Life and Health Insurance License Exam Cram™

93

Transcript of Life and Health Insurance License Exam Cram™

Page 2: Life and Health Insurance License Exam Cram™

Life and HealthInsuranceLicense

800 East 96th Street, Indianapolis, Indiana 46240

Page 3: Life and Health Insurance License Exam Cram™

Life and Health Insurance License Exam CramCopyright © 2005 by Que Publishing

All rights reserved. No part of this book shall be reproduced, stored ina retrieval system, or transmitted by any means, electronic, mechanical,photocopying, recording, or otherwise, without written permissionfrom the publisher. No patent liability is assumed with respect to theuse of the information contained herein. Although every precautionhas been taken in the preparation of this book, the publisher andauthor assume no responsibility for errors or omissions. Nor is any lia-bility assumed for damages resulting from the use of the informationcontained herein.

International Standard Book Number: 0-7897-3260-2

Library of Congress Catalog Card Number: 2004112114

Printed in the United States of America

Fifteenth Printing: June 2013

TrademarksAll terms mentioned in this book that are known to be trademarks orservice marks have been appropriately capitalized. Que Publishing can-not attest to the accuracy of this information. Use of a term in thisbook should not be regarded as affecting the validity of any trademarkor service mark.

Warning and DisclaimerEvery effort has been made to make this book as complete and as accu-rate as possible, but no warranty or fitness is implied. The informationprovided is on an “as is” basis. The author(s) and the publisher shallhave neither liability nor responsibility to any person or entity withrespect to any loss or damages arising from the information containedin this book or from the use of the CD or programs accompanying it.

Bulk SalesQue Publishing offers excellent discounts on this book when orderedin quantity for bulk purchases or special sales. For more information,please contact

U.S. Corporate and Government [email protected]

For sales outside the U.S., please contact

International [email protected]

PublisherPaul Boger

Executive EditorJeff Riley

Acquisitions EditorCarol Ackerman

Development EditorGus Miklos

Managing EditorCharlotte Clapp

Project EditorElizabeth Finney

Copy EditorNancy Albright

IndexersKen JohnsonMandie Frank

ProofreaderTracy Donhardt

Technical EditorTeresa Chapman

Publishing CoordinatorPamalee Nelson

Multimedia DeveloperDan Scherf

Interior DesignerGary Adair

Cover DesignerAnne Jones

Page 4: Life and Health Insurance License Exam Cram™

Study Quicker, Score Higher™

The test is in 2 weeks –are you ready?The test is in 2 weeks –are you ready?You need a quick and efficient way to make sureyou have what it takes to pass.

Where do you go?

Exam Cram!

Why?

Que Certification Exam Cram titles have exactly what you need to pass your exam:

• Key terms and concepts highlighted at the start of eachchapter

• Notes, Tips, and Exam Alerts advise what to watch out for

• End-of-chapter sample Exam Questions with detailed dis-cussions of all answers

• Two text-based practice tests with answer keys at the endof each book

• The tear-out Cram Sheet condenses the most importantitems and information into a two-page reminder

• A CD that includes BISYS Practice Tests for complete evaluation of your knowledge

• Our authors are recognized experts in the field. In mostcases, they are current or former instructors, trainers, orconsultants—they know exactly what you need to know!

www.examcram.comQue Certification: Your Complete Resource!

Property and Casualty Insurance Exam CramBISYS® Education Services0-7897-3264-5$34.99 US/$49.99 CAN/£24.99 Net UK

Page 5: Life and Health Insurance License Exam Cram™

About the Authors

About BISYSThe BISYS Group, Inc. (NYSE: BSG), headquartered in New York City, pro-vides solutions that enable insurance companies, investment firms, and banksto expand their businesses and run their operations more profitably. BISYScurrently supports more than 22,000 domestic and international financialinstitutions and corporate clients through several business units.

BISYS Education Services is the nation’s premier provider of licensing prepa-ration, continuing education, and professional development courses for life,health, long-term care, annuity, and property-casualty insurance products aswell as investments. This unit complements its education services with acomprehensive compliance management solution that supports insuranceand investment firms and professionals with a sophisticated suite of servicesthat automate the entire licensing process.

BISYS Insurance Services is the nation’s largest independent distributor of lifeinsurance and provider of support services required to sell traditional andvariable life and annuity products as well as long-term care and disabilityinsurance. This unit is also the nation’s second largest independent wholesaledistributor of commercial property/casualty insurance.

BISYS Investment Services group provides administration and distributionservices for approximately 380 clients, representing more than 2,200 mutualfunds, hedge funds, private equity funds, and other alternative investmentproducts, with approximately $750 billion in assets under administration. Italso provides retirement services to more than 18,000 companies in partner-ship with 40 of the nation’s leading banks and investment management com-panies and offers analytical research and competitive information through itsFinancial Research Corporation (FRC) subsidiary.

BISYS’ Information Services group supports approximately 1,450 banks,insurance companies, and corporations with industry-leading information

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page 6: Life and Health Insurance License Exam Cram™

processing and imaging solutions, turnkey asset retention solutions, and spe-cialized corporate banking solutions. Additional information is available atwww.bisys.com.

Eric Alan Anderson is Director of Insurance Education for BISYSEducation Services, based in Indianapolis, Indiana. He has almost 25 years ofexperience creating training and test preparation materials for the financialservices industry. In addition to authoring 17 insurance training texts andediting 8 others, he has written newsletters and magazine articles and hasdeveloped materials for audio cassette/workbook, videotape, computer disk,and the Web. He has also taught basic English skills courses at the collegelevel and has made presentations to national conferences of insurance asso-ciations.

Matt McClure is Editor of Life/Health Products for BISYS EducationServices. He maintains 42 titles on BISYS Education Services’ course list,including the Life/Health Concepts license preparation text and its supple-mentary review materials. Formerly a freelance writer and editor, his workhas appeared in numerous nationally published books and magazines. He isa licensed life and health insurance producer.

Richard A. Morin, CIC, is a contract author based in Los Angeles,California. He has 35 years of experience writing and training on a broadrange of subjects for the financial services industry. For several years he wasan editor for a major insurance training publisher, and he has also worked asan insurance underwriter, a rating supervisor, and a licensed insurance andmutual fund sales representative.

About the ReviewerTeresa Chapman has been in the insurance business since 1996, upon grad-uation from Ball State University in Muncie, IN. She started her career withState Farm Insurance Company as a Life and Health Underwriter. A seriesof moves with State Farm led to a variety of jobs; supervisor of Life andHealth Policy Changes, and Life and Health compliance officer, and culmi-nated in her decision to be a State Farm insurance agent located in Carmel,IN. Teresa now lives in Noblesville, IN, with her husband Trent, a StateFarm auto claim representative, and their son, Christian.

Page 7: Life and Health Insurance License Exam Cram™

We Want to Hear fromYou!

As the reader of this book, you are our most important critic and commenta-tor. We value your opinion and want to know what we’re doing right, whatwe could do better, what areas you’d like to see us publish in, and any otherwords of wisdom you’re willing to pass our way.

As an executive editor for Que Publishing, I welcome your comments. Youcan email or write me directly to let me know what you did or didn’t likeabout this book—as well as what we can do to make our books better.

Please note that I cannot help you with technical problems related to the topic of thisbook. We do have a User Services group, however, where I will forward specific tech-nical questions related to the book.

When you write, please be sure to include this book’s title and author as wellas your name, email address, and phone number. I will carefully review yourcomments and share them with the author and editors who worked on thebook.

Email: [email protected]

Mail: Dave DusthimerEditor in ChiefPearson IT Certification800 East 96th StreetIndianapolis, IN 46240 USA

For more information about this book or another Que Certification title,visit our Web site at www.examcram.com. Type the ISBN (excludinghyphens) or the title of a book in the Search field to find the page you’relooking for.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page 8: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Contents at a Glance

Introduction xxvii

Self-Assessment xxxv

Chapter 1 Introduction to Insurance 1

Chapter 2 Insurance Regulation 23

Chapter 3 Insurance Law 55

Chapter 4 Underwriting Basics 73

Chapter 5 Group Insurance 91

Chapter 6 Selling Life Insurance 101

Chapter 7 Policy Issuance and Delivery 121

Chapter 8 Types of Insurance Policies 137

Chapter 9 Policy Provisions 177

Chapter 10 Policy Options 205

Chapter 11 Annuities 221

Chapter 12 Group Life Insurance 239

Chapter 13 Social Security and Tax Considerations 247

Chapter 14 Retirement Plans 265

Chapter 15 Health Insurance Basics 281

Chapter 16 Health Insurance Policy Underwriting, Issuance,and Delivery 309

Chapter 17 Health Insurance Policy Provisions 321

Chapter 18 Disability Income Insurance 345

Page 9: Life and Health Insurance License Exam Cram™

Chapter 19 Medical Expense Insurance 363

Chapter 20 Special Types of Medical Expense Policies 385

Chapter 21 Group Health Insurance 397

Chapter 22 Social Health Insurance 411

Chapter 23 Long-Term Care 433

Chapter 24 Health Insurance Taxation 451

Chapter 25 Practice Exam 1 461

Chapter 26 Answer Key 1 471

Chapter 27 Practice Exam 2 477

Chapter 28 Answer Key 2 487

Appendix A What’s on the CD-ROM 493

Appendix B Need to Know More 497

Glossary 501

Index 527

Page 10: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table of Contents

Introduction...................................................................xxvii

Self-Assessment .............................................................xxxv

Chapter 1Introduction to Insurance ......................................................1

Risk 2Perils and Hazards 3Managing Risk 3Law of Large Numbers 4Insurable Interest 5Insurable Risks 6

Insurance Coverage Concepts 7Indemnity 7Limit Of Liability 8Deductibles 8Coinsurance 9

Types of Insurance 9Types of Insurers 10

Commercial Insurers 11Nonprofit (Service) Organizations 11Other Types of Private Insurers 12Self-Insurers 13The United States Government as an Insurer 13

Domicile and Authorization 14Insurer’s Domicile (Domestic, Foreign, and Alien Insurers) 14Authorized Versus Unauthorized (Admitted VersusNonadmitted) 15

Types of Distribution Systems 15Agency System 15Mass Marketing 16Internet Insurance Sales 17

Page 11: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .x Table of Contents

Insurance Producers 17Categories of Producers 17

Exam Prep Questions 19Exam Prep Answers 22

Chapter 2Insurance Regulation .........................................................23

Federal Regulation 24Paul Versus Virginia 24South-Eastern Underwriters Decision 24McCarran-Ferguson Act 25Privacy Act Of 1974 25Fair Credit Reporting Act 27False or Fraudulent Statements 30Financial Services Modernization Act Of 1999 31Other Regulating Agencies 32

State Insurance Regulation 32Commissioner’s Scope and Duties 32

Regulating Insurance Companies 33Insurer Solvency 34Investments 34Taxation of Life Insurance Companies 34Company Ratings 35Examination of Insurers 35Guaranty Associations 36Marketing and Advertising Life and Health Insurance 36

Producer Regulation 37Licensing Regulation 37License Required 37Exceptions To License Requirements 38Nonresident Producer Licensing 39

Obtaining a License 40Application for Examination 40Issuance of License 40Temporary Agent Licenses 40

Maintaining a License 41Change of Address 41Assumed Names 41Office and Records 41Continuation, Expiration, and Renewal of License 42Notice of Appointment 42Termination of Appointment 43License Denial, Nonrenewal, or Revocation 43

Page 12: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiTable of Contents

Regulated Practices 44License for Controlled Business Prohibited 45Unfair Trade Practices 45Unfair Claims Practices 47

Self-Regulation 49The NAIC 49

Exam Prep Questions 50Exam Prep Answers 53

Chapter 3Insurance Law ..................................................................55

Agency Law 56Agency Law Principles 56

Formation of a Life and Health Insurance Contract 60Contract Elements 60Parts of the Insurance Contract 62

Legal Requirements 63Contract Construction 63Contract Characteristics 64

Exam Prep Questions 68Exam Prep Answers 71

Chapter 4Underwriting Basics ...........................................................73

The Underwriting Process 74Selection Criteria 75Sources of Underwriting Information 75Field Underwriting 80

Classification of Risks 81Standard Risks 81Preferred Risks 82

Determination of Premiums (Rating Considerations) 83Mortality or Morbidity 83Interest 84Expenses 84Premium Mode 86

Loss Ratios 86Insurance Fund Reserves 87Exam Prep Questions 88Exam Prep Answers 90

Page 13: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xii Table of Contents

Chapter 5Group Insurance ...............................................................91

Types of Groups 92Group Premiums 93Group Underwriting Considerations 93

Adverse Selection 94Probationary Period 94Eligibility Period 95

Requirements in Group Underwriting 95Statutory Requirements 95Optional Requirements 96

Funding of Group Insurance 97Exam Prep Questions 98Exam Prep Answers 100

Chapter 6Selling Life Insurance .......................................................101

Meeting Consumer Needs 102The Importance of Insurance 102Costs Associated with Death 102Human Life Value Approach 103Needs Approach 104Income Periods 104Capital Conservation and Capital Liquidation 105Estate Planning 105Other Sources of Funds 106Living Benefits 107Advantages as Property 107

Comparing Insurance Policies 108Comparative Interest Rate Method 109Interest-Adjusted Net Cost Method 109

Personal Uses of Life Insurance 110Charitable Uses of Life Insurance 111

Business Uses of Life Insurance 111Sole Proprietorship 112Partnership 112Corporations 113

Exam Prep Questions 117Exam Prep Answers 120

Page 14: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contents xiii

Chapter 7Policy Issuance and Delivery ..............................................121

Collection of Premium 122Receipts for Premium 122

Conditional Receipt 122Binding Receipt 123Inspection Receipt 124Temporary Insurance Agreement 124

Submitting the Application and Initial Premium 124Issuing the Policy 125

Delivering and Servicing the Policy 125Personal Delivery 125Mailing the Policy 126

Handling a Claim 126Payment of Claims 126Payment Less than Face Amount 127Producer Responsibilities upon Insured’s Death 128

Policy Replacement 129Duties of Producers 130Duties of the Insurer 130

Policy Retention 131Professionalism and Ethics 131

Fiduciary Responsibility 131Summary of the Producer’s Responsibilities 132

Exam Prep Questions 133Exam Prep Answers 135

Chapter 8Types of Insurance Policies ................................................137

Term Insurance 138Characteristics of Term Policies 138Types of Term Policies 139Advantages and Uses of Term Insurance 141Disadvantages of Term Insurance 142

Whole Life Insurance 143Characteristics of Whole Life Policies 143Types of Whole Life Policies 145Advantages and Uses of Whole Life Insurance 147Disadvantages of Whole Life Insurance 147

Flexible Policies 147Adjustable Life Insurance 147Universal Life 148

Page 15: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contentsxiv

Variable Life Insurance 151Variable Universal Life 153Advantages and Uses of Flexible Policies 154Disadvantages Of Flexible Policies 154

Industrial Life Insurance 155Industrial Life Policy Provisions 155

Credit Life Insurance 156Credit Life Policy Provisions 156

Specialized Policy Forms 157Endowments 157Family Income Policies 158Family Maintenance Policies 159The Family Policy (Family Protection Policy) 159Retirement Income Policy 160Joint Life Policies 160Juvenile Policies 161Minimum Deposit Policies 161Modified Premium Policies 161Graded Premium Plan 162Mortgage Redemption 162Multiple Protection 162Index-Linked Policies 162Deposit Term Insurance 163Pre-need Funeral Insurance 163Advantages and Uses of Specialized Policies 163Disadvantages of Specialized Policies 164

Insurance Policy Riders 164Accidental Death (Double Indemnity) 164Waiver of Premium 165Disability Income Rider 167Payor Rider 168Guaranteed Insurability 168Return of Premium 169Return of Cash Value 169Cost of Living 169Additional Insureds 170Substitute Insured Rider 170

Accelerated Benefits 171Living Benefit Provisions 171Viatical Settlements 172

Exam Prep Questions 173Exam Prep Answers 176

Page 16: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contents xv

Chapter 9Policy Provisions .............................................................177

Standard Provisions 178Insuring Clause 178Consideration Clause 178Execution Clause 179Payment of Premium 179Ownership Rights 179Applicant Control or Ownership Clause 180Grace Period 181Reinstatement 181Policy Loan Provisions 182Automatic Premium Loan Provision 183Incontestability Clause 183Suicide Clause 184Entire Contract 184Assignment Clause 185Misstatement of Age or Sex 187Medical Examinations and Autopsy 188Modifications Clauses 188Policy Change Provision (Conversion Option) 189Free Look 189

Beneficiary Provisions 189Revocable Versus Irrevocable 190Succession of Beneficiaries 191Naming of Beneficiaries 192Designation Options 192Class Designations 194Per Capita and Per Stirpes 195The Uniform Simultaneous Death Act 196Spendthrift Clause 197Facility of Payment Provision 198

Exclusions and Limitations 198Aviation Exclusion 198War or Military Service Exclusion 199Hazardous Occupation or Hobby Exclusion 199

Prohibited Provisions 200Exam Prep Questions 201Exam Prep Answers 204

Page 17: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contentsxvi

Chapter 10Policy Options ................................................................205

Settlement Options 206Interest Only Option 207Fixed Period Option 207Fixed Amount Option 208Life Income Option 209Withdrawal Provisions 209Other Settlement Arrangements 210Third-Party Rights and Creditor’s Rights 210Advantages of Settlement Options 211

Nonforfeiture Options (Guaranteed Values) 211Cash Surrender Value 211Reduced Paid-Up Insurance Option 212Extended Term Option 213

Insurance Dividends 213Policy Dividend Sources 214Dividend Options 214

Cash Dividend Option 215Accumulation at Interest Option 215Paid-Up Additions Option 215Reduce Premium Dividend Option 216Accelerated Endowment 216Paid-Up Option 216One-Year Term Dividend Option 217

Exam Prep Questions 218Exam Prep Answers 220

Chapter 11Annuities ......................................................................221

Purposes of Annuities 222Distribution of a Lifetime Income 222Accumulation of a Retirement Fund 222

How Annuities Work 223The Accumulation Period 223The Annuity Period 223Nonforfeiture Options 224

Immediate and Deferred Annuities 225Deferred Annuity Death Benefits 225Annuity Premiums 226

Single Premium 226Level Premium 226

Page 18: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contents xvii

Flexible Premium 226Determining Annuity Payouts 227

Variable Annuities 228Regulation as Securities 228Accumulation Units 229Annuity Units 230

Annuity Settlement Options 231Life Annuities 231Guaranteed Minimum Payouts 231Joint Life and Survivorship and Joint Life Annuities 232Temporary Annuity Certain 233

Two-Tiered Annuities 233Tax-Sheltered Annuities 234Retirement Income Annuities 234Equity-Indexed Annuities 234Market-Value Adjusted Annuities 235Exam Prep Questions 236Exam Prep Answers 238

Chapter 12Group Life Insurance ........................................................239

Legal Requirements 240Standard Provisions 241Certificates of Insurance 241Policy Forms 242Dependent Coverage 242Group Conversion Option 243FEGLI and SGLI 244Exam Prep Questions 245Exam Prep Answers 246

Chapter 13Social Security and Tax Considerations ..................................247

Social Security 248Covered Workers 248Types of Benefits 248Eligibility for Social Security 248Insured Status 249Primary Insurance Amount 250Normal Retirement Age 250Dual Benefit Eligibility 251Retirement Benefits 251Survivor Benefits 251

Page 19: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contentsxviii

Disability Benefits 252Maximum Family Benefit 253Earnings Limit 253

Social Security Payroll Taxes 253Taxation of Social Security Benefits 254

Income Tax Treatment of Life Insurance 254Individual Life Insurance 254Group Life Insurance Proceeds 258

Doctrine of Economic Benefit 258Federal Estate Tax 259Charitable Uses of Life Insurance 259Other Gifts of Life Insurance 260Transfer for Value Rules 260Section 1035 Policy Exchanges 261Business Insurance 261Exam Prep Questions 262Exam Prep Answers 264

Chapter 14Retirement Plans .............................................................265

Qualified and Nonqualified Retirement Plans 266Vesting Rules 266Defined Benefits Plans 267

Group Deferred Annuity 267Individual Deferred Annuity 267

Defined Contribution Plans 268Profit-Sharing Plans 268Pension Plans 268

Individual Retirement Accounts and Annuities—IRAs 269Roth IRAs 271Savings Incentive Match Plan for Employees (SIMPLE) 271Simplified Employee Pensions (SEPs) 272

