Life Practice Exam 1 Part 3

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1. Which of the following statements describing whole life insurance are correct?

I. The face amount of the policy stays the same as long as the policy remains in force.

II. The shorter a premium period is, the slower the cash value will grow.

III. The policy’s cash value decreases each year the policy is in force.

IV. Whole life insurance is designed to mature at age 100.

a) I and II only c) II and IV only

b) I and IV only d) I and III only


2. Which word best decribes to whom the policy’s cash values belong?

a) policyowner c) beneficiary

b) insured d) insurer


3. All of the following statements regarding basic forms of whole life insurance are correct, except:

a) Generally, straight life premiums are payable, at least annually, for the duration of the insured’s life.

b) The owner of a 30 - pay life policy will owe no more premiums after the 30th year the policy is in force.

c) Limited payment life provides protection only for the years during which premiums are paid.

d) A single premium life policy is purchased with a large one time only payment


4. Which of the following statements regarding modified endowment contracts (MECs) is/are correct?

I. A 1988 revenue act, commonly known as TAMRA, greatly increased the popularity of the MECs

II. Congress has granted the MEC the most favorable tax treatments of all life insurance contracts

III. To avoid being classified as an MEC, a life insurance policy must pass the "7 pay test"

IV. According to the "7 pay test", if the total amount a policyowner pays into a life contract during its first 7 years is less than the sum of the net level premiums that awould have been payable to provide paid-up future benefits in 7 years, the policy is an MEC.

a) I and II only c) III only

b) II and III only d) III and IV only


5. Which of the following types of policies allows for a more manageable premium structure by offering lower premiums during the first few years following issue?

a) modified endowment contract c) graded premium whole life

b) adjustable whole life d) Universal life policy


 6. Three business partners individually agree to acquire the interest of a deceased partner and own life insurance on each of the other partners in the amount of his or her share of the business’s buy-out value. What is decribed here is:

a) an equity buy-sell plan

b) a stock redemption buy-sell arrangement

c) a cross-purchase buy-sell plan

d) a Keough plan


7. Which of the following statements regarding key-person insurance is NOT correct?

a) key person life insurance indemnifies a business for financial loss caused by the death of a key employee or key executive

b) the business may borrow from the cash value of a permanent policy

c) the policy’s death proceeds received by the business are not taxable

d) premiums for a key person life insurance policy are a tax deductible expense to the business entity


8. Which of the following statements regarding deferred compensation plans is most correct?

a) a deferred compensation plan must always be designed as a qualified benefit plan

b) life insurance is not a permissable funding mechanism, but annuities are

c) they permit a business to provide extra benefits to officers, executives, and other highly paid employess

d) a deferred compensation plan must be made available to all employees who have satisfied the "waiting and probationary" periods for benefits

9. With three partners in a business, how many life insurance policies would be required to insure a cross-purchase buy-sell plan?

a) 3 c) 9

b) 6 d) 1


10. Albert and his employer agree on the purchase of a split-dollar life insurance policy and the usual split-dollar approach to premium payments. Each year, the employer will contribute to the premium amount equal to:

a) one-half the premium

b) 75% of the premium

c) the increase in the policy’s cash value growth

d) the employee paid amounts


11. David is 47 years old and married. He has a son age 19, a freshman at a local college and a daughter, age 9. Decreasing term insurance could be recommended for David for which of the following reasons?

a) help with retirement income

b) guarantee a college education fund for the son

c) provide for payment protection

d) provide a college fund for his daughter


12. Which of the following satements regarding Blue Cross and Blue Shield organizations is/are correct?

I. Blue Cross provides surgical expense prepayment plans

II. Blue Shield provides hospital expense prepayment plans

III. Reimbursement for hospital and medical expenses is made directly by Blue Cross and Blue Shield to the subscriber

IV. Both Blue Cross and Blue Shield plans are available on a group basis

a) I,II and III c) IV only

b) III only d) all of the above


13. Which of the following organizations would make reimbursement payments directly to the insured individual for covered medical expenditures?

