Life & Health Insurance Exam, General, Practice Exams

Business overhead expense (BOE) disability insurance reimburses a disabled owner for:

1. Covered business operating costs such as rent and staff salaries ✓
2. Medical and rehabilitation bills the owner incurs while being treated
3. The total fair-market value of the business at the moment of disability
4. The owner's own lost personal salary and ordinary household living expenses

Why: BOE covers ongoing business expenses (rent, utilities, employee salaries) — not the owner's personal income.

Credit disability insurance is designed to:

1. Replace the borrower's full salary during any period of unemployment
2. Cover the lender's legal costs of collecting on a defaulted loan
3. Pay off the entire loan balance immediately upon any minor injury
4. Make a borrower's loan payments if the borrower becomes disabled ✓

Why: Credit disability covers the loan payments (often monthly) while the insured borrower is disabled; credit life instead pays off the balance at death.

In an indexed universal life policy, the interest credited to cash value is:

1. Determined each year solely by the policyowner's own elections
2. Based entirely on separate-account mutual fund performance and risk
3. Guaranteed at a fixed rate set for the life of the contract
4. Tied to a stated market index, subject to a cap and a guaranteed floor ✓

Why: Indexed UL credits interest linked to an external index (e.g., S&P 500) with a cap/participation rate and a guaranteed minimum floor.

Pledging a life insurance policy to a bank as security for a loan is a:

1. Change of ownership
2. Viatical settlement
3. Collateral assignment ✓
4. Absolute assignment

Why: A collateral assignment transfers limited rights to a lender as security; an absolute assignment transfers all ownership rights.

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

1. Exhausts a long-term care policy's lifetime benefit pool before any facility claim is paid
2. Reduces income or assets to become eligible for Medicaid ✓
3. Pays the Part A hospital deductible each benefit period
4. Pays off the Part D late-enrollment penalty

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

The Medical Information Bureau (MIB) helps insurers:

1. Set the exact premium rate an applicant will be charged
2. Skip the application's medical questions, because MIB supplies full records
3. Detect omissions or fraud by sharing coded prior medical information ✓
4. Decline an applicant outright whenever an adverse MIB code is returned

Why: The MIB is a member-supported database of coded medical information; an insurer may use it as an alert but cannot decline coverage solely on an MIB report.

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

1. Treated as a full surrender, with the gain taxed as ordinary income
2. Allowed only when the receiving contract is a term life policy
3. Barred, because an annuity may be exchanged only for another annuity
4. Permitted (annuity-to-LTC is a valid 1035 exchange) ✓

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

Medicare Part D prescription drug coverage is provided:

1. Through private plans approved by Medicare ✓
2. Only to those who also have Medicaid
3. Directly by the federal hospital insurance trust
4. Automatically with no enrollment needed

Why: Part D drug coverage is offered by private insurers approved by Medicare; beneficiaries enroll in a stand-alone or Advantage drug plan.

Nonforfeiture provisions in an annuity guarantee the owner:

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

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

A mortgage protection (mortgage redemption) policy is usually written as decreasing term, and its death benefit is paid to:

1. The insured's family or estate ✓
2. The producer who arranged the original mortgage loan
3. The lending bank as the named first-position beneficiary on the policy contract
4. The state insurance guaranty fund

Why: Mortgage protection is owned by the borrower and pays the family/estate (who then choose to pay off the loan); credit life, by contrast, pays the creditor directly.

Medicare Supplement (Medigap) policies sold in most states are:

1. Custom-designed individually for each applicant's medical history
2. Available only to people who also qualify for full Medicaid
3. Identical to Medicare Advantage plans in every meaningful respect
4. Standardized into plans identified by letters such as A through N ✓

Why: Medigap plans are standardized (lettered A–N in most states), so the same lettered plan offers the same core benefits regardless of insurer.

The 'extended term' nonforfeiture option uses the policy's cash value to:

1. Convert the policy into an immediate lifetime income annuity
2. Purchase a smaller amount of fully paid-up permanent coverage
3. Buy term insurance for the full face amount for a limited period ✓
4. Pay the policyowner the entire surrender value in cash at once

Why: Extended term (the automatic default on many policies) uses the net cash value to keep the full face amount in force as term insurance for as long as it will buy.

