
2. 10 days
3. 31 days ✓
4. 60 days

Why: Sec. 1131.103 requires a 31-day grace period during which death benefit coverage continues in force unless the policyholder gives written notice of discontinuance.

Annuitization differs from a systematic withdrawal because annuitization:

1. Always returns the full account value in one immediate lump sum
2. Lets the owner take any amount at any time with no schedule at all
3. Permanently freezes the account so no further access is possible
4. Converts the account into a guaranteed stream of income payments ✓

Why: Annuitization exchanges the accumulated value for a guaranteed income stream; systematic withdrawal keeps the account and takes flexible amounts.

A variable life insurance policy typically guarantees:

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

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.

Medicare Part A primarily covers:

1. Prescription drugs
2. Physician and outpatient services
3. Inpatient hospital care ✓
4. Routine vision and dental

Why: Part A is hospital insurance (inpatient hospital, skilled nursing, hospice).

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

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.

Charging different premiums for life insurance to two Texas applicants of the same class and equal life expectancy is:

1. Permissible underwriting
2. An example of rebating
3. Unfair discrimination ✓
4. Required by TDI

Why: Sec. 1702.103 prohibits a distinction or unfair discrimination in the rate charged between individuals of the same class and equal life expectancy (§ 1702.153 applies the same rule to accident and health coverage).

An agent writes only weekly premium life insurance on a debit basis and also wishes to sell ordinary life insurance for the same insurer (a 'combination company'). What license must the person hold to act as a combination life insurance agent?

1. A general life, accident, and health license or a life agent license ✓
2. A funeral prearrangement life insurance license is sufficient for any agent who collects premiums on a weekly debit basis
3. No license is required because weekly premium debit business is exempt from the licensing requirements of the Insurance Code
4. A general property and casualty license or a personal lines property and casualty license, because debit insurance is treated as a casualty line

Why: A person may not act as a combination life insurance agent for a combination company unless the person holds a general life, accident, and health license or a life agent license.

Which of the following is excluded from coverage by the Texas Life and Health Insurance Guaranty Association?

1. A direct individual whole life policy issued in this state by a licensed member insurer to a Texas resident, which the association covers up to its statutory death benefit limit
2. A policy or contract issued by a member insurer at a time when it was not authorized to issue it in this state ✓
3. An individual annuity contract issued by a member insurer to a Texas resident, which is a covered contract subject to the association's present-value limit per contract owner
4. A group hospital service contract issued by a member insurer covering Texas residents, which falls within the association's covered health benefit limits

Why: Sec. 463.203(b)(6) excludes a policy or contract issued in this state by a member insurer at a time the insurer was not authorized to issue it in this state.

The period during which an annuity owner pays premiums and the contract grows is the:

1. Elimination period
2. Accumulation period ✓
3. Probationary period
4. Annuitization period

Why: During the accumulation period money is paid in and grows tax-deferred; the annuitization (payout) period is when income payments are made.

A 'shortened benefit period' nonforfeiture option in an LTC policy provides that, if the insured stops paying premiums:

1. All premiums paid are refunded in cash within 30 days of the lapse
2. The policy converts into a paid-up life contract
3. Coverage lapses entirely, since nonforfeiture applies only to life policies
4. Paid-up coverage continues, but for a reduced benefit period ✓

Why: The shortened benefit period option keeps the same daily benefit as paid-up coverage but limits the total benefit period based on premiums paid.

'Rebating' generally refers to:

1. Refunding the unearned premium when a policy is properly cancelled
2. Charging a higher premium to a substandard, higher-risk applicant
3. Returning a claim overpayment to the insurer after a billing error
4. Offering something of value not in the contract to induce a sale ✓

Why: Rebating is giving a prospect any inducement (such as part of the commission or a gift) not specified in the policy to persuade them to buy; it is illegal in most states.