KEOGH Plans 273Tax-Deferred Annuity Arrangements—403(B) Arrangements 273Plan Distributions 273Incidental Limitations 274Taxation of Plan Benefits 274

Rollovers 275The Employee Retirement Income Security Act (ERISA) 275

Fiduciary Responsibility 275Reporting and Disclosure 276

Exam Prep Questions 277Exam Prep Answers 279

Page 20: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contents xix

Chapter 15Health Insurance Basics ....................................................281

Types of Losses and Benefits 282Loss of Income from Disability 282Accidental Death and Dismemberment (AD&D) 282Medical Expense Benefits 282Dental Expense Benefits 283Long-Term Care Insurance (LTC) 283Limited Health Exposures and Insurance Contracts 283Prescription Coverage 284

Determining Insurance Needs 284Health Care Providers 285Health Care Plans 285

Commercial Insurers 285Blue Cross and Blue Shield 286Health Maintenance Organizations (HMOs) 287Federal Requirements 288HMO Organization 289Basic and Supplemental Services 291Important Features Of HMOs 293

Preferred Provider Organizations (PPOs) 295Point-of-Service Plans 296

Exclusive Provider Organizations (EPOs) 296Emerging Variations 297Multiple Option Plans 297

Employer-Administered Plans 297Self-Funding 297501(c)(9) Trusts 299Small Employers 299Cafeteria Plans 300Multiple Employer Trusts (METs) 300Multiple Employer Welfare Arrangements (MEWAs) 300

Other Forms of Group Insurance 301Blanket Policies 301Franchise Policies 301

Government Health Insurance 302Workers Compensation 302Medicaid 303TRICARE 304

Exam Prep Questions 305Exam Prep Answers 307

Page 21: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contentsxx

Chapter 16Health Insurance Policy Underwriting, Issuance, and Delivery ......309

Underwriting Objectives 310Premium Payments 310

Definition of Premium 310Earned and Unearned Premium 310Payment Modes 311Initial Premium 311Policy Effective Date 312Policy Term 312Policy Fee 312

Delivering the Policy 313Servicing the Policy 314Replacement Policies 314Professionalism and Ethics 315

Fiduciary Responsibility 316Summary of the Producer’s Responsibilities 316

Exam Prep Questions 317Exam Prep Answers 319

Chapter 17Health Insurance Policy Provisions .......................................321

Mandatory Provisions 322Required Provision 1: Entire Contract; Changes 322Required Provision 2: Time Limit on Certain Defenses;Incontestability 323Required Provision 3: Grace Period 323Required Provision 4: Reinstatement 324Required Provision 5: Notice of Claim 325Required Provision 6: Claim Forms 326Required Provision 7: Proof of Loss 326Required Provision 8: Time of Payment of Claims 327Required Provision 9: Payment of Claims 327Required Provision 10: Physical Examination and Autopsy 329Required Provision 11: Legal Actions 329Required Provision 12: Change of Beneficiary 329

Optional Policy Provisions 330Optional Provision 1: Change of Occupation 330Optional Provision 2: Misstatement of Age 331Optional Provision 3: Other Insurance in This Insurer 331

Page 22: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contents xxi

Optional Provisions 4 and 5: Insurance with Other Insurers 332Optional Provision 6: Relation of Earnings to Insurance—Average Earnings Clause 333Optional Provision 7: Unpaid Premium 334Optional Provision 8: Cancellation 334Optional Provision 9: Conformity with State Statutes 335Optional Provision 10: Illegal Occupation 335Optional Provision 11: Narcotics 336

Other Health Insurance Provisions 336The Policy Face 336Free Look 336Insuring Clause 337Consideration Clause 337Policy Continuation 337Benefit Payment Clause 339Preexisting Conditions 339Nonoccupational Coverage 339Case Management Provisions 340

Exam Prep Questions 341Exam Prep Answers 343

Chapter 18Disability Income Insurance ...............................................345

Financial Planning Considerations 346Alternatives to Disability Income Insurance 346Definitions and Benefits 347

Probationary Period 347Elimination Period 347Benefit Period 348Defining Total Disability 348Presumptive Disability 349Partial Disability 349Residual Disability 350Recurrent Disability 350Permanent Disability 350Temporary Disability 350Confining Versus Nonconfining Disability 351Accidental Means 351Definition of Sickness 351

Page 23: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contentsxxii

Types of Disability Benefits 351Short-Term Disability 352Long-Term Disability (LTD) 352Lump-Sum Benefits 352

Disability Exclusions 352Optional Disability Income Policy Benefits and Riders 353

Rehabilitation Benefit 353Future Increase Option 353Cost of Living Benefit 353Lifetime Benefits 354Social Security Rider 354Social Insurance Supplements 355Additional Monthly Benefit (AMB) Riders 355Hospital Confinement Rider 355Impairment Rider 355Nondisabling Injury Rider 355Waiver of Premium (with Disability Income) 356Accidental Death and Dismemberment (AD&D) 356Other Provisions 356

Business Uses of Disability Income Insurance 357Business Overhead Expense (BOE) 357Key Person Disability Insurance 357Disability Buy-Sell Insurance 358Disability Reducing Term Insurance 358

Exam Prep Questions 359Exam Prep Answers 361

Chapter 19Medical Expense Insurance ................................................363

Basic Medical Expense 364Hospital Expense Benefits 364Surgical Expense Benefits 365Regular Medical Expense Benefits 366Other Medical Expense Benefits 367Common Exclusions and Limitations 369

Major Medical Insurance 371Comprehensive Major Medical Benefits 371Supplemental Major Medical Benefits 372Covered Expenses 372Other Major Medical Concepts 373Medical Expense Limitations 375

Benefits for Other Practitioners 377Medical Expense Exclusions 377

Page 24: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contents xxiii

Optional Features and Benefits 379Prescription Drugs 379Vision Care 379Hospital Indemnity Rider 380Nursing/Convalescent Home 380Organ Transplants 380

Exam Prep Questions 381Exam Prep Answers 383

Chapter 20Special Types of Medical Expense Policies .............................385

Dental Care Insurance 386Traditional Dental Coverage 386Exclusions and Limitations 388Minimizing Adverse Selection 388Prepaid Dental Plans 389

Limited Policies 390Dread Disease 390Travel Accident Insurance 390Hospital Income (Indemnity) Insurance 391Vision Care Insurance 391Prescription Drug Policies 391

Credit Insurance 392Notice of Proposed Insurance 393Credit Life: A Corollary Coverage 393

Exam Prep Questions 394Exam Prep Answers 396

Chapter 21Group Health Insurance .....................................................397

Group Health Insurance Policy Types 398Group Coverage Provisions 398

Conversion Privilege 399Dependent Coverage 400Coordination of Benefits Provision 400Records and Clerical Errors 401

Federal and State Regulations Affecting Group Policies 401Health Insurance Portability and Accountability Act (HIPAA) 401Continuation of Benefits (COBRA) 402

Omnibus Budget Reconciliation Act (OBRA) 404Tax Equity and Fiscal Responsibility Act (TEFRA) 405

Page 25: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contentsxxiv

Employee Retirement Income Security Act (ERISA) 405Age Discrimination in Employment Act (ADEA) 406The Americans with Disabilities Act (ADA) 406Pregnancy Discrimination 406State Regulation 407

Exam Prep Questions 408Exam Prep Answers 410

Chapter 22Social Health Insurance .....................................................411

Medicare 412Enrollment 412Benefits Under Medicare Part A 413What Part A Does Not Cover 415Benefits Under Medicare Part B 415What Part B Does Not Cover 418Claims and Appeals 418

Medicare Supplement Insurance 419Standardized Medicare Supplement Benefits 419

Core Benefits 419Optional Benefits 420Standardized Policy Forms 420Other Standard Provisions 421

Medicare+Choice 422Fee-for-Service Plans 422Health Maintenance Organizations (HMOs) 423Preferred Provider Organizations (PPOs) 423Provider-Sponsored Organizations (PSOs) 423

Medicare and Employer Coverage 424Medicaid 425

Financial Tests 425Spousal Impoverishment Rule 425Medicare Cost Assistance 425

Social Security Disability 426TRICARE 426Workers Compensation 427

Types of Benefits 427Compensable Injuries 427Occupational Diseases 427Types of Disability 428Compulsory and Elective Compensation Laws 428Extraterritorial Provisions 428Second Injury Funds 429

Page 26: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contents xxv

Exam Prep Questions 430Exam Prep Answers 432

Chapter 23Long-Term Care ..............................................................433

History of LTC Coverage 434Suitable Purchasers 435Probability of Needing Care 437Options Other than Insurance 437Rating Factors 438Types of Benefits 438Common Provisions 439

Eligibility 439Renewability 439Premiums 440Waiver of Premium 440Prior Hospitalization 440Care Level 440Hospice Care 441Respite Care 441Home Health Care 441Adult Day Care 441Professional Care Advisor 442Benefit Amount 442Benefit Periods 442Exclusions 443Preexisting Conditions 443Elimination Period 443

Benefit Triggers 443Activities of Daily Living (ADL) 443Cognitive Impairment 444Medical Necessity 444

Qualified Plans 444Regulation 445Emerging LTC Issues 445

Inflation Protection 445Nonforfeiture Provisions 446

Marketing LTC Coverage 446Exam Prep Questions 447Exam Prep Answers 449

Page 27: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contentsxxvi

Chapter 24Health Insurance and Taxation .............................................451

Social Security Disability Benefits 452Tax Treatment of Social Security Contributions 452

Health Insurance 452Individual Policies 452Group Policies 453Sole Proprietors and Partnerships 454Business Policies 454

Disability Insurance 455Medicare Supplement and Long-Term Care Insurance 455Exam Prep Questions 457Exam Prep Answers 459

Chapter 25Practice Exam 1 ..............................................................461

Chapter 26Answer Key 1 .................................................................471

Chapter 27Practice Exam 2 ..............................................................477

Chapter 28Answer Key 2 .................................................................487

Appendix AWhat’s on the CD-ROM ......................................................493

Review Questions and Exam Simulator 493Installing the CD 494Customer Service and Ordering 495

Appendix BNeed to Know More? ........................................................497

Glossary .......................................................................501

Index ............................................................................527

Page 28: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction

Welcome to Life and Health Insurance Licensing Exam Cram! Whether this isyour first or your fifteenth Exam Cram series book, you’ll find informationhere that will help ensure your success as you pursue knowledge, experience,and certification. This introduction explains state insurance licensing pro-grams in general and talks about how the Exam Cram series can help you prepare for your state insurance licensing exam. Chapters 1 through 19 aredesigned to remind you of everything you need to know in order to take—and pass—your state insurance licensing exam. The two sample tests at theend of the book should give you a reasonably accurate assessment of yourknowledge—and, yes, we provide the answers and their explanations to thetests. Read the book and understand the material, and you stand a very goodchance of passing the test.

Exam Cram books help you understand and appreciate the subjects andmaterials you need to pass state insurance licensing exams. Exam Cram booksare aimed strictly at test preparation and review. They do not teach youeverything you need to know to pass the exam. Instead, we present and dis-sect the questions and problems I’ve found that you’re likely to encounter ona test. I’ve worked to bring together as much information as possible aboutstate insurance licensing exams.

Nevertheless, to completely prepare yourself for any state insurance licens-ing test, we recommend that you begin by taking the Self-Assessment that isincluded in this book, immediately following this introduction. The Self-Assessment tool will help you evaluate your knowledge base against therequirements for a state insurance licensing exam under both ideal and realcircumstances.

Based on what you learn from the Self-Assessment, you might decide tobegin your studies with some more comprehensive self-study or classroomtraining, some practice with state insurance exam simulators, or an audioreview program. On the other hand, you might decide to pick up and readone of the many study guides available from third-party vendors on certaintopics. We also recommend that you supplement your study program with avisit to your state insurance department’s website to get all the details about

Page 29: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xxviii

how to get your insurance license as well as how to schedule and take yourinsurance licensing exam.

Getting an Insurance LicenseLicensing is the way governments assure that only qualified individuals areallowed to practice certain important professions, such as being an insuranceproducer. Because insurance is regulated primarily at the state level, the rulesfor getting an insurance license vary somewhat from state to state.

Every state requires individuals to pass a qualification exam to get an insur-ance license. In addition, most states require individuals to meet a prelicens-ing education requirement before they can take the qualification exam. Insome states, the prelicensing education requirement can be met through anapproved self-study course—that is, you buy a book that has been approvedin advance by the state insurance department and take an exam (not to beconfused with the licensing qualification exam) that you send in to be grad-ed. In other states, the prelicensing education requirement can be met onlyby attending an approved classroom course.

Introduction

This Exam Cram text is not approved to meet the prelicensing education requirementin any state. It is designed only as a supplementary aid to help you pass the stateinsurance licensing exam.

Besides fulfilling any prelicensing education requirement and passing thelicensing exam, insurance license candidates must also submit a license appli-cation to their state insurance department and have it approved. In somestates, the license application must be submitted before taking the licensequalification exam; in some states, it must be submitted after passing theexam. Call your state insurance department’s licensing division or visit itswebsite to find out what you need to do in your state.

Taking a Licensing ExamAs with other aspects of insurance licensing, specific instructions on how toregister for your qualification exam are available from the insurance depart-ment. Ask for a licensing information bulletin or a licensing candidate hand-book, which will describe where and when exams are given, the fees you mustpay, and the testing procedures.

Page 30: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxixIntroduction

One thing all state insurance qualification exams have in common is that theyare closed-book exams. You will not be allowed to take any study materialsor notes into the testing room. Even phones and calculators might not beallowed. In some states, the only items exam candidates are permitted to takeinto the testing room are their wallet and keys.

In most states, insurance qualification exams are given on computers.However, you will not need any computer or typing skills to take the exam.You will be instructed on how to answer questions and given a short practicetest to get comfortable with the equipment before the actual qualificationexam begins.

When you complete a computer-administered exam, the software tells youimmediately whether you passed or failed. Your states will have its own rulesfor retesting in the event you don’t pass. Those rules will be described inyour licensing information bulletin/candidate handbook.

How to Prepare for an ExamWhether or not your state has a prelicensing education requirement, you’llwant to study in preparation for the license qualification exam. And even ifyour state has a prelicensing education requirement, you’ll probably want todo some additional studying to make sure you are fully prepared for theexam. Your options for additional study include the following:

➤ Self-study courses—Publishers such as BISYS Education Services offercourses designed to allow you to study on your own for the licensing qual-ification exam. BISYS license training packages are available in eitherweb-based or print-based formats and contain a number of components:

➤ A Property-Casualty Concepts text, which covers all the non–state-specif-ic topics on the licensing exam

➤ Practice exams, which help you evaluate your comprehension of thematerial in the Concepts text

➤ Explanations to answers on the practice exams, so you know why eachof your responses was right or wrong

➤ A state insurance law digest, which covers all the state-specific topics onthe licensing exam

➤ An optional audio CD review program, which reviews the key infor-mation contained in the Concepts text

Page 31: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xxx Introduction

➤ An optional exam simulator, which gives you additional question-and-answer practice over the material covered in the Concepts text and thestate insurance law digest

➤ Classroom training—Many colleges and commercial training companiesoffer classroom training for insurance license exams. Although classroomtraining generally costs considerably more than self-study, some individ-uals find that they learn best in a classroom situation. And of course, inmany states, the prelicensing education requirement must be met withclassroom study in any case.

➤ Other sources—There’s no shortage of materials available on insurancetopics. The “Need to Know More?” resource appendix at the end of thisbook will give you an idea of where we think you should look for furtherdiscussion.

In addition, you will surely find Que Publishing’s Exam Cram insurancelicensing preparation materials useful in your quest for insurance knowledge.Exam Cram books provide you with a review of the essential information youneed to know to pass the tests. They focus on the detailed information in theConcepts texts available from BISYS Education Services. Together, the BISYSEducation Services license training packages and the Exam Cram reviewmaterials create a powerful exam preparation program.

This set of required and recommended materials represents an unparalleledcollection of sources and resources for insurance licensing qualification and related topics. Our hope is you’ll find that this book belongs in that company.

What This Book Will Not DoThis book by itself will not teach you everything you need to know to passyour insurance licensing exam. It does not cover the state-specific topics thatappear on the exam, usually dealing with laws that apply only in your partic-ular state. That information, although it represents a small proportion of theentire exam, is critical to passing the exam. State-specific topics are coveredin the state insurance law digests available from BISYS Education Services.This book reviews the rest of what you need to know before you take the test,with the fundamental purpose dedicated to reviewing the non–state-specificinformation on the insurance licensing exam.

Page 32: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxxiIntroduction

What This Book Is Designed to DoThis book uses a variety of teaching and memorization techniques to analyzethe exam-related topics and to provide you with ways to input, index, andretrieve what you need to know in order to pass the test.

This book is designed to be read as a pointer to the areas of knowledge onthe test. In other words, you may want to read the book through once to getan insight into how comprehensive your knowledge of insurance is. Thebook is also designed to be read shortly before you go for the actual test andto give you a distillation of the topics covered by the exam in as few pages aspossible. We think you can use this book to get a sense of the underlyingcontext of any topic in the chapters—or to skim-read for Exam Alerts, bul-leted points, summaries, and topic headings.

We draw on material from each state’s exam outlines and from other prepa-ration guides, in particular, BISYS Education Services’ Property-CasualtyConcepts text. Our aim is to walk you through the knowledge you will needand point out those things that are important for the exam (Exam Alerts,practice questions, and so on).

We demystify insurance jargon, acronyms, terms, and concepts. Also, wher-ever we think you’re likely to blur past an important concept, we define theassumptions and premises behind that concept.

About This BookWe structured the topics in this book to build on one another. Therefore, thetopics covered in later chapters might refer to previous discussions in earlierchapters. We suggest you read this book from front to back.

After you read the book, you can brush up on a certain area by using theIndex or the Table of Contents to go straight to the topics and questions youwant to reexamine. We use headings and subheadings to provide outlineinformation about each given topic. After you pass the exam and obtain yourinsurance license, we think you’ll find this book useful as a tightly focusedreference and an essential foundation of insurance information.

Chapter FormatsEach Exam Cram chapter follows a regular structure, with graphical cuesabout especially important or useful material. The structure of a typicalchapter is as follows:

Page 33: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xxxii Introduction

➤ Opening hotlists—Each chapter begins with lists of the terms you need tounderstand and the concepts you need to master before you can be fullyconversant with the chapter’s subject matter.

➤ Topical coverage—After the opening hotlists, each chapter covers the top-ics related to the chapter’s subject.

➤ Alerts—Throughout the topical coverage section, we highlight materialmost likely to appear on the exam by using a special Exam Alert layoutthat looks like this:

Even if material isn’t flagged as an Exam Alert, all the content in this bookis associated in some way with test-related material. What appears in thechapter content is critical knowledge.

➤ Notes—This book is an overall examination of entry-level insuranceknowledge. As such, we touch on many aspects of insurance that opendoors for further inquiry. Where a topic goes deeper than the scope of thebook, we use notes to indicate areas of concern or further training.

This is what an Exam Alert looks like. An Exam Alert stresses concepts or terms thatwill most likely appear in one or more license exam questions. For that reason, wethink any information found offset in Exam Alert format is worthy of special atten-tion.

Cramming for an exam will get you through a test, but it won’t make you a fully com-petent insurance professional. Although you can memorize just the facts you need inorder to become licensed, your daily work in the field will rapidly put you in water overyour head if you don’t continue your insurance education.

➤ Tips—Besides Alerts and Notes, we also include tips to help you remem-ber or distinguish certain information that may appear on your licenseexam.

Pay special attention to Tips because they provide you with various techniques thatmay improve your exam score!

➤ Exam Prep Questions—This section presents a short list of multiple-choicetest questions related to the specific chapter topic. Each question has afollowing explanation of both correct and incorrect answers. The practicequestions highlight the areas we found to be most important on the exam.

Page 34: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxxiiiIntroduction

➤ Need to Know More?—At the end of the book is a section titled “Need toKnow More?” This section provides pointers to resources that we foundto be helpful in offering further details on the book’s subject matter. If youfind a resource you like in this collection, use it, but don’t feel compelledto use all these resources. We use this section to recommend resourcesthat we have used on a regular basis, so none of the recommendations willbe a waste of your time or money. These resources may go out of print orbe taken down (in the case of websites), so we reference widely acceptedresources.