When a sale involves replacing an existing life policy, the producer must:

1. Guarantee in writing that the replacement policy will always cost the client less
2. Give the applicant the required replacement notice ✓
3. Personally surrender the client's existing policy before submitting the new application
4. Wait until the new policy is issued before mentioning the existing coverage at all

Why: Replacement rules require delivering a replacement notice/disclosure and following defined procedures.

Most state replacement regulations require that, when replacing an existing life policy, the producer:

1. Obtain the existing insurer's written consent before taking the new application
2. Hold the new coverage's effective date until the old policy's contestable period ends
3. Absorb the surrender charge on the replaced policy out of the producer's own commission
4. Give the applicant a replacement notice and list the policies being replaced ✓

Why: Replacement rules require disclosure: the producer provides a replacement notice and gives the existing insurer an opportunity to conserve the policy.

An accident-only policy provides benefits for:

1. Long-term custodial nursing-home care after an accident
2. Losses resulting from accidents, but not from sickness ✓
3. Routine preventive care and annual wellness checkups only
4. Both accidental injuries and any illness the insured develops

Why: Accident-only coverage is limited to losses caused by accidental injury; sickness is excluded, making it a limited (supplemental) policy.

A 401(k) plan is a qualified plan that primarily allows employees to:

1. Withdraw funds before age 59 1/2 with no tax or penalty
2. Contribute after-tax dollars only, with no employer match
3. Defer part of their salary on a pre-tax basis, often with an employer match ✓
4. Receive a guaranteed monthly pension based on years of service, not contributions

Why: A 401(k) is a defined-contribution plan funded by pre-tax salary deferrals (Roth option aside), commonly with an employer match.

If a policyowner surrenders a cash-value life policy, the taxable amount is:

1. The full death benefit that the policy would have paid out
2. The cash value received that exceeds total premiums paid ✓
3. Always zero, because life insurance proceeds are never taxable
4. The entire cash value received, taxed fully as a capital gain

Why: On surrender, the gain (cash value minus the cost basis of premiums paid) is taxed as ordinary income.

A $2,000 covered expense goes to two plans; the primary pays $1,500. Under coordination of benefits, the secondary pays up to:

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

Why: COB caps total payment at the actual expense; the secondary pays the remaining $500.

An employee has $100,000 of employer-paid group term life. The amount subject to imputed income is:

1. $50,000 ✓
2. $100,000
3. $0
4. $25,000

Why: The first $50,000 is tax-free; the cost of the remaining $50,000 is imputed taxable income.

A policy has an accidental death benefit (double indemnity) rider. The insured dies of a heart attack. The beneficiary receives:

1. Double the face amount, since the rider doubles every death claim
2. The face amount only, with no doubling ✓
3. Only the accumulated cash value
4. Face amount tripled by the rider

Why: Double indemnity pays an additional amount only for accidental death; death from illness pays the regular face amount.

A Medicare beneficiary wants a lower Medigap premium and is willing to use a provider network. The product is:

1. A high-deductible health plan
2. Medicaid
3. Medicare select ✓
4. A Medicare Advantage HMO

Why: Medicare SELECT is a Medigap policy that uses a network of providers in exchange for a lower premium.

A statement on an application that is believed true to the best of the applicant's knowledge is a:

1. Concealment
2. Waiver
3. Warranty
4. Representation ✓

Why: A representation is believed true to the applicant's best knowledge; a warranty is guaranteed to be literally true. Most life applications are treated as representations.

A 'market conduct' examination by regulators reviews an insurer's:

1. Reinsurance treaties alone
2. Sales, underwriting, and claims practices ✓
3. Investment portfolio yields and reserve adequacy
4. Executive compensation and board minutes

Why: Market conduct exams assess how an insurer treats consumers — marketing, underwriting, policyholder service, and claims handling.

Custodial care under a long-term care policy refers to:

1. Emergency treatment provided in a hospital intensive-care unit
2. Help with daily living activities, not requiring medical skill ✓
3. Around-the-clock care delivered only by registered nurses
4. Short-term rehabilitation following a hospital stay

Why: Custodial care assists with activities of daily living (bathing, dressing, eating) and does not require medical training; skilled care does.

A return-of-premium (ROP) term policy:

1. Pays double the original face amount if the insured dies within the first ten policy years
2. Returns a portion of the death benefit to the insurer when the insured dies
3. Automatically converts into a whole life contract at the end of the level term period
4. Refunds the premiums paid if the insured outlives the level term ✓

Why: ROP term refunds the premiums paid if the insured survives the level term period.

