300 Practice Questions PDF - Insurance Exam

Thanks for buying my book, here’s your: 300 Practice Questions  Practice Questions 1. What is another word for a mathematician who analyzes the probability of specific events occurring and values health or life insurance policies depending on the probability of those...

Thanks for buying my book, here’s your: 300 Practice Questions  Practice Questions 1. What is another word for a mathematician who analyzes the probability of specific events occurring and values health or life insurance policies depending on the probability of those events occurring? A. Statistician B. Computator C. Actuary D. Economist Answer: C. Actuary An actuary is a mathematician who analyzes the probability of certain events occurring and then prices insurance policies depending on those probabilities. 2. Mikey, Len’s grandson, is one of his three children. Len’s disability policy names his wife as the primary beneficiary, but she died five years ago. All of Len’s children had died by the time he passes away. They, like Mikey, had benefited from his generosity. Mikey is what kind of beneficiary? A. Secondary B. Tertiary C. Primary D. None of the above E. All of the above Answer: B. Tertiary The tertiary beneficiary receives benefits if both the primary and secondary beneficiaries are deceased at the time of the insured’s death. 3. When compared to other types of plans, adjustable life policies are? A. Flexible B. Illegal C. Strict D. Risky E. Waiver Answer: A. Flexible Adjustable life policies are more flexible compared to other types of plans, allowing changes to premiums and face value. 4. Ken wants to get a life insurance policy as soon as possible, but he also wants the flexi- bility to shop around and switch plans if he discovers one that he likes better. What benefit will Ken receive from this provision? A. Free look B. Sample period C. Review period D. First look E. Tryout clause Answer: A. Free look The “free-look” provision allows a policyholder to return the policy within a certain period for a full refund if not satisfied. 5. Zhang, one of your clients, approaches you for help with his current life insurance pol- icy, which includes a dangerous policy exclusion. Zhang will take part in his hometown’s famous Spring Flower motorcycling event. Zhang’s lovely wife Fei is quite anxious, and he wants to make sure that his existing coverage would give benefits. Zhang has never ridden a motorcycle before. What do you think you should say to Zhang? A. Coverage could be available by other means B. The exclusion to his policy is unenforceable C. An exclusion in the policy will prevent coverage for the race D. Zhang’s policy will provide coverage since the race is a one-time event E. None of the above Answer: A. Coverage could be available by other means Zhang might find alternative coverage options like a short-term Accidental Death and Dismemberment policy for the race. 6. Rainer has an injury at work and is compensated through workers’ compensation. She’s on approved leave as well. Does Rainer have the option of continuing to be covered by her employer’s group health insurance policy while she is unable to work? A. No. She has to go through COBRA to obtain coverage B. The health and life insurance coverage is canceled while Rainer is on leave C. Yes, but her health insurer has to approve her request D. Yes, the law requires her cash value and health insurance coverage to continue on her employer’s plan E. None of the above Answer: C. Yes, but her health insurer has to approve her request Rainer can request to remain on her employer’s group health insurance, subject to approval by the health provider. 7. What kind of income does someone insured have if he or she is unable to work? A. Unearned B. Earned C. Adhesion D. Contingency E. Flashcards Answer: A. Unearned Unearned income, such as interest or investment income, continues even when a person is unable to work. 8. The following is a way of calculating the amount of disability coverage that an individual requires: A. COBRA B. Programming C. Computing D. Actuarial E. None of the above Answer: B. Programming Programming refers to the method used to calculate the necessary amount of disability insurance for an individual. 9. Reina buys a whole life insurance policy with a clause that allows her to shop around and get a refund if she finds a better deal. Which of the following statements about the policy she bought is correct? A. Coverage is in effect once the policy is actually delivered B. Coverage is active once the premium rates are paid C. Coverage is effected once the receipt is issued D. Coverage is activated once the group life insurance is settled E. All of the above Answer: E. All of the above Reina’s policy includes a “free-look” provision, allowing for a refund if she is not satisfied within a set period after the policy is delivered and the premium is paid. 10. Which insurance paperwork permits an insured to obtain term coverage for a spouse? A. Spouse term insurance rider B. Term life insurance rider C. Spouse convertible rider D. Cash surrender value rider E. All of the above Answer: A. Spouse term insurance rider A spouse term insurance rider allows a policyholder to add term life insurance coverage for their spouse to a whole life policy. 11. COBRA permits: A. A terminated employee to continue coverage B. An employer to terminate an employee’s coverage C. An employer to continue terminated employee’s coverage D. An employer to give insurance premiums to employee E. None of the above Answer: A. A terminated employee to continue coverage COBRA allows employees to continue their group health insurance coverage after leaving employment under cer- tain conditions. 12. Fran buys a 5-year annuity with a graded vesting period. Which of the following per- centages will be vested at the end of year three? A. 100% B. 80% C. 60% D. 20% Answer: C. 60% In a 5-year graded vesting schedule, 20% vests each year; hence, after three years, 60% would be vested. 13. What is the major function of a STOLI? A. An investment vehicle B. To adhere to federal law C. To help the elderly D. Insurance for the protection of loved ones E. To make an insurance product cocktail Answer: A. An investment vehicle STOLI (Stranger-Originated Life Insurance) policies are primarily investment vehicles with no insurable interest be- tween the policy owner and the insured. 14. Which of these processes is not a common underwriting position for a health insurance company? A. Rating the policy B. Sending the policy documents to the applicants C. Reviewing medical histories D. Setting premium rates Answer: B. Sending the policy documents to the applicants Underwriters typically do not send policy documents to applicants; this is usually the responsibility of the agent or broker. 15. A(n) _____________________ is an add-on to an insurance policy that increases the ben- efits. A. Rider B. Supplement C. Expansion of provision D. B and E E. Continuation Answer: A. Rider A rider is an addition to an insurance policy that modifies or adds coverage or terms. 16. What document is supplied by an insurance company to offer verification that a medi- cal procedure is covered by the insured? A. Proof of coverage B. POS C. COI D. IME Answer: C. COI A Certificate of Insurance (COI) provides proof that insurance coverage is in place, detailing the type and terms of coverage. 17. Both of Lechter’s parents died in an aviation crash when he was 12 years old. Lechter is qualified for Social Security benefits if he is at least _____ years old and became disabled before the age of _____: A. 22: 18 B. 18: 16 C. 25: 18 D. 25: 21 Answer: A. 22: 18 Lechter can receive Social Security benefits as a dependent child if he becomes disabled before age 22 and is at least 18 years old. 18. When assessing a health insurance policy premium, all but which of the following should be taken into account? A. Age B. Gender C. Weight D. Use of tobacco products Answer: B. Gender Health insurance premiums should not be based on gender; they can be influenced by age, tobacco use, and weight. 19. Grant is terminally ill, but he has a cash surrender value life insurance policy that he wants to sell to a private individual. Yodel is interested in buying the policy but is only will- ing to pay a fraction of its face value. What is the name of the procedure for selling a life insurance policy for less than the death benefit? A. Viatical settlement B. Cash out sale C. Conversion transfer D. Settlement of cash value Answer: A. Viatical settlement A viatical settlement involves selling a life insurance policy to a third party for less than its death benefit but more than its cash surrender value. 20. Which of the following statements concerning Medicaid is correct? A. It is a nationwide program B. It is a local program C. It is both a nationwide and local program D. It is a privately managed program Answer: C. It is both a state and federal program Medicaid is a joint federal-state program providing health care to low-income individuals, with each state adminis- tering its own program within federal guidelines. 21. All of the following are parties to a life insurance contract EXCEPT: A. Insurer B. Underwriter C. Beneficiary D. Owner E. Insured Answer: B. Underwriter An insured may be, but is not necessarily, a party to the contract. A beneficiary and the underwriter are not parties to a life insurance contract. While the owner and insured are typically parties, the underwriter, who assesses and evaluates the risk for the insurer, is not. 22. Mr. Smith, a whole life insurance policy holder, needs funds for his nursing home ex- penses. Which part of the policy could he access for these funds? A. The investment benefits B. The death benefits C. The annuity benefits D. The living benefits Answer: D. The living benefits Life insurance policies can provide living benefits, allowing the policyholder to use funds from the cash value and part of the death benefit amount prior to death. The extracted amount reduces the eventual payout to the benefi- ciary. 23. James makes a good living and got a life insurance policy for the benefit of his wife. He recently experienced a life-changing event with the birth of his daughter. James should: A. Cancel his life insurance policy to afford to support his new daughter. B. Decrease his life insurance policy death benefit to get a cheaper policy. C. Increase his life insurance policy death benefit. D. Stop paying premiums on his life insurance policy. Answer: C. Increase his life insurance policy death benefit. Significant life events such as the birth of a child should trigger a review of life insurance needs. James would likely need more coverage to ensure financial support for his daughter if anything were to happen to him. 24. Which term refers to the period during which a policyholder can pay the overdue pre- mium without losing the policy? A. Grace period B. Probation period C. Evaluation period D. Waiting period Answer: A. Grace period The grace period allows policyholders to pay the overdue premium within a specified timeframe, typically 30 days, without the policy lapsing, ensuring continued coverage despite temporary financial difficulties. 25. Jack and his wife Lyn just purchased a home with a 15-year mortgage. Wanting to make sure that Lyn would be able to pay off the mortgage balance in the event of Jack’s death, Jack had a “temporary” need for life insurance. What type of policy should Jack purchase? A. Whole Life Insurance B. Term Life Insurance C. Variable Life Insurance D. A Viatical Settlement Answer: B. Term Life Insurance A term life insurance policy matching the mortgage duration, in this case, 15 years, is most suitable for covering Jack’s temporary financial obligation. This ensures Lyn can pay off the home if Jack were to pass away during the term. 26. Which of the following is a type of permanent life insurance that offers both a death benefit and a cash value component? A. Term Life Insurance B. Universal Life Insurance C. Decreasing Term Insurance D. Renewable Term Insurance Answer: B. Universal Life Insurance Universal life insurance is a form of permanent coverage offering both a death benefit for the beneficiary and a cash value component that the policyholder can use or borrow against during their lifetime. 