Texas Life & Health Insurance License, Practice Exams

Money left in a typical health flexible spending account (FSA) at year-end is:

1. Generally forfeited under the use-it-or-lose-it rule ✓
2. Always rolled over indefinitely with no limit
3. Paid out to the employee as taxable cash
4. Transferred automatically into the employee's HSA

Why: FSAs are generally use-it-or-lose-it, though plans may allow a limited carryover or grace period.

A Texas producer who fails to complete required CE by the renewal deadline will:

1. Be unable to renew the license until CE is satisfied ✓
2. Automatically receive a one-year extension
3. Lose only the ethics portion of the license
4. Face no consequence at all

Why: CE must be completed to renew; failure prevents renewal (and continuing to transact without a valid license is prohibited).

A premium is still unpaid at the end of the grace period, but the policy has sufficient cash value. The automatic premium loan provision:

1. Pays the overdue premium from the cash value to prevent a lapse ✓
2. Cancels the policy and refunds the cash value under the policy's terms
3. Doubles the next premium as a penalty
4. Converts the policy into term insurance

Why: APL borrows from the cash value to pay the overdue premium, keeping the policy in force.

In a replacement transaction, what must the agent leave with the applicant at the time the application is completed under Section 1114.051?

1. The original or a copy of all sales material used ✓
2. A copy of the existing insurer's annual statement
3. A certified copy of the agent's license
4. The replacing insurer's certificate of authority

Why: Tex. Ins. Code § 1114.051(f) requires the agent, in a replacement transaction, to leave with the applicant the original of all sales material or a copy of that material at the time the application is completed.

Under Section 1108.051, the cash value and proceeds of a life insurance policy are generally:

1. Subject to garnishment by any of the insured's creditors
2. Fully exempt from garnishment, attachment, execution, or other seizure ✓
3. Available to satisfy a debt only after the insured's death
4. Exempt only if the policy was issued by a fraternal benefit society

Why: Tex. Ins. Code § 1108.051(b) provides that insurance and annuity benefits, including cash value and proceeds, inure to the designated person and are fully exempt from garnishment, attachment, execution, or other seizure, and from application to pay an insured's or beneficiary's debts (subject to the exceptions in § 1108.053).

To open and contribute to a Health Savings Account (HSA), an individual must be:

1. Enrolled in a qualified high-deductible health plan ✓
2. Covered by Medicare Part A and Part B already
3. Over the age of sixty-five and fully retired from work
4. Enrolled in a low-deductible managed-care HMO plan

Why: HSA eligibility requires coverage under a qualified high-deductible health plan and no disqualifying coverage; HSAs offer a triple tax advantage.

Under Section 843.002, 'evidence of coverage' issued by an HMO is best described as a certificate, agreement, or contract that:

1. Lists only the HMO's network physicians
2. Is issued to an enrollee and states the coverage to which the enrollee is entitled ✓
3. Sets the capitation rate paid to providers unless an exception clearly applies for the coverage that is in force
4. Guarantees the HMO's solvency to creditors

Why: Tex. Ins. Code § 843.002(9) defines 'evidence of coverage' as any certificate, agreement, or contract, including a blended contract, that is issued to an enrollee and states the coverage to which the enrollee is entitled.

Unless a different amount is specified by law, what is the maximum administrative penalty the commissioner may impose for a single violation under the Insurance Code's administrative penalty chapter?

1. $5,000 per violation
2. $10,000 per violation
3. $50,000 per violation
4. $25,000 per violation ✓

Why: The administrative penalty for a violation may not exceed $25,000 unless a greater or lesser amount is specified by law.

Under Section 4001.157, a temporary license holder is prohibited from obtaining a commission on a sale made to:

1. A person who has a family, employment, or business relationship with the temporary license holder ✓
2. Any resident of Texas
3. A customer referred by another licensed agent unless an exception clearly applies for the coverage that is in force
4. An applicant for group health insurance

Why: Tex. Ins. Code § 4001.157(a) prohibits a temporary license holder from obtaining a commission on a sale to a person who has a family, employment, or business relationship with the temporary license holder, and (b) bars commissions on sales covering the holder, relatives, or recent employers/employees.

Under the interest-only settlement option, the insurer:

1. Holds the proceeds and pays only the interest earned to the payee ✓
2. Pays a fixed dollar amount each period until the funds are fully exhausted
3. Distributes equal payments over a stated number of years and then stops
4. Guarantees income payments for the entire remaining life of the payee

Why: Interest-only leaves the principal with the insurer and pays out just the interest; the principal is paid later.

Each enrollee residing in Texas under an HMO health care plan is entitled to receive what document describing the coverage?

1. A certificate of authority
2. An evidence of coverage ✓
3. A formulary statement
4. A certificate of deposit

Why: Sec. 1271.002(a) entitles each Texas-resident enrollee to evidence of coverage under a health care plan.

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 Texas life policy's two-year contestability period:

1. Can never restart once the original two-year period has fully elapsed
2. Starts over with a new contestable period if reinstated after lapse ✓
3. Is permanently waived by the insurer once the first death claim is filed
4. Applies only to group life policies and never to any individual coverage

Why: After 2 years in force the insurer generally cannot contest the policy, but a reinstated policy begins a new contestable period.

