With regard to insurance, the term "consideration" means the:
A) price of the contract (the premium).
B) insurer's method of evaluating the applicant for coverage.
C) side-by-side policy comparison by the applicant.
D) screening process all agents undergo
Answer: A
Legally defined, "consideration" is the price requested and given in exchange for a promise or an act. In terms of insurance, it is the price of the contract, or the premium, the insured pays to keep the contract and its promised benefits in for
The Medicare Advantage Program offers all of the following to Medicare beneficiaries EXCEPT:
A) provider-sponsored organizations (PSOs).
B) preferred provider organizations (PPOs).
C) Medicaid.
D) health maintenance organizations (HMOs).
Answer: C
The Medicare Advantage Program (Medicare Part C) gives Medicare beneficiaries a variety of alternatives from which to obtain Medicare-covered services. Medicare participants are also able to take advantage of tax-free health savings accounts (HS
All of the following acts are unfair and deceptive trade practices EXCEPT:
A) favoring applicants without physical disabilities for insurance.
B) rebating premiums.
C) offering lower premiums for younger life insurance policyholders.
D) issuing advisory b
Answer: C
Rebating, offering inducements not included in the policy, and unfair discrimination are considered unfair and deceptive trade practices. Determining premiums, policy fees, or rates on the basis of such objective factors as differing hazards or
A Medicare Select policy is a Medicare supplement policy or certificate that contains:
A) provisions limiting benefits for preexisting conditions.
B) restricted network provisions.
C) unlimited access to health service providers.
D) provisions limiting be
Answer: B
A Medicare Select policy contains restricted network provisions (i.e., the payment of benefits is conditioned on the use of network providers who have entered into written agreements with the insurer to provide benefits under a Medicare Select p
After working 2 years with a competitor, Bob immediately goes to work for ABC Company. Having been fully covered under his employer's group disability income plan, Bob enrolls in his new employer's plan at his first opportunity to do so. As a new employee
Answer: C
Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), exclusion periods for preexisting conditions must be reduced by one month for every month an employee had creditable coverage at a previous job. Since Bob enrolled as
Blanket health insurance refers to a type of:
A) group health and life insurance.
B) individual accident insurance.
C) group accident insurance.
D) individual health and life insurance.
Answer: C
Blanket health insurance refers to a form of group accident insurance that covers accidents only under very specific conditions. Generally, these insurance policies are limited to cover passengers on a common carrier such as an airplane or train
A Medical Savings Account consists of a(n):
A) PPO and a separate account.
B) private fee-for-service plan and a savings account.
C) HMO and a separate account.
D) high deductible insurance policy and a savings account.
Answer: D
A Medical Savings Account consists of two parts: a high deductible insurance policy and a savings account. The policy pays for at least all Medicare-covered items and services after an enrollee meets the annual deductible. Medicare pays the prem
On August 1, Roger completed an application for a major medical policy, gave his agent a check for the initial premium and received an insurability receipt from the agent. No medical examination was required. On August 3, the agent submitted Roger's appli
Answer: C
The insurability type of conditional receipt provides that when an applicant pays the initial premium, coverage is effective---on the condition that the applicant proves to be insurable---either on the date the application was signed or the date
If a producer states that policy dividends are guaranteed when in fact they are not, this is an example of:
A) defamation.
B) misrepresentation.
C) twisting.
D) illegal inducement.
Answer: B
Misrepresentation occurs when an agent tells a prospect that benefits, conditions or advantages exist in a product when in fact they do not.
The purpose of Medicare supplement insurance is to provide:
A) coverage for certain expenses not fully covered by Medicare.
B) coverage for certain medical expenses before the insured becomes eligible for Medicare.
C) coverage to elderly people who are no
Answer: A
The primary purpose of a Medicare supplement insurance policy is to augment Medicare with payment of hospital, medical, or surgical expenses that Medicare does not cover.
Under COBRA regulations, group health coverage of terminated employees must be continued up to:
A) 18 months.
B) 8 months.
C) 12 months.
D) 6 months.
Answer: A
All of the following statements pertaining to unethical selling are correct EXCEPT:
A) an agent knowingly submits an application that contains false information; the agent is guilty of twisting.
