Texas Life & Health Insurance License, Practice Exams

'Balance billing' occurs when a provider bills the patient for:

1. The full cost of medical services that were never actually rendered to the patient
2. A penalty for missing a scheduled appointment
3. The difference between the provider's charge and the plan's allowed amount ✓
4. The full premium owed for the health plan that month

Why: Balance billing is charging the patient the gap between the billed amount and what the plan considers allowable (common with out-of-network providers).

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.

Up to what portion of Social Security benefits may be subject to federal income tax for higher-income recipients?

1. 100% in all cases
2. Exactly 50% always
3. Up to 85% ✓
4. 0%, benefits are never taxed

Why: Depending on combined income, up to 85% of Social Security benefits may be taxable.

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

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

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

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

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

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

An insured wants the death benefit paid so that a surviving spouse receives income for life with a guarantee that payments last at least 20 years. The settlement option is:

1. Fixed amount, paying a set monthly sum until the proceeds run out
2. Interest only, with the principal left on deposit with the insurer
3. Lump sum, paid in a single cash payment
4. Life income with period certain ✓

Why: Life income with period certain pays for the payee's life but guarantees payments for at least the stated period to a beneficiary.

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

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

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

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.

A structured settlement annuity is typically used to:

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

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

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

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

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

An example of an unfair claims settlement practice is:

1. Failing to act promptly and in good faith to settle a clear claim ✓
2. Paying a valid claim immediately upon receiving acceptable proof
3. Investigating a suspicious claim before issuing any payment on it
4. Requesting a properly completed proof of loss before paying a claim

Why: Unfair claims practices include not acting promptly, failing to attempt good-faith settlement of clear claims, and compelling litigation by underpaying.

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

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

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

A worker dies, leaving a spouse caring for their 10-year-old child. Social Security survivor benefits are:

1. Payable only after the spouse turns 65
2. Payable to the surviving spouse and child ✓
3. Limited to a one-time lump sum only
4. Not available for dependent children

Why: Survivor benefits are payable to a surviving spouse caring for the deceased's young child and to the dependent child, if the worker was insured.

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.

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

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

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

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.

Telemedicine benefits in a health plan allow members to:

1. Receive only in-person care at a designated network hospital
2. Purchase prescription medications at a government-set price
3. Consult a provider remotely using phone or video technology ✓
4. Bypass all deductibles and copayments for every service

Why: Telemedicine lets members access care remotely via phone or video, often at lower cost and with greater convenience for routine issues.

Backdating a life insurance policy is sometimes done to:

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

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

Medicare Part A primarily covers:

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

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

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

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

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

An annuitant has a $40,000 cost basis and a $160,000 expected return. Of each $8,000 payment, the taxable portion is:

1. $6,000 ✓
2. $2,000
3. $4,000
4. $8,000

Why: Exclusion ratio = 40,000/160,000 = 25%; $2,000 of each $8,000 payment is excluded and $6,000 is taxable.

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

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

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

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

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

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

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

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

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

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

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

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

An 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.

For group term life insurance, the cost of employer-provided coverage exceeding $50,000 is:

1. Taxed only when the employee eventually leaves the company
2. Exempt from tax because all group life is a tax-free benefit
3. Imputed as taxable income to the covered employee ✓
4. Fully deductible by the employee on their personal return

Why: Employees are taxed (imputed income, via IRS Table I) on the cost of employer-paid group term coverage above $50,000.

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

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

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

A partial 1035 exchange allows a contract owner to:

1. Exchange an annuity tax-free into a new life insurance policy
2. Move part of one annuity's value tax-free into another annuity ✓
3. Withdraw all annuity gains with no tax and no penalty
4. Convert a traditional IRA into a Roth IRA without any tax

Why: The IRS permits tax-free partial exchanges of annuity value under Section 1035, subject to rules on subsequent withdrawals.

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.

Workers' compensation insurance covers:

1. Job-related injuries and occupational illnesses ✓
2. Any injury an employee suffers, whether on or off the job
3. Only injuries that occur during an employee's commute home
4. Medical costs of an employee's dependents and family members

Why: Workers' compensation is a no-fault, state-mandated coverage for work-related injuries and occupational diseases; off-the-job losses are not covered.

Committing a fraudulent insurance act in Texas is:

1. Handled solely by the insurer
2. Permitted if no loss results
3. A minor administrative matter only
4. A criminal offense subject to prosecution ✓

Why: A fraudulent insurance act is a crime in Texas and may be investigated by TDI's fraud unit and prosecuted.

Before recommending an annuity to a Texas consumer, a producer must:

1. Sell only immediate annuities to buyers over 65
2. Guarantee a minimum return equal to the contract's illustrated rate for the first ten years
3. Obtain the Guaranty Association's approval
4. Have reasonable grounds that it is suitable based on the consumer's information ✓

Why: Texas adopted annuity suitability and disclosure rules requiring recommendations be suitable based on the consumer's financial situation and needs.

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

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

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

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

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

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

Annuity suitability standards require the producer to:

1. Sell variable annuities only to applicants who are older than sixty-five years
2. Always recommend the annuity that pays the producer the highest available commission
3. Have reasonable grounds to believe the annuity fits the buyer ✓
4. Provide a written guarantee of the annuity's future investment performance

Why: Suitability requires a reasonable basis to believe the recommendation meets the consumer's needs and financial situation.

Texas's statute regulating the sale of in-force life insurance policies by their owners to third parties is officially cited by what short title?

1. The Life Settlements Act ✓
2. The Secondary Market Insurance Act
3. The Policyholder Liquidation Act
4. The Viatical Transfer Act

Why: Sec. 1111A.001 provides that the chapter may be cited as the Life Settlements Act.