27. What is a key characteristic of Group Life Insurance? A. It is generally purchased individually. B. Coverage amount is based on individual health assessments. C. It is often part of an employer or membership benefit package. D. Premiums are significantly higher than individual life insurance policies. Answer: C. It is often part of an employer or membership benefit package. Group Life Insurance is typically provided to employees or members of a group at a reduced cost and does not re- quire individual health assessments, making it an affordable option for many. 28. Which type of life insurance policy covers the insured for a specific period and pays out a benefit only if the insured dies during that period? A. Variable Life Insurance B. Whole Life Insurance C. Term Life Insurance D. Universal Life Insurance Answer: C. Term Life Insurance Term life insurance is explicitly designed to offer financial protection for a specific period, such as 10, 20, or 30 years. It pays a death benefit only if the insured dies during the specified term. 29. Life insurance underwriters look at a variety of factors when determining the accep- tance of an applicant. These factors can include: A. Health history B. Occupation C. Hobbies D. All of the above Answer: D. All of the above Underwriters evaluate an applicant’s health history, occupation, and hobbies to determine their level of risk. These factors help the insurer decide whether to provide coverage, and if so, at what premium rate. 30. What does underwriting in life insurance involve? A. Determining the policy type B. Evaluating the risk of insuring a person C. Choosing the beneficiaries D. Deciding the policy duration Answer: B. Evaluating the risk of insuring a person Underwriting in life insurance involves evaluating the risk associated with an individual applicant based on factors such as health, lifestyle, and family medical history to determine insurability and premium rates. 31. In a life insurance contract, the principle of ‘Utmost Good Faith’ implies: A. The insurer must cover all claims. B. The insured and insurer must disclose all relevant information. C. The policy is guaranteed to be profitable. D. The premiums are fixed for life. Answer: B. The insured and insurer must disclose all relevant information. “Utmost Good Faith” is a legal principle requiring both the insurer and the insured to act honestly and disclose all relevant information to each other before and during the contract term to prevent fraud and ensure fair dealing. 32. Which of the following needs to have an insurable interest for an underwriter to issue an insurance policy? A. Owner B. Insurer C. Beneficiary D. Insured Answer: A. Owner The owner of the policy must have an insurable interest in the life of the insured at the time of contract inception to ensure that there is a legitimate risk being transferred and to prevent gambling on human life. 33. Which of the following deals with a set of relationships where one person is authorized to act on behalf of another in order to create a legal relationship with a third party? A. Law of principals B. Law of agency C. Law of third parties D. None of the above Answer: B. Law of agency The law of agency governs the relationship between the principal (who authorizes someone else to act) and the agent (who acts on behalf of the principal), facilitating a legal relationship with a third party through the agent’s actions. 34. When conducting a life insurance needs analysis, what factors should be considered to determine the amount of coverage needed? A. Current age of the policyholder B. Policyholder’s hobbies and lifestyle C. Number of dependents and future financial obligations D. All of the above Answer: D. All of the above A comprehensive life insurance needs analysis should take into account the policyholder’s age, lifestyle, hobbies, number of dependents, and future financial obligations to determine the appropriate amount of coverage. 35. All of the following can be considered life-changing events that could result in a change in the amount of life insurance coverage needed EXCEPT: A. Birth of a child B. Divorce C. Marriage D. Change in job title Answer: D. Change in job title Life-changing events like the birth of a child, divorce, and marriage can significantly affect life insurance needs. However, a change in job title, without a significant change in income or responsibilities, typically does not by it- self necessitate a change in life insurance coverage. 36. Term life insurance should always be used in buy/sell agreements. A. True B. False Answer: B. False Permanent life insurance is often recommended for buy/sell agreements to ensure that coverage lasts for the en- tire life of the insured, as term life insurance could expire before it is needed if the agreement is long-term. 37. In estate planning, how does life insurance typically benefit the policyholder’s benefi- ciaries? A. By serving as collateral for loans B. By covering estate taxes and final expenses C. By acting as a primary investment vehicle D. By directly transferring business ownership Answer: B. By covering estate taxes and final expenses In estate planning, life insurance can provide the necessary funds to cover estate taxes and other final expenses, which helps preserve the value of the estate for the beneficiaries. 38. For a small business owner, how can life insurance be instrumental in ensuring business continuity? A. By covering operational costs B. By providing funds to buy out a deceased partner’s share C. By paying creditors D. All of the above Answer: D. All of the above Life insurance for a business owner can be essential in ensuring business continuity by providing funds to cover operational costs, buy out a deceased partner’s share, and pay off creditors, thereby stabilizing the business during transition periods. 39. Corporate-owned life insurance proceeds may be used for the following purposes: A. To find, replace, and train a new employee or executive B. To fund other corporate debt obligations C. To redeem the deceased employee’s stock D. All of the above Answer: D. All of the above Corporate-owned life insurance proceeds can be used for a variety of purposes, including finding, replacing, and training new employees or executives, funding debt obligations, and redeeming the deceased employee’s stock, among others. 40. Corporate-owned life insurance proceeds may be used for the following purposes: I. To find, replace, and train a new employee or executive II. To fund other corporate debt obligations III. To redeem the deceased employee’s stock A. III only B. I and III only C. All of the above D. None of the above Answer: C. All of the above Corporate-owned life insurance proceeds can be utilized for a variety of corporate needs including recruitment, training, debt obligations, and stock redemption, providing financial flexibility and security for the company. 41. What is the most common component in all life insurance policies? A. Living benefits B. Waiver of premium C. Death benefit D. Cost of living rider Answer: C. Death benefit The death benefit is the fundamental component of all life insurance policies, providing the financial payout to the beneficiary upon the insured’s death. 42. Which of the following is a type of ‘Non-forfeiture Option’ in a life insurance policy? A. An option to receive reduced paid-up insurance B. An option to receive cash surrender value C. An option to terminate the policy without receiving any benefits D. A and B only Answer: D. A and B only Non-forfeiture options, such as reduced paid-up insurance and cash surrender value, allow policyholders to retain some value if they discontinue premium payments, preventing total loss of benefits. 54. Permanent life insurance policies always have two components. What are they? A. Death benefit B. Cash value C. Living Benefits D. Conversion Benefit Answer: D. I and II Permanent life insurance policies are characterized by two main components: the death benefit and the cash val- ue. These features provide lifelong coverage and an investment or savings element, respectively. 55. Which of the following is a common exclusion in most health insurance policies? A. Emergency room visits B. Cosmetic surgery C. Annual physical exams D. Prescription medications Answer: B. Cosmetic surgery Cosmetic surgery is commonly excluded from health insurance coverage unless it is medically necessary. This is be- cause cosmetic procedures are typically elective and not considered essential for health. 56. When constructing a major medical insurance policy, several criteria must be estab- lished, including: A. Policy deductible B. Maximum out-of-pocket amount C. Elimination period D. All of the above E. Both A and B only Answer: E. Both A and B only In major medical insurance policies, the policy deductible and the maximum out-of-pocket amount are critical components. The elimination period is not typically associated with major medical insurance but with other types of policies such as long-term care or disability insurance. 57. As a marketing tool, Ted, a health insurance agent, offered to send an applicant and his wife on a weekend vacation to a local resort to induce the applicant to purchase a policy. Is this practice permitted and, if not, what is it called? A. No; Misrepresentation B. No; Twisting C. Yes; it is perfectly acceptable D. No; Rebating Answer: D. No; Rebating Offering an inducement such as a weekend vacation in exchange for purchasing an insurance policy is considered rebating. This practice is generally prohibited as it can distort the client’s decision-making process. 58. Sara, a health insurance agent, is finalizing the delivery of a health insurance policy to a client. She explains that policy delivery is more than just handing over the document. What additional step should Sara emphasize is crucial during the policy delivery process? A. Immediately starting the coverage as soon as the policy is handed over B. Thoroughly reviewing the policy with the client to ensure understanding and accuracy C. Advising the client to store the policy in a secure location D. Encouraging the client to immediately start looking for additional coverage options Answer: B. Thoroughly reviewing the policy with the client to ensure understanding and accuracy It is crucial for agents to review the insurance policy with the client upon delivery to ensure they understand all terms, conditions, and coverage details. This helps ensure the client makes informed decisions about their insur- ance. 59. An agent is in need of generating business. He gets an idea of asking his client to let his policy lapse so that the agent can sell him a new similar policy. Is this permissible and, if not, what is this action called? A. No; Rebating B. No; Bait and switch C. No; Twisting D. Yes; it is perfectly acceptable Answer: C. No; Twisting Twisting is the unethical practice of persuading a client to let an existing insurance policy lapse for the purpose of selling them a new one, often without real benefit to the client. This practice is generally illegal and considered un- ethical in the insurance industry. 60. A __________ is the amount that an insured person is expected to pay for a medical ex- pense at the time of the visit. A. Deductible B. Reimbursement C. Corridor D. Copayment Answer: D. Copayment A copayment, or co-pay, is a fixed amount that an insured person pays at the time of receiving medical services, as part of their health insurance plan. 61. How does the choice of deductible affect health insurance premiums? A. Higher deductibles are associated with higher premiums. B. Lower deductibles generally lead to lower premiums. C. Higher deductibles typically result in lower premiums. D. The deductible amount has no impact on premium rates. Answer: C. Higher deductibles typically result in lower premiums. Higher deductibles lower the risk for the insurer, which typically results in lower premiums for the policyholder. Conversely, lower deductibles increase the insurer’s risk and usually lead to higher premiums. 62. The ‘deductible’ in a long-term care insurance policy is referred to as the __________. A. Deductible B. Coinsurance C. Elimination period D. Copayment Answer: C. Elimination period In long-term care insurance, the term ‘elimination period’ refers to the time between the onset of a disability or the need for care and the beginning of benefit payments, similar to a deductible in other types of insurance. 