To contribute to a Health Savings Account, a person must be covered by a qualified high-deductible health plan and:

1. Have modified adjusted gross income below the federal poverty line for the household
2. Have reached age 65, the age at which HSA contributions first become available
3. Not be enrolled in Medicare or other disqualifying coverage ✓
4. Work for an employer with fewer than 50 employees, since large groups are excluded

Why: HSA eligibility requires HDHP coverage and no disqualifying coverage (including Medicare enrollment).

A producer offers a prospect free airline tickets, not part of the policy, to induce the purchase. This is:

1. A permissible marketing gift
2. Rebating ✓
3. Defamation
4. Twisting

Why: Offering an inducement not specified in the policy to persuade a purchase is rebating, prohibited in most states.

Accelerated death benefits paid to a terminally ill insured are generally:

1. Fully taxable to the insured as ordinary earned income for the year
2. Subject to a mandatory flat 20% federal income-tax withholding
3. Taxed as a long-term capital gain on the policy's accumulated cash value
4. Received income-tax-free ✓

Why: They are generally received income-tax-free, similar to a death benefit, when the insured is terminally ill.

If an annuitant dies during the accumulation phase of a deferred annuity, the contract typically pays the beneficiary:

1. Nothing, because annuities have no death benefit before payout
2. At least the premiums paid (or current value, if greater) ✓
3. Triple the account value as a guaranteed accidental death bonus
4. Only the surrender value after deducting all future charges

Why: Most deferred annuities guarantee the beneficiary the greater of premiums paid or current account value if the owner dies before annuitization.

For a one-time (non-periodic) loss under an individual A&H policy, the required Proof of Loss provision sets the deadline to furnish written proof at:

1. Before the 45th day after the insurer requests proof
2. Within 60 days after written notice of claim is given
3. Before the 91st day after the date of the loss ✓
4. Before the 21st day after the date of the loss

Why: Sec. 1201.213 requires written proof of loss before the 91st day after the date of the loss (or after termination of the liability period for periodic-payment claims).

A critical illness (specified disease) policy pays:

1. A monthly income for life once the insured turns sixty-five
2. Only the funeral and burial costs after the insured's death
3. Reimbursement for every routine medical expense the insured incurs
4. A lump-sum benefit upon diagnosis of a covered condition such as cancer ✓

Why: Critical illness coverage pays a lump sum when the insured is diagnosed with a covered condition (heart attack, stroke, cancer, etc.).

A 'usual, customary, and reasonable' (UCR) limit means a plan will pay a provider's charge only up to:

1. A reasonable amount for that service in the geographic area ✓
2. The full amount the provider chooses to bill, whatever that charge happens to be
3. Twice the Medicare-approved amount for the same procedure code, nationwide
4. The portion of the annual deductible the insured has already satisfied

Why: UCR caps payment at the prevailing reasonable charge for the service in the area; amounts above may be balance-billed.

In ERISA-governed plans, 'vesting' refers to an employee's:

1. Ability to name a new beneficiary on the group life certificate
2. Nonforfeitable right to employer-contributed retirement benefits ✓
3. Option to convert group coverage to an individual policy at any time
4. Right to receive their full salary while on an approved medical leave

Why: Vesting is the employee's nonforfeitable right to employer contributions, earned under the plan's vesting schedule.

Which settlement option pays the beneficiary an income that cannot be outlived?

1. Fixed period
2. Interest only
3. Fixed amount
4. Life income ✓

Why: A life income settlement option pays for the beneficiary's lifetime, regardless of how long they live.

Under a group life policy that insures employees, what is the minimum number of employees the policy must cover on the date it is issued?

1. At least twenty-five employees
2. At least ten employees
3. At least five employees
4. At least two employees ✓

Why: Sec. 1131.204(a) requires the employer group life policy to cover at least two employees on the date the policy is issued.

A beneficiary is convicted as an accomplice in willfully causing the insured's death. Under Texas law, what happens to that beneficiary's interest in the policy?

1. The proceeds are split with the insured's creditors
2. The beneficiary forfeits the interest in the policy ✓
3. The beneficiary receives half of the proceeds
4. The beneficiary keeps the proceeds because the contract is incontestable

Why: Sec. 1103.151 provides that a beneficiary who is a principal or accomplice in willfully bringing about the insured's death forfeits the beneficiary's interest.