a) Blue Cross/Blue Shield

b) commercial insurer

c) preferred provider organization

d) HMO


14. Merlin just received his first Social Security disability payment. From this information we can conclude:

a) he had been accepted by Medicare

b) he has recently retired at 65 and is now elgible

c) his disability is expected to last at least 12 months

d) his disability began 90 days ago


15. Which of the following statements pertaining to health maintainance organizations (HMOs) is/are correct?

a) an insurance company that also markets group health insurance is known

as an HMO

b) if a person joins an HMO and undergoes a physical examination, he or she will be billed for the exam and each subsequent medical service as it is performed

c) an insurance company may sponsor an HMO or assist an HMO by providing contractual services

d) all of the above


16. The waiting period before qualifying for Social Security benefits is:

a) 3 months c) 6 months

b) 5 months d) 12 months


17. Which of the following statements regarding worker’s compensation palns is/are correct?

a) benefits follow federal law

b) benfits are payable if employer is found to be negligent

c) financing of benefits can be done by, insurers, state funds or self insurance

d) all of the above


18. All of the following are primary risk factors in underwriting individual health insurance policies, except:

a) geographical location c) occupation

b) moral hazard d) physical condition


19. Which of the following statements most appropriately decribes health insurance benefits?

a) each policy covers a certain risk

b) claims, not benefits, affect premium rates

c) policyowners who have policies with identical benefits pay the same premiums

d) the greater the benefits the higher the premiums


20. Which of the following would probably not be considered in underwriting a health insurance risk?

a) a person’s personal habits

b) a person’s credit rating

c) a person’s medical history

d) person’s marital status


21. Which of the following factors would affect a health policy’s premium rate?

I. age of the insured

II. occupation of the insured

III. type of benefit provided

IV. the company’s expense factor


22. Robert, who has no health insurance, experienced $3,000 in medical expenses this year. Assuming his adjusted gross income was $29,000, how much of those medical expenses can he deduct from his income taxes, if any?

a) $0 c) $3,000

b) $825 d)$2,175


23. A table that reflects the average number of disabilities due to sickness or accidents at various ages is a/an

a) mortality table c) commissioners table

b) morbidity table d) underwriting table


24. The effect of an impairment rider attached to a health insurance policy is to:

a) increase the premium c) exclude certain conditions

b) decrease benefits d) all of the above


25. Donald is a participant in his company’s group health plan. One of the plan’s provisions specifies that, in the event he is elgible for benefits under another policy, his group plan will serve as the primary plan. What is the name given to such a provision?

a) excess coverage c) stop-loss coverage

b) coordination of benefits d) double indemnity


26. A vacation cruise line wants group health coverage for its passengers while on the cruise line. Which best describes the coverage needed?

a) franchise health insurance c) blanket coverage

b) credit health insurance d) true group plan


27. The purpose of the COBRA law concerns:

a) nondiscrimination in group health plans c) coordination of benefits

b) continuation of health insurance d) Medicare coverages


28. John’s group health plan provides basic hospital expense coverage and supplemental major medical coverage. What type of deductible would John have, if any?

a) flat b) dual c) corridor d) none


29. Susan is covered by her employers’s noncontributory group income plan, the premium for which is $50 a month. If she were to become disabled and receive $1,000 a month, how much of each benefit payment would be taxable income to her?

a) $1,000 c) $50

b) $950 d) $0


30. All of the following statements regarding group disability income plans are true, with the exception of:

a) benefits are specified in terms of a percentage of the participant’s wages

b) benefits paid under the group plan are supplemental to worker’s compensation benefits

c) employees covered under both a short term and long term plan collect benefits from each simultaneously

d) a minimum length of service may be required before an employee is elgible to participate in the plan.


31. Which of the following are elgible for participation in Part B of Medicare?

I. retired railroad worker

II. disabled person who has collected Social Security benefits for at least 24 months

III. a 65 year old retiree collecting Social Security retirement benefits

IV. resident alien who has lived in the U.S. for 5 years

a) II and III

b) I and IV


d) all of the above


32. Which of the following is true regarding Part B benefits for blood?

a) blood is covered in full after the first three pints

b) blood is not covered under Part B

c) blood is covered at 80% after the first three pints

d) blood is covered at 20% after the first three pints


33. A retired worker incurs a $1,000 outpatient psychiatric expense. Assuming the deductible is satisfied, how much of this expense will be covered?