63. On a health insurance claim form, the exact procedures that were performed for the in- sured are represented by standard codes that are referred to as __________. A. RVU codes B. AMA codes C. HCPCS codes D. CPT codes Answer: D. CPT codes CPT codes, or Current Procedural Terminology codes, are used on health insurance claim forms to specify the medi- cal services and procedures provided to a patient. 64. What is the difference between indemnity and reimbursement in health insurance? A. Indemnity plans provide a fixed benefit regardless of actual expenses; reimbursement plans pay back actual ex- penses. B. Reimbursement plans offer a wider network of doctors than indemnity plans. C. Indemnity plans require referrals for specialists; reimbursement plans do not. D. Reimbursement plans have higher premiums than indemnity plans. Answer: A. Indemnity plans provide a fixed benefit regardless of actual expenses; reimbursement plans pay back actual expenses. Indemnity health insurance plans pay a fixed benefit per service, whereas reimbursement plans pay the actual cost incurred up to a certain limit. 65. The components of a long-term care insurance policy include all of the following EX- CEPT: A. Elimination period B. Benefit amount C. Own occupation D. Benefit duration Answer: C. Own occupation “Own occupation” pertains to disability insurance and does not apply to long-term care policies. In long-term care insurance, crucial components include the elimination period, benefit amount, and benefit duration, which to- gether define the conditions under which benefits are paid. 66. Which of the following is a common exclusion in most health insurance policies? A. Emergency room visits B. Cosmetic surgery C. Annual physical exams D. Prescription medications Answer: B. Cosmetic surgery Cosmetic surgery is typically excluded from health insurance policies unless medically necessary, as it is usually elective. Other services like emergency room visits, annual physical exams, and prescription medications are often covered, though the extent of coverage can vary. 67. When constructing a major medical insurance policy, several criteria must be estab- lished, including: A. Policy deductible B. Maximum out-of-pocket amount C. Elimination period D. All of the above E. Both A and B only Answer: E. Both A and B only Major medical insurance policies require the establishment of a policy deductible and a maximum out-of-pocket amount to protect insureds financially. The elimination period is typically associated with disability or long-term care insurance, not major medical policies. 68. As a marketing tool, Ted, a health insurance agent, offered to send an applicant and his wife on a weekend vacation to a local resort to induce the applicant to purchase a policy. Is this practice permitted and, if not, what is it called? A. No; Misrepresentation B. No; Twisting C. Yes; it is perfectly acceptable D. No; Rebating Answer: D. No; Rebating Rebating involves providing an inducement to buy insurance, such as offering gifts or vacations, which is prohib- ited as it undermines fair competition and the integrity of insurance advice. This practice is generally illegal in the insurance industry. 69. Sara, a health insurance agent, is finalizing the delivery of a health insurance policy to a client. What additional step should Sara emphasize is crucial during the policy delivery process? A. Immediately starting the coverage as soon as the policy is handed over B. Thoroughly reviewing the policy with the client to ensure understanding and accuracy C. Advising the client to store the policy in a secure location D. Encouraging the client to immediately start looking for additional coverage options Answer: B. Thoroughly reviewing the policy with the client to ensure understanding and accuracy It is essential for agents to thoroughly review the policy with clients upon delivery to ensure they understand the coverage, terms, conditions, and any exclusions. This step helps clients make informed decisions regarding their insurance coverage. 70. An agent is in need of generating business. He gets an idea of asking his client to let his policy lapse so that the agent can sell him a new similar policy. Is this permissible and, if not, what is this action called? A. No; Rebating B. No; Bait and switch C. No; Twisting D. Yes; it is perfectly acceptable Answer: C. No; Twisting Twisting is an unethical practice where an agent convinces a client to let an existing policy lapse to sell a new one, often to the client’s disadvantage. It is prohibited by insurance regulations due to its deceptive nature. 71. A __________ is the amount that an insured person is expected to pay for a medical ex- pense at the time of the visit. A. Deductible B. Reimbursement C. Corridor D. Copayment Answer: D. Copayment A copayment, often referred to as a “co-pay,” is a predetermined fee that the insured pays out-of-pocket for doctor visits, prescription drugs, and other covered healthcare services under their health insurance plan. 72. How does the choice of deductible affect health insurance premiums? A. Higher deductibles are associated with higher premiums. B. Lower deductibles generally lead to lower premiums. C. Higher deductibles typically result in lower premiums. D. The deductible amount has no impact on premium rates. Answer: C. Higher deductibles typically result in lower premiums. Selecting a higher deductible means the insured assumes more financial responsibility before insurance starts pay- ing, which usually results in lower monthly premiums. 73. The ‘deductible’ in a long-term care insurance policy is referred to as the __________. A. Deductible B. Coinsurance C. Elimination period D. Copayment Answer: C. Elimination period In long-term care insurance, the elimination period is akin to a deductible in traditional insurance. It is the period during which the insured must pay for care out-of-pocket before the insurance begins to cover costs. 74. On a health insurance claim form, the exact procedures that were performed for the in- sured are represented by standard codes that are referred to as __________. A. RVU codes B. AMA codes C. HCPCS codes D. CPT codes Answer: D. CPT codes CPT codes (Current Procedural Terminology codes) are used to document and standardize medical services and procedures for billing and insurance purposes. 75. What is the difference between indemnity and reimbursement in health insurance? A. Indemnity plans provide a fixed benefit regardless of actual expenses; reimbursement plans pay back actual ex- penses. B. Reimbursement plans offer a wider network of doctors than indemnity plans. C. Indemnity plans require referrals for specialists; reimbursement plans do not. D. Reimbursement plans have higher premiums than indemnity plans. Answer: A. Indemnity plans provide a fixed benefit regardless of actual expenses; reimbursement plans pay back actual expenses. Indemnity insurance plans pay out a set amount for specific services regardless of the actual costs, whereas reim- bursement plans pay back the actual incurred expenses up to a certain limit, typically after the insured has paid a deductible. 76. Which of the following needs to have an insurable interest for an underwriter to issue an insurance policy? A. Owner B. Insurer C. Beneficiary D. Insured Answer: A. Owner The owner of the policy must have an insurable interest in the life of the insured at the time of contract inception. This ensures that there is a legitimate risk being transferred and helps prevent insurance from being used as a form of gambling on human life. 77. Which of the following deals with a set of relationships where one person is authorized to act on behalf of another in order to create a legal relationship with a third party? A. Law of principals B. Law of agency C. Law of third parties D. None of the above Answer: B. Law of agency The law of agency governs the relationship between the principal (who authorizes someone else to act) and the agent (who acts on behalf of the principal), facilitating a legal relationship with a third party through the agent’s actions. 78. When conducting a life insurance needs analysis, what factors should be considered to determine the amount of coverage needed? A. Current age of the policyholder B. Policyholder’s hobbies and lifestyle C. Number of dependents and future financial obligations D. All of the above Answer: D. All of the above A comprehensive life insurance needs analysis should consider the policyholder’s age, lifestyle, hobbies, number of dependents, and future financial obligations to determine the appropriate amount of coverage. 79. All of the following can be considered life-changing events that could result in a change in the amount of life insurance coverage needed EXCEPT: A. Birth of a child B. Divorce C. Marriage D. Change in job title Answer: D. Change in job title Life-changing events such as the birth of a child, divorce, and marriage can significantly affect life insurance needs. However, a mere change in job title, without a significant change in income or responsibilities, typically does not necessitate a change in life insurance coverage. 80. Term life insurance should always be used in buy/sell agreements. A. True B. False Answer: B. False Permanent life insurance is often recommended for buy/sell agreements to ensure coverage lasts for the entire life of the insured. Term life insurance could expire before it is needed if the agreement is long-term. 81. In estate planning, how does life insurance typically benefit the policyholder’s benefi- ciaries? A. By serving as collateral for loans B. By covering estate taxes and final expenses C. By acting as a primary investment vehicle D. By directly transferring business ownership Answer: B. By covering estate taxes and final expenses In estate planning, life insurance can provide necessary funds to cover estate taxes and other final expenses, help- ing to preserve the value of the estate for the beneficiaries. 82. For a small business owner, how can life insurance be instrumental in ensuring business continuity? A. By covering operational costs B. By providing funds to buy out a deceased partner’s share C. By paying creditors D. All of the above Answer: D. All of the above Life insurance for a business owner can ensure business continuity by providing funds to cover operational costs, buy out a deceased partner’s share, and pay off creditors, thereby stabilizing the business during transition peri- ods. 83. Corporate-owned life insurance proceeds may be used for the following purposes: A. To find, replace, and train a new employee or executive B. To fund other corporate debt obligations C. To redeem the deceased employee’s stock D. All of the above Answer: D. All of the above Corporate-owned life insurance proceeds can be utilized for various corporate needs, including recruitment, train- ing, debt obligations, and stock redemption, providing financial flexibility and security for the company. 84. Permanent life insurance policies always have two components. What are they? A. Death benefit B. Cash value C. Living Benefits D. Conversion Benefit Answer: D. I and II Permanent life insurance policies are characterized by their inclusion of both a death benefit, which provides fi- nancial protection upon the death of the insured, and a cash value component, which serves as a savings or invest- ment element that can accumulate value over time. 85. A beneficiary on a life insurance policy will receive what value upon the death of the insured? A. Cash value B. Surrender value C. Investment value D. Death benefit Answer: D. Death benefit The death benefit is the amount paid out to the beneficiary upon the death of the insured, which is the primary purpose of the life insurance policy. It is not related to the cash value or investment performance of the policy. 86. What is a ‘Settlement Option’ in a life insurance policy? A. The method chosen by the insurer to pay out claims B. The way a beneficiary chooses to receive the death benefit C. The process of disputing a claim with the insurer D. The options for investing the policy’s cash value Answer: B. The way a beneficiary chooses to receive the death benefit Settlement options are the different ways a beneficiary can choose to receive the death benefit from a life insur- ance policy, such as a lump sum, annuities, or regular payments, offering flexibility based on their financial needs and circumstances. 