The bulk of the book follows this chapter structure, but there are a few otherelements that we would like to point out:

➤ Practice Exams—The sample tests, which appear in Chapters 25 and 27(with answer keys in Chapters 26 and 28), are intended to test your com-prehension of the material in this book. They are also intended to be in asimilar format and degree of difficulty as the questions you are likely tosee on the license exam. However, because the questions on the actualexam are kept highly confidential, you should expect that the questions onthe actual license exam will be ones that you have never seen before.

➤ Answer Key—These provide the answers to the sample tests, com-plete with explanations of both the correct responses and the incorrectresponses.

➤ Glossary—This is an extensive glossary of important terms used in thisbook.

➤ Cram Sheet—This appears as a tear-away sheet inside the front cover ofthis Exam Cram book. It is a valuable tool that represents a collection ofthe most difficult-to-remember facts, terms, and concepts we think youshould memorize before taking the test.

You might want to look at the Cram Sheet in your car or in the lobby ofthe testing center just before you walk into the testing center. The CramSheet is divided under headings, so you can review the appropriate partsjust before each test.

➤ CD-ROM—The CD contains the BISYS Education Services ExamSimulator, Preview Edition software. The preview edition exhibits mostof the functionality of the commercially available version, but offers areduced number of unit review questions and a 25-question practice exam.To get the complete set of practice questions and 100-question exam func-tionality, visit www.bisyseducation.com or call 800-241-9095.

Page 35: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xxxiv Introduction

Contacting the SourceLife and Health Insurance Licensing Exam Cram is a real-world tool that youcan use to prepare for and pass your state insurance licensing exam. We’reinterested in any feedback you would care to share about the book, especial-ly if you have ideas about how we can improve it for future test-takers. We’llconsider everything you say carefully and will respond to all reasonable sug-gestions and comments. You can reach us via email [email protected].

Let us know if you found this book to be helpful in your preparation efforts.We’d also like to know how you felt about your chances of passing the exambefore you read the book and then after you read the book. Of course, we’dlove to hear that you passed the exam—and even if you just want to shareyour triumph, we’d be happy to hear from you.

Thanks for choosing us as your license exam preparation coach, and enjoythe book. We wish you luck on the exam, but we know that if you readthrough all the chapters and work with the product, you won’t need luck—you’ll pass the test on the strength of real knowledge!

Page 36: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Self-Assessment

We include a Self-Assessment in this Exam Cram to help you evaluate yourreadiness to take and pass your state insurance license qualification exam. Itshould also help you understand what you need to master for an entry-levelknowledge of the industry in which you are about to embark on a career.

Getting PreparedWhether you attend a class to get ready for your exam or use self-study mate-rials, some preparation for your insurance license qualification exam is essen-tial. You want to do everything you can to pass on your first try.

You can get all the confidence you need from knowing that many others havegone before you. If you’re willing to tackle the process seriously and do whatit takes to gain the necessary knowledge, you can take—and pass—the insur-ance license qualification exams. In fact, the Exam Crams and the companionstate license training packages from BISYS Education Services are designedto make it as easy as possible for you to prepare for these exams—but pre-pare you must!

You can obtain an outline of exam topics, practice questions, and other informationabout insurance qualification exams from your state insurance department’s web-site. If your state has contracted with an exam administration company to admin-ister its insurance licensing exams (which is usually the case) you can get the examinformation from the exam administrator’s website. Contact your state insurancedepartment for more information.

Put Yourself to the (Practice) TestWe have included in this book several review exam questions for each chap-ter and two practice exams at the end of the book. If you don’t score well onthe chapter questions, you can study more and then retake the review ques-tions at the end of each part. When you have gone through all the chapters,take the first practice exam and then score yourself. Review by reading the

Page 37: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xxxvi Self-Assessment

explanations that accompany the answer key in the chapter following thatexam. If you don’t earn a score of at least 80% on the first practice exam,you’ll want to do some additional study. Go back through this book, and alsoconsult your notes and/or your text from any licensing exam preparationcourse you took. Then try the second practice exam in this book. Again,shoot for a score of 80% or better on your first try.

There is no better way to assess your exam readiness than to take a high-qualitypractice exam and pass with a score of 80% or better on your first try for that exam.When you take the same practice exam over and over, you begin to memorize theanswers to the specific questions on that exam. It may help you improve yourknowledge, but it spoils the value of the exam as an indication of how well youmight respond to an exam containing questions over the full range of topics onyour state’s exam outline. Even though you must score only 70% to pass the actu-al exam, shoot for 80% on a practice exam to leave room for the fact that you mightbe nervous during the actual exam and that the questions on the actual exam mightbe more difficult than those on your practice exam.

If you did not score 80% or better on your first try, investigate the otherstudy resources available (see the “Need to Know More?” addendum at theend of this book).

If you’ve given your utmost to self-study materials and then taken the examand failed anyway, consider taking a class. For some people, self-study is notthe optimal learning format. The opportunity to interact with an instructorand fellow students can make all the difference. For information about class-es available in your area, ask your state insurance department or call BISYSEducation Services (800-241-9095) to see whether there are schools usingBISYS insurance licensing textbooks nearby.

One last note: Do not use practice exams as your only means of study for theexam. Next to not preparing at all, the best way to assure you’ll fail yourlicense qualification exam is to skip studying and go directly to taking ques-tion-and-answer practice tests to assess your readiness to take the exam.Practice exams are a gauge of how well you’ve comprehended your studymaterial—they are not an accurate reflection of the questions you will see onyour license qualification exam.

Other PreparationBesides studying for the exam, there are some other things you should do tomake sure you perform well on the exam:

Page 38: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxxviiSelf-Assessment

➤ Get a good night’s sleep the night before the exam. When you’re tired, you’remore likely to make careless—that is, needless—mistakes. Getting a goodnight’s sleep will help assure that you feel refreshed and at your best.

➤ Eat a nourishing breakfast the morning of the exam. Your brain needs nutri-ents to function at its best—make sure you provide them! At the very least,you don’t want your attention to be distracted by hunger while you’re try-ing to concentrate on a question.

➤ Give yourself plenty of time to get to the exam site. Rushing to get somewherecan put you in a less-than-optimum frame of mind even if you end uparriving on time. Leave early to allow for unforeseen problems such astraffic delays. If you arrive well before the exam is scheduled to start, youcan always use the extra time to go over your notes.

No Experience RequiredInsurance license exams are designed so that they can be passed by individu-als with no insurance industry experience or formal insurance schooling,other than any state-required prelicensing education requirement. So if youare completely new to this business, don’t worry. Everything you need toknow to pass your qualification exam can be obtained in the study materialsreferenced here.

In terms of having a successful insurance career after you pass your exam, themost important requirement is a sincere desire to help people solve theirfinancial problems and reach their financial goals. However, there is certainbackground that can be an asset as you start out in the job. If you have runyour own business, you already understand the type of self-discipline andmotivation that will help you succeed in your insurance sales activities. If youhave some prior sales experience—such as a customer service representative,real estate agent, or some other sales position—you’ll probably have a com-fort level with meeting people to discuss and solve their needs. But again, ifyou’re new to insurance or to sales, have no fear on that account. You willhave ample opportunity and resources for learning everything you need toknow.

Page 39: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xxxviii

Onward to Exam and CareerSuccess!After you’ve undertaken the right studies and reviewed the many sources ofinformation to help you prepare for the license qualification exam, you’ll beready to take a practice exam. When your scores are positive enough to indi-cate that you will get through the exam, you’re ready to go after the realthing. Good luck!

Self-Assessment

Page 40: Life and Health Insurance License Exam Cram™

Insurance LawTerms you need to understand:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

✓ Express authority✓ Implied authority✓ Apparent authority✓ Waiver✓ Estoppel✓ Policy face✓ Insuring clause✓ Conditions✓ Exclusions✓ Aleatory contract

✓ Contract of adhesion✓ Unilateral contract✓ Executory contract✓ Conditional contract✓ Personal contract✓ Warranty✓ Representation✓ Misrepresentation✓ Concealment

Concepts you need to master:

✓ Presumption of agency✓ Agent errors and omissions exposure✓ Contract formation✓ Offer and acceptance✓ Consideration

✓ Competent parties✓ Legal purpose✓ Utmost good faith✓ Parol evidence rule

Page 41: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 356

Agency LawAn understanding of the law of agency is important because an insurancecompany, like other companies, must act through agents.

Agency Law PrinciplesAgency is a relationship in which one person is authorized to represent andact for another person or for a corporation. Although a corporation is a legal“person,” it cannot act for itself, so it must act through agents. An agent is aperson authorized to act on behalf of another person, who is called the prin-cipal.

In the field of insurance, the principal is the insurance company and the salesrepresentative or producer is the agent. When one is empowered to act as anagent for a principal, he or she is legally assumed to be the principal in mat-ters covered by the grant of agency. Contracts made by the agent are the con-tracts of the principal. Payment to the agent, within the scope of his or herauthority, is payment to the principal. The knowledge of the agent isassumed to be the knowledge of the principal.

Presumption of AgencyIf a company supplies an individual with forms and other materials (signs andevidences of authority) that make it appear that he or she is an agent of thecompany, a court will likely hold that a presumption of agency exists. Thecompany is then bound by the acts of this individual regardless of whether heor she has been given this authority.

AuthorityAn agent has one of three types of authority:

➤ Express authority is an explicit, definite agreement. It is the authority theprincipal gives the agent as set forth in his or her contract.

➤ Implied authority is not expressly granted under an agency contract, but itis actual authority that the agent has to transact the principal’s businessin accordance with general business practices. For example, if an agent’scontract does not give him or her the express authority of collecting andsubmitting the premium, but the agent does so on a regular basis, andthe company accepts the premium, the agent is said to have impliedauthority.

Lingering implied authority means that the agent carries “signs or evi-dences of authority.” By having these evidences of authority, an agent

Page 42: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Insurance Law 57

who is no longer under contract to an insurer could mislead applicantsor insureds. When the agency relationship between agent and companyhas been terminated, the company will try, or should try, to get back allthe materials it supplied to the former agent, including sales materials.

On the other hand, the public cannot assume that an individual is anagent merely because he or she says so. The agent must carry the cre-dentials (for example, the agent’s license and appointment) and companydocuments (such as applications and rate books) that represent him orher as being an agent for an insurance company.

➤ Apparent authority is the authority the agent seems to have because ofcertain actions undertaken on his or her part. This action may misleadapplicants or insureds, causing them to believe the agent has authoritythat he or she does not, in fact, have. The principal adds to this impres-sion by acting in a manner that reinforces the impression of authority.For instance, an agent’s contract usually does not grant him the authori-ty to reinstate a lapsed policy by accepting past due premiums. If, in thepast, the company has allowed the agent to accept late premiums forthat purpose, a court would probably hold that the policyowner had theright to assume that the agent’s acceptance of premiums was within thescope of his or her authority.

Collection of PremiumAll premiums received by an agent are funds received and held in trust. Theagent must account for and pay the correct amount to the insured, insurer,or other agent entitled to the money. Any agent who takes funds held in trustfor his or her own use is guilty of theft and will be punished as provided bylaw.

Agent’s Responsibility to Insured/ApplicantAn agent has a fiduciary responsibility to the insured, the insurer, the appli-cant for insurance, current clients, and so forth. The agent has a fiduciaryduty to just about any person or organization that he or she comes into con-tact with as part of the day-to-day business of transacting insurance.

By definition, a fiduciary is a person in a position of financial trust. Thus, attorneys,accountants, trust officers, and insurance agents are all considered fiduciaries.

As a fiduciary, the agent has an obligation to act in the best interest of theinsured. The agent must be knowledgeable about the features and provisions

Page 43: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 358

of various insurance policies and the use of these insurance contracts. Theagent must be able to explain the important features of these policies to theinsured. The agent must recognize the importance of dealing with the gen-eral public’s financial needs and problems and offer solutions to these prob-lems through the purchase of insurance products.

As a fiduciary, the agent must collect and account for any premiums collect-ed as part of the insurance transaction. It is the agent’s duty to make certainthat these premiums are submitted to the insurer promptly. Failure to sub-mit premiums to the insurer, or putting these funds to one’s own personaluse, is a violation of the agent’s fiduciary duties and possibly an act of embez-zlement.

The insured’s premiums must be kept separate from the agent’s personalfunds. Failure to do this can result in commingling—mixing personal fundswith the insured or insurer’s funds.

Waiver and EstoppelThe legal doctrines of waiver and estoppel are directly related to the respon-sibilities of insurance agents. An insurer may, by waiver, lose the right ofmaking certain defenses that it might otherwise have available.

Waiver is defined as the intentional and voluntary giving up of a known right. An insur-ance company may waive its right to cancel a policy for nonpayment by accepting latepayments.

Waiver and estoppel often occur together, but they are separate and distinctdoctrines.

Estoppel means that a party may be precluded by his or her acts of conduct fromasserting a right that would act to the detriment of the other party, when the otherparty has relied upon the conduct of the first party and has acted upon it. An insurermay waive a right, and then after the policyowner has relied upon the waiver and actedupon it, the insurer will be estopped from asserting the right.

The agent must be alert in his or her words, actions, and advice to avoid mis-takenly waiving the rights of the insurance company. As a representative ofthe company the agent’s knowledge and actions may be deemed to be knowl-edge and actions of the company.

Agent’s Responsibilities to CompanyThe agent’s contract or agency agreement with the insurer will specify theagent’s duties and responsibilities to the principal. In all insurance transac-

Page 44: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Insurance Law 59

tions, the agent’s responsibility is to act in accordance with the agency con-tract and thus for the benefit of the insurer. In accordance with the agent’sfiduciary obligation to the insurer and his or her agency agreement, theagent has a responsibility of accounting for all property, including moneythat comes into his or her possession. As part of the agent’s working rela-tionship with the insurer, it is important that pertinent information be dis-closed to the insurer, particularly with regard to underwriting and risk selec-tion. If the agent knows of anything adverse concerning the risk to beinsured, it is his or her responsibility to provide this information to the insur-er. To withhold important underwriting information could adversely affectthe insurer’s risk selection process. In accordance with agency law, informa-tion given to the agent is the same as providing the information to the insur-er.

It is the agent’s responsibility to obtain necessary information from the insur-ance applicant and to accurately complete the application for insurance. Asigned and witnessed copy of the application becomes part of the legal con-tract of insurance between the insured and the insurer.

Finally, the agent has a responsibility to deliver the insurance policy to theinsured and collect any premium that might be due at the time of delivery.

The agent must be prepared to provide the insured with an explanation ofsome of the policy’s principal benefits and provisions. If the policy is issuedwith any changes or amendments, the agent will also be required to explainthese changes and obtain the insured’s signature acknowledging receipt ofthese amendments.

Company’s Responsibility to AgentThe company is required to permit the agent to act in accordance with theterms of the agent’s employment contract, and the company must recognizeall the provisions of that contract.

In addition, the company must pay the agent the compensation agreed uponin the contract, must reimburse the agent for proper expenditures made onbehalf of the principal, and must indemnify the agent for any losses or dam-ages suffered without fault on the part of the agent but occurring on accountof the agency relationship.

Potential Liabilities of Agent/Errors and Omissions (E&O)ExposureErrors and omissions (E&O) insurance is needed by professionals who giveadvice to their clients. It covers negligence, error, or omission by the insur-er or producer who is the insurer’s representative. E&O policies protect pro-

Page 45: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 360

ducers from financial losses they may suffer if insureds sue to recover fortheir financial loss due to a producer giving them incorrect advice (error) ornot informing them of an important issue (omission). Because a producer’soffice is very busy, he or she must take special care to follow strict proceduresin regard to taking applications, explaining coverages, collecting premiums,submitting changes to policies upon an insured’s request, and preparingclaim forms.

Formation of a Life and HealthInsurance ContractThe formation of a life or health insurance contract differs from the forma-tion of other insurance contracts because the life or health producer usuallydoes not have the authority to bind the insurer.

Contract ElementsInsurance policies are legal contracts and are subject to the general law ofcontracts. This is a distinct body of law that is separate from criminal law(crimes against society) and tort law (legal liability issues usually involvingdamages for negligence). A contract is a legal agreement between two ormore parties promising a certain performance in exchange for a valuableconsideration. Under the law, the following elements are necessary for theformation of a valid contract:

➤ Agreement (offer and acceptance)

➤ Consideration

➤ Competent parties

➤ Legal purpose

Agreement (Offer and Acceptance)There can be no contract without the agreement or mutual assent of the par-ties. A common intention on all terms of the contract is essential to an agree-ment and no essential terms of the contract may be left unsettled. Further,the intention of the parties to a contract must be communicated to oneanother.

The parties to an insurance contract are the insurance company and theapplicant, who may become the insured or may name another person to be

Page 46: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Insurance Law 61

insured. Unless otherwise indicated, it is assumed that the applicant is theprospective insured.

OfferAn offer is a proposal that creates a contract if accepted by another partyaccording to its terms. If an applicant gives the insurer a completed applica-tion and pays the first premium, the application is an offer. If the policy isissued as applied for, the insurer accepts the offer.

There is no offer if the applicant sends the application to the insurance com-pany without payment of the premium. Such an application is merely an invi-tation to the company to make an offer. The insurance company makes anoffer by issuing the policy. The applicant accepts it by paying the first pre-mium.

AcceptanceAn acceptance must be unconditional and unqualified. If an insurance com-pany, after receiving an application and premium payment, issues a policywith more restrictive coverage than that applied for, the company has madea counter offer.

For example, a counter offer occurs if an applicant applies for a standard healthinsurance policy, pays the premium, and receives a policy containing anexclusionary endorsement for specified physical conditions. The applicantmust decide whether to accept the policy as modified. If he or she accepts thepolicy, there is a contract. If he or she rejects the modified policy, there is nocontract, and the applicant is entitled to a return of his or her premium.

ConsiderationEach party to the contract must give valuable consideration. In the insurancecontract, the value given by the insurer consists of the promises contained inthe policy contract. The consideration given by the insured consists of thestatements made in the application and the payment of the initial premium.

The consideration may consist of any of the following:

➤ A monetary payment

➤ An act

➤ A forbearance from action

➤ The creation, modification, or destruction of a legal right

➤ A return promise

Page 47: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 362

It is important to know that part of the applicant’s consideration consists ofthe statements in the application. A great deal of importance is placed on therepresentations in the application because the insurance company’s entiredecision of whether to contract is based on its evaluation of the informationin the application.

Competent PartiesFor a contract to be binding, both parties must have the legal capacity tomake a contract. To have the legal capacity to make insurance contracts, aninsurance company must have authority under its charter to issue contractsand be authorized by the state to issue contracts. The company’s representa-tive must also be licensed by the state.

The insured or applicant must be of legal age and be mentally competent to makean insurance contract. Applications of minors must usually be signed by an adultparent or guardian to comply with the legal age requirement for making contracts.

Legal PurposeTo be valid, a contract must be for a legal purpose and not contrary to pub-lic policy. An insurance contract is not against public policy where an insur-able interest exists.

Parts of the Insurance ContractAlthough it is not a legal requirement that all contracts be in writing, insur-ance contracts always are because of their complex nature. The number ofpages that make up an insurance contract varies because of the types of insur-ance and the individual risks being insured, but all life/health insurance con-tracts contain four basic parts:

➤ Policy face (Title page)

➤ Conditions

➤ Insuring clause

➤ Exclusions

Policy Face (Title Page)The policy face is usually the first page of the insurance policy. It includes thepolicy number, name of the insured, policy issue date, the amount of premi-

Page 48: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Insurance Law 63

um and dates the premium is due, and the limits of the policy. The policyface also includes the signatures of the secretary and president of the issuinginsurance company. In addition, there are generally clauses required by lawto give the insured information on his or her right to cancel, and a warningto the insured to read the policy carefully.

Insuring ClauseThe insuring clause generally also appears on the policy face. It is a statementby the insurance company that sets out the essential element of insurance—the promise to pay for losses covered by the policy in exchange for theinsured’s premium and compliance with policy terms.

ConditionsThis section spells out in detail the rights and duties of both parties.Conditions are provisions that apply to the insured and insurer. For example,the conditions include the reinstatement provision, suicide clause, paymentof claim provision, and similar standard policy provisions.

ExclusionsIn this section, the company states what it will not do. The exclusions are abasic part of the contract and a complete knowledge of them is essential to athorough understanding of the agreement. Certain risks must be excludedfrom insurance contracts because they are not insurable.

Legal RequirementsWhen the courts have a case involving contracts, it looks at the “rules of con-struction” to interpret the contract. The rules of construction help identifyand establish the intent of the parties to the contract.