A reciprocal nonresident agent licensed in Texas under the provision for agents already licensed in another state wants to write a line of insurance in Texas. What condition applies?

1. The agent may not act for a line of insurance business in Texas unless the agent is authorized in the agent's state of residence to act for that line ✓
2. The agent may write any line for two years, after which the line must be confirmed as authorized in the home state
3. The agent may write any line that is authorized by a comparable Texas resident license, without regard to whether the agent holds authority for that same line in the agent's state of residence
4. The agent must first pass the Texas examination for each additional line before adding it to the nonresident license

Why: A reciprocal nonresident agent may not act for a line in Texas unless authorized for that line in the agent's home state.

Under the uniform individual health provisions, written notice of a claim must generally be given within:

1. 6 months after the insured has fully recovered from the loss
2. One year, but only if the insurer specifically requests it
3. 48 hours of the event, regardless of the circumstances
4. 20 days after the loss (or as soon as reasonably possible) ✓

Why: Notice of claim is required within 20 days (or as soon as reasonably possible); the insurer must then supply claim forms, with proof of loss due within 90 days.

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

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

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

Before recommending an annuity, a Texas agent must exercise reasonable diligence, care, and skill to:

1. Sell only immediate annuities to buyers over 65
2. Guarantee a return equal to the illustrated rate for ten years
3. Obtain the Guaranty Association's approval
4. Obtain the consumer's profile information ✓

Why: Under the care obligation in Sec. 1115.0513(a), the agent must obtain consumer profile information before recommending an annuity and know the consumer's financial situation, insurance needs, and objectives. This supports the best-interest obligation in § 1115.051.

A self-funded employer buys aggregate stop-loss insurance. It pays once total claims for the year exceed a set amount, protecting the employer from:

1. A single catastrophic individual claim only
2. The administrative fees of the plan
3. Higher-than-expected total claims ✓
4. The cost of routine preventive care

Why: Aggregate stop-loss caps the employer's exposure to total claims exceeding an attachment point; specific stop-loss covers individual large claims.

An applicant for a large policy must justify the amount with their income and net worth. This is:

1. Field underwriting
2. Reinsurance
3. Medical underwriting
4. Financial underwriting ✓

Why: Financial underwriting confirms the requested coverage is reasonable relative to the applicant's financial circumstances.

A final expense (burial) policy is typically:

1. A variable policy whose death benefit fluctuates with the market
2. A small whole life policy meant to cover funeral and final costs ✓
3. A large term policy intended to replace decades of lost income
4. A group policy issued automatically to all employees at hire

Why: Final expense is a modest permanent (whole life) policy designed to cover burial and end-of-life expenses, often with simplified underwriting.

Under Section 1114.102, in addition to Chapter 541 penalties, an agent who violates the replacement law may be required to forfeit:

1. All future renewal commissions on every policy the agent currently has in force
2. Any commissions or other compensation paid as a result of the transaction ✓
3. Half of the policy's death benefit, payable to the state
4. The entire bond the agent posted with the department

Why: Tex. Ins. Code § 1114.102(a) provides that sanctions may include forfeiture of any commissions or other compensation paid to an agent as a result of the transaction in which the violations occurred, along with license revocation/suspension and Chapter 84 administrative penalties.

The difference between a conditional and a binding receipt is that the conditional receipt:

1. Provides coverage only if the applicant is insurable as applied for ✓
2. Never provides any coverage before issue
3. Is used only for automobile insurance
4. Provides immediate temporary coverage from the date of application regardless of whether the applicant proves insurable

Why: Conditional coverage depends on the applicant being insurable; a binding receipt grants immediate temporary coverage.

Among the sanctions the commissioner may impose in addition to revocation, which is expressly authorized?

1. Seizure of the holder's personal residence
2. A permanent nationwide ban on insurance employment
3. Imprisonment of the license holder
4. An order to cease and desist from the violating activity ✓

Why: Sec. 82.052(2) authorizes a cease-and-desist order; the statute also allows suspension, administrative penalties, and restitution.