Under the 'reduction of premium' dividend option, the dividend is:

1. Applied toward the premium due at the next anniversary ✓
2. Used to buy additional paid-up whole life insurance coverage
3. Left with the insurer to accumulate interest over time
4. Paid out to the policyowner directly in cash each year

Why: This option uses the dividend to lower the out-of-pocket premium owed at the next due date.

A temporary insurance license is most commonly issued to:

1. Continue the business of a producer who died or became disabled ✓
2. Anyone who has not yet taken the licensing exam in most situations
3. Replace continuing-education requirements
4. Allow unlimited sales for one year

Why: Temporary licenses (no exam) let someone service an existing book when a producer dies, becomes disabled, or enters military service.

A prescription drug plan formulary is:

1. A tiered list of the medications the plan covers ✓
2. A government registry of every drug approved nationwide for sale
3. The maximum the insured may spend on drugs in a lifetime
4. A required second opinion before any prescription is filled

Why: A formulary is the plan's list of covered drugs, usually arranged in cost-sharing tiers (generic, preferred brand, non-preferred, specialty).

'Medicaid spend-down' refers to the process by which an individual:

1. Reduces income or assets to become eligible for Medicaid ✓
2. Spends their entire Medicare deductible each year
3. Pays down a Medicare Part D late penalty
4. Uses up a long-term care policy's benefit pool

Why: Spend-down is depleting excess income/assets (e.g., on care) to meet Medicaid's means test for eligibility.

Nonforfeiture provisions in an annuity guarantee the owner:

1. A minimum surrender value if the contract is cashed in ✓
2. The full original premium back with no charges at any time
3. A doubling of the account value after ten years
4. Free withdrawals of the entire balance in the first year

Why: Annuity nonforfeiture laws guarantee a minimum cash surrender value, protecting the owner's accumulated funds.

Texas law requires that an individual accident and health policy include a notice giving the insured a right to return the policy for a full premium refund. The return period is:

1. Not later than the 10th day after the policy is delivered ✓
2. Not later than the 30th day after the policy is delivered
3. Not later than the 20th day after the application is signed
4. Not later than the 31st day after the policy is delivered

Why: Sec. 1201.058 requires a notice that the insured may return an individual A&H policy and obtain a refund if returned not later than the 10th day after delivery. (It does not apply to single-premium nonrenewable policies.)

An HMO evidence of coverage must include a clear description of the HMO's methods for resolving enrollee complaints, including what specific right?

1. The right to sue the HMO before completing any internal appeal in that particular circumstance
2. The right to appeal denial of an adverse determination to an independent review organization ✓
3. The right to a refund of all premiums on any denied claim
4. The right to change primary care physicians monthly

Why: Sec. 1271.054 requires the evidence of coverage to describe complaint-resolution methods, including the right to appeal an adverse determination to an independent review organization.

Long-term care benefits are most often triggered by a covered person's inability to perform a stated number of activities of daily living OR by:

1. Severe cognitive impairment such as dementia ✓
2. A temporary illness expected to resolve within a week
3. Reaching the policy's stated maturity age while healthy
4. Voluntary retirement from full-time employment

Why: Benefits trigger on inability to perform a set number of ADLs (usually 2 of 6) or on severe cognitive impairment.

Once a Texas insurer notifies a claimant that it will pay the claim, it must make payment within:

1. 5 business days ✓
2. 15 days
3. 30 days
4. 60 days

Why: Section 542.057 requires payment within 5 business days after the insurer notifies the claimant that the claim (or part of it) will be paid.

A Texas annuity applicant must be given disclosure information so they can:

1. Understand the annuity's features, charges, and surrender terms ✓
2. Guarantee a fixed market return for the coverage that is in force
3. Skip the suitability review
4. Avoid any surrender charges

Why: Texas annuity rules require disclosure of material features (charges, surrender terms) and a suitability determination.

A 50-year-old withdraws $10,000 of gain from a nonqualified deferred annuity. Besides ordinary income tax, the IRS penalty is:

1. $1,000 ✓
2. $2,000
3. $500
4. $0

Why: A premature distribution before 59½ incurs a 10% penalty: 10% × $10,000 = $1,000, on top of ordinary income tax on the gain.

A family deductible provision in a health plan provides that:

1. Once a set aggregate amount is met, the deductible is satisfied for the whole family ✓
2. Each family member must independently meet the deductible every single month
3. Only the policyholder's expenses can ever count toward the deductible
4. The deductible doubles for each additional dependent who is added

Why: A family deductible caps total deductible exposure: when the combined family expenses reach the stated aggregate, the deductible is met for all members.

Under a 'noncancelable' health insurance policy, the insurer:

1. Cannot cancel the policy or raise the premium before a stated age ✓
2. May raise the premium for the whole class but must always renew
3. Can cancel the coverage at any time by giving advance written notice
4. Renews the policy only if certain stated conditions are met each year

Why: Noncancelable means premiums are fixed and the policy cannot be cancelled (renewable to a stated age); guaranteed renewable allows class-wide premium increases.

The Medicare Supplement (Medigap) open enrollment period:

1. Lasts six months, starting when the person is 65 and enrolled in Part B ✓
2. Is a one-time 30-day window that opens at the person's 70th birthday
3. Occurs every fall and lets enrollees switch among all Medigap plans
4. Is available only to people who also qualify for full Medicaid benefits

Why: During the 6-month Medigap open enrollment (beginning at 65 and enrolled in Part B), insurers must issue any plan regardless of health (guaranteed issue).