Contract ConstructionThere are five major areas that the courts review in order to interpret thecontract, establish the intent of the parties, and hand down a ruling.

Plain Language and Word DefinitionsIf the language of the contract is clear the courts do not have to interpret themeaning of the contract. The courts give the words in the contract their“ordinary meaning.” In cases where ordinary words have been used in a tech-nical capacity, the technical meaning of the word is accepted.

Page 49: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 364

The Entire ContractThe courts look at the entire contract to determine the intent of the parties.It does not consider material added to the basic contract, nor does it takeonly parts of the contract to make a determination.

Interpretation in Favor of Valid ContractBecause the courts assume that when people make a contract they intend forit to be valid, the courts will, if possible, render an interpretation of the con-tract that makes it valid rather than invalid.

Unclear Contract of Adhesion Interpreted Against the InsurerIf a contract contains wording that is unclear the courts will interpret thelanguage used against the writer of the contract, unless the wording used isrequired by law to be stated in a specific manner. Insurance contracts are con-tracts of adhesion, which means the insured had no part in determining thewording of the contract; therefore, the courts will interpret the contract infavor of the policyholder, insured, or beneficiary.

Written ContractsIf a contract contains unclear or inconsistent material between printed,typed, or handwritten text in the contract, the typed or handwritten materi-al will determine intent.

Contract CharacteristicsThe insurance contract has certain characteristics not typically found inother types of contracts.

Utmost Good FaithThe insurance contract requires utmost good faith between the parties. Thismeans that each party is entitled to rely on the representations of the otherand each party should have a reasonable expectation that the other is actingin good faith without attempts to conceal or deceive. In a contact of utmostgood faith, the parties have an affirmative duty to each other to disclose allmaterial facts relating to the contract. That is not just a duty not to lie, butalso a duty to speak up. Failure to do so usually gives the other party groundto void the contract.

AleatoryAn insurance contract is said to be aleatory, or dependent upon chance oruncertain outcome, because one party may receive much more in value than

Page 50: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Insurance Law 65

he or she gives in value under the contract. For example, an insured who hasa loss may receive a greater payment from an insurer for the loss than he orshe has paid in premiums. On the other hand, an insured might pay his orher premiums and have no loss, so the insurer pays nothing.

AdhesionIn insurance, the insurer writes the contract and the insured adheres to it.When a contract of adhesion is ambiguous in its terms, the courts will inter-pret the contract against the party who prepared it.

UnilateralInsurance contracts are unilateral. This means that after the insured hascompleted the act of paying the premium, only the insurer promises to doanything further. The insurer has promised performance and is legallyresponsible. The insured has made no legally enforceable promises and can-not be held for breach of contract. For example, the insured may stop pay-ing premium because he is not legally responsible to continue paying premi-um.

ExecutoryAn insurance contract is an executory contract in that the promises describedin the insurance contract are to be executed in the future, and only after certainevents (losses) occur.

ConditionalInsurance contracts are also conditional contracts because when the lossoccurs certain conditions must be met to make the contract legally enforce-able. For example, a policyholder might have to satisfy the test of having aninsurable interest and satisfy the condition of submitting proof of loss.

Personal ContractGenerally, insurance policies are personal contracts between the insured andinsurer. Generally, insurance is not transferable to another person withoutthe consent of the insurer. Fire insurance, for example, does not follow theproperty.

Warranties and RepresentationsA warranty is something that becomes part of the contract itself and is a state-ment that is considered to be guaranteed to be true. Any breach of warrantyprovides grounds for voiding the contract.

Page 51: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 366

A representation is a statement believed to be true to the best of one’s knowl-edge. An insurer seeking to void coverage on the basis of a misrepresentationusually has to prove that the misrepresentation is material to the risk.

Under most state laws, an applicant’s statements or responses to questions on anapplication for insurance (in the absence of fraud) are considered to be representa-tions and not warranties.

An example would be a question on the application asking for your sex ordate of birth. You represent yourself to the insurance company as being maleor female and a certain age. The accuracy of these items is very important tothe insurance company issuing the policy. If they are incorrect, they may beconsidered misrepresentations, and the policy may be voided as a result.

There is a difference between representation of a fact and an expression ofopinion. A good example is a question on many applications: “Are you nowto the best of your knowledge and belief in good health?” If the applicantanswers “yes” while knowing in fact that he or she is not, there is a misrep-resentation of actual fact. If, on the other hand, he or she has had no med-ical opinion and suffers from no symptoms recognizable to a layman, his orher answer is an opinion and thus not a misrepresentation.

ImpersonationImpersonation means assuming the name and identity of another person forthe purpose of committing a fraud. The offense is also known as false pre-tenses. In the case of life insurance, an uninsurable individual applying forinsurance may ask another person to substitute for him to take the physicalexamination.

Misrepresentation and ConcealmentA misrepresentation is a written or oral statement that is false. Generally, inorder for a misrepresentation to be grounds for voiding an insurance policy,it has to be material to the risk.

Concealment is the failure to disclose known facts. Generally, an insurer maybe able to void the insurance if it can prove that the insured intentionally con-cealed a material fact.

Material information or a material fact is crucial to acceptance of the risk. Forexample, if the correct information about something would have caused theinsurance company to deny a risk or issue a policy on a different basis, theinformation is material.

Page 52: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Insurance Law 67

FraudFraud is an intentional act designed to deceive and induce another party topart with something of value.

Fraud may involve misrepresentation and/or concealment, but not all acts of misrep-resentation or concealment are acts of fraud. If someone intentionally lies in order toobtain coverage or to collect on a false claim, that would be a matter of fraud. If some-one misrepresents something on an application (perhaps a medical treatment the per-son is embarrassed to talk about) without any intent to obtain something of value, nofraud has occurred.

Parol (Oral) Evidence RuleThe parol evidence rule limits the impact of waiver and estoppel on contractterms by disallowing oral evidence based on statements made before the con-tract was created. It is assumed that any oral agreements made before con-tract formation were incorporated into the written contract. After contractformation, earlier oral evidence will not be admitted in court to change orcontradict the contract. An oral statement may waive contract provisionsonly when the statement occurs after the contract exists.

Page 53: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 368

Exam Prep Questions1. Ralph is a producer for Hoosier Insurance Company. His contract

states that he is allowed to put the company’s logo on his business cardsand the door to his office. This is an example of❍ A. Express authority❍ B. Implied authority❍ C. Lingering implied authority❍ D. Apparent authority

2. Tom has always made a practice of having his policyholders mail theirpremium checks directly to him, and forwarding them on to the insur-er, so that he is aware of anyone missing a payment and can contactpolicyowners directly if that should happen. His contract does notallow this, but the insurer is aware of the practice and has not askedhim to stop. This practice is an example of❍ A. Express authority❍ B. Implied authority❍ C. Lingering implied authority❍ D. Apparent authority

3. Gina accepts the initial premium when she sells an insurance policyand sends it to the company with the application. Nothing in her con-tract mentions handling of initial premiums. This is an example of❍ A. Express authority❍ B. Implied authority❍ C. Lingering implied authority❍ D. Apparent authority

4. Albert’s life insurance premium is due on the 10th of the month.Because he gets paid at the end of the month, he has always sent thepremium late. The insurer has been accepting his premium this wayfor 3 years. A new CEO comes in and decides to crack down on latepremiums, canceling Albert’s policy for nonpayment of premium.Albert contests this decision legally and gets the policy reinstated. Thedecision to reinstate the policy is an example of❍ A. Estoppel❍ B. Waiver❍ C. Contract of adhesion❍ D. Express authority

Page 54: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Insurance Law 69

5. When representing an insurer, a producer acting as an agent has aresponsibility to act with the degree of care that❍ A. A licensed insurance producer would apply under similar circumstances❍ B. A reasonable person would apply under similar circumstances❍ C. A lawyer would apply under similar circumstances❍ D. Any person would apply under similar circumstances

6. Which element is not necessary for the formation of a valid contract?❍ A. Consideration❍ B. Competent parties❍ C. Written document❍ D. Legal purpose

7. The initial premium payment sent with an application constituteswhich part of the formation of an insurance contract?❍ A. Consideration❍ B. Acceptance❍ C. Offer❍ D. Legal purpose

8. Life insurance contracts contain all the following except❍ A. Policy folder❍ B. Insuring clause❍ C. Conditions❍ D. Exclusions

9. Ken has paid only four premiums on his health insurance policy whenhe is hit by a car. The insurance company pays out nearly half a milliondollars to cover his treatment and a lengthy stay in intensive care. Thisis an example of❍ A. Contract of adhesion❍ B. Aleatory contract❍ C. Unilateral contract❍ D. Utmost good faith

10. Carol applies for a life insurance policy and pays the initial premium.Carol has❍ A. Accepted an offer from the insurer❍ B. Made an offer to the insurer❍ C. Accepted a counter offer from the insurer❍ D. Made a counter offer to the insurer

Page 55: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 370

11. The insurer looks at Carol’s application and decides to offer Carol amodified policy, including an exclusion Carol did not request. Theinsurer has❍ A. Accepted an offer from Carol❍ B. Made an offer to Carol❍ C. Accepted a counter offer from Carol❍ D. Made a counter offer to Carol

12. The failure to disclose known facts is❍ A. Misrepresentation❍ B. Concealment❍ C. Fraud❍ D. Impersonation

Page 56: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Insurance Law 71

Exam Prep Answers1. A is correct. Express authority is spelled out in an agent’s written con-

tract.2. D is correct. Apparent authority is the authority an agent appears to

have because of past actions that have not been challenged by theinsurance company.

3. B is correct. Implied authority is not expressly stated in an agent’scontract but it is actual authority related to common business practices,such as accepting premiums for the insurer.

4. A is correct. Under the principal of estoppel, a pattern of past behav-ior may prevent the insurer from exercising a right it might have had ifit had exercised it earlier.

5. B is correct. A producer has a duty to act with a reasonable degree ofcare when representing an insurer.

6. C is correct. Valid contracts do not need to be in writing. Oral con-tracts are legally binding.

7. A is correct. The premium is the consideration given by the insuredin exchange for the insurer’s promise to pay if a loss occurs.

8. A is correct. All life insurance policies include an insuring clause, con-ditions, and exclusions. There is no requirement for a policy folder.

9. B is correct. An aleatory contract is one that depends on chance or anuncertain outcome. Ken may have received far more in benefits thanhe paid as premiums, but others who pay premiums may never have aloss and never receive even a dollar in benefits.

10. B is correct. The act of submitting an application with a premiumpayment is an offer that is still subject to acceptance by the insurer.

11. D is correct. By not accepting the initial offer and offering alternativeterms, the insurer has made a counter offer.

12. B is correct. The failure to disclose known facts is concealment.Intentionally giving false answers or misstating facts would be misrep-resentation, and possibly fraud.

Page 57: Life and Health Insurance License Exam Cram™

This page intentionally left blank

Page 58: Life and Health Insurance License Exam Cram™

NUMBERS12% rule, VLI policies, 15340-quarter rules, 250401(k) pension plans, 268, 271-272403(b) arrangement plans, 273501(c) (9) trusts, 299

Aabsolute assignment provisions, 186absolute assignments (policies), 179-180absolute values (surgical benefits), 366accelerated benefit riders, 171, 446accelerated benefits, 111, 257accelerated endowment options (life insur-

ance), 216accident and health insurance. See health

insuranceaccident and health or sickness insurance,

defining, 10accident and sickness insurance. See health

insuranceaccident only insurance, 284accidental bodily injury (total disability),

351accidental death, 398accidental death and dismemberment

(AD&D) rider (disability), 356accidental death benefits, credit health

insurance policies, 392accidental means (total disability), 351accumulation at interest options (life insur-

ance), 215accumulation periods (annuities), 223accumulation units, 229

acquisition costs (expense loading), 85Activities of Daily Life (ADL), 438, 443-444actuaries, defining, 5AD&D (accidental death and dismember-

ment) insurance, 282, 356ADA (Americans with Disabilities Act), 406ADB (accidental death benefit) riders,

164-165, 172additional insured riders, 170additional monthly benefit (AMB) rider

(disability), 355address, changes of (insurance licenses), 41ADEA (Age Discrimination in Employment

Act), 405-406adhesion, contracts of, 65adjustable life insurance policies, 147ADL (Activities of Daily Life), 438, 443-444admitted insurers, defining, 15adult day care, LTC (long-term care), 441adverse selection

defining, 75group insurance, underwriting, 94

advertising, insurance company regulations,36-37

advertising files, 36Age Discrimination in Employment Act

(ADEA), 405-406Agency law, principles of

agent’s responsibilities to company, 58-59

agent’s responsibilities to insured/appli-cant, 57

authority, 56-57collection of premium, 57company’s responsibilities to agent, 59E&O insurance, 59

Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page 59: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Agency law528

presumption of agency, 56waiver and estoppel, 58

agent statements (applications), 78agents

apparent authority, 57defining, 56express authority, 56fiduciary responsibilities, Agency law, 57

aggregate claims (morbidity), 84AIDS, insurance, 77-78aleatory contracts, 64alien insurers, defining, 14all or nothing rider (disability), 354all-cause deductibles, 373AMB (additional monthly benefit) rider

(disability), 355ambulatory outpatient care, 340amendments, 185Americans with Disabilities Act (ADA), 406AMT (alternative minimum taxes), 261annual renewable term rider (disability), 356annuitants, 223annuities

accumulation periods, 223annuitants, 223beneficiaries, 223compound interest, 223contract owners, 223deferred, 225defining, 10equity-indexed, 234fixed, 223-224flexible premium, 226-227group deferred, retirement plans, 267guaranteed minimum payouts, 231-232immediate, SPIA, 225income distribution, 222individual deferred, retirement plans,

267IRA

contribution limits, 269funding, 270income deductibility limits, 270Roth IRA, 271taxes, 269

level premium, 226life insurance taxes, 257-258MVA, 235nonforfeiture options, 224payouts, determining, 227-228retirement fund accumulation, 222retirement income, 234settlement options, 231-233single premium, 226tax-deferred, 273TSA, 234

two-tiered, 233variable, 223

accumulation units, 229annuity units, 230defining, 10payouts, 224securities regulations, 228-229

annuity units, 230answer keys

practice exam 1, 471-474practice exam 2, 487-491

any occupation (total disability), 348apparent authority, 57appeals, Medicare, Part B, 418applicant control clause provisions, 180applicants, defining, 74applications

agent statements, 78attending physician statements, 77examination applications, obtaining

insurance licenses, 40field underwriting, 81general information section, 76inspection reports, 79investigative consumer reports, 79medical examinations/testing, 77medical information section, 76risk selection (underwriting), 76submitting, 124

appointment, 42-43Aspen Publishers Web site, 499assessment insurers, defining, 12assignment, 415assignment clause provisions, 185association groups, 92assumed names, insurance licenses, 41assumed rates of interest (annuity payouts),

227attending physician statements (applica-

tions), 77attornies-in-fact, 12authority (agents)

apparent authority, 57defining, 15express authority, 56

automatic premium loan provisions, 183autopsy provisions, 188aviation exclusions, 198-199

Bbaby-care, medical expense insurance, 378back-end sales loads, 149banks, insurance distribution, 16basic HMO health care services

certificates of coverage, 292copayments, 292

Page 60: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .benefits 529

evidence of coverage, 292exclusions/limitations, 292-293impatient hospital and physician servic-

es, 291in and out of area emergency services,

292outpatient medical services, 291preventive health services, 291

basic medical expense insurance policiesemergency accident expense benefits,

369emergency first-aid expense benefits,

368exclusions/limitations, 369-370home health care expense benefits, 369hospice care expense benefits, 369hospital expense benefits, 364-365in-hospital physician expense benefits,

367maternity expense benefits, 368mental infirmity expense benefits, 369outpatient care expense benefits, 369regular medical expense benefits, 366surgical expense benefits, 366

beneficiariesannuities, 223contingent, 191defining, 74irrevocable, 187, 190naming

class designations, 194estates, 194minors, 192per capita designations, 195per stirpes designations, 195trusts, 193

primary, 191qualified, COBRA (Consolidated

Omnibus Budget Reconciliation Act),403

revocable, 187, 190succession of, 191tertiary, 191Uniform Simultaneous Death Act, 196

beneficiary provisions, 187-189common disaster, 197contingent beneficiaries, 191facility of payment, 198irrevocable beneficiaries, 190naming beneficiaries

class designations, 194estates, 194minors, 192per capita designations, 195per stirpes designations, 195trusts, 193

primary beneficiaries, 191revocable beneficiaries, 190spendthrift clause, 197-198tertiary beneficiaries, 191

benefit payment clause, 339benefit periods

deductibles, 374disability income insurance, 348

benefit triggers, LTC (long-term care), 443-444

benefitsaccelerated, 111comprehensive major medical expense

benefitslimitations, 375-376restoration of benefits, 374

Coordination of Benefits Provision, 400-401

credit health insurance, accidental death,392

credit life insurance, death, 393deferred compensation, 115dental care insurance, payments, 387disability, 453disability income insurance, 351-352extension of, 407group medical expense, 399inside limits, 374internal limits, 374living, 107LTC (long-term care), 438-439, 442mandated, HIPPA (Health Insurance

Portability and Accountability Act),402

medical expense insurance, 379-380Medicare, Part A

home health care, 414hospice care, 414-415inpatient hospital care, 413respite care, 415SKN (skilled nursing facility), 413-414uncovered expenses, 415

Medicare, Part Bdeductibles/copayments, 415-416doctors’ services, 416home health care, 417outpatient services/supplies, 417-418

optional, disability income insurance,353-354

restoration of, 374social security disability, payroll taxes,

452split-dollar plans, 116standardized supplemental (Medicare)

core benefits, 419

How can we make this index more useful? Email us at [email protected]

Page 61: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .benefits530

optional benefits, 420provisions, 421-422standardized policy forms, 420

supplemental major medical expensebenefits

limitations, 375-376restoration of benefits, 374

workers compensation, 427binding receipts, 123birthday rules, 249BISYS Education Services contact informa-

tion, 495-497blackout periods

income, 105survivor benefits, 252

blanket insurance, 284blanket policies (group health care plans),

301Blue Cross and Blue Shield, 286-287BOE (business overhead expense), 357boycotts, Unfair Trade Practices Act, 47brokers, defining, 18business continuation agreements. See buy-

sell agreementsbusiness life insurance, taxes, 261business overhead expense (BOE), 357, 454business uses, disability income insurance,

357-358businesses

corporationsdeferred compensation, 115key person life insurance, 115life insurance, 113-116split-dollar plans, 116stock purchase plans, 114stock redemption plans, 115

partnerships, 112-113sole proprietorships, 112

buy-sell agreements, 112buy-sell disability income insurance, 358Buyers Guides, 37

Ccafeteria health care plans, 300calendar year deductibles. See all-cause

deductiblescancelable policies, 338Cancellation provision (Uniform Individual

Accident and Sickness Policy ProvisionsLaw), 334-335

capital conservation (income), 105capital liquidation (income), 105capital sums, 356capitation fees (HMO), 290captive producers, defining, 15care level, LTC (long-term care), 440

career agents, defining, 15carriers, 412carryover provisions, 374case management provisions, 339-340cash dividend options (life insurance), 215cash surrender options (life insurance), 211cash surrender values, life insurance taxes,

257cash value accumulation tests, 255casualty insurance, defining, 9CD

customer service information, 495exam simulator, 493-494installing, 494review questions, 493-494

certificates of coverage (HMO), 292certificates of insurance (group insurance),

92, 241CHAMPUS (Civilian Health and Medical

Program of the Uniformed Services). SeeTRICARE

Change of Beneficiary provision (UniformIndividual Accident and Sickness PolicyProvisions Law), 329-330

Change of Occupation provision (UniformIndividual Accident and Sickness PolicyProvisions Law), 330-331

changes of address, insurance licenses, 41charitable gifts, life insurance as, 259child-care, medical expense insurance, 378chiropractic services, major medical expense

benefits, 376chronically ill, defining, 456churning, 46. See also misrepresentationsCIR (Comparative Interest Rate) method

(life insurance cost comparisons), 109Claim Forms provision (Uniform Individual

Accident and Sickness Policy ProvisionsLaw), 326

claim frequency rates (morbidity), 84claims

defining, 2life insurance claims

partial payment, 127payment, 126-127producer responsibilities upon

insured’s death, 128-129Medicare, Part B, 418

clausesbenefit payment, 339consideration clauses, 337insuring clauses, 337results, war/military service exclusions,