After death of the insured and receipt of proof of death and of the claimant's right to proceeds, within what time must a Texas life insurance policy provide that settlement be made?

1. Not later than thirty days
2. Not later than sixty business days
3. Not later than six months
4. Not later than two months ✓

Why: Sec. 1101.011(a) requires the policy to provide that settlement be made not later than two months after receipt of proof of death and of the claimant's right to the proceeds.

Under the Fair Credit Reporting Act (FCRA), if an insurer takes adverse action based on a consumer report, it must:

1. Destroy the consumer report and delete all records within thirty days
2. Notify the applicant and identify the reporting agency that supplied the report ✓
3. Pay the applicant a statutory penalty for the inconvenience caused
4. Automatically reverse its underwriting decision and issue the policy exactly as it was applied for

Why: FCRA requires that an applicant subject to adverse action be notified and told the source so they can request and dispute the information.

To enroll in a Medicare Advantage (Part C) plan, a beneficiary must first have:

1. Only a Medicare Part D drug plan
2. Both Medicare Part A and Part B ✓
3. Full Medicaid eligibility in their state
4. An existing Medicare Supplement policy

Why: Medicare Advantage requires the beneficiary to be enrolled in both Part A and Part B; the MA plan then delivers those benefits (usually with Part D).

A Texas producer falsely tells a client that a competing insurer is financially unsound in order to take the client's business. This violates the prohibition on:

1. Premium financing
2. The free-look provision
3. Defamation of an insurer ✓
4. Coordination of benefits

Why: Sec. 541.053 prohibits making or circulating a statement that is false, maliciously critical of, or derogatory to the financial condition of an insurer and is calculated to injure a person engaged in the business of insurance.

Reinstating a lapsed life policy generally starts a new:

1. Contestable period based on the reinstatement application ✓
2. Suicide exclusion period of ten years running from the reinstatement date
3. Schedule of guaranteed dividends recalculated from the reinstatement date
4. Free-look period of 30 days in which the owner may cancel for a full refund

Why: Reinstatement typically begins a new contestable period (often two years) covering statements made on the reinstatement application.

In a cross-purchase buy-sell agreement among four business owners, the number of life insurance policies required is:

1. 12 ✓
2. 4
3. 8
4. 16

Why: Cross-purchase requires each owner to insure every other owner: n(n−1) = 4 × 3 = 12 policies; an entity plan would need only 4.

An annuitant has an $80,000 basis and a $200,000 expected return. Of each $10,000 payment, the taxable amount is:

1. $6,000 ✓
2. $4,000
3. $10,000
4. $2,000

Why: Exclusion ratio = 80,000/200,000 = 40%; $4,000 excluded, $6,000 taxable per payment.

A structured settlement annuity is typically used to:

1. Provide an employer's executives with deferred bonuses
2. Fund a child's college education through a trust
3. Replace a key employee who has died
4. Pay periodic settlement amounts from a legal claim over time ✓

Why: A structured settlement funds court/insurance settlement payments as periodic income; amounts for physical-injury claims are generally tax-free.

Section 541.060 also addresses an insurer requiring a claimant to produce federal income tax returns as a condition of settling a claim. Demanding the returns is permitted in which situation?

1. When the claim involves a fire loss ✓
2. Whenever the insurer's special investigative unit has opened a routine file to verify the claimant's stated household income
3. Whenever the insurer's underwriting guidelines call for income verification on first-party property claims generally
4. Any time the claim amount exceeds the policy's stated deductible by more than fifty percent of the face value

Why: Sec. 541.060(a)(9) bars requiring tax returns to settle a claim except by court order, when the claim involves a fire loss, or when it involves lost profits or income.

An alien insurer is one that is:

1. Incorporated in this state
2. Incorporated outside the United States ✓
3. Incorporated in another U.S. state
4. Not licensed in any state

Why: Alien = incorporated in another country; domestic = this state; foreign = another U.S. state.