a) $1,000 b) $800 c) $500 d) $200


34. Probably the primary reason a person would purchase LTC insurance is to:

a) have nursing home coverage

b) protect personal assets

c) be independent of financial help from family members

d) have some coverage in addition to Medicaid benefits


35. The lifetime reserve days under Part A of Medicare total:

a) 30 b) 60 c) 90 d) 120


36. All of the following are Part A benefits except:

a) surgeon’s fees

b) home health care

c) skilled nursing care

d) hospice care


37. If a person decides not to purchase a Medicare Supplement policy, approxiamtely how much total expense liability could the individual incur under Part A?

a) more than $30,000

b) no more than $20,000

c) less than $10,000

d) less than $10,000 plus the Part A deductible


38. The organization which exercises some control over the states regarding Medicare Supplements and implements model legislation for states to adopt is the:

a) federal government


c) state government

d) state insurance department


39. Which of the following are minimum standard requirements for Medicare Supplement policies?

I. both Part A and Part B deductibles must be reimbursed

II. medicare supplements must have a 30 day free look period

III. there must be annual automatic adjustments to reflect changes in Medicare deductibles and copayments

IV. benefits for skilled nursing care must be provided

a) I,III b) II,IV c) II,III d) I,II,III,IV


40. The reserve days copayment under Part A is equal to:

a) half of Part A deductible

b) twice of Part A deductible

c) one-forth Part A deductible

d) the Part A deductible


41. Most states require that preexisting conditions be covered under a Medicare Supplement after:

a) one month

b) three months

c) four months

d) six months


42. Mark has a comprehensive Medicare Supplement which provides 80% excess coverage for Part B. He has satisfied his deductible and incurs a $2,000 surgical cost. The allowable charge is $1,500. How much of the surgical expense will be covered by the supplement?

a) $300 b) $500 c) $700 d) $800


43. A Medicare beneficiary has requested a formal hearing regarding a dispute over a Part A Medicare benefit payment. This hearing will be conducted by a:

a)fiscal intermediary b) court judge c)carrier d) Peer Review Organization


44. All of the following are true regarding home health care benefits except:

a) Part A provides for an unlimited number of home health care days

b) care must be intermittent

c) care cannot be full time

d) only skilled nursing can be provided


45. Which of the following is (are) correct regarding the Part A deductible?

I. the Part A deductible is a calendar year deductible

II. the deductible changes each year

III. the deductible is generally the only out of pocket expense to a person during the first 60 days of hospitalization

IV. the copayment for days 61-90 is equal to a quarter of the Part A deductible

a) II only b) I and II c) II,III,IV d) I,II,III,IV


46. Maria is in need of skilled nursing care and is confined to a nursing home for 30 days. The daily charge is $65. Assuming the Part A deductible has been satisfied, how much of the total bill will Maria have to pay?

a) nothing

b) $650

c) $520

d) $130


47. A provider who accepts an assignment will:

a) not bill the patient for any excess charges

b) may bill the patient for excess charges

c) only bill Part B excess charges

d) only bill the patient for 10% of any excess charges


48. Peter did not enroll for Part B of Medicare when he was elgible. Two years later, he decides to enroll in Part B. The Part B premium is $40. Peter will pay:

a) $40 b) $42 c) $44 d) $48


49. Which of the following are correct regarding the effective date of Part A coverage?

I. coverage is effective the first of the month in which the person becomes 65

II. coverage can be effective after receipt of 24 months of Social Security disability payments

III. coverage can be effective the first of the month following enrollment for Part A

IV. coverage can be effective the third month following the month the person began dialysis treatment for kidney failure

a) I,II b) III only c) I,II and IV d) all of the above


50. A provider who accepts the Medicare allowable amount as payment in full for services is a (an):

a) participating provider

b) excess coverage provider

c) non-participating provider

d) HMO provider


 Answers to Part 3

1- c 2- a 3- c 4- c 5- c 6- c 7- d 8- c 9- b 10- c 11- c 12- c 13- b

14- c 15- c 16- b 17-c 18- a 19- d 20- d 21- d 22- b 23- b 24- c

25- b 26- c 27- b 28- c 29- a 30- c 31-d 32- c 33- c 34- b 35-b

36- a 37-a 38-b 39-c 40- a 41- d 42-c 43-a 44- d 45-c 46-b 47-a

48-d 49-c 50-a


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