87. John, who had a life insurance policy with a death benefit, died on August 31st, after a long bout with cancer. His wife contacted the insurance company to file her claim for the death benefit on September 5th, after John’s burial. The insurance agent filed the papers to process the claim with his supervisor, and the death benefit was settled on October 30th. Were any laws violated in this scenario? A. No, the agent filed the paperwork within 30 days of the claim. B. Yes, the claim was not settled within 30 days of the claim. C. No, there are suspicions around the death of John. D. Yes, the claim was not settled within 15 days of the claim. Answer: A. No, the agent filed the paperwork within 30 days of the claim. In this scenario, the insurance company acted within typical legal time frames for processing and settling a death benefit claim. There is no indication of intentional delay or the need for additional investigation that would breach standard insurance practice or law. 88. Which of the following is a rider that allows a terminally ill person to access at least a portion of the death benefit proceeds prior to death? A. Waiver B. Living benefit C. Supplement D. Addendum Answer: B. Living benefit A living benefit rider, also known as an accelerated death benefit rider, allows a policyholder who is terminally ill to access a portion of their death benefit before they die. This can be used to cover medical expenses, hospice care, or other needs during their lifetime. 89. What distinguishes a ‘Viatical Settlement’ from a ‘Life Settlement’? A. Viatical settlements involve terminally ill policyholders, while life settlements do not. B. Viatical settlements are for older policyholders, while life settlements are for younger ones. C. Life settlements always involve a lump-sum payment, while viatical settlements do not. D. Viatical settlements are tax-free, while life settlements are taxable. Answer: A. Viatical settlements involve terminally ill policyholders, while life settlements do not. Viatical settlements are arrangements where a terminally or chronically ill policyholder sells their life insurance policy at a discount from its face value for immediate cash. Life settlements, conversely, involve the sale of a life in- surance policy by an individual who is not necessarily ill but typically older. 90. Living benefits on a life insurance policy can typically be accessed via: A. Lump sum B. Regular installments C. Loan D. All of the above Answer: D. All of the above Living benefits, or accelerated death benefits, from a life insurance policy can be accessed in various forms includ- ing lump sums, regular installment payments, or as loans, depending on the policy’s terms and the policyholder’s needs. 91. The components of a long-term care insurance policy include all of the following EX- CEPT: A. Elimination period B. Benefit amount C. Own occupation D. Benefit duration Answer: C. Own occupation “Own occupation” is related to disability insurance, not long-term care insurance. Long-term care policies typical- ly include components such as the elimination period, benefit amount, and benefit duration to define how and when benefits are paid. 92. Which of the following is a common exclusion in most health insurance policies? A. Emergency room visits B. Cosmetic surgery C. Annual physical exams D. Prescription medications Answer: B. Cosmetic surgery Cosmetic surgery is usually not covered by health insurance policies unless it is deemed medically necessary, as it is generally considered elective. Other listed items like emergency visits, physical exams, and medications are typi- cally covered to varying extents. 93. When constructing a major medical insurance policy, several criteria must be estab- lished, including: A. Policy deductible B. Maximum out-of-pocket amount C. Elimination period D. All of the above E. Both A and B only Answer: E. Both A and B only Major medical insurance policies typically include a policy deductible and a maximum out-of-pocket amount. The elimination period is a term more commonly associated with disability or long-term care insurance, not major medical policies. 94. As a marketing tool, Ted, a health insurance agent, offered to send an applicant and his wife on a weekend vacation to a local resort to induce the applicant to purchase a policy. Is this practice permitted and, if not, what is it called? A. No; Misrepresentation B. No; Twisting C. Yes; it is perfectly acceptable D. No; Rebating Answer: D. No; Rebating Rebating, offering an inducement to purchase insurance, is prohibited as an unfair trade practice in the insurance industry. It compromises the integrity of the insurance selection process and is illegal in most jurisdictions. 95. Sara, a health insurance agent, is finalizing the delivery of a health insurance policy to a client. She explains that policy delivery is more than just handing over the document. What additional step should Sara emphasize is crucial during the policy delivery process? A. Immediately starting the coverage as soon as the policy is handed over B. Thoroughly reviewing the policy with the client to ensure understanding and accuracy C. Advising the client to store the policy in a secure location D. Encouraging the client to immediately start looking for additional coverage options Answer: B. Thoroughly reviewing the policy with the client to ensure understanding and accuracy It’s important for agents to review the policy with clients upon delivery to ensure they understand all aspects, in- cluding coverage, terms, conditions, and exclusions. This helps clients make informed decisions about their insur- ance. 96. An agent is in need of generating business. He gets an idea of asking his client to let his policy lapse so that the agent can sell him a new similar policy. Is this permissible and, if not, what is this action called? A. No; Rebating B. No; Bait and switch C. No; Twisting D. Yes; it is perfectly acceptable Answer: C. No; Twisting Twisting is the unethical practice of persuading a policyholder to lapse or surrender an existing policy to sell a new, often unnecessary one. It is considered deceptive and is prohibited by insurance regulations. 97. A __________ is the amount that an insured person is expected to pay for a medical ex- pense at the time of the visit. A. Deductible B. Reimbursement C. Corridor D. Copayment Answer: D. Copayment A copayment is a fixed amount paid by the insured for covered services, such as doctor visits or prescription drugs, under a health insurance policy. It’s paid each time a service is accessed. 98. How does the choice of deductible affect health insurance premiums? A. Higher deductibles are associated with higher premiums. B. Lower deductibles generally lead to lower premiums. C. Higher deductibles typically result in lower premiums. D. The deductible amount has no impact on premium rates. Answer: C. Higher deductibles typically result in lower premiums. Choosing a higher deductible reduces the insurance company’s risk, typically resulting in lower monthly premiums for the policyholder. Conversely, lower deductibles increase the insurer’s risk and usually increase premiums. 99. The “deductible” in a long-term care insurance policy is referred to as the __________. A. Deductible B. Coinsurance C. Elimination period D. Copayment Answer: C. Elimination period In long-term care insurance, the “elimination period” functions similarly to a deductible in other types of insurance. It is the period during which the insured must cover their own care expenses before the insurance benefits begin to pay. 100. On a health insurance claim form, the exact procedures that were performed for the insured are represented by standard codes that are referred to as __________. A. RVU codes B. AMA codes C. HCPCS codes D. CPT codes Answer: D. CPT codes CPT codes (Current Procedural Terminology codes) are used on insurance claim forms to denote the specific pro- cedures and services provided to the patient. They standardize the reporting of medical, surgical, and diagnostic services. 101. Which type of life insurance remains in effect for the insured’s entire life and includes a savings component? A. Term Life Insurance B. Whole Life Insurance C. Universal Life Insurance D. Variable Life Insurance Answer: B. Whole Life Insurance Whole Life Insurance provides lifelong coverage and includes a savings component known as cash value, which grows over time and can be borrowed against by the policyholder. 102. What distinguishes Term Life Insurance from Permanent Life Insurance? A. The ability to accumulate cash value B. Coverage for a specified period C. Investment options D. Premium flexibility Answer: B. Coverage for a specified period Term Life Insurance provides coverage for a specified period, such as 10, 20, or 30 years, unlike Permanent Life In- surance, which provides lifelong coverage. 103. Which type of life insurance offers both a death benefit and flexible premiums and savings options? A. Whole Life Insurance B. Universal Life Insurance C. Variable Universal Life Insurance D. Term Life Insurance Answer: B. Universal Life Insurance Universal Life Insurance offers a death benefit and flexible premiums. The policyholder can adjust the premium and death benefit amounts and it includes a cash value component that earns interest. 104. In Variable Life Insurance, where can the cash value be invested? A. Fixed-income securities B. Policyholder’s choice of sub-accounts C. Standard savings account D. Government bonds only Answer: B. Policyholder’s choice of sub-accounts In Variable Life Insurance, the cash value can be invested in a variety of sub-accounts similar to mutual funds, de- pending on the policyholder’s choice and risk tolerance. 105. What is a key feature of a Convertible Term Life Insurance policy? A. High premiums B. Investment options C. Ability to convert to permanent coverage D. Fixed-term coverage only Answer: C. Ability to convert to permanent coverage A Convertible Term Life Insurance policy allows the policyholder to convert their term policy into a permanent one without undergoing additional medical underwriting. 106. How does Indexed Universal Life Insurance differ from traditional Universal Life Insur- ance? A. It provides a fixed interest rate B. It offers investment options in stock indexes C. It lacks a cash value component D. It does not include a death benefit Answer: B. It offers investment options in stock indexes Indexed Universal Life Insurance allows the cash value to grow based on a selected stock index’s performance, un- like traditional Universal Life Insurance, which provides a fixed interest rate. 107. What type of life insurance policy provides temporary coverage with no cash value ac- cumulation? A. Whole Life Insurance B. Term Life Insurance C. Universal Life Insurance D. Variable Life Insurance Answer: B. Term Life Insurance Term Life Insurance provides temporary coverage for a specific period without any cash value accumulation, mak- ing it typically less expensive than permanent life insurance options. 108. What feature is specific to Decreasing Term Life Insurance? A. The death benefit decreases over time B. The premiums increase over time C. The policy can be converted to cash D. The coverage period extends for life Answer: A. The death benefit decreases over time Decreasing Term Life Insurance is often used for mortgage protection, where the death benefit decreases over the term, typically aligning with the balance of a mortgage. 109. Which type of life insurance allows the policyholder to adjust the premium and death benefit? A. Whole Life Insurance B. Variable Life Insurance C. Adjustable Life Insurance D. Term Life Insurance Answer: C. Adjustable Life Insurance Adjustable Life Insurance, also known as Universal Life Insurance, allows policyholders to adjust the premium and death benefit amounts after the policy is in force. 110. What does the ‘guaranteed insurability’ rider in a life insurance policy allow? A. Conversion from term to whole life without proof of insurability B. Investment in stock market without risk C. Increase in death benefit without medical examination D. Automatic premium increase over time Answer: C. Increase in death benefit without medical examination The ‘guaranteed insurability’ rider allows the policyholder to increase the death benefit amount without undergo- ing a medical examination or providing evidence of insurability. 