B) an agent states to a prospect that a competing insurer is
Answer: A
If an agent makes any written or oral statement that does not tell the exact and full truth about a policy's terms or benefits or if he defames another company, the agent is guilty of misrepresentation and defamation, which violate ethical sales
When completing the application, a producer should do all the following EXCEPT:
A) provide an opinion regarding the applicant in the agent's statement.
B) take the application back to his office if it is missing information and call the applicant later to
Answer: C
In most instances, it is unnecessary for a producer to obtain the spouse's signature. While it is important to obtain the most accurate information possible, ultimately, a producer should record the information as provided. A producer may provid
Individual health insurance policies specify that the insured must furnish proof of loss to the insurer how long after the date of the loss?
A) 90 days.
B) Immediately.
C) 10 days.
D) Proof of loss is not required for most health insurance policies.
Answer: A
Individual health insurance policies must contain a proof of loss provision stating that the insured must furnish proof of loss to the insurer within 90 days of the date of loss.
A life insurance company organized in Pennsylvania, with its home office in Philadelphia, is licensed to conduct business in New York. In New York, this company is classified as:
A) a regional company.
B) a foreign company.
C) an alien company.
D) a domes
Answer: B
A foreign insurance company operates within a state where it is not chartered and where its home office is not located.
All of the following statements pertaining to health insurance policy notice of claim and claim forms provisions are correct EXCEPT:
A) Furnishing claim forms is the responsibility of the insurance company.
B) Rex, the insured in a disability income polic
Answer: C
Generally, a claimant must notify the insurance company within 20 days of an accident under a health insurance policy. Proof of loss must be submitted within 90 days of the loss, but if it is not reasonably possible for the insured to do so, the
All of the following statements characterize long-term care insurance EXCEPT:
A) it may be issued as a group policy or as individual policies.
B) it must provide for an automatic adjustment to correspond to changes in Medicare's long-term care coverage.
C
Answer: B
Long-term care insurance provides coverage for care provided in a setting other than a hospital acute care unit for at least 12 consecutive months. It may be issued as a group policy or as individual policies.
Of the following situations, which one involves a loss that would typically NOT be excluded under a health insurance policy?
A) The insured is injured while vacationing in a state that is not her state of residence.
B) The insured is injured in combat whi
Answer: A
Most health insurance policies typically exclude losses due to items such as war and acts of war, self-inflicted injuries, military service, and overseas residence. Being injured while vacationing in a state that is outside of the insured's stat
A master policy is issued with each of the following forms of insurance EXCEPT:
A) group disability income insurance.
B) blanket health insurance.
C) group major medical insurance.
D) franchise insurance.
Answer: D
Franchise insurance, although an alternative to group insurance, is not issued under a master policy. Rather, each insured person is issued an individual policy. The group policyowners are issued the actual policy, and the enrollees or members a
When delivering a health insurance policy, it is important for the agent to explain all of the following items to the policyowner EXCEPT:
A) that the law requires that all insurance policies be physically delivered into the possession of the policyowner.
Answer: A
While delivering an insurance policy personally is often recognized as the surest way to be certain the policy is delivered, physically delivering the policy into the possession of the policyowner is not required by law.
Which of the following statements regarding a cost of living rider on a life insurance policy is not correct?
A) A cost of living rider seeks to protect against inflation's erosion of life insurance policy values.
B) The cost of living rider provides incr
Answer: C
A cost of living (COL) or cost of living adjustment (COLA) rider is tied to an increase in an inflation index, most commonly the Consumer Price Index (CPI). The COL rider provides for automatic increases in the policy death benefit in proportion
A mortality table reflects:
A) who among a given group of individuals will die within a given year.
B) the average number of deaths that will occur during a given year for a given age group of individuals.
C) the declining probability of death as the age
Answer: B
A mortality table reflects the average number of deaths that will occur in a certain year for a given group of people. Mortality is the relative incidence of death within a given group.
Jennifer's dental plan covers routine dental care at 80% (after the deductible), but major dental care is covered at 50%. Which of the following types of dental treatment would most likely have a 50% coinsurance requirement?
A) Repair of dentures.
B) Crea
Answer: B
While minor post-orthodontic treatment, such as the adjustment of bridges and repair of dentures, is generally covered as routine care, the creation of a bridge or dentures is generally covered as a major expense and subject to a higher coinsura
All of the following provisions are optional in an individual health insurance policy EXCEPT:
A) misstatement of age provision.
B) unpaid premium provision.