199status, war/military service exclusions,

199

Page 62: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .corporations 531

closed panel contracts (prepaid dentalplans), 389

closed panel HMO, 291COBRA (Consolidated Omnibus Budget

Reconciliation Act), 402-404CODA (cash or deferred arrangements),

268Coercion, Unfair Trade Practices Act, 47cognitive impairment, LTC (long-term

care), 444coinsurance

comprehensive major medical expensebenefits, 371-372

defining, 9dental care insurance, 386

collateral assignment provisions, 186collecting premiums, 122commercial insurers, 11Commissioner of Insurance, Privacy Act of

1974, 26Commissioners

NAIC, 49state insurance regulation, duties, 33

Commissions, rebating, 46common disaster provisions, 197common injury or illness provisions, 374comparing life insurance costs, 109-110Comparison Statements (replacements), 130compensable injuries, workers compensa-

tion, 427compensation laws, workers compensation,

428complete assignment provisions, 186compound interest (annuities), 223comprehensive benefits (major medical

expense insurance), 371-372comprehensive dental care insurance poli-

cies, 386-387comprehensive expense benefits (major

medical expense insurance), 371compulsory compensation laws, workers

compensation, 428concealment in contracts, 66concurrent review, 340conditional assignment provisions, 186conditional contracts, 65conditional receipts, 122-123conditions (life and health insurance con-

tracts), 63confining disability (total disability), 351Conformity with State Statutes provision

(Uniform Individual Accident andSickness Policy Provisions Law), 335

consideration clause, 178, 337Consolidated Omnibus Budget

Reconciliation Act (COBRA), 402-404

constructive deliveries, 126, 313consultants, defining, 18consumer reporting agencies, 28-29consumer reports. See also investigative con-

sumer reportsFair Credit Reporting Act of 1970, 27investigative consumer reports, 79

consumer rights, consumer reporting agen-cies, 29

consumers, defining, 31consumers cooperatives, 289contingency fund loading (expense loading),

85contingent beneficiaries, 191continuation (policies)

cancelable policies, 338guaranteed renewable policies, 338noncancelable policies, 338renewability, 337-338term policies, 339

continuous premium whole life insurancepolicies, 145

contract owners (annuities), 223contracts

concealment, 66fraud, 67life and health insurance contracts

characteristics of, 64-67elements of, 60-62legal requirements, 63-64parts of, 62-63

material information, 66misrepresentations, 66parol evidence rule, 67representations, 66warranties, 65

contracts of adhesion, 64-65contributions

Roth IRA, 271SIMPLE, 272

contributory groups, 93, 96controlled business, defining, 45convalescent home benefits, medical

expense insurance, 380conversion privilege, 399-400convertible term insurance policies, 139converting coverage. See conversion privi-

legeCoordination of Benefits Provision,

400-401Copayments, Medicare, Part B, 415-416corporations

deferred compensation, 115key person life insurance, 115life insurance, 113-116split-dollar plans, 116

How can we make this index more useful? Email us at [email protected]

Page 63: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .corporations532

stock purchase plans, 114stock redemption plans, Section 303

stock redemption plans, 115corridor deductibles, 372corridor tests, 255cosmetic exclusions (dental care insurance),

388cosmetic surgery, medical expense insur-

ance, 378cost assistance, Medicaid, 425cost comparisons, life insurance, 109-110cost indexes, 109-110cost of living benefit (disability), 353cost of living riders, 169cost plans, 424coverage

converting. See conversion privilegedependent, 400duration of, COBRA (Consolidated

Omnibus Budget Reconciliation Act),403-404

employer, Medicare, 424nonoccupational, 339

CPI (Consumer Price Index), index-linkedlife insurance policies, 162

credit agencies, 28credit group insurance, 93credit health insurance, 392-393credit insurance, 10, 284credit life insurance, 156, 393creditors, policy rights, 210cross-purchase plans, 113cumulative deductibles. See all-cause

deductiblescurrent assumption whole life insurance

policies, 146current wage bases, benefit taxation, 452currently insured status (social Security),

250custodial care

LTC (long-term care), 438medical expense insurance, 378

customer service information, 495customers, defining, 31

Ddeath

costs of, 102insureds, producers responsibilities

upon, 128-129death benefits, 138

ADB riders, 164-165, 172credit health insurance policies, 392credit life insurance policies, 393deferred annuities, 225

family income life insurance policies,159

life insurance taxes, 256Social Security survivor benefits, 252universal life insurance policies, 150viatical settlements, 172workers compensation, 303

deceptive advertising, Unfair TradePractices Act, 45

decreasing term insurance, 140-141, 162deductibles

all-cause, 373benefit periods, 374carryover provisions, 374common injury or illness provisions, 374comprehensive major medical expense

benefits, 371-374corridor, 372cumulative. See deductibles, all-causedefining, 8family, 374first dollar coverage, 371integrated, 386Medicare, Part B, 415-416per-cause, 373supplemental major medical expense

benefits, 372-374defamation, Unfair Trade Practices Act, 46deferred annuities, 225deferred compensation, 115defined benefit retirement plans, 266-267defined contribution retirement plans,

266-268delivering policies

constructive deliveries, 126, 313mailing, 126personal deliveries, 125

dental care, medical expense insurance, 378dental care insurance

benefit payment, 387coinsurance, 386comprehensive policies, 386-387exclusions/limitations, 388nonroutine treatments, 387prepaid plans, 389-390provisions, 388scheduled policies, 386service areas, 388-389underwriting, 388

dental expense insurance, 283denying insurance licenses, 43-44Department of Defense, TRICARE, 304dependent coverage, 400dependents, group insurance, 242deposit term life insurance policies, 163

Page 64: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .elective compensation laws 533

determining premiumsexpenses, 84-85interest, 84morbidity, 83-84mortality, 83premium mode, 86

direct writing companies, defining, 16direct-response marketing, defining, 16Directors (state insurance regulation). See

Commissionersdisabilities

social security, 426workers compensation, 428

disability benefitsFICA, 453FUTA, 453social security, 252, 452workers compensation, 303

disability income insurance, 282, 398alternatives, 346-347benefit periods, 348benefits, 351-352business uses, 357-358elimination periods, 347exclusions, 352financial planning, 346optional benefits, 353-354probationary periods, 347riders, 353

accidental death and dismemberment(AD&D), 356

additional monthly benefit (AMB),355

annual renewable term, 356hospital confinement, 355impairment, 355nondisabling, 355return of premium, 356social security, 354waiver of premium, 356

social security supplements, 355total disability, defining

accidental means, 351any occupation, 348confining versus nonconfining, 351injury versus sickness, 349loss of earnings, 348medically defined, 349occupational versus nonoccupational,

349own occupation, 348partial, 349permanent, 350presumptive, 349recurrent, 350

residual, 350sickness, 351temporary, 350

disability income riders, 167disability insurance

elimination periods, 8taxes, 455

disability insured status (Social Security),250

disability payments, credit health insurancepolicies, 392

disability reducing term insurance, 358disclosure authorization, 25-26discrimination

pregnancy, ERISA (EmployeeRetirement Income Security Act of1974), 406

Unfair Trade Practices Act, 46dismemberment, 398dismemberment coverage (disability), 356disqualifying events, COBRA (Consolidated

Omnibus Budget Reconciliation Act), 403dividends, 213

accelerated endowment option, 216accumulation at interest option, 215cash dividend option, 215fund sources, 214life insurance taxes, 257one-year term option, 217paid-up additions option, 215-216paid-up option, 216reduce premium dividend option, 216

doctors, Medicare Part B covered/excludedservices, 416

doctrine of economic benefit rule, 258domestic insurers, defining, 14domiciles (insurers), 14-15double indemnity. See ADB ridersdread disease insurance, 283, 390dual choice laws, 289dual premiums, 146dual-benefit eligibility (Social Security), 251duration of coverage, COBRA

(Consolidated Omnibus BudgetReconciliation Act), 403-404

dying intestate, defining, 106

EE&O (errors and omissions) insurance, 59earned premiums, 310-311economatic whole life insurance policies,

146elective compensation laws, workers com-

pensation, 428

How can we make this index more useful? Email us at [email protected]

Page 65: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .eligibility534

eligibilitybuy-sell disability income insurance, 358disability income insurance, 347group insurance, underwriting, 95group health insurance, 399LTC (long-term care), 439, 443Medicaid, 425

emergency accident expense benefits (basicmedical expense insurance), 369

emergency dental treatment (dental careinsurance), 388

emergency first-aid expense benefits (basicmedical expense insurance), 368

emotional disorders, major medical expensebenefits, 375-376

employee groups, 92Employee Retirement Income Security Act

of 1974 (ERISA), 405-406employees, key, 405employer coverage, Medicare, 424employer-administered health care plans

501(c) (9) trusts, 299cafeteria, 300MET, sponsors, 300MEWA, 300self-funded, 297-298small business, 299

endodontics, 387endorsements, 185endowment life insurance policies, 157-158endowments, accelerated endowment divid-

ed option, 216entire contract provisions, 184-185Entire Contract: Changes provision

(Uniform Individual Accident andSickness Policy Provisions Law), 322

entity type plans, 113EPO (exclusive provider organizations), 296equity-indexed annuities, 234ERISA (Employee Retirement Income

Security Act of 1974), 405-406disclosures, 276fiduciary responsibility, 275

error provisions, 401estate planning, 106-108estates, beneficiaries, 194estoppels, defining, 58events, COBRA (Consolidated Omnibus

Budget Reconciliation Act), 403evidence of coverage (HMO), 292evidence of insurability, group health insur-

ance, 399exam simulator (CD), 493-494examination applications, obtaining insur-

ance licenses, 40

examspractice exam 1

answers, 471-474questions, 461-469

practice exam 2answers, 487-491questions, 477-485

resources, 497-499excess and surplus lines, defining, 13exchange privilege riders, 170exclusions

aviation, 198-199dental care insurance, 388hazardous occupation/hobby, 199life and health insurance contracts, 63LTC (long-term care), 443military service, 199war, 199

exclusive producers, 15-16execution clause provisions, 179executory contracts, 65expense loading, 84-85expense ratios, 86expenses

BOE (business overhead expense), 357group medical expense benefits, 399hospital expense, 398premiums, determining, 84-85uncovered, Medicare, Part B, 418

expenses-incurred basis payments, medicalexpense insurance, 365

expired insurance licenses, renewing, 42Explanation of Medicare Benefits, 418exposure units, defining, 4express authority, 56extended term options (life insurance), 213extension of benefits, 407extra risk insurance, 81extraterritorial provisions, workers compen-

sation, 428eyeglasses, medical expense insurance, 378

Fface amounts (policies), 336

defining, 8term insurance, 139whole life insurance, 143

face values (policies)term insurance, 139whole life insurance, 143

facility of payment clause (Payment ofClaims provision), 328

facility of payment provisions, 198factors, LTC (long-term care), rating, 438

Page 66: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .franchise policies 535

Fair Credit Reporting Act of 1970consumer reporting agencies, 28-29consumer reports, 27credit agencies, 28investigative consumer reports, 27penalties for violation, 30pretext interviews, 28

false advertising, Unfair Trade PracticesAct, 45

false financial statements, Unfair TradePractices Act, 46

false pretenses, contracts, 66family deductibles, 374family dependency periods (income), 104family income life insurance policies,

158-159family maintenance life insurance policies,

159family protection life insurance policies,

159-160federal employees, group insurance, 244federal government as insurers, 13-14federal income taxes, social security disabili-

ty benefits, 452federal Rating Services, insurance company

ratings, 35federal regulation

Fair Credit Reporting Act of 1970consumer reporting agencies, 28-29consumer reports, 27credit agencies, 28investigative consumer reports, 27penalties for violation, 30pretext interviews, 28

Financial Services Modernization Act of1999, 31-32

fraud, 30LTC (long-term care), 445McCarran-Ferguson Act, 25Paul v. Virginia, 24Privacy Act of 1974, 25-26

federal taxes, life insurance, 259federal/state regulation, group health insur-

ance, 407COBRA (Consolidated Omnibus Budget

Reconciliation Act), 402-404ERISA (Employee Retirement Income

Security Act of 1974), 405-406HIPPA (Health Insurance Portability

and Accountability Act), 401-402OBRA (Omnibus Budget Reconciliation

Act of 1989), 404-405TEFRA (Tax Equity and Fiscal

Responsibility Act of 1982), 405fee-for-service plans, Medicare+Choice,

422-423

fees, policy fees, 312-313FEGLI (Federal Employees’ Group Life

Insurance), 244FICA, disability benefits, 453fiduciaries, 131, 316

defining, 57ERISA responsibilities, 275

field underwriting, 81financed insurance life insurance policies,

161financial planning, disability income insur-

ance, 346Financial Services Modernization Act of

1999, 32federal regulations, 31producer regulations, 37

financial tests, Medicaid, 425first dollar coverage (deductibles), 371first-to-die joint life insurance policies, 160five-year replacement exclusions (dental

care insurance), 388fixed amount settlement option (life insur-

ance), 208-209fixed annuities, 223-224fixed period settlement option (life insur-

ance), 207-208flat additional premiums (substandard risks),

82flat cancellations, 335flexible life insurance

adjustable life insurance policies, 147advantages of, 154disadvantages of, 154universal life insurance policies, 148

cash value adjustments, 149-150death benefits, 150loans/withdrawals, 150-151premium requirements, 151sales loads, 149

variable universal life insurance policies,154

12% rule, 153cash values, 152death benefits, 151premiums, 152regulation as insurance, 153regulation as securities, 152-153

flexible premium annuities, 226-227flexible premium variable life insurance

policies. See variable universal life insur-ance policies

foreign insurers, defining, 14forms, group insurance policies, 242franchise marketing, defining, 16franchise policies (group health care plans),

301-302

How can we make this index more useful? Email us at [email protected]

Page 67: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .fraternal insurers536

fraternal insurers, defining, 12fraud

contracts, 66federal regulation, 30in contracts, 67

free look provisions, 189, 336free-look periods, 335fully insured status (Social Security), 249funeral insurance, 163FUTA (federal unemployment tax), disabili-

ty benefits, 453future increase option (disability). See GIR

Ggatekeeper systems (HMO), 293general agents, defining, 16general information section (applications),

76general overhead loading (expense loading),

85gift taxes, life insurance, 260GIR (guaranteed insurability riders),

168-169GLBA (Gramm-Leach-Bliley Act). See

Financial Services Modernization Act of1999

government health insuranceMedicaid, 303TRICARE, 304workers compensation, 302-303

Grace Period provision (Uniform IndividualAccident and Sickness Policy ProvisionsLaw), 323-324

grace period provisions, 181graded death benefits (substandard risks), 82graded premium life insurance policies, 162Gramm-Leach-Bliley Act. See Financial

Services Modernization Act of 1999gross annual premiums, 85group accidental death and dismemberment

policies, taxing premiums, 453group credit health insurance, 392-392group credit life insurance, 393group deferred annuities, retirement plans,

267group disability insurance, premiums, 453group health care plans, 301-302group health insurance

eligibility, 399evidence of insurability, 399federal/state regulations, 407

COBRA (Consolidated OmnibusBudget Reconciliation Act), 402-404

ERISA (Employee RetirementIncome Security Act of 1974), 405-406

HIPPA (Health Insurance Portabilityand Accountability Act), 401-402

OBRA (Omnibus BudgetReconciliation Act of 1989), 404-405

TEFRA (Tax Equity and FiscalResponsibility Act of 1982), 405

policy types, 398provisions, 398-401taxes, 453-454

group insuranceassociation groups, 92certificates of insurance, 92, 241contributory groups, 93, 96credit group insurance, 93dependent coverage, 242employee groups, 92FEGLI, 244funding, 97individual permanent life insurance,

converting to, 243labor union groups, 92legal requirements, 240multiple employer groups, 92noncontributory groups, 93

eligibility periods, 95enrollment percentages, 96

policy forms, 242policyowners, premium payments, 240premiums, 93SGLI, 244standard provisions, 241trust groups, 92underwriting, 93

adverse selection, 94eligibility periods, 95optional requirements, 96-97probationary periods, 94statutory requirements, nondiscrimi-

natory classifications, 95-96group life insurance policies, taxes, 258group medical expense benefits, 399group model HMO, 289-290group practice model HMO, 289-290guaranteed insurability option (disability),

353guaranteed purchase option (disability), 353guaranteed renewable policies, 338guaranty associations, insurance company

regulations, 36guideline premium tests, 255-256

Page 68: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .health insurance 537

HHarcourt Legal and Professional Publishing

Web site, 499hazardous occupation/hobby exclusions, 199hazards, defining, 3HCFA (Health Care Financing

Administration), 412health care plans

ASO contracts, 298-299Blue Cross and Blue Shield, 286-287commercial insurers, 285employer-funded

501(c) (9) trusts, 299cafeteria, 300MET, 300MEWA, 300self-funded, 297

group, 301-302HMO

basic health care services, 291-293closed panel, 291consumers cooperatives, 289development of, 288employer/employee contributions,

289enrollment, 289federal requirements, 288gatekeeper systems, 293grievance procedures, 294group model, 289-290HMO Act of 1973, 289IPA model, 290member access, 293network model, 290nondiscrimination, 294open enrollment, 293open panel, 291open-access plans, 295open-ended plans, 295producers cooperatives, 289prohibited practices, 294quality assurance, 294selecting PCP, 293service areas, 289staff model, 290supplemental health care services,

292-293POS, 296-297PPO, 295prepaid, 286reimbursement plans, 285

health care providers, 285-287

health insurance. See also group healthinsurance

accident only insurance, 284AD&D insurance, 282blanket, 284Blue Cross and Blue Shield, 286-287commercial insurers, 285credit, 284death benefits, 303dental expense insurance, 283disability benefits, 303disability income insurance, 282dread disease insurance, 283dual choice laws, 289elimination periods, 303employer-administered plans

501(c) (9) trusts, 299cafeteria, 300MET, 300MEWA, 300self-funded, 297-298small business, 299

governmentMedicaid, 303TRICARE, 304workers compensation, 302

group, 301-302health care providers

home health care, 285managed health care, 285-287skilled nursing facilities, 285surgicenters, 285urgent care centers, 285

HMObasic health care services, 291-293closed panel, 291consumers cooperatives, 289development of, 288employer/employee contributions,

289enrollment, 289federal requirements, 288gatekeeper systems, 293grievance procedures, 294group model, 289-290HMO Act of 1973, 289IPA model, 290member access, 293network model, 290nondiscrimination, 294open enrollment, 293open panel, 291open-access plans, 295open-ended plans, 295producers cooperatives, 289prohibited practices, 294

How can we make this index more useful? Email us at [email protected]

Page 69: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .health insurance538

quality assurance, 294selecting PCP, 293service areas, 289staff model, 290supplemental health care services,

292-293hospital income insurance, 283income benefits, 303LTC insurance, 283medical benefits, 302medical expense insurance, 282needs, determining, 284policies

delivering, 313policy terms, 312replacement policies, issuing,

314-315servicing, 314underwriting, 310

POS, 296-297PPO, 295prescription coverage, 284rehabilitation benefits, 302-303reimbursement plans, 285specified disease insurance, 283taxes

group policies, 453-454individual policies, 452sole proprietors/partnerships, 454

travel accident insurance, 283Health Insurance Portability and

Accountability Act of 1996 (HIPPA), 401-402, 455

hearing aids, medical expense insurance, 378HIPPA (Health Insurance Portability and

Accountability Act), 401-402History, LTC (long-term care), 434-435HMO (health maintenance organizations)

basic health care servicescertificates of coverage, 292copayments, 292evidence of coverage, 292exclusions/limitations, 292-293in and out of area emergency servic-

es, 292inpatient hospital and physician serv-

ices, 291outpatient medical services, 291preventive health services, 291

closed panel, 291consumers cooperatives, 289development of, 288employer/employee contributions, 289enrollment, 289, 293federal requirements, 288gatekeeper systems, 293

grievance procedures, 294group model, 289-290HMO Act of 1973, 289IPA model, 290member access, 293Medicare+Choice, 423network model, 290nondiscrimination, 294open panel, 291open-access plans, 295open-ended plans, 295PCP, selecting, 293producers cooperatives, 289prohibited practices, 294quality assurance, 294service areas, 289staff model, 290supplemental health care services,