111. Which life insurance policy feature allows for partial withdrawals or loans against the policy’s cash value? A. Term Life Insurance B. Whole Life Insurance C. Decreasing Term Life Insurance D. Annual Renewable Term Life Insurance Answer: B. Whole Life Insurance Whole Life Insurance policies typically allow for partial withdrawals or loans against the cash value, providing fi- nancial flexibility to the policyholder. 112. What is the primary characteristic of Joint Life Insurance? A. Coverage for two people with double the premiums B. Coverage terminates when the first policyholder dies C. Investment options for couples D. Premiums are based on the younger policyholder Answer: B. Coverage terminates when the first policyholder dies Joint Life Insurance covers two people under one policy, typically paying out on the death of the first policyholder, after which the coverage terminates. 113. What is the unique feature of a Survivorship Life Insurance policy? A. It only covers one person B. It accumulates cash value faster than individual policies C. It insures two people and pays out after both have passed away D. It offers a refund of premiums if both insureds are alive after a certain period Answer: C. It insures two people and pays out after both have passed away Survivorship Life Insurance, also known as Second-to-Die Insurance, insures two people, typically a married couple, and pays out the death benefit after the second policyholder passes away. 114. Which type of policy combines term life insurance with a savings element? A. Endowment Life Insurance B. Whole Life Insurance C. Universal Life Insurance D. Variable Universal Life Insurance Answer: A. Endowment Life Insurance Endowment Life Insurance provides a death benefit if the insured dies within a specific period and a savings pay- out (endowment) if the insured lives beyond the term of the policy. 115. What is typically the purpose of a Life Insurance Settlement? A. To settle disputes between beneficiaries B. To sell an existing life insurance policy for cash C. To cancel the policy for its cash value D. To provide a loan against the policy’s value Answer: B. To sell an existing life insurance policy for cash A Life Insurance Settlement involves selling an existing life insurance policy to a third party for a lump-sum cash payment, which is less than the death benefit but more than the cash surrender value. 116. What is the purpose of the Accelerated Death Benefit rider in a life insurance policy? A. To increase the death benefit over time B. To provide early access to funds if the insured becomes terminally ill C. To cover the cost of the insured’s funeral expenses D. To extend coverage to family members Answer: B. To provide early access to funds if the insured becomes terminally ill The Accelerated Death Benefit rider allows the policyholder to receive a portion of the death benefit while they are still alive if they are diagnosed with a terminal illness, providing financial support during a difficult time. 117. What does the Waiver of Premium rider in a life insurance policy entail? A. Waiving the premium payments if the policyholder becomes unemployed B. Waiving the premium payments if the policyholder is involved in an accident C. Waiving the premium payments if the policyholder becomes disabled D. Waiving the premium payments when the policyholder reaches a certain age Answer: C. Waiving the premium payments if the policyholder becomes disabled The Waiver of Premium rider ensures that the policy remains in force without the need for premium payments if the policyholder becomes disabled and is unable to work. 118. What is a Convertible Term Life Insurance policy? A. A policy that can be exchanged for a whole life policy at the insurer’s discretion B. A policy that converts to cash after a certain term C. A policy that allows the policyholder to convert to permanent coverage without evidence of insurability D. A policy that automatically converts to a retirement annuity at the end of the term Answer: C. A policy that allows the policyholder to convert to permanent coverage without evidence of in- surability Convertible Term Life Insurance provides the policyholder with the option to convert their term policy into a per- manent policy without undergoing further medical exams or proving insurability, typically within a specific period. 119. Which rider would provide additional coverage for a child under a parent’s life insur- ance policy? A. Guaranteed Insurability Rider B. Child Term Rider C. Accidental Death Benefit Rider D. Cost of Living Rider Answer: B. Child Term Rider The Child Term Rider adds temporary life insurance coverage for the policyholder’s children, which can usually be converted into permanent insurance when the child reaches a certain age without proving insurability. 120. How does the Cost of Living Adjustment (COLA) Rider in a life insurance policy func- tion? A. It decreases the policy’s face value to match inflation rates B. It increases the premium based on the policyholder’s age C. It automatically increases the death benefit to keep pace with inflation D. It allows the policyholder to adjust the premium payment intervals Answer: C. It automatically increases the death benefit to keep pace with inflation The Cost of Living Adjustment (COLA) Rider ensures that the value of the life insurance death benefit increases over time to keep up with inflation, preserving the policy’s purchasing power. 121. What feature does the Automatic Premium Loan provision offer in a whole life insur- ance policy? A. It allows the insurer to invest the policy’s cash value in stocks B. It automatically pays overdue premiums to prevent policy lapse C. It grants loans to policyholders without interest D. It enables automatic withdrawal of premiums from the policyholder’s bank account Answer: B. It automatically pays overdue premiums to prevent policy lapse The Automatic Premium Loan provision helps prevent policy lapse by automatically applying a loan against the policy’s cash value to cover any overdue premiums. 122. What does the Return of Premium rider in a term life insurance policy provide? A. A refund of all premiums paid if the insured outlives the term of the policy B. A return of the death benefit to the policyholder if not used C. Premium discounts for early policy renewal D. A return of investment profits at the end of the policy term Answer: A. A refund of all premiums paid if the insured outlives the term of the policy The Return of Premium rider allows the policyholder to receive all or part of the premiums paid over the term of the policy if they are still alive when the policy expires. 123. What is the purpose of the Guaranteed Insurability Rider in life insurance? A. To ensure the policy’s interest rate does not fall below a certain level B. To guarantee the policyholder can purchase additional insurance without proof of insurability C. To lock in premium rates for the life of the policy D. To provide a guaranteed rate of return on the policy’s cash value Answer: B. To guarantee the policyholder can purchase additional insurance without proof of insurability The Guaranteed Insurability Rider allows the policyholder to buy additional amounts of insurance at designated times in the future without undergoing a medical exam or providing evidence of insurability. 124. What benefit does the Overloan Protection Rider provide in a universal life insurance policy? A. Protection against policy lapse due to excessive loan balances B. Additional loans at zero percent interest C. Automatic loan payments from external bank accounts D. Increased loan amounts based on policy performance Answer: A. Protection against policy lapse due to excessive loan balances The Overloan Protection Rider prevents the policy from lapsing if the total loan balance exceeds the cash value, protecting the policyholder from unintended tax consequences. 125. Which rider in a life insurance policy ensures that premiums are waived during a peri- od of unemployment? A. Waiver of Premium Rider B. Unemployment Protection Rider C. Disability Income Rider D. Economic Hardship Rider Answer: B. Unemployment Protection Rider While not as common as the Waiver of Premium Rider (which applies in case of disability), the Unemployment Pro- tection Rider waives premiums for a specified period during the policyholder’s unemployment. 126. What is the function of the Long-Term Care (LTC) Rider in a life insurance policy? A. It provides funds to cover long-term care expenses if the insured becomes chronically ill B. It extends the term of the life insurance policy C. It increases the death benefit if the insured requires long-term care D. It decreases the policy premiums if the insured needs long-term care Answer: A. It provides funds to cover long-term care expenses if the insured becomes chronically ill The Long-Term Care Rider allows the insured to access part of the death benefit to pay for long-term care services if they become chronically ill, helping cover expenses without depleting other assets. 127. What is an Estate Protection Rider in a life insurance policy designed to do? A. Increase the death benefit to cover estate taxes B. Provide legal assistance for estate planning C. Convert the policy to an annuity at retirement D. Offer a discount on multiple policies Answer: A. Increase the death benefit to cover estate taxes The Estate Protection Rider increases the death benefit to help cover potential estate taxes, preserving the value of the estate for the beneficiaries. 128. In a life insurance policy, what does the Term Conversion Rider allow? A. Conversion of the policy into an annuity B. Conversion of term insurance into whole or universal life insurance without medical examination C. Exchange of the policy for one with a longer term D. Conversion of the policy’s cash value into a higher death benefit Answer: B. Conversion of term insurance into whole or universal life insurance without medical examination The Term Conversion Rider enables the policyholder to convert their term life insurance into a permanent policy without undergoing a new medical exam, providing continuous coverage. 129. What is the primary benefit of adding a Critical Illness Rider to a life insurance policy? A. It provides a death benefit if the policyholder is diagnosed with a terminal illness B. It offers a lump sum payment if the policyholder is diagnosed with a covered critical illness C. It waives premiums if the policyholder becomes critically ill D. It increases the policy’s cash value if the policyholder survives a critical illness Answer: B. It offers a lump sum payment if the policyholder is diagnosed with a covered critical illness The Critical Illness Rider provides the policyholder with a lump sum payment if they are diagnosed with one of the critical illnesses specified in the policy, which can be used for medical expenses or other needs. 130. What is the primary purpose of an annuity? A. To provide a lump-sum payment at retirement B. To protect against the risk of outliving one’s income C. To offer a life insurance benefit D. To accumulate investment funds tax-free Answer: B. To protect against the risk of outliving one’s income An annuity is primarily used as a retirement income vehicle, providing regular payments over a set period or for the lifetime of the annuitant, thereby mitigating the risk of outliving one’s savings. 131. What distinguishes a fixed annuity from a variable annuity? A. Fixed annuities provide a guaranteed return, while variable annuities do not. B. Variable annuities are tax-deductible, whereas fixed annuities are not. C. Fixed annuities allow investment in mutual funds, while variable annuities do not. D. Variable annuities guarantee the principal investment, whereas fixed annuities do not. Answer: A. Fixed annuities provide a guaranteed return, while variable annuities do not. Fixed annuities offer a fixed rate of return and guarantee the principal investment, while variable annuities allow the owner to invest in a selection of funds, which means returns can vary and are not guaranteed. 