A 'stock' insurance company is:

1. Owned by its policyholders, who receive policy dividends
2. A nonprofit organized under the lodge system
3. Owned by stockholders and may pay them dividends ✓
4. An unincorporated group of subscribers

Why: A stock insurer is owned by shareholders (dividends are taxable shareholder dividends); a mutual insurer is owned by policyholders.

Retirement plan 'catch-up' contributions allow individuals to contribute additional amounts once they reach age:

1. 50 ✓
2. 40
3. 59 and one half
4. 65

Why: Participants age 50 and older may make catch-up contributions above the standard annual limits to IRAs and employer plans.

A Texas insurer that violates the prompt-payment deadlines is liable for the claim plus:

1. A flat $500 administrative penalty payable to the state
2. Triple the policy's face amount as statutory damages
3. 18% per annum and reasonable attorney's fees ✓
4. Only 6 percent simple interest, with each side paying its own attorney's fees

Why: Violation makes the insurer liable for the claim amount plus 18% annual interest and reasonable attorney's fees.

An irrevocable life insurance trust (ILIT) is used primarily to:

1. Keep life insurance proceeds out of the insured's taxable estate ✓
2. Allow the insured to freely change the policy's terms at any time
3. Convert the death benefit into a currently deductible expense
4. Guarantee the policy's cash value against any market loss

Why: An ILIT owns the policy so the proceeds are excluded from the insured's gross estate; because it is irrevocable, the insured gives up control.

A Medicare Advantage plan (Part C):

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

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 business owner is disabled. A business overhead expense (BOE) policy will reimburse:

1. The cost to buy out the owner's business interest
2. Lost business profits the firm would have earned
3. The owner's personal household living expenses
4. Rent, utilities, and employee salaries ✓

Why: BOE covers continuing business operating expenses (not the owner's salary or lost profit) during the owner's disability.

Adjustable life insurance allows the policyowner to:

1. Change the premium, face amount, or coverage type as needs change ✓
2. Receive the death benefit in cash while the insured is still living
3. Invest the cash value directly in mutual funds they personally select
4. Skip underwriting entirely no matter how much coverage is added

Why: Adjustable life lets the owner modify the premium, face amount, and protection period (shifting between term and permanent) as circumstances change.

Under the Illegal Occupation provision of an individual A&H policy, the insurer is not liable for a loss to which a contributing cause was what?

1. The insured's failure to obtain the periodic physical examination the policy recommends
2. The insured's participation in a hazardous hobby such as skydiving or motor racing
3. The insured's travel outside the United States without giving the insurer prior written notice of the trip
4. The insured's commission of or attempt to commit a felony, or being engaged in an illegal occupation ✓

Why: Sec. 1201.226 relieves the insurer of liability for any loss to which a contributing cause was the insured's commission of or attempt to commit a felony, or being engaged in an illegal occupation.

Group life insurance is most commonly written as:

1. A single-premium endowment that is paid up at issue
2. Annually renewable term that renews each year ✓
3. Decreasing term tied to a mortgage balance
4. A paid-up whole life policy with no premiums

Why: Employer group life is typically annually renewable term; individual evidence of insurability is usually not required up to a guaranteed-issue limit.

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. Set the surrender charge percentage that applies in each year of the withdrawal charge period
3. Guarantee the separate account a fixed minimum return in every year of the payout period
4. Determine the commission credited to the selling registered representative each year

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

In a fixed annuity, the investment risk is borne by:

1. The annuitant, whose sub-accounts rise and fall with the market
2. The insurer, which guarantees a minimum interest rate ✓
3. A federal guaranty fund backing annuity values
4. The selling producer, under the agency contract

Why: A fixed annuity guarantees principal and a minimum interest rate, so the insurer bears the investment risk.

Part 2 of a life insurance application generally collects:

1. The premium payment and the policy's effective date information
2. The proposed insured's medical history ✓
3. The agent's personal observations about the applicant's apparent lifestyle
4. The names and addresses of the applicant's professional references

Why: Part 1 covers general information (name, age, occupation, beneficiary); Part 2 covers medical history. The agent's report is separate and not part of the contract.