292-293HMO Act of 1973, 289home health care, 285

LTC (long-term care), 439-441Medicare, Part A, 414Medicare, Part B, 417

home health care expense benefits (basicmedical expense insurance), 369

home service life insurance policies, 156homogeneous risks, 6hospice care

expense benefits (basic medical expenseinsurance), 369

LTC (long-term care), 441Medicare, Part A, 414-415

hospital confinement rider (disability), 355hospital expense, 398hospital expense benefits (basic medical

expense insurance), 364-365hospital income insurance, 283, 391hospital indemnity insurance. See hospital

income insurancehospital indemnity riders, medical expense

insurance, 380hospitalization, prior (long-term care), 440hospitalization insurance. See medical

expense insurancehuman life value concept (life insurance,

selling), 103-104

IIllegal Occupation provision (Uniform

Individual Accident and Sickness PolicyProvisions Law), 335-336

illegal premiums/charges, Unfair TradePractices Act, 47

Page 70: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .insurance 539

immediate annuities, SPIA, 225immediate payment of claims (expense load-

ing), 85impairment rider (disability), 355impersonation, in contracts, 66in and out of area emergency services

(HMO basic services), 292in-hospital physician benefits (basic medical

expense insurance), 367income

benefits (workers compensation), 303blackout periods, 105capital conservation, 105capital liquidation, 105disability income insurance, 398family dependency periods, 104preretirement periods, 104retirement periods, 105

income taxes, life insurance, 254accelerated benefits, 257annuities, 257-258cash surrender values, 257cash value accumulation, 258cash value accumulation tests, 255corridor tests, 255death benefits, 256dividends, 257group life insurance policies, 258guideline premium tests, 255-256MEC, 256premiums, 256transfer for value rules, 260

incontestability clause provisions, 183increasing term insurance policies, 141indemnity, defining, 7independent insurance producers, defining,

15indeterminate premium term insurance

policies, 141indeterminate premium whole life insurance

policies, 146index-linked life insurance policies, 162-163individual credit health insurance, 392-393individual deferred annuities, retirement

plans, 267individual employer groups. See employee

groupsindividual health insurance policies, taxes,

452individual medicare supplement insurance,

premiums, 455individual permanent life insurance, group

insurance, 243industrial life insurance, 155-156inflation protection, LTC (long-term care),

445

information (personal)disclosure authorization, 25-26sharing, opt outs, 31-32

initial premiums, 311injury versus sickness (total disability), 349inpatient hospital and physician services

(HMO basic services), 291inpatient hospital care, Medicare, Part A,

413inside limits (benefits), 374inspection receipts, 124inspection reports (applications), 79installing CDs, 494insurable interest, defining, 5insurable risks, characteristics of, 6-7insurance. See also disability income insur-

ance; group health insurance; social healthinsurance

accident and health or sickness, defining,10

annuitiesdefining, 10income distribution, 222retirement fund accumulation, 222variable annuities, 10

casualty, defining, 9credit, defining, 10credit life, provisions of, 156defining, 2excess and surplus lines, defining, 13flexible

adjustable life insurance policies, 147advantages of, 154disadvantages of, 154life, 147universal life insurance policies,

148-151variable universal life insurance poli-

cies, 153-154VLI policies, 151-153

healthaccident only, 284AD&D income, 282blanket, 284Blue Cross and Blue Shield, 286-287commercial insurers, 285credit, 284dental expense, 283determining needs, 284disability income, 282dread disease, 283dual choice laws, 289employer-administered plans, 501(c)

(9) trusts, 297-300government, 302-304

How can we make this index more useful? Email us at [email protected]

Page 71: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .insurance540

group, 301-302health care providers, 285-287HMO, basic health care services,

291-293HMO, closed panel, 291HMO, consumers cooperatives

(HMO), 289HMO, development of, 288HMO, employer/employee contribu-

tions, 289HMO, enrollment, 289HMO, federal requirements, 288HMO, gatekeeper systems, 293HMO, grievance procedures, 294HMO, group model, 289-290HMO, HMO Act of 1973, 289HMO, IPA model, 290HMO, member access, 293HMO, network model, 290HMO, nondiscrimination, 294HMO, open enrollment, 293HMO, open panel, 291HMO, open-access plans, 295HMO, open-ended plans, 295HMO, producers cooperatives, 289HMO, prohibited practices, 294HMO, quality assurance, 294HMO, selecting PCP, 293HMO, service areas, 289HMO, staff model, 290HMO, supplemental health care

services, 292-293hospital income, 283LTC, 283medical expense, 282POS, 296-297PPO, 295prescription coverage, 284reimbursement plans, 285specified disease, 283travel accident, 283

industrial life, 155-156juvenile life insurance policies, payor

riders, 168life

beneficiary provisions, 189beneficiary provisions, class designa-

tions, 194beneficiary provisions, common dis-

aster, 197beneficiary provisions, contingent

beneficiaries, 191beneficiary provisions, facility of pay-

ment, 198beneficiary provisions, irrevocable

beneficiaries, 190

beneficiary provisions, naming bene-ficiaries, 192-194

beneficiary provisions, per capitadesignations, 195

beneficiary provisions, per stirpesdesignations, 195

beneficiary provisions, primary bene-ficiaries, 191

beneficiary provisions, revocablebeneficiaries, 190

beneficiary provisions, spendthriftclause, 197-198

beneficiary provisions, tertiary bene-ficiaries, 191

as charitable gifts, 259creditor rights, 210defining, 9dividends, 213-217doctrine of economic benefit rule,

258exclusions, 198-199federal taxes, 259gift taxes, 260income taxes, 254

cash value accumulation tests, 255as charitable gifts, 259corridor tests, 255guideline premium tests, 255

income taxes, 256-258nonforfeiture options, 211-213prohibited provisions, 200provisions, withdrawal provisions

settlement option, 209Section 1035 policy exchanges

(Internal Revenue Code), 261settlement options, 206-211standard provisions, 178standard provisions, absolute assign-

ment, 186standard provisions, applicant con-

trol clause, 180standard provisions, assignment

clause, 185standard provisions, automatic pre-

mium loan, 183standard provisions, autopsy, 188standard provisions, beneficiary

assignment, 187standard provisions, collateral assign-

ment, 186standard provisions, complete assign-

ment, 186standard provisions, conditional

assignment, 186standard provisions, consideration

clause, 178

Page 72: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .insurance 541

standard provisions, entire contract,184-185

standard provisions, execution clause,179

standard provisions, free look, 189standard provisions, grace periods,

181standard provisions, incontestability

clause, 183standard provisions, insuring clause,

178standard provisions, medical exami-

nation, 188standard provisions, misstatement of

age clause, 187-188standard provisions, misstatement of

sex clause, 188standard provisions, modification

clause, 188standard provisions, ownership

rights, 179-180standard provisions, partial assign-

ment, 186standard provisions, payment of pre-

mium, 179standard provisions, policy change,

189standard provisions, policy loan, 182standard provisions, reinstatement

clause, 181-182standard provisions, suicide clause,

184standard provisions, voluntary

assignment, 186taxes, policy exchanges, 261third-party rights, 210transfer for value rules, 260

packages, 9property, defining, 9riders

accelerated benefit, 171ADB, 164-165, 172additional insured, 170cost of living, 169disability income, 167GIR, 168-169living needs, 171LTC, 171payor, 168return of cash value, 169return of premium, 169substitute insured, 170

specialized lifeadvantages of, 164deposit-term life insurance policies,

163

disadvantages of, 164endowment life insurance policies,

157-158family income life insurance policies,

158-159family maintenance life insurance

policies, 159family protection life insurance poli-

cies, 159-160graded premium life insurance poli-

cies, 162index-linked life insurance policies,

162-163joint life insurance policies, 160juvenile life insurance policies, 161minimum deposit life insurance poli-

cies, 161modified premium life insurance

policies, 161mortgage redemption life insurance

policies, 162multiple protection life insurance

policies, 162pre-need funeral life insurance poli-

cies, 163retirement income life insurance

policies, 160supplemental (Medicare), 419term

advantages of, 141convertible term policies, 139decreasing term policies, 140-141deposit term life insurance policies,

163disadvantages of, 142face amounts, 139family protection life insurance poli-

cies, 160increasing term policies, 141indeterminate premium term poli-

cies, 141interim term policies, 141level term policies, 140premiums, 138reentry term policies, 140

renewable, defining, 10waivers, 164

waivers of monthly deductions, 167waivers of premiums, 165-167

whole lifeadvantages of, 147continuous premium whole life poli-

cies, 145current assumption whole life poli-

cies, 146disadvantages of, 147

How can we make this index more useful? Email us at [email protected]

Page 73: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .insurance542

economatic whole life policies, 146face amounts, 143guaranteed cash values, 143indeterminate premium whole life

policies, 146limited payment whole life policies,

145nonforfeiture values, 144policy loans, 144premiums, 143single premium whole life policies,

145straight life policies, 145

insurance agreements. See temporary insur-ance agreements

Insurance Code, defining, 32insurance companies

liquidation, 34regulations, 33

guaranty associations, 36insurer examinations, 35insurer solvency, 34investments, 34marketing/advertising, 36-37ratings, 35taxes, 34

rehabilitation, 34insurance consultants, defining, 18insurance coverage

coinsurance, defining, 9deductibles, defining, 8indemnity, defining, 7limit of liability, defining, 8

insurance distributionagency systems, 15-16Internet sales, 17mass marketing, 16

Insurance Information Institute Web site,499

insurance licensesdenial of, 43-44issuing, 40maintaining, 41-43obtaining, examination applications, 40revocation of, 43-44temporary agent licenses, 40-41

insurance producer regulation, licensing, 37exceptions to requirements, 38-39nonresident reciprocity, 39requirements, 38

insurance producers, 17brokers, defining, 18claims, 126fiduciary responsibilities, 131insurance consultants, defining, 18life and health agents, defining, 17

life insurancepolicy retention, 131replacements, 129-130

life insurance claimspartial payment, 127payment, 126-127responsibilities upon insured’s death,

128-129life insurance, selling

advantages as property, 107-108business uses for life insurance,

111-116charitable uses for life insurance, 111cost comparisons, 109-110estate planning, 106human life value concept, 103-104income analysis, 104-106living benefits, 107needs analysis, 103-104personal uses for life insurance,

110-111recommendations, 103

policy delivery, 125-126policy issuance, 122-124property and casualty agents, defining,

17responsibilities, 132solicitors, defining, 18

insurance regulation, AIDS, 77-78Insurance with Other Insurers provision

(Uniform Individual Accident andSickness Policy Provisions Law), 332-333

insuredsdefining, 2life insurance claims, producer responsi-

bilities upon death, 128-129insurer examinations, insurance company

regulations, 35insurer solvency (insurance company regula-

tions), 34insurers

commercial, 11defining, 2domiciles, 14-15life insurance, replacements, 130nonprofit, 11primary, 400private, 12self-insurers, 13service, 11U.S. Government, 13-14

insuring clause, 337life and health insurance contracts, 63provisions, 178

integrated deductibles, 386inter vivos transfers (estate planning), 106

Page 74: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .laws 543

inter vivos trusts, 194interest, determining premiums, 84interest only settlement option (life insur-

ance), 207interest-adjusted net cost method (life insur-

ance cost comparisons). See net paymentcost index method

interest-sensitive whole life insurance poli-cies, 146

interim term insurance policies, 141intermediaries, 412intermediate care, LTC (long-term care),

438internal limits (benefits), 374Internal Revenue Code

retirement plans, vesting rules, 266-267Section 1035 policy exchanges, 261

Internet insurance distribution, 17intimidation, Unfair Trade Practices Act, 47intracompany replacements (policies), 315investigative consumer reports

applications, 79Fair Credit Reporting Act of 1970, 27

Investment Company Act of 1940, 153investments (insurance company regula-

tions), 34IPA (Individual Practice Association) model

HMO, 290IRA (Individual Retirement Accounts and

Annuities)contribution limits, 269distributions, 273-274funding, 270income deductibility limits, 270rollovers, 275Roth IRA, 271SEP, 272SIMPLE, 271-272taxes, 269

IRA Plus. See Roth IRAirrevocable beneficiaries, 187, 190

J - K - Ljoint life and survivorship settlement

options, 232joint life annuity settlement options, 232joint life insurance policies, 160jumping juvenile life insurance policies, 161juvenile life insurance policies, 161, 168

Keogh plans, 273key employees, 405key person disability insurance, 357key person life insurance, 115Kluwer Academic Publishers Web site, 498

labor union groups, 92lapsing policies, 324last survivor settlement options. See joint

life and survivorship settlement optionsLaw of Agency, principles of

agent’s responsibilities to company, 58-59

agent’s responsibilities to insured/appli-cant, 57

authority, 56-57collection of premium, 57company’s responsibilities to agent, 59E&O insurance, 59presumption of agency, 56waiver and estoppel, 58

law of large numbersdefining, 4example of, 83

lawscompensation, workers compensation,

428Uniform Individual Accident and

Sickness Policy Provisionsmandatory provisions, 322mandatory provisions, Change of

Beneficiary, 329-330mandatory provisions, Claim Forms,

326mandatory provisions, Entire

Contract; Changes, 322mandatory provisions, Grace Period,

323-324mandatory provisions, Legal Actions,

329mandatory provisions, Notice of

Claim, 325-326mandatory provisions, Payment of

Claims, 327-328mandatory provisions, Physical

Examination and Autopsy, 329mandatory provisions, Proof of Loss,

326-327mandatory provisions,

Reinstatement, 324-325mandatory provisions, Time Limit

on Certain Defenses;Incontestability, 323

mandatory provisions, Time ofPayment of Claims, 327

optional provisions, 330optional provisions, Cancellation,

334-335optional provisions, Change of

Occupation, 330-331optional provisions, Conformity with

State Statutes, 335

How can we make this index more useful? Email us at [email protected]

Page 75: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .laws544

optional provisions, IllegalOccupation, 335-336

optional provisions, Insurance withOther Insurers, 332-333

optional provisions, Misstatement ofAge, 331

optional provisions, Narcotics, 336optional provisions, Other Insurance

in This Insurer, 331-332optional provisions, Relation of

Earnings to Insurance—AverageEarnings Clause, 333-334

optional provisions, UnpaidPremium, 334

leaky HMO plans. See open-ended HMOplans

Legal Actions provision (UniformIndividual Accident and Sickness PolicyProvisions Law), 329

legal hazards, defining, 3legal requirements

certificates of insurance, 241group insurance, 240life and health insurance contracts,

63-64standard provisions, 241

level premiums, 85, 226level term insurance policies, 140liability, face amounts, 8licensed insurers, defining, 15licenses

denial of, 43-44issuing, 40maintaining, 41-43obtaining, examination applications, 40revocation of, 43-44temporary agent licenses, 40-41

licensing, producer regulation, 37-39life and health agents, defining, 17life and health insurance contracts

characteristics ofaleatory contracts, 64concealment, 66conditional contracts, 65contracts of adhesion, 65executory contracts, 65fraud, 67impersonation, 66material information, 66misrepresentations, 66parole evidence rule, 67personal contracts, 65representations, 66unilateral contracts, 65utmost good faith, 64warranties, 65

elements of, 60-62

legal requirements, 63-64parts of, 62-63

life annuity settlement options, 231life annuity with period certain settlement

options, 232life income settlement option (life insur-

ance), 209life insurance

business life insurance, taxes, AMT, 261business uses for, 111

corporations, 113-116partnerships, 112-113sole proprietorships, 112

as charitable gifts, 259charitable uses for, 111claims

partial payment, 127payment, 126-127producer responsibilities upon

insured’s death, 128-129credit life insurance, provisions of, 156creditor rights, 210death benefits, 138defining, 9dividends, 213

accelerated endowment option, 216accumulation at interest option, 215cash dividend option, 215fund sources, 214one-year term option, 217paid-up additions option, 215

loading charges, 216doctrine of economic benefit rule, 258exclusions, 198-199federal taxes, 259fiduciary responsibilities, 131flexible life insurance

adjustable life insurance policies, 147advantages of, 154disadvantages of, 154universal life insurance policies,

148-151variable universal life insurance poli-

cies, 153-154VLI policies, 151-153

gift taxes, 260income taxes, 254

accelerated benefits, 257annuities, 257-258cash surrender values, 257cash value accumulation, 258cash value accumulation tests, 255corridor tests, 255death benefits, 256dividends, 257group life insurance policies, 258guideline premium tests, 255-256

Page 76: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .life insurance 545

MEC, 256premiums, 256

industrial life insurance, 155-156juvenile life insurance policies, payor

riders, 168nonforfeiture options, 211-213personal uses for, 110-111policy retention, 131producer responsibilities, 132provisions

absolute assignment, 186applicant control clause, 180assignment clause, 185automatic premium loan, 183autopsy, 188beneficiary assignment, 187beneficiary, class designations, 194beneficiary, common disaster, 197beneficiary, contingent beneficiaries,

191beneficiary, facility of payment, 198beneficiary, irrevocable beneficiaries,

190beneficiary, naming beneficiaries,

192-194beneficiary, per capita designations,

195beneficiary, per stirpes designations,

195beneficiary, primary beneficiaries,

191beneficiary, revocable beneficiaries,

189-190beneficiary, spendthrift clause, 197-

198beneficiary, tertiary beneficiaries, 191collateral assignment, 186complete assignment, 186conditional assignment, 186consideration clause, 178entire contract, 184-185execution clause, 179free look, 189grace periods, 181incontestability clause, 183insuring clause, 178medical examination, 188misstatement of age clause, 187-188misstatement of sex clause, 188modification clause, 188ownership rights, 179-180partial assignment, 186payment of premium, 179policy change, 189policy loan, 182prohibited, 200

reinstatement clause, 181-182suicide clause, 184voluntary assignment, 186withdrawal provisions settlement

option, 209replacements, 129-130Section 1035 policy exchanges (Internal

Revenue Code), 261selling

advantages as property, 107-108business uses for life insurance,

111-116charitable uses for life insurance, 111cost comparisons, 109-110costs of death, 102estate planning, 106human life value concept, 103-104importance of insurance, 102income analysis, 104-106living benefits, 107needs analysis, 103-104personal uses for life insurance,

110-111recommendations, 103

settlement options, 206advantages of, 211fixed amount, 208-209fixed period, 207-208interest only, 207life income, 209withdrawal provisions, 209

specialized life insuranceadvantages of, 164deposit term life insurance policies,

163disadvantages of, 164endowment life insurance policies,

157-158family income life insurance policies,

158-159family maintenance life insurance

policies, 159family protection life insurance poli-

cies, 159-160graded premium life insurance poli-

cies, 162index-linked life insurance policies,

162-163joint life insurance policies, 160juvenile life insurance policies, 161minimum deposit life insurance poli-

cies, 161modified premium life insurance

policies, 161mortgage redemption life insurance

policies, 162

How can we make this index more useful? Email us at [email protected]

Page 77: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .life insurance546

multiple protection life insurancepolicies, 162

pre-need funeral life insurance poli-cies, 163

retirement income life insurancepolicies, 160

taxes, policy exchanges, 261term insurance

advantages of, 141convertible term policies, 139decreasing term policies, 140-141disadvantages of, 142face amounts, 139family protection life insurance poli-

cies, 160increasing term policies, 141indeterminate premium term poli-

cies, 141interim term policies, 141level term policies, 140premiums, 138reentry term policies, 140renewable term policies, 139

third-party rights, 210transfer for value rules, 260whole life insurance

advantages of, 147continuous premium whole life poli-

cies, 145current assumption whole life poli-

cies, 146disadvantages of, 147economatic whole life policies, 146face amounts, 143guaranteed cash values, 143indeterminate premium whole life

policies, 146limited payment whole life policies,

145nonforfeiture values, 144policy loans, 144premiums, 143single premium whole life policies,

145straight life policies, 145

lifetime benefit (disability), 354limit of liability, defining, 8limitations

dental care insurance, 388hospital income insurance, 391vision care insurance, 391

limited payment whole life insurance poli-cies, 145

limited policies, 390-391liquidation (insurance companies), 34

living benefit riders, 171, 446living benefits, 107, 257living needs riders, 171Lloyd’s of London, 12loading for contingency funds (expense

loading), 85lock-in requirements, managed care plans,

424long-term disability (LTD), 352loss of earnings (total disability), 348loss of time coverage. See disability income

insuranceloss of time insurance. See disability income

insuranceloss ratios, 86loss versus risk, 2losses, defining, 2LTC (long-term care), 238

accelerated benefits riders, 446alternatives, 437-438benefit triggers, 443-444benefits, 438-439chronically ill, defining, 456emerging issues, 445-446factors, rating, 438federal/state regulations, 445history, 434-435nonqualified policies, 445policies, 435premiums, taxes, 455-456probability of care, 437provisions

adult day care, 441benefit amounts, 442benefit periods, 442care level, 440eligibility, 439elimination periods, 443exclusions, 443home health, 441hospice, 441preexisting conditions, 443premiums, 440prior hospitalization, 440professional care advisors, 442renewability, 439respite care, 441waiver of premium, 440

qualified policies, 444suitable purchasers, 435-436

LTC (long-term care) riders, 171LTD (long-term disability), 352lump-sum benefits (disability), 352