132. What is an immediate annuity? A. An annuity that starts payments years after purchase B. An annuity purchased with a single premium that begins payments within one year of purchase C. An annuity that defers taxes indefinitely D. An annuity that only provides lump-sum payments Answer: B. An annuity purchased with a single premium that begins payments within one year of purchase An immediate annuity is typically bought with a single lump-sum payment and begins to distribute income almost immediately, generally within one year from the date of purchase. 133. What does the term “annuitization” refer to? A. The process of converting a lump sum into a stream of payments B. The act of terminating an annuity contract C. The process of increasing the value of an annuity through investments D. The act of transferring an annuity from one individual to another Answer: A. The process of converting a lump sum into a stream of payments Annuitization is the conversion of the annuity’s cash value into a series of periodic payments to the annuitant, typi- cally for a specified period or for the annuitant’s lifetime. 134. Which type of annuity is primarily intended to protect against the risk of high medical expenses? A. Fixed Annuity B. Variable Annuity C. Indexed Annuity D. Long-Term Care Annuity Answer: D. Long-Term Care Annuity A Long-Term Care Annuity combines features of a traditional annuity with long-term care insurance, providing funds to cover long-term care costs while offering the standard benefits of an annuity. 135. In a deferred annuity, what is the accumulation phase? A. The period during which the annuitant receives payments B. The period during which the annuity owner makes payments into the annuity C. The period after the annuitant has died D. The period during which the annuity funds are invested before payments start Answer: D. The period during which the annuity funds are invested before payments start The accumulation phase of a deferred annuity is the time period during which funds paid into the annuity are in- vested and accumulate tax-deferred until annuitization. 136. What feature defines an indexed annuity? A. The return is linked to a specific stock market index B. The return is based solely on fixed interest rates C. The payments fluctuate based on the annuitant’s health D. The annuity provides a guaranteed minimum interest rate plus additional interest Answer: A. The return is linked to a specific stock market index An indexed annuity offers returns on investments that are tied to a market index, such as the S&P 500, providing the potential for higher returns compared to fixed annuities while still providing some level of guaranteed return. 137. What is the surrender period of an annuity? A. The period during which the annuitant can withdraw funds without penalties B. The time frame in which the annuity can be converted into a different type of annuity C. The period during which early withdrawal from the annuity incurs a penalty D. The time frame before the annuity payments begin Answer: C. The period during which early withdrawal from the annuity incurs a penalty The surrender period is a specific time frame during which withdrawing funds from an annuity contract can result in charges or penalties. 138. How does a longevity annuity function? A. It provides a fixed amount of income starting at a predetermined age, typically beyond normal retirement age B. It offers a variable rate of return based on longevity statistics C. It guarantees income for a fixed number of years, regardless of lifespan D. It increases payments annually to match inflation rate Answer: A. It provides a fixed amount of income starting at a predetermined age, typically beyond normal retirement age A longevity annuity, also known as a deferred income annuity, is designed to begin paying out at a later stage in life, such as age 85, to provide income during advanced age. 139. What is a rider in the context of annuities? A. A legal document that changes the terms of the annuity contract B. An additional feature that can be added to an annuity for an extra cost C. A person designated to receive the annuity payments if the original annuitant dies D. A fee for managing the annuity funds Answer: B. An additional feature that can be added to an annuity for an extra cost A rider is an optional provision that can be added to an annuity contract to provide additional benefits or features beyond the standard contract terms, usually for an additional fee. 140. What determines the payout rate of an immediate annuity? A. The stock market performance B. The age and life expectancy of the annuitant C. The total amount of the initial investment D. Both B and C Answer: D. Both B and C The payout rate of an immediate annuity is determined by the age and life expectancy of the annuitant as well as the total amount of the initial investment. 141. What is a “period certain” feature in an annuity? A. A guarantee that the annuity will pay out for a minimum number of years B. A clause that allows the annuity payments to fluctuate based on certain conditions C. A provision that allows the annuitant to increase the payment amount each year D. A term that specifies the exact date the annuity payments will start Answer: A. A guarantee that the annuity will pay out for a minimum number of years The “period certain” feature in an annuity guarantees that payments will be made for at least a specified number of years, even if the annuitant dies before that period ends. 142. How does the tax status of a non-qualified annuity differ from a qualified annuity? A. Non-qualified annuities are funded with after-tax dollars and part of the withdrawals are tax-free B. Qualified annuities are not subject to any taxes upon withdrawal C. Non-qualified annuities require mandatory withdrawals at age 72 D. Qualified annuities allow for unlimited annual contributions Answer: A. Non-qualified annuities are funded with after-tax dollars and part of the withdrawals are tax- free Non-qualified annuities are purchased with after-tax dollars, and when withdrawals are made, only the earnings portion is subject to income tax, whereas the principal is not taxed again. Qualified annuities, conversely, are fund- ed with pre-tax dollars, and all withdrawals are typically subject to income tax. 143. What is the main advantage of a spousal continuation provision in an annuity? A. It allows the spouse to continue receiving payments without having to purchase a new annuity B. It increases the death benefit paid to the surviving spouse C. It provides a higher rate of return if the annuitant is married D. It allows the spouse to withdraw funds without penalty upon the annuitant’s death Answer: A. It allows the spouse to continue receiving payments without having to purchase a new annuity The spousal continuation provision allows the surviving spouse to continue the annuity contract under the same terms and conditions, ensuring a continuous stream of income without needing to initiate a new contract. 144. What impact does annuitization have on the liquidity of an annuity? A. It increases the liquidity, allowing for more frequent withdrawals B. It decreases the liquidity, as funds are converted into a stream of payments C. It has no effect on the liquidity of the annuity D. It allows the annuitant to take out loans against the annuity Answer: B. It decreases the liquidity, as funds are converted into a stream of payments Annuitization converts the annuity’s accumulated value into a series of payments, which typically reduces the abil- ity to access the annuity’s funds in a lump sum, thus decreasing its liquidity. 145. How are life insurance death benefits typically taxed under federal law? A. Taxed as ordinary income B. Taxed as capital gains C. Not subject to federal income tax D. Taxed only if exceeding the federal estate tax exemption Answer: C. Not subject to federal income tax Life insurance death benefits are generally not subject to federal income tax when paid out to a beneficiary, pro- viding a tax-free source of income to the recipient. 146. What is the tax treatment of premiums paid for a personal life insurance policy? A. Tax-deductible B. Tax-deferred C. Not tax-deductible D. Subject to federal gift tax Answer: C. Not tax-deductible Premiums paid for a personal life insurance policy are not tax-deductible under federal income tax laws. Policy- holders cannot deduct the cost of premiums from their taxable income. 147. Under what condition can the cash value growth in a life insurance policy be subject to tax? A. When the policy is surrendered for its cash value B. When the policy is converted to a term policy C. When the premiums are paid D. When the insured is still alive Answer: A. When the policy is surrendered for its cash value The growth of the cash value in a life insurance policy is tax-deferred. However, if the policy is surrendered for its cash value, the amount exceeding the premiums paid is subject to income tax. 148. How are annuity payments taxed? A. Entirely as capital gains B. Entirely as ordinary income C. As a mix of return of investment and ordinary income D. Not taxed at all Answer: C. As a mix of return of investment and ordinary income Annuity payments are taxed under the Exclusion Ratio, which divides the payments into a non-taxable return of investment and taxable income, reflecting the original investment and the income generated, respectively. 149. What is the primary tax benefit of a qualified annuity? A. Contributions are tax-deductible B. Earnings grow tax-deferred C. No 10% early withdrawal penalty D. Earnings are not subject to income tax Answer: B. Earnings grow tax-deferred The primary benefit of a qualified annuity is that earnings grow on a tax-deferred basis, meaning taxes on interest or investment gains are deferred until withdrawals begin. 150. What happens tax-wise when a life insurance policy is surrendered for its cash value? A. The full amount received is taxable as ordinary income B. No taxes are due upon surrender C. The amount exceeding the premiums paid is taxable as ordinary income D. The cash value is taxed at capital gains rates Answer: C. The amount exceeding the premiums paid is taxable as ordinary income When a life insurance policy is surrendered, the policyholder is taxed on the amount that exceeds the total premi- ums paid, which is considered income. 151. In the context of life insurance, what does the term “transfer for value” mean for tax purposes? A. Transferring a policy as a gift is tax-free B. Selling or transferring a policy for consideration may result in taxable income C. Transferring a policy has no tax implications D. All transfers are subject to estate tax Answer: B. Selling or transferring a policy for consideration may result in taxable income If a life insurance policy is transferred for value, such as selling the policy to another person, the death benefit may become partially or fully taxable to the beneficiary. 152. What is the tax treatment for a policy loan from a permanent life insurance policy? A. Treated as taxable income B. Subject to capital gains tax C. Generally not taxable D. Taxed as an early withdrawal Answer: C. Generally not taxable Policy loans from permanent life insurance policies are generally not taxable as long as the policy remains in force. This provides a tax-advantaged way to access cash value. 153. What are the tax implications for failing to meet the Modified Endowment Contract (MEC) rules? A. Loans and withdrawals are tax-free B. Loans and withdrawals up to the cost basis are taxed as ordinary income C. Loans and withdrawals exceeding the cost basis are taxed as ordinary income D. The entire policy is taxed as ordinary income Answer: C. Loans and withdrawals exceeding the cost basis are taxed as ordinary income If a life insurance policy becomes a Modified Endowment Contract, withdrawals and loans exceeding the cost basis are taxed as ordinary income, and there may be additional penalties for withdrawals before age 59½. 154. How does the IRS treat employer-paid premiums for employees’ life insurance? A. Fully taxable to the employee as income B. Taxable only if coverage exceeds $50,000 C. Not taxable to the employee D. Deductible on the employee’s personal taxes Answer: B. Taxable only if coverage exceeds $50,000 If an employer pays for life insurance coverage for an employee, the premiums for coverage over $50,000 are con- sidered taxable income to the employee. 