Illinois Life & Health Insurance License, Practice Exams

The four essential elements required to form a valid insurance contract are offer and acceptance, competent parties, legal purpose, and:

1. A guaranteed minimum interest rate
2. A medical examination of the applicant
3. Approval by the state insurance commissioner
4. Consideration ✓

Why: A valid contract requires agreement (offer/acceptance), consideration, competent parties, and a legal purpose.

A state insurance guaranty association exists to:

1. Guarantee that every applicant will be approved for coverage
2. Pay covered claims of insurers that become insolvent, up to set limits ✓
3. Provide free legal representation to policyholders in disputes
4. Set the premium rates that all insurers in the state must charge

Why: Guaranty associations protect policyholders by covering claims (within statutory limits) when a member insurer becomes insolvent; their existence may not be used in advertising or sales.

Under the 'paid-up additions' dividend option, dividends are used to:

1. Pay the policyowner the dividend directly in cash each year
2. Reduce the premium due on the next policy anniversary date
3. Purchase one-year term insurance equal to the cash value
4. Buy small amounts of additional paid-up whole life coverage ✓

Why: Paid-up additions use dividends to buy single-premium whole life, increasing both death benefit and cash value with no new underwriting.

A plan has a $2,000 deductible and 90/10 coinsurance. On a $12,000 covered bill, the insured pays:

1. $3,000 ✓
2. $2,000
3. $1,000
4. $1,200

Why: Deductible $2,000 + 10% of the remaining $10,000 ($1,000) = $3,000.

Federal law (IRC 101(j)) generally requires that, for employer-owned life insurance death proceeds to remain tax-free, the employer must:

1. Pay the employee a cash bonus equal to the death benefit
2. Surrender the policy if the employee ever changes jobs
3. Limit the coverage to highly compensated executives only
4. Notify the employee and obtain consent before issue ✓

Why: For employer-owned (COLI/BOLI) policies, the insured employee must be notified and consent in writing before issue, or the death benefit above basis becomes taxable.

On a policy renewal, no notice of information practices is required if a qualifying notice has already been given within the previous how many months?

1. 24 months ✓
2. 12 months
3. 36 months
4. 6 months

Why: Section 1005(A)(2)(b) provides that no renewal notice is required if a notice meeting the Section's requirements has been given within the previous 24 months.

In group underwriting, a 'guaranteed issue' limit is the amount of coverage that:

1. Members can obtain without providing individual evidence of insurability ✓
2. Is automatically doubled for any employee who enrolls one or more dependents in the plan
3. The employer is required to buy for every eligible employee, whatever the resulting rate
4. Each member must pay for entirely out of pocket

Why: Up to the guaranteed issue limit, members are covered without individual medical evidence; amounts above it require proof of insurability.

Under Section 408.4, federal grant money accepted by the Department and deposited into the Insurance Producer Administration Fund must be used to do what?

1. Reimburse Department examiners for out-of-state travel expenses
2. Fund the advisory council on producer continuing education
3. Disseminate insurance-related information or assistance to senior citizens ✓
4. Pay the Section 409 privilege tax obligations of domestic insurers

Why: Section 408.4(b) requires the federal grant moneys deposited into the Insurance Producer Administration Fund to be used to disseminate and provide insurance-related information or assistance to senior citizens.

A family income policy combines whole life with:

1. A separate variable account invested in the insurer's stock portfolio
2. An annuity that begins paying the children at their age of majority
3. Decreasing term that pays a monthly income through the end of the period ✓
4. Level term coverage that automatically increases with inflation each year

Why: A family income policy adds decreasing term to whole life; if the insured dies during the period, it pays monthly income to the end of the period, then the face amount.

A 10% IRS early-distribution penalty on a traditional IRA is generally waived if the owner:

1. Becomes totally disabled ✓
2. Simply decides they would prefer to access the funds early
3. Changes employers and rolls the balance into a new account
4. Has held the account for at least five consecutive years

Why: Exceptions to the 10% penalty include death, total disability, certain medical/first-home/education amounts, and substantially equal periodic payments.

A reciprocal insurer is:

1. An unincorporated group of members who insure each other through an attorney-in-fact ✓
2. A federal chartering agency that licenses insurers under the McCarran-Ferguson Act
3. A stock company whose shareholders elect the board and receive taxable dividends
4. A fraternal benefit society organized in lodges that sells only to its own members

Why: A reciprocal is an unincorporated association whose subscribers exchange insurance among themselves, managed by an attorney-in-fact.

