Practice Exam 8 - Life Insurance

If an insurer knowingly allows one of its agents to mislead a member of the public in order to induce them to change their existing insurance, the Commissioner has the authority to suspend the insurer's certificate of authority for the class of business involved. This means that the insurer will no longer be able to conduct business in that particular class until the suspension is lifted. This is a severe consequence for the insurer's actions, as it directly impacts their ability to operate and offer insurance in that specific area.

A profit-sharing plan allows employees to share in the financial success of the company. This type of plan involves distributing a portion of the company's profits to its employees, usually in the form of cash or company stock. The amount distributed is typically based on a predetermined formula, such as a percentage of the company's profits or the employee's salary. By implementing a profit-sharing plan, companies can provide an incentive for employees to work towards the company's financial goals and reward them for their contributions to its success.

In a group life policy with a death benefit of more than $50,000, the premium cost for insurance above $50,000 is taxable as income to the insured. This means that if the death benefit exceeds $50,000, the insured individual will have to pay taxes on the portion of the premium that covers the amount above $50,000. The premium cost for the insurance below $50,000, however, is not taxable.

The correct answer is "Less than $2,000". This is because industrial life insurance policies typically provide smaller death benefits compared to other types of life insurance policies. These policies are designed to cover funeral expenses and other immediate financial needs rather than providing a large sum of money to beneficiaries. Therefore, the death benefit in an industrial life insurance policy is usually less than $2,000.

In a group life plan, unmarried children can be covered as dependents until they reach the age of 21. This means that as long as they are not married, they can continue to receive coverage under their parent's group life plan until they turn 21 years old. After reaching this age, they would no longer be eligible for coverage as dependents and would need to seek alternative insurance options.

The correct answer is the statement that includes the warning about presenting false or fraudulent claims. This statement is required by California law to protect against fraudulent activities and to inform individuals that such actions are illegal and may result in criminal charges, fines, and imprisonment. By including this statement on claim forms, insurers are fulfilling their legal obligation and ensuring that policyholders are aware of the consequences of making false or fraudulent claims.

Medicare Part A is the hospital insurance program provided by the U.S. government. It covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health care. The explanation for the correct answer, 65, is that Medicare Part A begins automatically at this age. This means that individuals who turn 65 are eligible for Medicare Part A without needing to apply for it. It is important to note that while Medicare Part A begins at 65, there may be other requirements and options for enrolling in other parts of Medicare, such as Part B and Part D.

If an insurer is found guilty of unfair trade practices while issuing, renewing, and servicing a policy, they could be prosecuted for three violations. This suggests that there are three specific actions or behaviors that the insurer engaged in which were considered unfair or unethical. Without further information, it is not possible to determine the exact nature of these violations.

The correct answer is the elimination period. This is the period of time between the onset of disability and when benefits from an insurance policy begin. During this period, the policyholder is responsible for covering their own expenses. Once the elimination period is over, the insurance benefits kick in and start providing coverage for the policyholder's disability-related expenses.

The definition of morbidity is the likelihood of illness or injury. This term refers to the state of being diseased or unhealthy, and it is often used in epidemiology to measure the occurrence of specific diseases or health conditions within a population. It does not refer to the assumption of wellness or aliment, which is incorrect. Similarly, the probability of death or disablement is not the correct definition of morbidity, although it may be related to the concept of mortality.

A stock insurer is an insurance company that is owned by individuals who purchase shares of stock in the company. These shareholders share in the profits of the company in proportion to the number of shares they own. They also have the right to vote for a board of directors who make important decisions for the company.

Medicare Part B does not mandate a premium payment from the participant. It is optional for those who are enrolled in Part A. Part B covers the expense of a doctor service, but it does not cover the expense of virtually all drugs prescribed by a doctor. Therefore, the correct answer is that Medicare Part B does not cover the expense of virtually all drugs prescribed by a doctor.

The activities of daily living (ADLs) refer to the basic tasks that individuals need to perform on a daily basis to take care of themselves. Eating and dressing are both examples of ADLs. Eating is essential for maintaining proper nutrition and sustenance, while dressing involves the ability to select appropriate clothing and put them on independently. These activities are fundamental for personal hygiene, independence, and overall well-being.

In a group life plan, a dependent child attending an educational institution may be covered until age 24. This means that as long as the child is enrolled in an educational institution, such as a college or university, they can remain covered under the group life plan until they reach the age of 24. This allows the child to continue receiving the benefits and coverage provided by the plan while they are pursuing their education.

The rules regarding life insurance policy illustrations are intended to ensure that illustrations are understandable by prescribing standard formats, ensure that illustrations do not mislead purchasers, and ensure that the disclosures required for illustrations are specified. However, the rules do not require the illustration to specify that both guaranteed and non-guaranteed elements will continue unchanged for all years shown.