155. What is the tax consequence of exceeding the annual gift tax exclusion with life insur- ance premiums? A. No tax consequences as life insurance premiums are exempt B. The excess amount is subject to immediate income taxation C. The excess amount must be reported and may be subject to gift tax D. The entire premium amount becomes taxable Answer: C. The excess amount must be reported and may be subject to gift tax If life insurance premiums paid on behalf of someone else exceed the annual gift tax exclusion, the excess must be reported and may be subject to gift tax. 156. How are distributions from a life insurance policy taxed if the policy is a Modified En- dowment Contract (MEC)? A. Distributions are considered a return of premium and are not taxed B. Distributions are taxed as long-term capital gains C. Distributions are taxed as ordinary income, starting with interest or gains D. Distributions are entirely tax-free Answer: C. Distributions are taxed as ordinary income, starting with interest or gains For Modified Endowment Contracts, distributions are taxed as ordinary income to the extent of the earnings in the policy, and there may be additional penalties for pre-age 59½ withdrawals. 157. What federal tax form is used to report the taxable portion of an annuity distribution? A. Form 1040 B. Form 1099-R C. Form W-2 D. Form 5498 Answer: B. Form 1099-R The Form 1099-R is used to report distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, and insurance contracts, including the taxable portion of an annuity distribution. 158. How are proceeds from a life insurance policy taxed if the policy was sold under a life settlement contract? A. Proceeds are always tax-free B. Proceeds are taxed as ordinary income C. The excess over premiums paid is taxed as capital gains D. There is no tax due to the life settlement exemption Answer: C. The excess over premiums paid is taxed as capital gains If a life insurance policy is sold through a life settlement, the seller may owe capital gains tax on the difference be- tween the selling price and the premiums paid. 159. What is a primary characteristic of a qualified retirement plan? A. Contributions are always after-tax. B. Earnings and returns are subject to annual taxes. C. Provides tax benefits such as tax-deferred growth or tax deductions. D. No annual contribution limits apply. Answer: C. Provides tax benefits such as tax-deferred growth or tax deductions. Qualified retirement plans offer tax benefits, such as tax-deferred growth on earnings and potential tax deductions for contributions, encouraging saving for retirement. 160. What distinguishes a 401(k) plan from a traditional IRA? A. 401(k) plans are funded solely by employer contributions. B. Traditional IRAs do not allow for employee contributions. C. 401(k) plans allow for higher annual contribution limits compared to traditional IRAs. D. Only 401(k) plans provide immediate tax benefits on contributions. Answer: C. 401(k) plans allow for higher annual contribution limits compared to traditional IRAs. 401(k) plans typically offer higher annual contribution limits than traditional IRAs, providing a greater opportunity for tax-advantaged savings. 161. What is required for a retirement plan to be considered “qualified” under IRS rules? A. Exclusive participation by high-income employees. B. Compliance with specific IRS guidelines and requirements. C. Investment solely in government bonds. D. Availability only to employees over the age of 50. Answer: B. Compliance with specific IRS guidelines and requirements. For a retirement plan to be considered “qualified,” it must comply with established IRS guidelines and require- ments, such as nondiscrimination rules and contribution limits. 162. How are distributions from a qualified retirement plan typically taxed? A. As long-term capital gains. B. As ordinary income. C. They are not taxed. D. At a fixed rate of 10%. Answer: B. As ordinary income. Distributions from qualified retirement plans are typically taxed as ordinary income at the individual’s current tax rate. 163. What happens if an individual withdraws money from a qualified plan before age 59½? A. The withdrawal is tax-free and penalty-free. B. The withdrawal is subject only to capital gains tax. C. The withdrawal may be subject to an additional 10% early withdrawal penalty. D. The withdrawal increases the individual’s contribution limit for the next year. Answer: C. The withdrawal may be subject to an additional 10% early withdrawal penalty. Early withdrawals from a qualified plan before age 59½ are generally subject to an additional 10% tax penalty, along with regular income taxes. 164. What is the purpose of the Required Minimum Distribution (RMD) rules for qualified plans? A. To limit the amount an individual can contribute annually. B. To ensure that retirees spend their retirement savings. C. To require individuals to begin withdrawing funds at a certain age. D. To allow retirees to defer taxes indefinitely. Answer: C. To require individuals to begin withdrawing funds at a certain age. RMD rules ensure that individuals start withdrawing from their qualified retirement accounts by a certain age, typi- cally 72, ensuring that deferred taxes are eventually paid. 165. What distinguishes a Roth 401(k) from a traditional 401(k) plan? A. Roth 401(k) contributions are made on a post-tax basis. B. Traditional 401(k) plans do not allow for employer matching. C. Roth 401(k) plans have higher contribution limits. D. Traditional 401(k) withdrawals are tax-free. Answer: A. Roth 401(k) contributions are made on a post-tax basis. Roth 401(k) contributions are made with after-tax dollars, which means withdrawals in retirement are generally tax-free, unlike traditional 401(k) plans where contributions are pre-tax and withdrawals are taxed. 166. What does it mean for a plan to be “top-heavy” in the context of qualified retirement plans? A. The plan primarily benefits the company’s owners and top-paid employees. B. The plan is mostly invested in high-risk assets. C. The plan has too many participants. D. The plan offers disproportionately high fees. Answer: A. The plan primarily benefits the company’s owners and top-paid employees. A “top-heavy” plan is one in which a substantial portion of the benefits accrue to the company’s key employees, requiring certain corrective actions to ensure fairness. 167. What is the effect of a non-qualified distribution from a Roth IRA? A. It increases the taxpayer’s contribution limit for the year. B. It is taxed as ordinary income and may incur an additional penalty. C. It is entirely tax-free. D. It is donated to charity without any tax implications. Answer: B. It is taxed as ordinary income and may incur an additional penalty. Non-qualified distributions from a Roth IRA may be subject to taxes and penalties, depending on the circumstanc- es of the distribution. 168. Under what condition is a loan from a 401(k) plan considered non-taxable? A. If it is repaid within five years. B. If it is used to purchase a primary residence. C. If it exceeds 50% of the vested account balance. D. If it is taken out after the employee retires. Answer: A. If it is repaid within five years. A loan from a 401(k) plan is not taxable as long as it is repaid within the stipulated time frame, typically five years. 169. What feature is unique to a 403(b) plan when compared to a 401(k) plan? A. It is available to any type of employer. B. It allows for higher annual contribution limits. C. It is only available to employees of public schools and certain tax-exempt organizations. D. It mandates employer contributions. Answer: C. It is only available to employees of public schools and certain tax-exempt organizations. 403(b) plans are similar to 401(k) plans but are only available to certain employees, including those of public schools and tax-exempt groups. 170. How does vesting affect a participant in a qualified plan? A. It restricts the participant’s ability to invest in certain funds. B. It determines the amount of employer contributions the employee is entitled to keep upon leaving the compa- ny. C. It limits the amount the participant can borrow from the plan. D. It increases the participant’s tax liability. Answer: B. It determines the amount of employer contributions the employee is entitled to keep upon leav- ing the company. Vesting refers to the portion of employer-contributed funds in a qualified plan that the employee has the right to take with them upon leaving the company, typically following a graded or cliff schedule. 171. What is the significance of the “safe harbor” provision in a 401(k) plan? A. It protects employees from losing their contributions. B. It exempts employers from most annual compliance testing requirements. C. It guarantees a fixed rate of return on investments within the plan. D. It provides immunity from market losses. Answer: B. It exempts employers from most annual compliance testing requirements. The “safe harbor” provision allows employers to bypass certain nondiscrimination tests by meeting specific contri- bution and notice requirements. 172. What is an “eligible rollover distribution” from a qualified plan? A. A distribution that can be rolled over to a new employer’s plan or an IRA without incurring immediate taxes. B. A mandatory distribution that must be taken annually after age 72. C. A distribution that is automatically taxed at the highest rate. D. A distribution that cannot be moved into another retirement account. Answer: A. A distribution that can be rolled over to a new employer’s plan or an IRA without incurring im- mediate taxes. An eligible rollover distribution is one that can be transferred from one qualified retirement plan to another or to an IRA, usually without triggering immediate tax consequences. 173. What is the primary purpose of health insurance? A. To provide unlimited medical services to policyholders. B. To protect policyholders from the financial risks associated with medical expenses. C. To ensure that policyholders receive treatment from top-rated doctors only. D. To cover all types of cosmetic surgeries. Answer: B. To protect policyholders from the financial risks associated with medical expenses. Health insurance is designed to protect individuals from the high costs associated with medical care by covering services like hospital stays, visits to doctors, and prescriptions. 174. What does a health insurance policy’s deductible refer to? A. The fixed amount paid to the insurer annually. B. The maximum amount the insurer will pay for covered services. C. The amount the policyholder must pay out-of-pocket before the insurer pays. D. The percentage of the bill the policyholder pays after the deductible is met. Answer: C. The amount the policyholder must pay out-of-pocket before the insurer pays. The deductible in a health insurance policy is the amount the insured must pay before the insurance company be- gins to pay for covered medical services. 175. Which of the following best describes a Preferred Provider Organization (PPO) plan? A. A plan that allows members to use any healthcare provider without referrals. B. A plan requiring members to choose a primary care physician and get referrals. C. A plan that covers only emergency services. D. A plan offering coverage exclusively through a workplace. Answer: A. A plan that allows members to use any healthcare provider without referrals. A PPO is a type of health insurance that offers more flexibility by allowing policyholders to visit any healthcare pro- vider without needing a referral, often at a higher cost for out-of-network services. 176. What is co-insurance in health insurance policies? A. A fixed fee paid by the policyholder for certain medical services. B. The amount transferred from the insurer to the policyholder. C. A percentage of the medical bill shared by the policyholder after the deductible is met. D. The total amount of coverage provided by the policy. Answer: C. A percentage of the medical bill shared by the policyholder after the deductible is met. Co-insurance is the portion of medical expenses that a policyholder is responsible for paying after meeting the de- ductible, typically expressed as a percentage. 