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.

A dread disease (specified disease) policy provides benefits:

1. Only for the specific disease or diseases named in the policy, such as cancer ✓
2. As a full replacement for comprehensive major medical coverage
3. For any illness or injury the insured experiences during the year
4. In the form of a guaranteed lifetime monthly income beginning once the insured retires from work

Why: A specified/dread disease policy is a limited policy covering only the named condition(s); it is supplemental, not comprehensive coverage.

A modern whole life policy 'matures' (endows) when the:

1. Policyowner first takes a loan against the cash value
2. Insured makes the final scheduled premium payment
3. The policy has been continuously in force for a period of exactly twenty full years
4. Insured reaches the maturity age and the cash value equals the face amount ✓

Why: At the maturity age (commonly 121, formerly 100), the cash value equals the face amount and the policy endows, paying the face to a living insured.

'Defamation' in insurance regulation refers to:

1. Sharing part of a commission with another licensed producer
2. Making false or maligning statements about an insurer's financial condition ✓
3. Filing a consumer complaint with the state insurance department about an unreasonably delayed claim
4. Refusing to renew a policy after a single claim is filed

Why: Defamation is making, publishing, or circulating false statements that are maligning, especially about the financial condition of an insurer.

An individual health policy that the insurer cannot cancel and on which it cannot raise the premium before a stated age is:

1. Conditionally renewable
2. Optionally renewable
3. Noncancelable ✓
4. Guaranteed renewable

Why: Noncancelable guarantees both renewal and a fixed premium to a stated age; guaranteed renewable allows class premium increases.

An insured loses sight in both eyes. Under a presumptive disability provision, the insurer:

1. Pays only the medical expenses related to the loss
2. Requires a six-month waiting period before any benefit
3. Pays nothing unless the insured stops working entirely
4. Pays full benefits even if the insured can still work ✓

Why: Presumptive disability presumes total disability for specified losses (sight, hearing, speech, two limbs), paying full benefits regardless of work ability.

The National Association of Insurance Commissioners (NAIC) primarily:

1. Sets and enforces nationwide insurance premium rates
2. Directly licenses every insurance producer in the United States
3. Develops model laws and standards that states may choose to adopt ✓
4. Pays claims when an insurance company becomes insolvent

Why: The NAIC is a coordinating body of state regulators that drafts model laws and promotes uniformity; it has no direct regulatory authority of its own.

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.

In an equity-indexed annuity, the 'participation rate' determines:

1. The fixed monthly income the annuitant will receive after annuitizing
2. The percentage surrender charge applied during the first contract year
3. The minimum guaranteed interest rate paid in a year of market losses
4. How much of the index's gain is credited to the contract ✓

Why: The participation rate sets the share of the index increase credited; a cap may further limit it, and a floor (often 0%) prevents loss.

The 'reduced paid-up' nonforfeiture option uses the policy's cash value to:

1. Pay the entire surrender value to the owner in one lump sum
2. Buy a smaller, fully paid-up permanent policy ✓
3. Convert the coverage into an immediate lifetime income annuity
4. Keep the full face amount in force as term insurance for a limited time

Why: Reduced paid-up uses the net cash value as a single premium to purchase a smaller amount of fully paid-up permanent insurance; extended term instead keeps the full face for a limited period.

A producer who holds client premiums must keep them in a fiduciary capacity, which means the producer must:

1. Report each premium directly to the federal tax authorities
2. Lend the premiums to other clients who are short on funds
3. Invest the premiums for personal profit until they are remitted
4. Keep those funds separate and not mix them with personal money ✓

Why: As a fiduciary, the producer holds premiums in trust for the insurer and must not commingle them with personal funds (doing so is commingling).

Under a conditional receipt given with a life application and the initial premium, coverage takes effect:

1. Only after the policy has been in force a full year
2. As of the application/exam date if the applicant is insurable ✓
3. Only when the issued policy is physically delivered
4. At whatever future date the soliciting agent approves it

Why: A conditional receipt provides coverage retroactive to the application/exam date if the applicant proves insurable, provided premium accompanied the application.