A plaintiff prevails in a private action under Chapter 541 and the trier of fact finds the defendant knowingly committed the act complained of. What additional award does the statute authorize?

1. Statutory punitive damages fixed at exactly double the actual damages plus all litigation expenses
2. Automatic revocation of the defendant's certificate of authority in addition to the actual damages awarded
3. An amount not to exceed three times the amount of actual damages ✓
4. A mandatory civil penalty of $25,000 payable to the Texas Department of Insurance for each separate violation found

Why: Sec. 541.152(b) lets the trier of fact, on a finding the defendant knowingly committed the act, award up to three times actual damages.

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.

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

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

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

An alien insurer is one that is:

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

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

A salary continuation plan funded with life or disability insurance is designed to:

1. Pay the business's monthly rent, utilities, and supplier invoices while the owner is away on a long vacation
2. Provide every employee a guaranteed annual cost-of-living raise
3. Continue income to a key employee (or their family) during disability or after death ✓
4. Refund payroll taxes the employer paid during a profitable year

Why: A salary continuation plan provides continued income to a selected employee or their survivors upon disability, retirement, or death.

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

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

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

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

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

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

A major medical plan has a $500 deductible and 80/20 coinsurance. On a $5,500 covered bill, how much does the insured pay?

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

Why: Insured pays the $500 deductible, then 20% of the remaining $5,000 = $1,000, for a total of $1,500.

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%.

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

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

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

An insured can perform some but not all job duties and returns to work part-time at reduced pay. The benefit that responds is:

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

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

Annuitization differs from a systematic withdrawal because annuitization:

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

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

In a variable annuity, the assumed interest rate (AIR) is used to:

1. Benchmark whether each payout rises or falls during the annuity period ✓
2. Set the surrender charge percentage that applies in each year of the withdrawal charge period
3. Guarantee the separate account a fixed minimum return in every year of the payout period
4. Determine the commission credited to the selling registered representative each year

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

Under the definition in Section 801.001, the term 'insurer' includes which of the following?

1. Fraternal benefit societies, mutual companies, reciprocal exchanges, HMOs, and stock companies ✓
2. Only stock and mutual companies, because the section expressly excludes noncorporate and nonprofit carriers
3. Only companies domiciled in Texas
4. Insurance agents and adjusters licensed by the department

Why: Tex. Ins. Code § 801.001(2) defines 'insurer' broadly to include a fraternal benefit society, Lloyd's plan, mutual company of any kind, reciprocal or interinsurance exchange, group hospital service corporation, health maintenance organization, nonprofit legal services corporation, and stock company.

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.

A Medicare Part B late enrollment penalty generally:

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

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

A person who purchases an existing life policy from a Texas policyowner as an investment is engaged in a transaction regulated as a:

1. Viatical only for the terminally ill
2. Rebate
3. Reinsurance treaty
4. Life settlement ✓

Why: Life settlements (including viaticals) are regulated in Texas, including licensing of providers and consumer disclosures.

A person under age 65 generally qualifies for Medicare after:

1. Reaching the federal poverty level for two consecutive years
2. Enrolling in a private long-term care insurance policy
3. Receiving Social Security disability benefits for 24 months ✓
4. Working in any job for at least five continuous years

Why: Those under 65 become eligible after 24 months of Social Security disability benefits (or immediately with ESRD or ALS).

Proceeds from a viatical settlement paid to a terminally ill insured are generally:

1. Fully taxable as ordinary income in the year of the sale
2. Subject to a flat 20% federal excise tax at the time of payment
3. Received income-tax-free, similar to accelerated death benefits ✓
4. Taxed as a long-term capital gain on the entire amount received

Why: For a terminally ill insured, viatical proceeds are treated like tax-free death benefits under federal law (subject to defined conditions).

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

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

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

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

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

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

Under the capitation method of provider payment used by many HMOs, a provider receives:

1. A percentage of the total premiums the HMO collects annually
2. A fixed amount per enrolled member per month, regardless of services used ✓
3. A separate fee for each individual service actually performed
4. Reimbursement calculated from the usual, customary, and reasonable charges in the local area

Why: Capitation pays the provider a set amount per member per month (PMPM) regardless of how much care that member uses.

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

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

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

Before an agent may sell, solicit, negotiate, or receive an application for a Medicare-related product in Texas, what training must the agent have completed?

1. A twelve-hour combined training course covering annuities and the Medicare-related product, approved by the commissioner
2. Eight hours of professional training related to a Medicare-related product ✓
3. A four-hour course certified by the department that addresses prohibited sales practices for Medicare supplement plans
4. The standard 24-hour continuing education requirement, including three hours of ethics, for the current license period

Why: An agent may not sell or solicit a Medicare-related product unless the agent has completed eight hours of professional training related to that product.

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1. 12 ✓
2. 4
3. 8
4. 16

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

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

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

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

A 'stock' insurance company is:

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

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

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.

Pension maximization is a strategy in which a retiree:

1. Takes the larger single-life pension and buys life insurance to protect the spouse ✓
2. Delays starting the pension indefinitely in order to keep earning additional years of service credit
3. Withdraws the entire pension as a lump sum, drops all coverage, and self-insures the survivor need
4. Always elects the reduced joint-and-survivor pension on the view that it is the safest possible choice

Why: Pension max takes the higher single-life payout and uses life insurance to provide for the surviving spouse, instead of accepting a smaller joint-and-survivor benefit.

A Medicare Supplement (Medigap) policy is designed to:

1. Pay only for outpatient prescription drug costs
2. Cover gaps like deductibles and coinsurance in Original Medicare ✓
3. Provide long-term custodial nursing-home care benefits for an indefinite period of time
4. Replace Original Medicare with a private network plan

Why: Medigap fills cost-sharing gaps in Original Medicare and is sold in standardized plans.

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

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

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