A rehabilitation benefit in a disability income policy:

1. Refunds all premiums once the insured fully recovers from disability
2. Provides a lump sum to the insured's family upon accidental death
3. Doubles the monthly benefit for any injury caused by an accident
4. Helps pay for training to return the insured to work ✓

Why: A rehabilitation benefit covers vocational training or programs intended to help a disabled insured return to gainful employment.

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.

The premium-notice forfeiture protection in Section 357.2 does NOT apply to which of the following?

1. A guaranteed renewable individual sickness policy billed on a quarterly basis
2. An individual policy on which the premium is payable annually in advance
3. A noncancellable individual policy continuable to age 65 on which premiums are payable semiannually
4. Group policies and policies on which premiums are payable monthly or at shorter intervals ✓

Why: Sec. 357.2(2) provides the protection does not apply to cancellable policies renewable at the company's option, group policies, industrial policies, or policies with premiums payable monthly or at shorter intervals.

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

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

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

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.

Credit life insurance is typically written as:

1. A variable policy whose benefit rises and falls with interest rates
2. Whole life insurance with a growing cash value that the borrower may freely access at any time
3. Decreasing term equal to the outstanding loan balance, payable to the creditor ✓
4. Level term naming the borrower's family as the primary beneficiary

Why: Credit life is decreasing term tied to the loan balance; if the borrower dies, it pays the remaining debt to the creditor.

Which nonforfeiture option uses the cash value to buy a smaller, fully paid-up whole life policy?

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

Why: The reduced paid-up option applies the net cash value as a single premium to buy a smaller permanent policy with no further premiums due.

Excluding health benefit plan benefits, the statute sets an overall aggregate cap on the Association's obligation 'with respect to any one life' across the life, annuity, and structured settlement limits. That aggregate cap is:

1. $250,000
2. $300,000 ✓
3. $500,000
4. $5,000,000

Why: Section 531.03(3) states that in no event shall the Association cover more than an aggregate of $300,000 in benefits with respect to any one life, except for health benefit plan benefits where the aggregate is $500,000.

Under a 'guaranteed renewable' health policy, the insurer must renew the coverage but:

1. May refuse renewal on any individual policy anniversary date
2. Can cancel mid-term whenever the insured files a large claim
3. Must keep the premium the same for the life of the contract
4. May increase the premium for an entire class of insureds ✓

Why: Guaranteed renewable guarantees renewal to a stated age but permits premium increases applied to a whole class, not to one insured.

Three children are named beneficiaries 'per stirpes.' One child predeceases the insured, leaving two children of their own. At the insured's death, the deceased child's share passes to:

1. That deceased child's own two children ✓
2. The policyowner's estate for probate
3. The two surviving named children equally, the deceased child's line taking nothing
4. The insurer as an unclaimed amount

Why: Per stirpes directs a deceased beneficiary's share down to that person's descendants — here, the deceased child's two children.

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.

A 52-year-old withdraws $8,000 of gain from a nonqualified annuity. The IRS penalty (besides income tax) is:

1. $800 ✓
2. $1,600
3. $400
4. $0

Why: Premature distributions before 59½ incur a 10% penalty: 10% × $8,000 = $800.

A guaranteed insurability rider lets the insured:

1. Skip premium payments during any year of financial hardship
2. Convert the policy into an annuity with a guaranteed income for life
3. Cancel the policy at any time and recover all premiums paid
4. Buy more coverage at set dates without proving insurability ✓

Why: The guaranteed insurability option permits purchasing additional coverage at specified ages or events with no new evidence of medical insurability.

A producer satisfies the Illinois best-interest standard for an annuity recommendation by meeting four obligations. They are:

1. Licensing, appointment, training, and continuing education
2. Suitability, replacement, disclosure, and free look
3. Care, loyalty, prudence, and impartiality
4. Care, disclosure, conflict of interest, and documentation ✓

Why: 50 Ill. Adm. Code 3120 adopts the NAIC Suitability in Annuity Transactions Model Regulation #275 framework: a producer has acted in the best interest of the consumer if the producer has satisfied the care, disclosure, conflict-of-interest, and documentation obligations.