To reinstate a lapsed life insurance policy, the insurer generally requires the owner to:

1. Purchase an entirely new policy at the insured's original issue age
2. Simply request reinstatement, with no further conditions of any kind
3. Wait a mandatory five years before any reinstatement is allowed
4. Provide evidence of insurability and pay overdue premiums with interest ✓

Why: Reinstatement typically requires proof of insurability, payment of back premiums plus interest (and loan repayment), within the allowed period; a new contestable period begins.

A life insurance policy that fails the federal '7-pay test' is classified as a Modified Endowment Contract (MEC), meaning:

1. Premiums paid into the policy become deductible on the owner's tax return
2. Lifetime distributions are taxed on a LIFO basis with a possible penalty ✓
3. All future death benefits paid to beneficiaries become fully taxable
4. The policy immediately loses its cash value and reverts to term coverage

Why: A MEC keeps a tax-free death benefit, but living distributions are taxed gains-first (LIFO) with a 10% penalty before 59½.

Preadmission certification is a managed-care control that requires:

1. The insured to pay the full bill and seek reimbursement
2. Approval before a non-emergency hospital admission ✓
3. A second surgeon to perform every elective operation
4. Providers to accept a fixed monthly capitation payment

Why: Preadmission (precertification) requires the plan's approval of a planned hospital stay before admission for it to be covered.

A 'period certain only' annuity option pays income:

1. Only if the annuitant survives the full accumulation period
2. For the annuitant's entire life and stops at their death
3. In a single lump sum at the end of the surrender-charge period
4. For a fixed number of years whether or not the annuitant lives ✓

Why: Period-certain-only pays for a set number of years; if the annuitant dies early, payments continue to a beneficiary for the remainder.

Which nonforfeiture option uses the cash value to continue the full face amount as term insurance for as long as the cash value will buy?

1. Automatic premium loan
2. Cash surrender
3. Reduced paid-up
4. Extended term ✓

Why: Extended term keeps the full face amount as term coverage for a limited period; it is often the automatic default.

A single-premium immediate annuity (SPIA) begins income payments:

1. After the contract's surrender-charge schedule has completely expired
2. Within one payment period of purchase ✓
3. Only after a mandatory deferral period of at least ten years has elapsed
4. Once the annuitant reaches the age of fifty-nine and one-half years old

Why: An immediate annuity starts paying within one payment interval (e.g., within a month) of the lump-sum purchase.

In an equity-indexed annuity, the 'cap rate' is the:

1. Maximum interest rate credited even if the index rises more ✓
2. Share of the index gain that the insurer credits to the contract
3. Guaranteed minimum rate credited when the index loses value in a year
4. Fee deducted on surrender in year one

Why: The cap is the ceiling on credited interest; the participation rate sets the share of the gain and the floor sets the minimum.

A plan has a $500 deductible and 75/25 coinsurance. On a $4,500 covered bill, the insured pays:

1. $1,500 ✓
2. $1,000
3. $1,125
4. $2,000

Why: Deductible $500 + 25% of the remaining $4,000 ($1,000) = $1,500.

Variable universal life (VUL) insurance combines:

1. Flexible premiums with policyowner-directed separate-account investments ✓
2. Decreasing term coverage with a built-in cost-of-living adjustment
3. Group coverage that requires no individual evidence of insurability
4. A fixed level premium with a guaranteed minimum cash value at all times

Why: VUL merges universal life's premium and death-benefit flexibility with variable separate accounts; the owner bears the investment risk.

A collateral assignment of a life insurance policy transfers:

1. The right to change the insured named in the contract
2. Some rights temporarily to a lender as security for a loan ✓
3. The death benefit to the state's insurance guaranty fund
4. Complete and permanent ownership of the policy to another person

Why: A collateral assignment is a partial, temporary transfer; the lender is entitled only to the amount of the debt, with the balance going to the named beneficiary.

Eligibility for Medicaid is based primarily on:

1. Enrollment in a private health plan
2. Financial need (limited income and assets) ✓
3. Reaching age 65 regardless of income
4. Having paid 40 quarters into the system

Why: Medicaid is a means-tested, joint federal-state program for low-income individuals; eligibility varies by state.

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 plan has a $1,000 deductible and 60/40 coinsurance. On a $6,000 covered bill, the insured pays:

1. $3,000 ✓
2. $2,400
3. $1,000
4. $3,400

Why: Deductible $1,000 + 40% of the remaining $5,000 ($2,000) = $3,000.