177. What is the purpose of an out-of-pocket maximum in a health insurance plan? A. To limit the insurer’s total annual expenses. B. To set a minimum amount that policyholders must spend on healthcare. C. To cap the amount a policyholder has to pay for covered services in a year. D. To increase the deductible based on the policyholder’s income. Answer: C. To cap the amount a policyholder has to pay for covered services in a year. The out-of-pocket maximum is the maximum amount policyholders will have to spend for covered services in a plan year; after reaching this limit, the insurer covers 100% of allowed amounts for covered services. 178. What distinguishes a Health Maintenance Organization (HMO) from other health plans? A. HMOs offer international healthcare coverage. B. HMO members must choose a primary care physician and obtain referrals. C. HMOs have no network restrictions for healthcare providers. D. HMOs provide full coverage for all pre-existing conditions immediately. Answer: B. HMO members must choose a primary care physician and obtain referrals. In an HMO, members typically must select a primary care physician (PCP) who coordinates their care and provides referrals to specialists within the network. 179. How does a High-Deductible Health Plan (HDHP) typically affect monthly premiums? A. Premiums are higher due to increased coverage limits. B. Premiums are lower, but out-of-pocket costs until the deductible is met are higher. C. Premiums and out-of-pocket costs are both higher. D. Premiums are fixed regardless of the deductible amount. Answer: B. Premiums are lower, but out-of-pocket costs until the deductible is met are higher. HDHPs usually have lower monthly premiums compared to other plans, but policyholders must pay more out-of- pocket expenses before the insurance starts covering medical costs. 180. What is the primary characteristic of a Point of Service (POS) health plan? A. It combines features of HMOs and PPOs. B. It covers only emergency services. C. It requires payment upfront for all medical services. D. It offers unlimited visits to specialists without referrals. Answer: A. It combines features of HMOs and PPOs. A POS plan is a type of health insurance that combines elements of both HMO and PPO plans, typically requiring PCP referrals for specialists like an HMO but offering more provider flexibility like a PPO. 181. In health insurance terminology, what is a ‘gatekeeper’? A. A policyholder who manages their own healthcare. B. The primary care physician in an HMO plan. C. An insurance agent who sells policies. D. A healthcare provider who denies treatment. Answer: B. The primary care physician in an HMO plan. In the context of an HMO, the ‘gatekeeper’ is usually the primary care physician who manages the patient’s care, including providing referrals to specialists. 182. What does ‘pre-authorization’ mean in a health insurance policy? A. The insurer must approve certain medical services before they are provided. B. The policyholder decides which services they want covered. C. The insurer automatically approves all listed procedures. D. The policyholder needs to pay upfront for services. Answer: A. The insurer must approve certain medical services before they are provided. Pre-authorization is a requirement that the insurance company must approve certain medical procedures or medi- cations before they occur in order to be covered. 183. What is typically covered under a health insurance policy’s preventive care services? A. Cosmetic surgeries. B. Care received while traveling abroad. C. Routine checkups and screenings. D. Services only after the deductible is met. Answer: C. Routine checkups and screenings. Preventive care services in a health insurance policy usually include routine health checkups, screenings, and im- munizations intended to prevent illness. 184. How does a Flexible Spending Account (FSA) work with health insurance? A. It allows policyholders to invest in stock options. B. It offers a high deductible for lower premiums. C. It provides a savings account for out-of-pocket medical expenses. D. It covers the entire cost of health insurance premiums. Answer: C. It provides a savings account for out-of-pocket medical expenses. An FSA is a type of savings account that allows individuals to set aside pre-tax dollars for out-of-pocket healthcare expenses, reducing taxable income. 185. What is the impact of a ‘network’ in a health insurance plan? A. It defines the geographical area covered by the plan. B. It specifies the group of healthcare providers and facilities covered under the plan. C. It dictates the total number of claims allowed per year. D. It increases the cost of premiums based on usage. Answer: B. It specifies the group of healthcare providers and facilities covered under the plan. In health insurance, the network refers to the designated providers and facilities with which the insurance compa- ny has negotiated rates, affecting where and how policyholders can receive care. 186. What are ‘exclusions’ in the context of health insurance policies? A. Additional coverage options that can be purchased. B. The period before the policy becomes effective. C. Specific conditions or services that the policy does not cover. D. The mandatory services covered under all health plans. Answer: C. Specific conditions or services that the policy does not cover. Exclusions are the specific conditions, treatments, or services that are not covered under a health insurance policy, meaning the policyholder must pay the full cost out-of-pocket for these services. 187. What is the primary purpose of Disability Income Insurance? A. To cover the cost of hospitalization due to illness. B. To provide a lump sum in case of accidental death. C. To replace a portion of income if the insured becomes disabled. D. To pay for long-term care services. Answer: C. To replace a portion of income if the insured becomes disabled. Disability Income Insurance is designed to replace a percentage of the policyholder’s income if they are unable to work due to illness or injury, providing financial stability during recovery. 188. What does the ‘elimination period’ refer to in a disability insurance policy? A. The time between filing a claim and receiving payment. B. The waiting period before benefits begin after becoming disabled. C. The duration for which benefits are paid. D. The deadline for renewing the insurance policy. Answer: B. The waiting period before benefits begin after becoming disabled. The elimination period in disability insurance is the waiting period from the onset of a disability until benefit pay- ments start. It acts like a deductible in time rather than in dollars. 189. Which feature of disability insurance defines the range of illnesses and injuries cov- ered under the policy? A. Benefit period B. Coverage scope C. Definition of disability D. Premium rate Answer: C. Definition of disability. The definition of disability in a disability insurance policy specifies what constitutes being disabled, which can vary significantly from one policy to another, affecting what conditions or injuries are covered. 190. What is a ‘Benefit Period’ in the context of Disability Income Insurance? A. The time during which premiums are waived for the disabled. B. The maximum duration that the insurance company will pay benefits. C. The initial period during which no benefits are paid. D. The timeframe in which the insured must be employed to receive benefits. Answer: B. The maximum duration that the insurance company will pay benefits. The Benefit Period in Disability Income Insurance refers to the maximum length of time for which benefits will be paid to the insured while they are disabled. 191. How does ‘Residual Disability’ benefit work in a Disability Income policy? A. It provides full benefits regardless of the severity of the disability. B. It compensates for the partial loss of income due to a disability that does not qualify as total disability. C. It offers a one-time payment for minor disabilities. D. It extends the benefit period beyond the policy limits. Answer: B. It compensates for the partial loss of income due to a disability that does not qualify as total dis- ability. Residual Disability benefits are paid when the insured is able to work but, due to disability, earns less than before they became disabled. 192. What does ‘Non-Cancellable’ mean in a disability insurance policy? A. The insurer cannot cancel the policy except for non-payment of premiums. B. The policyholder cannot cancel the policy once it is issued. C. The benefits cannot be changed once the disability occurs. D. The policy does not cover cancellations due to travel advisories. Answer: A. The insurer cannot cancel the policy except for non-payment of premiums. A Non-Cancellable disability insurance policy guarantees that the insurer cannot cancel the policy or change pre- mium rates or benefits as long as the premiums are paid on time. 193. In disability insurance, what is an ‘Own Occupation’ policy? A. A policy that provides benefits if the insured can work in a different occupation. B. A policy that only covers disabilities resulting from accidents at work. C. A policy that pays benefits if the insured cannot perform the duties of their specific occupation. D. A policy that covers any occupation the insured may choose in the future. Answer: C. A policy that pays benefits if the insured cannot perform the duties of their specific occupation. An ‘Own Occupation’ disability insurance policy provides benefits if the insured is unable to perform the duties of their own specific occupation, even if they could work in another capacity. 194. What is a ‘Guaranteed Renewable’ clause in a disability insurance policy? A. The insured can renew the policy without a medical exam. B. The insurer guarantees the policy’s interest rates. C. The policy automatically renews each year. D. The insurer can only change the policy with the policyholder’s consent. Answer: A. The insured can renew the policy without a medical exam. A Guaranteed Renewable clause means the policyholder has the right to renew the policy with the same benefits and cannot be canceled by the insurer, but the insurer can raise premiums under certain conditions. 195. How is ‘Partial Disability’ defined in most disability insurance policies? A. The inability to perform one or more important duties of one’s occupation. B. Complete inability to work in any occupation. C. Temporary disability that does not require medical treatment. D. Disability that does not affect income. Answer: A. The inability to perform one or more important duties of one’s occupation. Partial Disability is defined as the inability to perform one or more crucial tasks of one’s job, allowing the insured to still receive partial income replacement if they can work in a reduced capacity. 196. What triggers the payment of benefits under a ‘Total Disability’ clause in a disability insurance policy? A. Being unable to perform any job for which the insured is qualified. B. Being unable to perform the major duties of the insured’s own occupation. C. A doctor’s note confirming the insured cannot work. D. The insured’s decision to stop working due to an injury. Answer: B. Being unable to perform the major duties of the insured’s own occupation. Total Disability is typically defined in a disability insurance policy as the inability to perform the substantial and material duties of the insured’s own occupation. 197. What does the term ‘Benefit Offset’ refer to in disability insurance? A. A reduction in disability benefits due to receiving Social Security disability. B. An increase in benefits after a set period of time. C. A deduction for medical expenses from the disability benefit. D. A bonus paid when the disability is due to an accident. Answer: A. A reduction in disability benefits due to receiving Social Security disability. Benefit Offset in disability insurance refers to the reduction of insurance benefits by amounts received from Social Security disability or other sources, ensuring the insured does not receive more than their income prior to disabili- ty. 198. What feature in a disability policy specifies the conditions under which an insured can return to work part-time and still receive partial benefits? A. Return-to-Work Provision B. Residual Benefit Clause C. Rehabilitation Benefit D. Partial Disability Benefit Answer: A. Return-to-Work Provision The Return-to-Work Provision encourages the insured to return to work part-time or in a different capacity by al- lowing them to receive partial disability benefits, aiding t