Mental health parity requires a group plan that covers mental health to apply treatment and financial limits that are:

1. Applied only to inpatient psychiatric stays, not outpatient therapy
2. Capped at a federal maximum of 20 outpatient visits each plan year
3. No more restrictive than those for medical/surgical benefits ✓
4. Stricter than the medical/surgical limits, to control behavioral costs

Why: Parity requires mental health/substance use cost-sharing and limits be no more restrictive than comparable medical/surgical benefits.

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.

Under the uniform 'time limit on certain defenses' provision in a health policy, after a stated period (e.g., two years) the insurer generally cannot:

1. Require the insured to furnish written proof of loss within 90 days of the date of loss
2. Deny a claim based on a pre-existing condition or application misstatement ✓
3. Enforce a named exclusion such as war or self-inflicted injury
4. Raise the premium for an entire underwriting class

Why: After the stated period, the insurer cannot void coverage or deny non-fraudulent claims for pre-existing conditions or misstatements — the health-policy analog of incontestability.

A key feature of convertible term insurance is that it can be changed to a permanent policy:

1. Only if the insured becomes totally disabled first
2. Only after a new medical exam confirms insurability
3. Only during the first policy year
4. Without providing evidence of insurability ✓

Why: Convertible term can be converted to permanent coverage without evidence of insurability.

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.

A client deposits a single $100,000 premium and wants income to start in 15 years. The product is a:

1. Variable life insurance policy
2. Single-premium immediate annuity
3. Flexible-premium deferred annuity
4. Single-premium deferred annuity ✓

Why: One lump sum with income deferred to a future date is a single-premium deferred annuity (SPDA).

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.

Single-premium whole life insurance is funded by:

1. Flexible deposits that the owner may raise or lower in any given year
2. A modest first-year premium followed by much larger renewal premiums for life
3. A single large premium that fully pays up the policy at issue ✓
4. Level annual premiums paid until the insured reaches sixty-five years of age

Why: One lump-sum premium creates a fully paid-up permanent policy with no further premiums due.

Under HMO Act Section 4-13, before an HMO may issue or deliver a group contract or evidence of coverage in Illinois, the form and content must be:

1. Filed with and approved by the Director ✓
2. Approved by a majority vote of enrollees
3. Certified by the HMO's own actuary
4. Registered with the Secretary of State

Why: HMO Act Section 4-13 prohibits issuing or delivering a group contract or evidence of coverage (or attaching riders/endorsements) until the form and content has been filed with and approved by the Director.

To reinstate a lapsed policy, an insured must typically provide evidence of insurability and:

1. Wait five years from the lapse date
2. Pay only the single current premium
3. Purchase an additional rider
4. Pay all back premiums with interest ✓

Why: Reinstatement requires proof of insurability plus payment of overdue premiums with interest (and any loan), within the allowed window.

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.

When an Illinois life policy becomes a death claim, settlement must be made upon receipt of due proof of death and not later than:

1. 6 months after receipt of proof
2. 10 business days after the funeral
3. 2 months after receipt of such proof ✓
4. 30 days after the date of death

Why: Section 224(1)(j) requires settlement not later than 2 months after receipt of due proof of death.

An equity-indexed annuity with a 0% floor credits no negative interest. In a year the index drops 12%, the contract is credited:

1. 0% (principal is protected by the floor) ✓
2. -12% (the account value drops by the full index decline)
3. -6% (half the index loss, after a 50% participation rate)
4. +12% (the floor credits the inverse of the index decline)

Why: The floor (commonly 0%) prevents negative crediting, so a down year credits the floor rather than a loss.

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.

The Social Security 'blackout period' refers to the time when a surviving spouse's benefits:

1. Rise by a cost-of-living adjustment in each month the youngest child is under 16
2. Are redirected to the deceased worker's surviving parents until the children reach 18
3. Are doubled while the surviving spouse is caring for a child under age 16
4. Stop until the surviving spouse reaches age 60 (age 50 if disabled) ✓

Why: The blackout period is the gap when a surviving spouse receives no Social Security survivor benefit (after the youngest child turns 16, until the spouse reaches age 60).

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.

If a producer is replacing an in-force life policy, one option for the replacing Illinois insurer is to delay issuing its policy for not less than how many days after transmitting a policy summary to the existing insurer?