An employee leaving a group life plan may convert to an individual policy:

1. Only after at least five years of continuous group service
2. At the group's experience-rated premium for the rest of life
3. Without evidence of insurability, generally within thirty-one days ✓
4. Only after passing a new medical exam at the insured's expense

Why: The conversion privilege lets a departing employee convert to individual coverage without evidence of insurability, typically within 31 days.

Survivorship (second-to-die) life insurance is most commonly used to:

1. Fund a child's future college costs through the policy's accumulated cash value
2. Provide estate liquidity after the second insured dies ✓
3. Replace the income of a sole wage earner who has several young children at home
4. Cover a short-term business loan that must be fully repaid within five years

Why: It pays at the second death and is widely used to fund estate taxes and costs.

A settlement option that continues income to two people until the second one dies is the:

1. Life income option
2. Interest-only option
3. Joint and survivor option ✓
4. Fixed-period option

Why: The joint and survivor option pays as long as either of two people is alive.

A joint and survivor annuity covering a couple continues full or reduced payments:

1. Only until the first annuitant dies
2. Until the second of the two annuitants dies ✓
3. To the couple's heirs after both die
4. For a fixed ten-year term regardless of survival

Why: A joint and survivor annuity pays as long as either annuitant lives, often reducing to a percentage for the survivor.

Mental health parity requirements generally provide that a group plan's mental health benefits must be:

1. Excluded entirely unless the employer chooses to add them
2. Paid only after the insured exhausts all other available coverage
3. No more restrictive than its medical and surgical benefits ✓
4. Limited to a maximum of three covered visits each calendar year

Why: Parity rules require that financial requirements and treatment limits on mental health/substance use benefits be no more restrictive than those on medical/surgical benefits.

An insured dies with a $20,000 policy loan outstanding. The beneficiary receives:

1. Nothing, because the loan voids the coverage
2. The full death benefit, with the loan forgiven entirely
3. Only the policy's remaining cash value
4. The death benefit minus the outstanding loan and any interest ✓

Why: An outstanding loan plus interest is deducted from the death benefit paid to the beneficiary.

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.

When a convertible term policy is converted using the 'attained age' method, the new permanent premium is based on:

1. The insured's original age when the term policy was first issued
2. A blended average of the insured's original and current ages
3. The insured's current age at conversion ✓
4. The youngest age the insurer offers any coverage at all

Why: Attained-age conversion sets the premium at the insured's current age (no back premium); original-age conversion uses the issue age but requires paying the difference in premiums.

When a child is covered under both parents' health plans, the primary plan is usually determined by the:

1. Birthday rule, using the parent whose birthday is earlier in the year ✓
2. Alphabetical order of the two parents' last names on their policies
3. Age of the child at the time the particular medical expense was incurred
4. Plan that happens to charge the lower of the two monthly premiums

Why: The birthday rule makes primary the plan of the parent whose birthday falls earlier in the calendar year.

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.

Insurers usually limit disability income benefits to about 60–70% of the insured's gross income in order to:

1. Guarantee the insurer a profit on every policy that is sold
2. Comply with a federal cap on all insurance benefit amounts
3. Match the benefit exactly to the insured's monthly expenses
4. Preserve the insured's financial incentive to return to work ✓

Why: Benefits are capped below full income (and are tax-free when individually paid) so the insured retains a financial incentive to recover and return to work.

Compared with individual insurance, group insurance generally features:

1. Coverage that each member negotiates and owns personally
2. A separate master contract issued to each covered employee
3. Lower cost and little or no individual underwriting ✓
4. Higher premiums and a full medical exam for every member

Why: Group coverage spreads risk over many lives, so it is typically cheaper and issued with little or no individual evidence of insurability.

An insured dies in the third policy year and the insurer discovers a non-fraudulent misstatement on the application. The insurer must:

1. Void the policy back to its original issue date
2. Reduce the death benefit by one half as a penalty
3. Deny the claim and refund the premiums paid to date
4. Pay the claim, because the contestable period has passed ✓

Why: After the two-year contestable period, the insurer cannot contest the policy for non-fraudulent misstatements, so the claim is paid.

The 'legal actions' uniform provision in a health policy provides that the insured:

1. Waives all rights to legal action by accepting the first benefit check
2. Can sue the insurer immediately upon any disagreement over a claim
3. Must arbitrate every dispute and may never file a lawsuit at all
4. May not sue until 60 days after proof of loss, and not after 3 years ✓

Why: The insured cannot bring suit until 60 days after filing proof of loss, and not more than 3 years afterward.