C) illegal occupation provision.
D) change of beneficiary provision.
Answer: D
A change of beneficiary provision, stating that the insured has the right to change the beneficiary unless an irrevocable beneficiary designation has been made, is mandatory in individual health insurance policies. Optional provisions include an
Which of the following is an "insurer"?
A) Insurance company.
B) Any person who pays premiums.
C) Insurance producer.
D) Insurance commissioner.
Answer: A
An insurance company is an insurer because it alone underwrites the coverage and assumes the risk.
Which of the following organizations reimburses its insureds for covered medical expenses?
A) Preferred provider organizations.
B) Commercial insurers.
C) Blue Cross/Blue Shield.
D) Health maintenance organizations.
Answer: B
Health insurance may be written by a number of commercial insurers, including life insurance companies, casualty insurance companies, or monoline companies that specialize in one or more types of medical expense and disability income insurance.
Which of the following groups is least likely to be eligible for coverage through a group health plan?
A) A college alumni association that offers coverage for member alumni.
B) An automobile manufacturer that will offer coverage to its customers.
C) A pr
Answer: D
To qualify, the members must be a natural group formed for a purpose other than to obtain insurance. As a result, families in a neighborhood will likely not qualify.
When a new policy is sold, agents must do all of the following EXCEPT:
A) provide all applicants who are purchasing replacement policies with an Important Notice to Applicant for Life Insurance.
B) send the insurer a statement, signed by the applicant, di
Answer: C
When a new policy is sold, agents must send the insurer a statement, signed by the applicant, disclosing whether or not the new insurance will replace existing insurance. The agent must also send a statement disclosing whether or not the agent k
Which of the following activities is NOT an example of misrepresentation?
A) An agent participates in twisting.
B) An agent tells a prospect that the policy has achieved a certain level of dividends for the past 5 years.
C) An insurer advertises a life in
Answer: B
Misrepresentation includes using titles for a policy that misrepresent the true nature of the product, making false statements about an insurer's financial condition, and twisting, which involves making misleading statements to induce a policyow
Health policies classified as "nonoccupational" normally provide coverage for:
A) sickness but not for accidental injuries.
B) losses both on and off the job.
C) losses due to sickness or accidents that are not work-related.
D) persons in nonhazardous job
Answer: C
Policies classified as nonoccupational normally provide coverage for losses due to sickness or accidents that are not work related.
Applicants for which of the following types of policies normally would require the MOST comprehensive underwriting?
A) Limited accident insurance.
B) Basic medical expense insurance.
C) Guaranteed renewable disability income insurance.
D) Industrial healt
Answer: C
Applicants for noncancelable and guaranteed renewable disability income insurance would require the most comprehensive underwriting because they allow an insured's guaranteed renewal of the policy up to a certain age, without evidence of insurab
Which of the following insurance professionals advises others about their insurance needs and coverages and receives compensation that is not directly related to the amount of any insurance sold?
A) Advisor.
B) Consultant.
C) Adjuster.
D) Limited insuranc
Answer: B
An insurance consultant advises others about their insurance needs and coverages. Consultants are compensated by the people advised rather than by agents or insurers. Their compensation is not related directly to the amount of insurance sold.
What is another name for medical and nonmedical services provided to ill, disabled, or infirm persons in their residences?
A) Acute care.
B) Long-term care.
C) Adult day care.
D) Home health care.
Answer: D
Home health care includes medical and nonmedical services provided to persons in their residences. The services can include homemaker services, assistance with activities of daily living, and respite care services.
Which of the following situations constitutes an insurable interest?
A) The policyowner must expect to benefit from the insured's death.
B) The beneficiary, by definition, has an insurable interest in the insured.
C) The insured must have a personal or bu
Answer: D
Insurable interest requires that the policyowner be expected to benefit from the insured's continuing to live or enjoying good health or to suffer a loss when the insured dies or is disabled. An insurable interest must exist between the applican
All of the following have an insurable interest in the person insured EXCEPT:
A) a spouse.
B) an employer.
C) a neighbor.
D) a child.