1. 20 days ✓
2. 10 days
3. 30 days
4. 45 days

Why: Section 224(2) lets the replacing insurer either delay issuance for not less than 20 days after transmitting a policy summary, or give a 20-day unconditional refund right.

Under a group AD&D plan, the 'capital sum' is the amount paid for:

1. Voluntary surrender of the certificate for its accumulated cash value
2. A covered dismemberment, such as loss of a hand, foot, or sight ✓
3. Any illness-related hospital stay that lasts longer than one week
4. The accidental death of the insured employee while actively at work

Why: The capital sum is a stated percentage of the principal sum, paid for a covered dismemberment (e.g., loss of a limb or sight); the principal sum is paid for accidental death.

A life policy has a two-year suicide clause. The insured dies by suicide in the third policy year. The insurer:

1. Pays the full death benefit ✓
2. Denies the claim and keeps the premiums
3. Pays one half of the policy's face amount
4. Refunds only the premiums that were paid

Why: Because the suicide occurred after the two-year period, the death is treated as any other and the full benefit is paid.

Under Section 30 (Prohibitions), no health care plan or its subcontractor may, by contract or policy:

1. Prohibit or discourage providers from discussing health care services, utilization review and quality assurance policies, and plan terms with enrollees and the public ✓
2. Require each enrollee to select a participating primary care physician to coordinate care, so long as the enrollee may choose any available participating physician licensed to practice medicine in all its branches
3. Require a provider to obtain preauthorization for elective inpatient admissions and other nonemergency procedures named in the provider's contract
4. Apply written utilization review protocols developed with participating physicians to decide whether a proposed service is medically necessary before it is delivered to an enrollee

Why: Section 30(a) prohibits a plan or its subcontractors from prohibiting or discouraging providers, by contract or policy, from discussing health care services, providers, UR and quality assurance policies, and plan terms with enrollees, prospective enrollees, providers, or the public.

Unlike a conditional receipt, a binding (temporary) receipt provides:

1. Immediate coverage for a set time even if the applicant is uninsurable ✓
2. No coverage whatsoever until the policy is physically delivered to the owner
3. Coverage only once the insurer has formally approved the entire application
4. Coverage that is contingent on the applicant later passing a paramedical exam

Why: A binding receipt gives immediate temporary coverage for a stated period regardless of insurability; a conditional receipt requires the applicant to prove insurable.

Which policy combines flexible premiums with cash value invested in separate accounts and requires a securities license to sell?

1. Universal life with flexible premiums crediting a declared interest rate to cash value
2. Group annually renewable term funded by the employer
3. Variable universal life with separate-account investing ✓
4. Whole life with a guaranteed level premium

Why: Variable universal life adds separate-account investing (securities-licensed) to universal life's flexible premiums.

After a cease and desist order is served under Section 401.1, within what time frame must the accompanying notice of hearing set the hearing date?

1. Within 5 days after service
2. Not less than 10 nor more than 20 days after service
3. Not less than 20 nor more than 30 days after service ✓
4. Not more than 90 days after service

Why: Section 401.1(3) requires the hearing to be held at a time not less than 20 or more than 30 days after service of the order.

Under the entire-contract requirement for industrial life policies, the policy may NOT incorporate by reference which of the following unless it is endorsed on or attached to the policy?

1. The insurer's constitution, bylaws, rules, or application ✓
2. The Director's replacement regulation
3. The statutory grace period, which applies by operation of Section 229
4. The Standard Nonforfeiture Law mortality tables named in Section 229.2

Why: Section 229(1)(b) requires that nothing be incorporated by reference to any constitution, bylaws, rules, application, or other writing unless endorsed upon or attached to the policy.

How does Section 500-125 define 'controlled business' that may bar issuance or extension of a producer license?

1. Group insurance enrolled through an employer or a trade association that sponsors the plan for its members
2. Any insurance business that the producer places through a single appointing insurer during a calendar year
3. Insurance written for clients whose risks are located outside Illinois
4. Insurance written on the lives or property of the producer, his spouse, his employer, or his own business ✓

Why: Section 500-125(b) defines controlled business as insurance on the producer's own life, person, property, or risks, or those of his spouse, employer, or own business.