Under Section 547.051, an unauthorized alien or foreign insurer is prohibited from making a misrepresentation to a Texas resident that violates Chapter 541 concerning specified matters. Which of the following is among those specified matters?

1. the commission rate the insurer pays to producers who write business in this state
2. the insurer's financial condition ✓
3. the geographic territory in which the insurer is authorized to transact insurance
4. the licensing status of the agent who is soliciting the prospective Texas resident's application

Why: Sec. 547.051(a) applies to an insurer's misrepresentation of its financial condition, contract terms, promised benefits/advantages, or dividends/surplus.

A person who in good faith reports suspected insurance fraud to TDI is generally:

1. Required to also notify the insurer's competitors
2. Personally liable if the report is mistaken
3. Subject to a fine for interfering
4. Granted immunity from civil liability for the report ✓

Why: Texas grants immunity for good-faith reports of suspected fraud to encourage reporting.

An employee elects COBRA after termination. The employee generally must pay:

1. Nothing, because the employer continues to pay
2. Only the share they paid as an active employee
3. Triple the active-employee premium
4. Up to 102% of the full group premium ✓

Why: COBRA lets the individual continue coverage by paying up to 102% of the full premium (the group cost plus a 2% administration charge).

Increasing term insurance is characterized by a death benefit that:

1. Falls steadily until it reaches zero at the end of the term
2. Is determined each year by the performance of a market index
3. Rises over the policy term ✓
4. Stays exactly level for the whole duration of the contract

Why: Increasing term's face amount grows over time (often used with return-of-premium or to track inflation); decreasing term does the opposite.

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

1. Two named annuitants, both of whom must survive for the income payments to continue
2. Two declared interest rates, one for new deposits and one for older money, that the owner switches between each year
3. A higher value if annuitized and a lower value if surrendered for cash ✓
4. A death benefit equal to twice the account value if the owner dies during the accumulation period

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

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. Waiver of premium, which only suspends the premium obligation
2. Residual or partial disability benefit ✓
3. Presumptive total disability benefit
4. The accidental death benefit rider

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

An owner assigns a policy to a bank only as security for a loan. This is a(n):

1. Irrevocable beneficiary designation
2. Change of insured
3. Collateral assignment ✓
4. Absolute assignment

Why: A collateral assignment is a partial, temporary transfer for loan security; the lender is entitled only to the amount owed.

Backdating a life insurance policy is sometimes done to:

1. Obtain a lower premium based on a younger age ✓
2. Guarantee that the policy can never lapse for non-payment
3. Avoid the need for any medical underwriting of the applicant
4. Extend the contestable period well beyond the legal limit

Why: Backdating dates the policy to an earlier date so the insured qualifies at a younger age (and lower premium); states typically limit it to about six months.

A contributory group plan, in which employees share in the premium cost, generally requires participation of at least:

1. 75% of eligible employees ✓
2. 25% of eligible employees in the first year only
3. A single employee who volunteers to enroll first
4. 100% of eligible employees without any exception

Why: Contributory plans typically require about 75% participation to limit adverse selection; noncontributory (employer-paid) plans require 100%.

A pre-existing condition exclusion in an individual health policy refers to:

1. Any condition the insured develops after the effective date but before the first renewal
2. A condition treated within a look-back period before the effective date ✓
3. Only those conditions the insurer names individually in an attached impairment rider
4. A condition covered immediately with no waiting period

Why: A pre-existing condition is one for which care was received within a stated look-back period before coverage began. On ACA-compliant individual major-medical plans, pre-existing condition exclusions are prohibited entirely; time-limited exclusions survive only on excepted or non-ACA products.

When a group life policy converts to an individual policy on termination of employment, which type of policy may the insured NOT select?

1. A term life insurance policy ✓
2. An endowment policy
3. A whole life policy
4. A limited-pay life policy

Why: Sec. 1131.110(d) lets the insured select any individual policy other than term life insurance customarily issued by the insurer for that age and amount.