Answer: C
A person cannot contract for life insurance on another individual unless the benefits are payable to the individual insured, the insured's personal representative, or to a person having an insurable interest in the insured at the time the contra
A patient insured under a dental plan receives treatment and pays the dentist the full amount of the bill. The insured's employer then pays the insured a predetermined percentage of the cost. This payment plan is referred to as a:
A) usual, customary, and
Answer: D
A direct reimbursement plan is a self-funded plan in which the patient pays the dentist for services rendered. The plan sponsor (usually the insured patient's employer) then reimburses the patient (usually an employee) for a predetermined percen
Regarding replacement, which of the following is NOT required by insurers?
A) Sales proposals used during the sales presentation to be left with the applicant.
B) A statement, signed by the agent, certifying that he knows that replacement may be involved.
Answer: C
With each life insurance application, agents must submit to the insurer a statement signed by the applicant reporting whether or not the transaction involves replacement. An agent must also submit a signed statement regarding whether or not he k
Which of the following must be included in all Medicare supplement policies?
A) Coverage for the reasonable cost of the first 3 pints of blood.
B) Coverage for daily coinsurance amount for skilled nursing facility care.
C) Coverage for emergency care in a
Answer: A
All Medicare supplement policies must include coverage under Medicare Parts A and B for the reasonable cost of the first three pints of blood.
Which of the following statements about Medicare Part D is CORRECT?
A) Benefits are available only through Medicare Advantage plans.
B) Some plans offer basic drug coverage.
C) It is available to anyone enrolled in Medicare Part A or B.
D) It helps cover
Answer: C
Medicare Part D helps cover the cost of prescription drugs. It is available to anyone enrolled in Medicare Part A or B. Benefits are available through private prescription drugs plans or Medicare Advantage plans. All plans must offer basic drug
All of the following are optional provisions in an individual health insurance policy EXCEPT:
A) change of occupation provision.
B) unpaid premiums provision.
C) legal actions provision.
D) misstatement of age provision.
Answer: C
A legal actions provision stating that no legal action will be entered into to recover on the policy earlier than 60 days or later than 3 years after written proof of loss has been furnished is mandatory in an individual health insurance policy.
health insurance plan may pay benefits for all the following EXCEPT:
A) a disabling injury or sickness.
B) over-the-counter drugs.
C) dental work.
D) nursing home care.
Answer: B
Generally, nonprescription medicines are not covered by health insurance.
All of the following individuals would be eligible to have a Medical Savings Account EXCEPT:
A) Jessica, who works for a 20-person law firm and is covered by a health insurance plan with a $1,500 deductible for her individual policy.
B) Anne, who is singl
Answer: C
Medical Savings Accounts are designed for self-employed individuals or companies that have 50 or fewer employees. In addition, participation in an MSA is conditioned on being covered by a high-deductible contribution plan. The minimum and maximu
If convicted of violating the Fraud and False Statement Act, an agent may be imprisoned for a maximum jail term of:
A) 10 years.
B) 5 years.
C) 1 year.
D) 15 years.
Answer: D
Anyone who commits an act of fraud, material misrepresentation, embezzlement, misappropriation of funds, premiums, or other property, or makes false statements involving the interstate commerce of insurance contributing to the insolvency of an i
All of the following statements regarding a disability income rider are correct EXCEPT:
A) a disability income rider is a form of health insurance.
B) the only way to provide disability benefits in a life insurance policy is through a disability income ri
Answer: B
A waiver of premium rider is generally included with guaranteed renewable and noncancelable individual disability income policies. It is a valuable provision because it exempts the policyowner from paying premiums during periods of total disabil
An agent represents an insurance company in all of the following ways EXCEPT:
A) the agent searches for the least expensive insurance for a consumer.
B) the agent describes the company's policies to prospects.
C) the agent collects premiums from applicant
Answer: A
An agent is authorized to solicit applications, describe the insurance company's policies to prospects and potential clients, collect premiums, and render service to both prospects and existing clients.
Medical cost management is designed to:
A) encourage people to seek medical help when other options are no longer available.
B) influence hospital charges and doctors' fees.
C) control health claims expenses.
D) discourage people from using health care se
Answer: C
Medical cost management is designed to control health claims expenses. It does so in four ways: mandatory second opinions, precertification review, ambulatory surgery, and case management.
Jake and Sue signed a contract whereby Sue agreed to pay half of the life insurance proceeds to Jake if he murdered her estranged husband. The contract between Jake and Sue would not be enforceable in court because:
A) Jake could not legally accept the co
Answer: C
To be legally enforceable, a contract must have a legal purpose. This means that the goal of the contract and the reason the parties enter into the agreement must be legal. A contract wherein Jake agrees to kill Sue's husband in exchange for hal
National Association of Insurance Commissioners (NAIC) does all of the following EXCEPT:
A) prosecute and punish criminal violators in the insurance industry.