Page 78: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Medicare 547

Mmajor medical expense insurance policies

all-cause deductibles, 373benefit limitations, 375-376benefit periods, 374carryover provisions, 374common injury or illness provisions, 374comprehensive expense benefits,

371-372covered expenses, 372-373family deductibles, 374per-cause deductibles, 373restoration of benefits, 374supplemental expense benefits, 371-372

managed care plans, 424managed health care, 285

Blue Cross and Blue Shield, 287POS, 296-297

managing risk, 3-4mandated benefits, HIPPA (Health

Insurance Portability and AccountabilityAct), 402

market conduct, defining, 35marketing, insurance company regulations,

36-37master policies, 242material facts, 66material information, in contracts, 66maternity, major medical expense benefits,

376maternity expense benefits (basic medical

expense insurance), 368maximum benefit limits, major medical

expense benefits, 372maximum benefits, sublimits, 8Maximum Family Benefit, 253, 426maximum taxable wage bases (Social

Security), 254McCarran-Ferguson Act, 25McGraw-Hill/Irwin Web site, 499MEC (modified endowment contracts), 256Medicaid, 14, 303, 425medical benefits (workers compensation),

302medical examination provisions, 188medical examinations/testing (applications),

77medical expense insurance, 282

alternative practitioners, 377baby-care, 378basic coverage

emergency accident expense benefits,369

emergency first-aid expense benefits,368

exclusions/limitations, 369-370home health care expense benefits,

369hospice care expense benefits, 369hospital expense benefits, 364-365in-hospital physician expense bene-

fits, 367maternity expense benefits, 368mental infirmity expense benefits,

369outpatient care expense benefits, 369regular medical expense benefits, 366surgical expense benefits, 366

benefits, 379-380child-care, 378cosmetic surgery, 378custodial care, 378dental care, 378exclusions, 377-378eyeglasses, 378hearing aids, 378major coverage

all-cause deductibles, 373benefit limitations, 375-376benefit periods, 374carryover provisions, 374common injury or illness provisions,

374comprehensive expense benefits,

371-372covered expenses, 372-373family deductibles, 374per-cause deductibles, 373restoration of benefits, 374supplemental expense benefits,

371-372payments, 364-365workers compensation, 378

medical group model HMO, 289-290medical information section (applications),

76medical necessity, LTC (long-term care),

444medically defined disability (total disability),

349Medicare

employer coverage, 424Medicare+Choice

fee-for-service plans, 422-423HMOs (health maintenance organi-

zations), 423PPOs (preferred provider organiza-

tions), 423PSOs (provider-sponsored organiza-

tions), 423-424

How can we make this index more useful? Email us at [email protected]

Page 79: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Medicare548

Part Abenefits, 413-415enrolling, 412

Part Bbenefits, 415-418claims/appeals, 418enrolling, 412uncovered expenses, 418

standardized supplemental benefitscore benefits, 419optional benefits, 420provisions, 421-422standardized policy forms, 420

supplemental insurance, 419Medicare Part C. See Medicare+ChoiceMedicare SELECT, 422medicare supplement insurance, premiums,

455Medicare+Choice

fee-for-service plans, 422-423HMOs (health maintenance organiza-

tions), 423PPOs (preferred provider organizations),

423PSOs (provider-sponsored organiza-

tions), 423-424Medigap policies, 419-422mental disorders, major medical expense

benefits, 375-376mental infirmity expense benefits (basic

medical expense insurance), 369MET (multiple employer trusts), 92, 300MEWA (multiple employer welfare

arrangements), 300MGA (managing general agents), defining,

16MIB (Medical Information Bureau), 79military

group insurance, 244service exclusions, 199TRICARE, 426

minimum deposit life insurance policies,161

minimum premium plans (group insurance),97

minors, naming beneficiaries as, 192miscellaneous medical benefits (basic med-

ical expense insurance), 365misrepresentations. See also churning

contracts, 66Unfair Trade Practices Act, 45

missing tooth provisions (dental care insur-ance), 388

Misstatement of Age provision, 187-188,331

misstatement of sex clause provisions, 188mode of premium payment, 311Model Life Insurance Replacement

Regulation, 130modification clause provisions, 188modified premium life insurance policies,

161money-purchase pension plans, 268moral hazards, defining, 3morale hazards, defining, 3morbidity, 83-84mortality rate, 83mortality tables, 83mortality, risk rating (underwriting), 83mortgage redemption life insurance policies,

162multiple employer groups, 92multiple protection life insurance policies,

162mutual insurers, defining, 11MVA (market-value adjusted) annuities, 235

NNAIC (National Association of Insurance

Commissioners), 49, 130, 434NAIC Model Group Life Insurance Bill,

240-241NAIC Model Privacy Act, 27naming beneficiaries, 192-194Narcotics provision (Uniform Individual

Accident and Sickness Policy ProvisionsLaw), 336

NASD (National Association of SecuritiesDealers), 229

National Association of Insurance andFinancial Advisors Web site, 499

National Association of InsuranceCommissioners (NAIC), 434

needs analysis, life insurance, 103-104net payment cost index method (life insur-

ance cost comparisons), 109-110net premiums, 85network model HMO, 290no loss-no gain laws, 314, 370nonadmitted insurers, defining, 15noncancelable policies, 338nonconfining disability (total disability), 351noncontributory groups, 93

eligibility periods, 95enrollment percentages, 96

nondisabling rider (disability), 355nonforfeiture annuity options, 224nonforfeiture options (life insurance),

211-213

Page 80: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Payment of Claims provision 549

nonforfeiture provisions, LTC (long-termcare), 446

noninsurance sponsors (insurance distribu-tion), 16

nonlicensed insurers, defining, 15nonoccupational coverage, 339nonoccupational disability (total disability),

349nonparticipating policies, 213nonprofit insurers, 11nonqualified policies, LTC (long-term care),

445nonroutine dental care treatments, 387normal retirement age (Social Security),

250, 253Notice of Claim provision (Uniform

Individual Accident and Sickness PolicyProvisions Law), 325-326

notices of appointment, insurance licenses,42

notices of proposed insurance, credit healthinsurance policies, 393

Notices to Applicants RegardingReplacement of Life Insurance (replace-ments), 130

notification statements, COBRA(Consolidated Omnibus BudgetReconciliation Act), 403

nursing home benefits, medical expenseinsurance, 380

OOASDI (Old Age Survivors and Disability

Insurance), benefits of, 248OBRA (Omnibus Budget Reconciliation Act

of 1989), 404-405occupational disability (total disability), 349occupational diseases, workers compensa-

tion, 427offices, insurance licenses, 41-42offset rider (disability), 354Omnibus Budget Reconciliation Act of

1989(OBRA), 404-405one-year term dividend options (life insur-

ance), 217ongoing relationships, defining, 31open panel contracts (prepaid dental plans),

389open panel HMO, 291open-access HMO, 295open-ended HMO plans, 295opt outs, information sharing, 31-32oral hygiene instructions (dental care insur-

ance), 388

oral pathology, 387oral surgery, 387ordinary insurance. See whole life insuranceorgan transplant benefits, medical expense

insurance, 380orthodontics, 387Other Insurance in This Insurer provision

(Uniform Individual Accident andSickness Policy Provisions Law), 331-332

out-of-pocket limits. See stop-loss limitsOutlines of Coverage, 37outpatient care expense benefits (basic med-

ical expense insurance), 369outpatient medical services (HMO basic

services), 291outpatients, services/supplies (Medicare,

Part B), 417-418own occupation (total disability), 348ownership clause provisions, 180ownership rights provisions, 179-180

Ppackages (policies), 9paid-up additions options (life insurance),

215-216paid-up options (life insurance), 216parol evidence rule, 67Part A (Medicare)

benefitshome health care, 414hospice care, 414-415inpatient hospital care, 413respite care, 415SNF (skilled nursing facility), 413-

414uncovered expenses, 415

enrolling, 412Part B (Medicare)

benefits, 415-418claims/appeals, 418enrolling, 412uncovered expenses, 418

partial assignment provisions, 186partial disability (total disability), 349partial disability benefits (workers compen-

sation), 303partial payment, life insurance claims, 127participating policies, dividends, 213partnerships, health insurance policies, 454partnerships (business), 112-113Paul v. Virginia, 24Payment of Claims provision (Uniform

Individual Accident and Sickness PolicyProvisions Law), 327-328

How can we make this index more useful? Email us at [email protected]

Page 81: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .payment of premium provisions550

payment of premium provisions, 179payment options. See settlement optionspayments

credit health insurance, disability, 392life insurance claims, 126-127medical expense insurance, 364-365premiums, mode of premium payment,

311payor riders, 168payroll taxes

Social Security, 253-254Social Security disability benefits, 452

PCP (primary care physicians), HMO, 293pediatric dentistry, 387penalties

Fair Credit Re, 30Privacy Act of 1974 violations, 26Unfair Claims Practices provisions

(Unfair Trade Practices Act), 49pension plans, 268per capita beneficiary designations, 195per stirpes beneficiary designations, 195per-cause deductibles, 373percentage participation. See coinsuranceperils, defining, 3periodontics, 387periods, benefits (long-term care), 442permanent disability (total disability), 350,

356permanent insurance. See whole life insur-

ancepermanent life insurance, converting from

group insurance, 243permanent partial disability benefits (work-

ers compensation), 303permanent total disability benefits (workers

compensation), 303personal contracts, 65personal information

disclosure authorization, 25-26sharing, opt outs, 31-32

Pfingsten Publishing LLC Web site, 499PHO (physician hospital organizations), 297Physical Examination and Autopsy provision

(Uniform Individual Accident andSickness Policy Provisions Law), 329

physical hazards, defining, 3physician statements (applications), 77physician’s nonsurgical expenses. See regular

medical expense benefitsphysicians. See doctorsPIA (primary insurance amount), 250-252,

426PIR (insurance protection riders). See GIRplaces of business, insurance licenses, 41-42

plan termination, COBRA (ConsolidatedOmnibus Budget Reconciliation Act), 404

planning financially, disability income insur-ance, 346

plaque control programs (dental care insur-ance), 388

PLMA (Producer Licensing Model Act), 37license requirements, 38-39license revoking, 43-44

PMO (practice management organizations),297

policiesabsolute assignments, 179-180amendments, 185basic medical expense insurance

emergency accident expense benefits,369

emergency first-aid expense benefits,368

exclusions/limitations, 369-370home health care expense benefits,

369hospice care expense benefits, 369hospital expense benefits, 364-365in-hospital physician expense bene-

fits, 367maternity expense benefits, 368mental infirmity expense benefits,

369outpatient care expense benefits, 369regular medical expense benefits, 366surgical expense benefits, 366

benefits, restoration of, 374blanket, group health care plans, 301business overhead expense insurance,

454constructive deliveries, 313credit health insurance, 392-393creditor rights, 210defining, 2delivering

constructive deliveries, 126, 313mailing policies, 126personal delivery, 125

dental care insurancebenefit payment, 387coinsurance, 386comprehensive policies, 386-387exclusions/limitations, 388nonroutine treatments, 387prepaid plans, 389-390provisions, 388scheduled policies, 386service areas, 389underwriting, 388

Page 82: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .policy provisions 551

disability insurance, taxes, 455dread disease, 390effective dates, 312endorsements, 185exchanges, taxes, 261face amounts

defining, 8term insurance, 139whole life insurance, 143

fees, 312-313franchise, group health care plans,

301-302group health insurance

accidental death, 398dismemberment, 398group health insurance, 398hospital expense, 398

group life insurance, taxes, 258health insurance

issuing replacement policies, 314-315servicing, 314taxes, 453-454underwriting, 310

hospital income insurance, 391lapsing, 324life insurance

replacements, 129-130retention of, 131

LTC (long-term care) insurance, 435,455-456

major medical expense insuranceall-cause deductibles, 373benefit limitations, 375-376benefit periods, 374carryover provisions, 374common injury or illness provisions,

374comprehensive expense benefits,

371-372covered expenses, 372-373family deductibles, 374per-cause deductibles, 373restoration of benefits, 374supplemental expense benefits,

371-372maximum benefits, sublimits, 8MEC, 256medical expense insurance, benefits,

379-380medicare supplement insurance, premi-

ums, 455Medigap, 419-422nonparticipating, 213nonqualified, LTC (long-term care), 445packages, 9participating, dividends, 213

policy terms, 312prescription drug, 391qualified, LTC (long-term care), 444qualified group long-term care insur-

ance, taxes, 454riders, 185

accelerated benefit, 171ADB, 164-165, 172additional insured, 170cost of living, 169disability income, 167GIR, 168-169living needs, 171LTC, 171payor, 168return of cash value, 169return of premium, 169substitute insured, 170

third-party rights, 210travel accident insurance, 390vision care insurance, 391waivers, 164

waivers of monthly deductions, 167waivers of premiums, 165-167

policy change provisions, 189policy continuation, 337-339policy distribution, 15-17policy effective dates, 312policy face, 62, 336policy forms, group insurance, 242policy issuance

applications, submitting, 124premiums, 122-124

policy loan provisions, 182policy provisions

benefit payment clause, 339case management, 339-340consideration clause, 337free look, 336insuring clause, 337nonoccupational coverage, 339policy continuation, 337-339policy face, 336precertification, 340preexisting conditions, 339second surgical opinion, 340Uniform Individual Accident and

Sickness Policy Provisions Lawmandatory provisions, 322mandatory provisions, Change of

Beneficiary, 329-330mandatory provisions, Claim Forms,

326mandatory provisions, Entire

Contract; Changes, 322

How can we make this index more useful? Email us at [email protected]

Page 83: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .policy provisions552

mandatory provisions, Grace Period,323-324

mandatory provisions, Legal Actions,329

mandatory provisions, Notice ofClaim, 325-326

mandatory provisions, Payment ofClaims, 327-328

mandatory provisions, PhysicalExamination and Autopsy, 329

mandatory provisions, Proof of Loss,326-327

mandatory provisions,Reinstatement, 324-325

mandatory provisions, Time Limiton Certain Defenses;Incontestability, 323

mandatory provisions, Time ofPayment of Claims, 327

optional provisions, 330optional provisions, Cancellation,

334-335optional provisions, Change of

Occupation, 330-331optional provisions, Conformity with

State Statutes, 335optional provisions, Illegal

Occupation, 335-336optional provisions, Insurance with

Other Insurers, 332-333optional provisions, Misstatement of

Age, 331optional provisions, Narcotics, 336optional provisions, Other Insurance

in This Insurer, 331-332optional provisions, Relation of

Earnings to Insurance—AverageEarnings Clause, 333-334

optional provisions, UnpaidPremium, 334

Policy Summaries, 37policyowners

defining, 74group insurance, premium payments,

240master policies, 242

portability, HIPPA (Health InsurancePortability and Accountability Act), 401-402

POS (point-of-service) health care plans,296-297. See also open-ended HMO plans

PPOs (preferred provider organizations),295, 423

practice exam 1answers, 471-474questions, 461-469

practice exam 2answers, 487-491questions, 477-485

pre-need funeral life insurance policies, 163precertification authorization, 340precertification provision, 340preexisting conditions, 339

disability income insurance, 347LTC (long-term care), 443major medical expense benefits, limita-

tions of, 376Medigap policies, 421

preferred provider organizations (PPOs),295, 423

preferred risks, 82pregnancy discrimination, ERISA

(Employee Retirement Income SecurityAct of 1974), 406

premature distributions (retirement plans),274

premium mode, determining premiums, 86premiums

Agency law, 57annuities, 226-227automatic premium loan provisions, 183business overheard expense insurance,

454collecting, 122defining, 2, 310determining, 83-86dual, 146earned, 310-311flat additional premiums (substandard

risks), 82graded premium plan life insurance poli-

cies, 162gross annual premiums, 85group accidental death and dismember-

ment policies, taxing in, 453group disability insurance, 453group insurance, 93, 240initial, 124, 311level premiums, 85life insurance taxes, 256LTC (long-term care), 440LTC (long-term care) insurance policies,

taxes, 455-456medicare supplement insurance policies,

taxes, 455mode of premium payment, 311modified premium life insurance poli-

cies, 161net, 85payment of premium provisions, 179policy effective dates, 312

Page 84: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .provisions 553

policy fees, 312-313policy terms, 312qualified group long-term care insurance

policies, taxes, 454receipts, 122-124return of premium riders, 169term insurance, 138unearned, 310-311Unfair Trade Practices Act, 47universal life insurance policies, 151waivers of premiums, 165-167whole life insurance, 143

Prentice Hall Web site, 498prepaid dental plans, 389-390prepaid health care plans, 286preretirement periods (income), 104prescription coverage (health insurance),

284prescription drug benefits, medical expense

insurance, 379prescription drug policies, 391presumptive disability (total disability), 349pretext interviews, 28preventive health services (HMO basic serv-

ices), 291primary beneficiaries, 191primary insurance amount (PIA), 426primary insurers, 400principals, defining, 56prior hospitalization, LTC (long-term care),

440Privacy Act of 1974, 25-26Privacy Protection Study Commission, Privacy

Act of 1974, 25-26private insurers, 12probationary periods

disability income insurance, 347group insurance, underwriting, 94

Producer Licensing Model Act. See PLMAproducer regulation

controlled business, 45licenses

denial of, 43-44maintaining, 41-42revoking, 43-44

licensing, 37-39producers

brokers, defining, 18claims, 126as fiduciaries, 316fiduciary responsibilities, 131field underwriting, 81insurance consultants, defining, 18life and health agents, defining, 17life insurance, 129-131

life insurance claimspartial payment, 127payment, 126-127responsibilities upon insured’s death,

128-129life insurance, selling

advantages as property, 107-108business uses for life insurance,

111-116charitable uses for life insurance, 111cost comparisons, 109-110estate planning, 106human life value concept, 103-104income analysis, 104-106living benefits, 107needs analysis, 103-104personal uses for life insurance,

110-111recommendations, 103

policy delivery, 125-126policy issuance, 122-124property and casualty agents, defining,

17responsibilities, 132, 316solicitors, defining, 18

producers cooperatives, 286, 289professional care advisors, LTC (long-term

care), 442profit-sharing plans, 268, 272prohibited provisions, 200Proof of Loss provision (Uniform Individual

Accident and Sickness Policy ProvisionsLaw), 326-327

property and casualty agents, defining, 17property insurance, defining, 9property

life insurance policies as, 107-108safety of principal, 108

prospective review, 340prosthodontics, 387provider-sponsored organizations (PSOs),

Medicare+Choice, 423-424provisions. See also policy provisions

beneficiary, 189common disaster, 197contingent beneficiaries, 191facility of payment, 198irrevocable beneficiaries, 190naming beneficiaries, 192-195primary beneficiaries, 191revocable beneficiaries, 190spendthrift clause, 197-198tertiary beneficiaries, 191

common disaster, 197facility of payment, 198

How can we make this index more useful? Email us at [email protected]

Page 85: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .provisions554

group health insurance, 398conversion privilege, 399-400Coordination of Benefits Provision,

400-401dependent coverage, 400errors, 401Records, 401

LTC (long-term care)adult day care, 441benefit amounts, 442benefit periods, 442care level, 440eligibility, 439elimination periods, 443exclusions, 443home health, 441hospice, 441preexisting conditions, 443premiums, 440prior hospitalization, 440professional care advisors, 442renewability, 439respite care, 441waiver of premium, 440