Under the interest-only settlement option, the insurer:

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

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

A 'change of plan' provision in a life policy lets the owner:

1. Draw part of the death benefit while still living
2. Name a different insured under the contract
3. Exchange the policy for a different plan of insurance ✓
4. Skip premium payments during a period of financial hardship without lapsing

Why: A change-of-plan provision permits converting to another policy plan (e.g., term to whole life), with premium and possibly evidence adjustments.

Before recommending an annuity, a producer learns the client needs the money within a year for living expenses. The producer should:

1. Recommend the annuity with the highest surrender charges
2. Recommend it only if the client signs a liability waiver
3. Conclude the annuity is likely unsuitable and not recommend it ✓
4. Sell the annuity anyway to meet a monthly sales quota

Why: Suitability rules require matching the product to the client's situation; an annuity (with surrender charges and a long horizon) is unsuitable for funds needed immediately.

An endowment policy is distinguished by the fact that it:

1. Pays the face amount at a set maturity date if the insured is still living ✓
2. Decreases its face amount steadily over the policy's term
3. Provides only temporary coverage that expires with no value
4. Invests the entire premium in the insurer's separate investment accounts chosen by the owner

Why: An endowment pays the face amount either at the insured's death or upon reaching the maturity date while living; modern tax rules limit their use.

Under a group insurance plan, the certificate of insurance is:

1. A document that must be filed with the state before any claim
2. A separate policy each member negotiates and owns independently
3. The full master contract issued to the employer or group sponsor
4. Evidence of coverage given to each individual covered member ✓

Why: The master contract is issued to the group sponsor; each covered member receives a certificate as evidence of their coverage.

Under federal law, group health plans that cover dependent children must generally allow coverage to continue until the child reaches age:

1. 18 in every state without any exception
2. 21 unless the child is a full-time student
3. 26 ✓
4. 30 if the child remains unmarried

Why: The Affordable Care Act requires plans offering dependent coverage to extend it to adult children up to age 26.

A rider that pays an additional amount (often double the face) if the insured dies in an accident is the:

1. Waiver of premium rider
2. Cost-of-living rider
3. Accidental death benefit rider ✓
4. The guaranteed future insurability rider

Why: The accidental death benefit (double indemnity) rider adds a benefit for accidental death.

An owner assigned a policy to a lender as collateral for a $30,000 loan. At the insured's death (face $200,000, loan still $30,000), the lender receives:

1. $100,000, split evenly with the beneficiary
2. The full $200,000 death benefit
3. Nothing, because collateral assignments end at death
4. $30,000, with the remaining $170,000 to the beneficiary ✓

Why: Under a collateral assignment, the lender is paid only the amount of the debt ($30,000); the balance goes to the named beneficiary.

An employee gets married, a HIPAA 'special enrollment' event. The employee may:

1. Never add a new spouse to an existing plan
2. Only enroll at the next annual open enrollment period
3. Enroll only after a 12-month waiting period
4. Enroll in the group plan outside the normal open enrollment ✓

Why: HIPAA special enrollment lets employees enroll after qualifying life events (marriage, birth, loss of other coverage) without waiting for open enrollment.

Social Security disability benefits use a strict 'any occupation' definition and require a waiting period of:

1. 1 month
2. 3 months
3. 5 months ✓
4. 12 months

Why: SSDI uses a strict any-occupation definition and has a 5-month elimination period before benefits begin.

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.

Under IRC Section 1035, a tax-free exchange is permitted FROM a life insurance policy TO:

1. Only a bank certificate of deposit held at an insured institution
2. A mutual fund account invested in the same insurer's stock
3. An annuity contract ✓
4. Nothing — life policies can never be exchanged tax-free at all

Why: 1035 allows tax-free exchanges from life to life, life to annuity, and life/annuity to LTC; an annuity may NOT be exchanged into life insurance tax-free.

An applicant classified as a 'preferred' risk:

1. Is declined for individual coverage and steered to a guaranteed-issue plan
2. Must buy through an employer group plan, because individual underwriting is closed
3. Pays the lowest premium because of better-than-average risk factors ✓
4. Pays a rated premium reflecting poor health or hazardous habits

Why: Preferred risks (e.g., ideal build, nonsmoker) present lower-than-average mortality and qualify for the lowest premiums; standard and substandard pay more.