B) preserve state rather than federal regulation of the insurance industry.
C) promote efficient
Answer: A
Although NAIC assists in administering state insurance laws and seeks to protect policyowners' interests, it does not have the legal authority to prosecute and punish criminal violators in the insurance industry.
Concerning the consideration clause for a health insurance policy, all of the following statements are correct EXCEPT:
A) a consideration clause may be included in a rider, if requested by the insured.
B) two principal elements of the consideration clause
Answer: A
The consideration clause is integral to a health insurance policy. As such, it would never be included in a rider.
If Tony is insured under a life insurance policy, all of the following individuals have an insurable interest in Tony EXCEPT:
A) Donald, his business partner.
B) Marcie, his ex-wife, who has remarried.
C) Susan, his adopted infant daughter.
D) Jenny, his
Answer: B
A person has an insurable interest in another person if he is related closely by blood or by law with a substantial interest arising from love and affection. An insurable interest also exists between a key employee and a corporation that is a be
All the following actions are considered unfair trade practices EXCEPT:
A) criticizing a competing insurance company's policy on the basis of its surrender charge without noting that the proposed policy also has a surrender charge.
B) refusing to meet wit
Answer: D
Inducements to buy insurance, unfair discrimination, and misrepresentation are considered unfair trade practices. Presenting a sales illustration and stating that some values are guaranteed under the contract is not an unfair trade practice if t
Angela, a recent applicant for a $50,000 life insurance policy, failed to state on her application that she suffered a heart attack a year earlier, fearing it would affect her insurability. Which of the following terms describes Angela's action?
A) Indemn
Answer: D
Angela's action is a concealment since she failed to disclose pertinent, material information on the application. The test of materiality of a concealed fact is whether the insurer, had it known the fact, would have been influenced in accepting
All of the following provisions in an individual health insurance policy are optional EXCEPT:
A) change of occupation.
B) misstatement of age.
C) proof of loss.
D) unpaid premium.
Answer: C
All health insurance policies must include a proof of loss provision. According to this provision, the insured must furnish a completed claim form to the insurer within 90 days of the date of loss.
Hubert, the insured, changes to a more hazardous job than the one he had when he applied for his disability income policy. According to the policy's change of occupation provision, what will happen when the insurer learns of his job change?
A) Policy bene
Answer: A
According to the policy's change of occupation provision, policy benefits will be reduced to an amount the premiums would have purchased if they were based on the more hazardous occupation. Had Hubert changed to a less hazardous occupation (i.e.
Alcoholism is an example of a:
A) morale hazard.
B) physical hazard.
C) moral hazard.
D) peril.
Answer: C
A peril is the specific event causing loss. A hazard is any factor that gives rise to a peril. A moral hazard is a subjective characteristic of the insured that increases the chance of loss.
Reference: 1.4.2 in the License Exam Manual.
During the underwriting process, an insurer may do all of the following EXCEPT:
A) order a credit report.
B) contact the Medical Information Bureau to check on the applicant's medical history.
C) order a consumer report to provide details on the applicant
Answer: D
An agent must explain to his client that, during the underwriting process, the insurer may contact the Medical Information Bureau to check on the applicant's medical history. In addition, an insurer may order a credit report to determine whether
Which of the following statements about HMOs is CORRECT?
A) An HMO is not required to provide enrollees with evidence of coverage.
B) An HMO may cancel an enrollee's coverage for not paying premiums.
C) An HMO may cancel an enrollee's coverage based on he
Answer: B
An HMO may cancel or refuse to renew an enrollee's coverage for failing to pay premiums but may not cancel coverage because of an enrollee's health status. An HMO must provide all enrollees with evidence of coverage that includes a description o
Mary earned $6,744 working part time in 2007. For Social Security purposes, how many credits did she earn this year based on her earnings?
A) Two credits.
B) Four credits.
C) Three credits.
D) Five credits.
Answer: B
Mary will earn one credit for each $1,000 of her annual earnings on which FICA taxes are paid. Up to 4 credits can be earned in any year. Mary has therefore earned the maximum of four credits in 2007