Life insurance illustrations showing premiums, values, credits, or charges that are not determined at issue demonstrate non-guaranteed elements. Non-guaranteed elements are those aspects of the policy that are subject to change and are not guaranteed by the insurance company. These elements can include dividends, interest rates, and other variables that may affect the policy's performance. The presence of non-guaranteed elements in the illustration indicates that the values and outcomes depicted are not guaranteed and may vary over time.

An ESOP (Employee Stock Ownership Plan) invests in employer stock. This means that the plan allows employees to become partial owners of the company they work for by investing in the company's stock. This can be done through various means such as purchasing shares directly or receiving them as part of their compensation. By investing in employer stock, employees have the potential to benefit from the company's success and growth, as the value of their shares can increase over time.

To qualify for social security retirement benefits, the worker must be "fully insured". This means that the worker has earned enough credits by paying social security taxes over a certain period of time. These credits are based on the worker's earnings and are used to determine eligibility for various social security benefits. Being fully insured ensures that the worker has met the minimum requirements to receive retirement benefits from the social security system.

The CLHIGA (Colorado Life and Health Insurance Guaranty Association) provides protection for policyholders in the event that their insurance company becomes insolvent. It covers various types of insurance policies, including individual annuities, group term insurance, and disability income. However, employer self-funded plans are not covered by CLHIGA. These plans are typically funded by the employer and are not considered traditional insurance policies, so they fall outside the scope of CLHIGA's coverage.

Accidental injury is not excluded by group life insurance. This means that if a person covered by a group life insurance policy dies due to an accidental injury, their beneficiaries would still be eligible to receive the death benefit. In contrast, war, military service, and aviation are typically excluded from group life insurance coverage, meaning that if a person dies as a result of any of these factors, their beneficiaries would not receive the death benefit.

The correct answer is "any age". This means that if a dependent child covered by a group life plan is incapable of self-support, they can continue to be covered under the plan without any age limit. This allows for ongoing financial protection and support for the dependent child, regardless of their age, as long as they are incapable of self-support.

The minimum number of employees required for group life insurance in California is 2. This means that at least two employees need to be enrolled in the group life insurance plan for it to be valid.

Using the insurer's "disciplined current scale" in the illustration is prohibited when an insurer presents an illustration for life insurance. A "disciplined current scale" is a method used by insurers to project future policy values based on certain assumptions. However, using this scale in the illustration can be misleading as it may give the impression that the projected values are guaranteed, when in fact they are not. Therefore, it is prohibited to use the insurer's "disciplined current scale" in the illustration.

When a corporation ceases to exist entirely, their insurance license terminates. This means that the license is no longer valid and the corporation is no longer authorized to transact insurance business. There is no provision for temporary suspension or inactivity of the license in this scenario. The termination of the license is automatic unless the corporation files an application to continue transacting within 30 days, in which case it may be considered for reinstatement.

An insurance broker is not appointed by an insurer to transact insurance. Instead, a broker represents the insured and acts on behalf of the insured, not the insurer. The other options are true for an insurance broker.

Decreasing insurance could be used to pay off the mortgage on a home, providing a death benefit that equals the amount of outstanding debt on the home, no more and no less. Decreasing insurance is a type of life insurance where the coverage amount decreases over time, typically matching the outstanding balance on a mortgage. This ensures that in the event of the policyholder's death, the insurance payout will be sufficient to pay off the remaining mortgage debt, providing financial security to the homeowner's family.

The phrase "life insurance creates an immediate estate" means that upon the death of the insured, the full death benefit will be paid directly to a designated beneficiary. This implies that the beneficiary will receive the entire sum of the insurance policy immediately, without any delays or complications. The phrase does not suggest that the death benefit will be paid to the insured's estate or that the premium must be paid to the insurer. Additionally, it does not imply that the policy creates cash value.

A captive insurer is an insurance company that is owned by a parent company and provides insurance coverage exclusively for the parent company's loss exposures. This means that the captive insurer is created to insure the risks of its parent company and its affiliates, rather than offering insurance to the general public. Captive insurers are commonly used by large corporations to gain more control over their insurance programs and potentially reduce costs.

The correct answer is that non-guaranteed elements must be in bold print. This means that when insurers provide illustrations for individual life insurance policies or annuities to senior citizens, any elements that are not guaranteed (such as potential returns or bonuses) must be clearly highlighted in bold print. This requirement ensures that senior citizens are aware of the potential risks and uncertainties associated with these non-guaranteed elements.