An exclusive provider organization (EPO) plan generally:

1. Requires a referral from a primary care physician for routine visits
2. Covers care only from network providers, with no out-of-network benefits ✓
3. Lets members see any provider nationwide at the same low cost share
4. Pays a fixed indemnity amount per day regardless of actual charges

Why: An EPO covers only in-network care (no out-of-network benefits except emergencies) but usually does not require referrals.

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.

A vision care plan most commonly covers:

1. Eye exams, lenses, frames, and contact lenses ✓
2. Long-term care provided in an assisted-living facility
3. Inpatient surgery for any unrelated medical condition
4. Prescription drugs for chronic systemic illnesses

Why: Vision plans cover routine eye exams and corrective eyewear (lenses, frames, contacts), usually on a scheduled-benefit basis.

Agreements among insurers to restrain trade or force someone out of business are the unfair practices known as:

1. Defamation of a competitor
2. Boycott, coercion, and intimidation ✓
3. Rebating and commission sharing
4. Twisting and churning of policies

Why: Boycott, coercion, and intimidation are unfair trade practices involving combinations or threats that restrain or monopolize the business of insurance.

The three primary factors an insurer uses to calculate a life insurance premium are:

1. The applicant's marital status, hobbies, and home address
2. Mortality, interest (investment earnings), and expenses (loading) ✓
3. The agent's commission, the policy fees, and the state tax rate
4. Inflation, the unemployment rate, and current bond yields

Why: Premiums are built from expected mortality, assumed interest earnings, and the insurer's expenses (the expense loading).

An insurer changes a coverage clause on the insured's application after submission — without the insured's notice, knowledge, or consent — and then uses the altered application to settle the claim. Under Section 154.6, this is:

1. Required by the proof-of-loss rules
2. Allowed if the change favors the insured
3. Permitted with the Director's approval
4. An improper claims practice ✓

Why: Section 154.6(k) lists attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of, the insured.

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.

Under the industrial life beneficiary provision, if proof of claim with surrender of the policy is not made by the named beneficiary within how many days after the insured's death, the company may pay any person permitted by the policy?

1. Thirty days
2. Ten days
3. Sixty days
4. Fifteen days ✓

Why: Section 229(3) provides that unless proof of claim with surrender is made within fifteen days after the insured's death, the company may pay to any person permitted by the policy.

Under Section 351A-9.2, once an applicant for a long-term care contract or certificate is approved, the issuer must deliver the contract no later than:

1. 20 days after the date of approval
2. 10 days after the date of approval
3. 30 days after the date of approval ✓
4. 45 days after the date of approval

Why: Sec. 351A-9.2 requires delivery of the LTC contract or certificate no later than 30 days after the date of approval.

After the Director mails notice of intent to revoke a license, within what period may the licensee make a written demand for a hearing?

1. Within 30 days after the date of mailing ✓
2. Within 10 days after the date of mailing
3. Within 20 days after the date of mailing
4. Within 60 days after the date of mailing

Why: Section 500-70(b) gives the licensee 30 days after the date of mailing to make a written demand for a hearing.

A 60-year-old annuity owner withdraws $5,000 of gain. Because the owner is past 59½, the withdrawal is:

1. Ordinary income, with no 10% penalty ✓
2. Tax-free as a return of premium
3. Subject to the 10% penalty anyway
4. Taxed at capital-gains rates

Why: After 59½ the 10% premature-distribution penalty no longer applies; the gain is still ordinary income.

A group plan's 'probationary period' (waiting period) is the time a new employee must:

1. Wait after filing a claim before the insurer must pay it
2. Remain disabled before any disability benefit becomes payable
3. Hold the coverage before pre-existing conditions are covered
4. Wait after being hired before becoming eligible to enroll ✓

Why: The probationary/waiting period is the length of employment required before a new hire becomes eligible to enroll in the group plan.

In which policy does the owner bear the investment risk, with cash value fluctuating based on separate-account performance?

1. Whole life
2. Term life
3. Variable life ✓
4. Universal life

Why: Variable life invests cash value in separate accounts; the owner bears investment risk, so cash value (and sometimes death benefit) can rise or fall. It requires a securities license to sell.