The individual's date of birth is a determining factor for the Social Security age of retirement. The Social Security Administration has set specific age thresholds for retirement benefits based on birth dates. These thresholds determine when individuals become eligible to receive full retirement benefits. The date of birth helps in calculating the number of quarters earned and the amount of compensation earned prior to retirement, which are also factors in determining Social Security benefits.

The correct answer is based on the number of quarters earned. This means that in order to be eligible for Social Security retirement benefits, a worker must have accumulated a certain number of work credits, which are earned by paying Social Security taxes on their earnings. The more quarters a worker has earned, the higher their eligibility for benefits.

An occupational policy is the correct answer because it specifically covers injuries suffered by an insured on the job. This means that if the insured is injured while performing their job duties, they will be eligible to receive disability income benefits. This type of policy is important for individuals who work in high-risk occupations or industries where the chances of getting injured on the job are higher. It provides financial protection and support in case of work-related injuries or disabilities.

Group stop loss plans are not covered by the CLHIGA. CLHIGA stands for the Comprehensive Health Insurance Guaranty Association, which is an organization that provides protection to policyholders in the event that their insurance company becomes insolvent. CLHIGA covers various types of insurance, including direct group life insurance, individual (non group) health insurance, and individual term life insurance. However, group stop loss plans, which are typically used by self-insured employers to limit their liability for high-cost claims, are not included in the coverage provided by CLHIGA.

The statement that the benefits in the illustration are guaranteed is not required to be included in life insurance illustrations. The purpose of an illustration is to provide a visual representation of how the policy works, including the projected benefits and premiums. While it is important to provide accurate information, guaranteeing the benefits in the illustration may not be possible as it depends on various factors such as the performance of the underlying investments. Therefore, it is not necessary to include a statement regarding the guaranteed benefits in the illustration.

Respite care would provide care if the daughter needs a period of separation. Respite care is a short-term care service that allows caregivers to take a break from their caregiving responsibilities. It provides temporary relief and support to the primary caregiver, allowing them to have some time for themselves or attend to other personal matters. During this period, the parent can receive care and support from trained professionals in a safe and comfortable environment. This allows the daughter to have some time off while ensuring that the parent's needs are still met.

Part One Providers payments in a Workers Compensation contract refer to the sums that the employer is legally required to pay under State Workers Compensation Laws. These laws mandate that employers provide compensation and benefits to employees who suffer work-related injuries or illnesses. Therefore, the correct answer is "Sums the employers is legally required to pay under State Workers Compensation Laws."

Managing General Agents (MGAs) are intermediaries between insurance companies and local agents. They have the authority to appoint, supervise, and terminate the appointment of local agents. They also have the power to accept or decline risks on behalf of the insurance company. Additionally, MGAs can be licensed life agents themselves. However, it is not true that they do not collect premium money from producing broker-agents. In fact, one of the main responsibilities of MGAs is to collect and manage premium payments from the local agents they supervise.

A defined benefit plan is a qualified pension plan where the benefits are directly linked to the employee's years of service and/or the amount of their compensation. This means that the longer an employee works for the company and the higher their compensation, the greater their pension benefits will be. In contrast, a defined contribution plan does not guarantee a specific benefit amount and instead, the employee's retirement benefits are based on the contributions made to the plan and the investment returns on those contributions. Keogh plans and tax-sheltered accounts are types of retirement plans, but they do not specifically link benefits to years of service or compensation.

COBRA, the Federal Law, provides protection to ex-employees and their dependents by offering them the same conversion and extension benefits for group health insurance as those given to existing employees. This means that even after termination, ex-employees can continue to receive health insurance coverage under the same terms and conditions as before. This ensures that they have access to healthcare and are not left without coverage after leaving their job.

The correct answer is "By payment directly for each service." When a physician is paid through a Preferred Provider Organization (PPO), they are typically reimbursed for each service they provide. This means that for every specific medical procedure or consultation, the physician will receive payment directly. This payment method is different from capitation, where the physician is paid a fixed amount per patient regardless of the services provided. It is also different from reimbursement, which involves the physician submitting a claim for payment after the service has been rendered.

A corridor deductible refers to a deductible that is applied between the exhaustion of basic plan limits and the commencement of excess coverage. In other words, it is the amount that the insured must pay out of pocket before their insurance coverage kicks in again. This type of deductible is often used in health insurance policies to ensure that the insured bears some financial responsibility before the insurance company starts covering additional expenses.

Insurers are required to send a summary status report to the policyowner annually if they indicate that an illustration will be used. This report provides the policyowner with updated information about the policy's performance and helps them make informed decisions about the policy. It ensures transparency and accountability on the part of the insurer, as they are obligated to keep the policyowner informed about the policy's status on a regular basis.