An HMO member sees an out-of-network specialist for a non-emergency without a referral. The plan typically:

1. Pays 80% after the deductible
2. Pays the full billed amount anyway
3. Pays only the specialist's travel costs
4. Pays nothing for that out-of-network visit ✓

Why: HMOs generally cover only in-network, referred care; non-emergency out-of-network care without a referral is not covered.

For a life insurance policy, insurable interest must exist:

1. Continuously throughout the policy
2. At the time of the insured's death
3. Only if the beneficiary is a relative
4. At the time of application ✓

Why: For life insurance, insurable interest must exist at the inception of the contract (time of application); it need not exist at the time of loss.

Under Section 363, an issuer may not charge an under-65 disabled Medicare-eligible insured a premium for a Medicare supplement plan that exceeds:

1. The community average rate charged by all issuers in the applicant's county of residence, as published by the Department
2. The rate the Director approved for that plan for the prior calendar year
3. The issuer's highest filed rate on the current schedule for that plan for individuals age 65 or older ✓
4. 150% of the rate charged to a standard applicant age 65

Why: Section 363(6)(c) bars charging an under-65 disabled insured a rate exceeding the issuer's highest rate on the current filed schedule for that plan for individuals who are age 65 or older.

Under Section 427, after the Director determines following a hearing that a person has engaged in a practice defined in Section 424 in violation of the Article, the Director shall:

1. Refer the matter directly to a grand jury in the county where the practice occurred for indictment
2. Reduce the findings to writing and issue and serve a cease and desist order on the person charged ✓
3. Impose a civil penalty of $250,000 for each such act and publish the findings in a Department bulletin
4. Immediately revoke the person's certificate of authority without any further notice, hearing, or order

Why: Section 427(1) directs the Director to reduce findings to writing and issue and serve an order requiring the person to cease and desist from the unfair method, act, or practice.

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.

An insured can no longer perform bathing, dressing, and toileting without help. Under a typical LTC policy requiring loss of 2 of 6 ADLs, benefits:

1. Are triggered, because at least two ADLs cannot be performed ✓
2. Are denied unless the insured cannot perform all six of the listed ADLs
3. Begin only after the insured reaches age 80
4. Require a physician to certify severe cognitive impairment as well

Why: Inability to perform 2 of the 6 ADLs (or severe cognitive impairment) triggers LTC benefits; here three ADLs are affected.

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 person who violates a cease and desist order, where the Director finds the violations occurred with such frequency as to constitute a general business practice, may be fined up to what amount?

1. $100,000 ✓
2. $20,000
3. $1,000
4. $500,000

Why: Section 1020(B)(2) authorizes a fine of not more than $100,000 if the Director finds violations occurred with such frequency as to constitute a general business practice.

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.

'Churning' as an unfair practice refers to:

1. Mixing a client's premium funds with the producer's own money
2. Replacing a policy within the same insurer through misrepresentation ✓
3. Refusing to renew a policy after the insured files a large claim
4. Charging higher premiums to applicants with poor health histories

Why: Churning is using misrepresentation to replace a policy with another from the same insurer to generate new commissions; twisting involves different insurers.

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 insurer discovers material fraud on an application after the contestable period has ended. For most fraudulent misstatements, the insurer:

1. Is barred from contesting once two years have elapsed
2. May reduce the death benefit by half as a penalty
3. Must pay the claim and then sue the beneficiary
4. May still contest the claim, because fraud is an exception ✓

Why: While most misstatements become incontestable after two years, material fraud generally remains contestable under the law.

In an annuity contract, the person whose life expectancy determines the income payments is the:

1. Insurer's actuary, who designs the payout schedule
2. Beneficiary, who receives any remaining value at death
3. Owner, who holds the contractual rights to the annuity in the policy
4. Annuitant, whose age and life expectancy set the payout ✓

Why: The annuitant is the measuring life; the owner holds the rights, and the beneficiary receives any death proceeds.

Under Section 151, which of the following does the statute expressly permit, notwithstanding the general rebating prohibition?

1. Setting off part of the agent's commission against the premium
2. Taking a bona fide premium obligation bearing interest at six percent per annum ✓
3. Promising the applicant securities whose profits accrue as an inducement
4. Giving an applicant a paid employment contract as an inducement to insure

Why: Section 151(1) states the Section is not to be construed to prevent the taking of a bona fide obligation, with interest at six per centum per annum, in payment of any premium. The other options are prohibited inducements.