Medicare, 421-422Nonforfeiture, LTC (long-term care),

446prohibited, 200spendthrift clause, 197-198standard

absolute assignment, 186applicant control clause, 180assignment clause, 185automatic premium loan, 183autopsy, 188beneficiary assignment, 187collateral assignment, 186complete assignment, 186conditional assignment, 186consideration clause, 178entire contract, 184-185execution clause, 179free look, 189grace periods, 181incontestability clause, 183insuring clause, 178medical examination, 188misstatement of age clause, 187-188misstatement of sex clause, 188modification clause, 188ownership rights, 179-180partial assignment, 186payment of premium, 179policy change, 189policy loan, 182reinstatement clause, 181-182

suicide clause, 184voluntary assignment, 186

withdrawal provisions settlement option,209

PSOs (provider-sponsored organizations),Medicare+Choice, 423-424

purchasers, LTC (long-term care), 435-436pure risks, defining, 3

Qqualification periods, disability income

insurance, 347qualified group long-term care insurance,

taxes, 454qualified policies, LTC (long-term care),

444qualified retirement plans

403(b) arrangement, 273CODA, 268defined benefit, 266-267defined contribution, 266-268distributions, 273-274ERISA, 275-276IRA, 269-271Keogh, 273life insurance, incidental limitations, 274SEP, 272SIMPLE, 271-272vesting rules, 266-267

qualifying beneficiary, COBRA(Consolidated Omnibus BudgetReconciliation Act), 403

qualifying events, COBRA (ConsolidatedOmnibus Budget Reconciliation Act), 403

quarters of coverage (Social Security insuredstatus), 249

questionsCD review, 493-494practice exam 1, 461-469practice exam 2, 477-485

Rrated-up age (substandard risks), 82rating

insurance companies, 35LTC (long-term care) factors, 438

rating risks (underwriting)expenses, 84-85interest, 84morbidity, 83-84mortality, 83premium mode, 86

rebating, Unfair Trade Practices Act, 46

Page 86: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .retirement income life insurance policies 555

receipts (premiums), 122-124reciprocal insurers, 12reciprocity, defining, 39recordkeeping, insurance licenses, 42Records provision, 401recurrent disability (total disability), 350reduce premium dividend options (life

insurance), 216reduced paid-up insurance options (life

insurance), 212reentry term insurance policies, 140reference Web sites (exams), 497-499references (exam), 497refund life annuity settlement options, 231regular medical expense benefits (basic med-

ical expense insurance), 366regulated practices

controlled business, 45Unfair Trade Practices Act, Unfair

Claims Practices, 45-49regulation

federalFair Credit Reporting Act of 1970,

27-30Financial Services Modernization Act

of 1999, 31-32fraud, 30McCarran-Ferguson Act, 25Paul v. Virginia, 24Privacy Act of 1974, 25-26

insurance, AIDS, 77-78insurance companies, 33

guaranty associations, 36insurer examinations, 35insurer solvency, 34investments, 34marketing/advertising, 36-37ratings, 35taxes, 34

producerscontrolled business, 45denying licenses, 43-44licensing, 37-39maintaining licenses, 41-43revoking licenses, 43-44

self, NAIC, 49state

AIDS, 77-78Commissioners, scope of duties, 33Insurance Code, 32insurance companies, 33-37producers, 37-39statutes, 32

rehabilitation (insurance companies), 34

rehabilitation benefitsdisability, 353workers compensation, 303

reimbursement basis payments, medicalexpense insurance, 364

reimbursement plans, health insurance, 285reinstatement clause provisions, 181-182reinstatement of benefits, 374Reinstatement provision (Uniform

Individual Accident and Sickness PolicyProvisions Law), 324-325

reinsurers, defining, 12reissue term insurance policies, 140Relation of Earnings to Insurance—Average

Earnings Clause provision (UniformIndividual Accident and Sickness PolicyProvisions Law), 333-334

relative values (surgical benefits), 366renewability

guaranteed renewable policies, 338LTC (long-term care), 439policy continuation, 337-338

renewable term insurance policies, 139renewing insurance licenses, 42replacement policies, health insurance poli-

cies, 314-315replacements (life insurance), 129

Comparison Statements, 130insurer duties, 130Model Life Insurance Replacement

Regulation, 130Notices to Applicants Regarding

Replacement of Life Insurance, 130producer duties, 130

representations (contracts), 66requirements (legal), life and health insur-

ance contracts, 63-64reserves, unpaid premium reserves, 87residential care, LTC (long-term care), 438residual disability (total disability), 350resource Web sites (exams), 497-499resources (exam), 497respite care

LTC (long-term care), 441Medicare, Part A, 415

restoration of benefits, 374restorative dental care, 387results clauses, war/military service exclu-

sions, 199retaining life insurance policies, 131retirement, ERISA (Employee Retirement

Income Security Act of 1974), 405-406retirement benefits (Social Security), 251retirement income annuities, 234retirement income life insurance policies,

160

How can we make this index more useful? Email us at [email protected]

Page 87: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .retirement periods556

retirement periods (income), 105retirement plans

403(b) arrangement, 273CODA, 268defined benefit, 266-267defined contribution, 266-268distributions, 273-274ERISA, 275-276IRA, 269-271Keogh, 273life insurance, incidental limitations, 274SEP, 272SIMPLE, 271-272vesting rules, 266-267

retrospective premium arrangements (groupinsurance), 97

return of cash value riders, 169return of premium riders, 169, 356review questions (CD), 493-494revocable beneficiaries, 187, 190revoking insurance licenses, 43-44riders, 162, 185

accelerated benefit, 171, 446ADB, 164-165, 172additional insured, 170cost of living, 169disability income, 167disability income insurance, 353-356examples of, family protection life insur-

ance policies, 159GIR, 168-169living needs, 171LTC, 171payor, 168return of cash value, 169return of premium, 169substitute insured, 170viatical settlements, 172waivers, 164

waivers of monthly deductions, 167waivers of premiums, 165-167

rights (consumer), consumer reportingagencies, 29

riskdefining, 2excess and surplus lines, 13hazards, 3insurable interest, defining, 5law of large numbers, defining, 4managing, 3-4perils, defining, 3pure risks, defining, 3speculative risks, defining, 2versus loss, 2

risk avoidance, defining, 3risk classification (underwriting), 81-82

risk plans, 424risk rating (underwriting)

expenses, 84-85interest, 84morbidity, 83-84mortality, 83premium mode, 86

risk reduction, defining, 4risk retention

defining, 4self-insurance, 13

risk selection (underwriting), 74adverse selection, 75AIDS, 77-78criteria for, 75resources for, 75-79

risk transfers, defining, 4risks

homogeneous risks, 6insurable risks, characteristics of, 6-7LTC (long-term care), rating, 438

rollovers, 275room and board benefits (basic medical

expense insurance), 364-365Roth IRA, 271

Ssafety of principal (property), 108sales loads, 149scheduled dental care insurance policies,

386scheduled premium variable life insurance

policies. See VLI policiessecond injury funds, workers compensation,

429second surgical opinion provision, 340second-to-die life insurance policies, 160Section 1035 policy exchanges (Internal

Revenue Code), 261Section 303 stock redemption plans, 115Securities Act of 1933, 153, 229Securities and Exchange Act of 1934, 153securities, VLI policies as, 152-153self-employed persons, health insurance

policies, 454self-funded health care plans, 297-298self-insurers, defining, 13self-regulation, NAIC, 49selling life insurance

advantages as property, 107-108business uses for life insurance, 111

corporations, 113-116partnerships, 112-113sole proprietorships, 112

Page 88: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .specialized life insurance 557

charitable uses for life insurance, 111cost comparisons, CIR method, 109-110costs of death, 102estate planning, 106human life value concept, 103-104importance of insurance, 102income analysis, 104-106living benefits, 107needs analysis, 103-104personal uses for life insurance, 110-111recommendations, 103

SEP (Simplified Employee Pensions), 272service areas

dental care insurance, 388HMO, 289

service basis payments, medical expenseinsurance, 364

service insurers, 11service organizations, 286servicing health insurance policies, 314settlement options (life insurance), 206

advantages of, 211fixed amount, 208-209fixed period, 207-208interest only, 207life income, 209withdrawal provisions, 209

SGLI (Servicemen’s Group Life Insurance),244

shared funding arrangements (group insur-ance), 97

sharing personal information, opt outs, 31-32

short-rate returns, 335short-term disability, 352sickness, defining (total disability), 351SIMPLE (Savings Incentive Match Plan for

Employees), 271-272single premium annuities, 226single premium whole life insurance poli-

cies, 145skilled nursing care, LTC (long-term care),

438SKN (skilled nursing facilities), 285,

413-414small business health care plans, 299social health insurance

Medicaid, 425Medicare, 412

employer coverage, 424Medicare+Choice, 422

PPOs (preferred provider organizations),423

PSOs (provider-sponsored organiza-tions), 424

Medicare+Choice, 422-423Part A, 412-415Part B, benefits, 412, 415-418standardized supplemental benefits,

419-422supplemental insurance, 419

social security disability, 426TRICARE, 426workers compensation

benefit types, 427compensable injuries, 427compensation laws, 428disability types, 428extraterritorial provisions, 428occupational diseases, 427second injury funds, 429

social insurance, 14Social Security, 14

benefitsdisability, 252dual-benefit eligibility, 251maximum family, 253retirement, 251survivor, 251-252taxes, 254types of, 248

covered workers, 248earnings limits, 253eligibility, 248, 251insured status

currently insured, 250disability insured, 250fully insured, 249quarters of coverage, 249

payroll taxes, 253-254PIA, 250-252

Social Security Act, 248, 405social security disability, 354, 426, 452social security supplements (disability), 355sole proprietors, health insurance policies,

454sole proprietorships, 112solicitors, defining, 18solvency

insurance company regulations, 34reserves, 87

SPDA (single premium deferred annuity),225

specialized life insuranceadvantages of, 164deposit term life insurance policies, 163disadvantages of, 164

How can we make this index more useful? Email us at [email protected]

Page 89: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .specialized life insurance558

endowment life insurance policies, 157-158

family income life insurance policies,158-159

family maintenance life insurance poli-cies, 159

family protection life insurance policies,159-160

graded premium life insurance policies,162

index-linked life insurance policies, 162-163

joint life insurance policies, 160juvenile life insurance policies, 161minimum deposit life insurance policies,

161modified premium life insurance poli-

cies, 161mortgage redemption life insurance

policies, 162multiple protection life insurance poli-

cies, 162pre-need funeral life insurance policies,

163retirement income life insurance poli-

cies, 160specified disease insurance, 283speculative risks, defining, 2spendthrift clause provisions, 197-198SPIA (single premium immediate annuity),

225split-dollar plans (corporations), 116sponsors, MET, 300spousal impoverishment rule, Medicaid, 425staff model HMO, 290standard provisions

absolute assignment, 186applicant control clause, 180assignment clause, 185automatic premium loan, 183autopsy, 188beneficiary assignment, 187collateral assignment, 186complete assignment, 186conditional assignment, 186consideration clause, 178entire contract, 184-185execution clause, 179free look, 189grace periods, 181incontestability clause, 183insuring clause, 178medical examination, 188misstatement of age clause, 187-188misstatement of sex clause, 188modification clause, 188

ownership rights, 179-180partial assignment, 186payment of premium, 179policy change, 189policy loan, 182reinstatement clause, 181-182suicide clause, 184voluntary assignment, 186

standard risks, defining, 81standardized policy forms, Medicare, 420standardized supplemental benefits

(Medicare)core benefits, 419optional benefits, 420provisions, 421-422standardized policy forms, 420

state regulationsAIDS, 77-78Commissioners, scope of duties, 33group health insurance, 407

COBRA (Consolidated OmnibusBudget Reconciliation Act), 402-404

ERISA (Employee RetirementIncome Security Act of 1974), 405-406

HIPPA (Health Insurance Portabilityand Accountability Act), 401-402

OBRA (Omnibus BudgetReconciliation Act of 1989), 404-405

TEFRA (Tax Equity and FiscalResponsibility Act of 1982), 405

Insurance Code, 32insurance companies, 33

guaranty associations, 36insurer examinations, 35insurer solvency, 34investments, 34marketing/advertising, 36-37ratings, 35taxes, 34

LTC (long-term care), 445producers, licensing, 37-39statutes, 32

status clauses, war/military service exclu-sions, 199

statutes, defining, 32stock insurers, defining, 11stock purchase plans. See cross-purchase

plansstock redemption plans, Section 303 stock

redemption plans, 115stop-loss limits, 372straight life annuity settlement options. See

life annuity settlement options

Page 90: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .term insurance 559

straight life insurance, 145sublimits (maximum benefits), 8submitting applications, 124subscribers, 12, 286substance abuse, major medical expense

benefits, 376substandard risks, 81-82substitute insured riders, 170suicide clause provisions, 184suitable purchasers, LTC (long-term care),

435-436Superintendents (state insurance regula-

tion). See Commissionerssupplemental benefits (major medical

expense insurance), 372supplemental expense benefits (major med-

ical expense insurance), 371-372supplemental HMO health care services,

292-293supplemental insurance (Medicare), 419supplemental standardized benefits

(Medicare)core benefits, 419optional benefits, 420provisions, 421-422standardized policy forms, 420

supplements, social security (disability), 355surgical benefits, 366surgical expense benefits (basic medical

expense insurance), 366surgicenters, 285surrender cost index method (life insurance

cost comparisons), 109surrender values, life insurance taxes, 257survivor benefits (Social Security), 251-252survivor life insurance policies, 160suspending insurance licenses, 43-44

Ttarget benefit pension plans, 268Tax Equity and Fiscal Responsibility Act of

1982 (TEFRA), 405Tax Reform Act of 1984, 157tax-deferred annuities, 273taxes

business life insurance, AMT, 261business overheard expense insurance

policies, 454disability insurance, 455federal, life insurance, 259gift, life insurance, 260group accidental death and dismember-

ment policies, 453

health insurancegroup policies, 453-454individual policies, 452sole proprietors/partnerships, 454

income, life insurance, 260insurance company regulations, 34IRA contributions, 269life insurance, 254

accelerated benefits, 257annuities, 257-258cash surrender values, 257cash value accumulation, 258cash value accumulation tests, 255corridor tests, 255death benefits, 256dividends, 257group life insurance policies, 258guideline premium tests, 255-256MEC, 256policy exchanges, 261premiums, 256

LTC (long-term care) insurance policies,455-456

medicare supplement insurance policies,455

payroll, social security disability benefits,452

qualified group long-term care insurancepolicies, 454

retirement plan distributions, 274Roth IRA, 271Social Security benefits taxes, 254Social Security payroll taxes, 253-254

TEFRA (Tax Equity and FiscalResponsibility Act of 1982), 405

temporary agent licenses, 40-41temporary annuity certain settlement

options, 233temporary disability (total disability), 350temporary insurance agreements, 124temporary total disability benefits (workers

compensation), 303term insurance

advantages of, 141convertible term policies, 139decreasing term policies, 140-141deposit term life insurance policies, 163disadvantages of, 142face amounts, 139family protection life insurance policies,

160increasing term policies, 141indeterminate premium term policies,

141interim term policies, 141

How can we make this index more useful? Email us at [email protected]

Page 91: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .term insurance560

level term policies, 140premiums, 138reentry term policies, 140renewable term policies, 139

term policies, 339termination of appointment, insurance

licenses, 43tertiary beneficiaries, 191test resource Web sites, 497-499test resources, 497testamentary transfers (estate planning), 106testamentary trusts, 194tests

practice test 1answers, 471-474questions, 461-469

practice test 2answers, 487-491questions, 477-485

third-party ownership, defining, 74third-party ownership rights provisions, 180third-party policy rights, 210Time Limit on Certain Defenses:

Incontestability provision (UniformIndividual Accident and Sickness PolicyProvisions Law), 323

Time of Payment of Claims provision(Uniform Individual Accident andSickness Policy Provisions Law), 327

total disability, definingaccidental means, 351any occupation, 348confining versus nonconfining, 351injury versus sickness, 349loss of earnings, 348medically defined, 349occupational versus nonoccupational,

349own occupation, 348partial, 349permanent, 350presumptive, 349recurrent, 350residual, 350sickness, 351temporary, 350

transfer for value rules, 260travel accident insurance, 283, 390TRICARE, 304, 426trust groups, 92trusts, 193-194TSA (tax-sheltered annuities), 234twisting

defining, 46Unfair Trade Practices Act, 46

two-tiered annuities, 233

UU.S. Government as an insurer, 13-14UCR (usual, customary and reasonable) val-

ues (surgical benefits), 366unauthorized insurers, defining, 15unconditional receipts. See binding receiptsunderwriting

dental care insurance policies, 388expense ratios, 86field underwriting, 81group insurance, 93

adverse selection, 94eligibility periods, 95optional requirements, 96-97probationary periods, 94statutory requirements, nondiscrimi-

natory classifications, 95-96health insurance policies, 310loss ratios, 86reserves, 87risk classification, 81-82risk rating

expenses, 84-85interest, 84morbidity, 83-84mortality, 83premium mode, 86

risk selection, 74adverse selection, 75AIDS, 77-78criteria for, 75resources for, 75-79

unpaid premium reserves, 87unearned premiums, 310-311Unfair Claims Practices provisions (Unfair

Trade Practices Act), 48boycotts, 47churning, 46coercion, 47defamation, 46discrimination, 46false financial statements, 46false/deceptive advertising, 45illegal premiums/charges, 47intimidation, 47misrepresentations, 45penalties, 49rebating, 46twisting, 46

Unfair Trade Practices ActUnfair Claims Practices provisions, 48

boycotts, 47churning, 46coercion, 47defamation, 46

Page 92: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .whole life insurance 561

discrimination, 46false financial statements, 46false/deceptive advertising, 45illegal premiums/charges, 47intimidation, 47misrepresentations, 45penalties, 49rebating, 46twisting, 46

Uniform Individual Accident and SicknessPolicy Provisions Law, 322

mandatory provisionsChange of Beneficiary, 329-330Claim Forms, 326Entire Contract; Changes, 322Grace Period, 323-324Legal Actions, 329Notice of Claim, 325-326Payment of Claims, 327-328Physical Examination and Autopsy,

329Proof of Loss, 326-327Reinstatement, 324-325Time Limit on Certain Defenses;

Incontestability, 323Time of Payment of Claims, 327

optional provisionsCancellation, 334-335Change of Occupation, 330-331Conformity with State Statutes, 335Illegal Occupation, 335-336Insurance with Other Insurers,

332-333Misstatement of Age, 331Narcotics, 336Other Insurance in This Insurer,

331-332Relation of Earnings to Insurance—

Average Earnings Clause, 333-334Unpaid Premium, 334

Uniform Simultaneous Death Act, 196unilateral contracts, 65universal life insurance policies, 148

cash value adjustments, 149-150death benefits, 150loans/withdrawals, 150-151premium requirements, 151sales loads, 149

unlimited liability (sole proprietorships),112

Unpaid Premium provision (UniformIndividual Accident and Sickness PolicyProvisions Law), 334

unpaid premium reserves, 87urgent care centers, 285utilization review, 340

Vvariable annuities, 223

accumulation units, 229annuity units, 230payouts, 224securities regulations, 228-229

vending machines (insurance distribution),16

vertical dimension, splinting, and restoringocclusion exclusion (dental care insur-ance), 388

vesting rules, retirement plans, 266-267viatical settlements, 111, 172viators, 172vision care benefits, medical expense insur-

ance, 379vision care insurance, 391VLI (variable life insurance) policies, 154

12% rule, 153cash values, 152death benefits, 151defining, 10insurance, regulation as, 153premiums, 152securities, regulation as, 152-153

voluntary assignment provisions, 186

W - X - Y - Zwaiting periods, 8waivers, 164

defining, 58waivers of monthly deductions, 167waiver of premiums, 165-167, 356, 440

war exclusions, 199warranties (contracts), 65Washburn School of Law Web site, 499Web sites

Aspen Publishers, 499BISYS Education Services, 495-497Harcourt Legal and Professional

Publishing, 499Insurance Information Institute, 499Kluwer Academic Publishers, 498McGraw-Hill/Irwin, 499National Association of Insurance and

Financial Advisors, 499Pfingsten Publishing LLC, 499Prentice Hall, 498Washburn School of Law, 499

whole life insuranceadvantages of, 147continuous premium whole life policies,

145

How can we make this index more useful? Email us at [email protected]

Page 93: Life and Health Insurance License Exam Cram™

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .whole life insurance562

current assumption whole life policies,146

disadvantages of, 147economatic whole life policies, 146face amounts, 143guaranteed cash values, 143indeterminate premium whole life poli-

cies, 146limited payment whole life policies, 145nonforfeiture values, 144policy loans, 144premiums, 143single premium whole life policies, 145straight life policies, 145

withdrawal provisions settlement option(life insurance), 209

workers compensationbenefit types, 427compensable injuries, 427compensation laws, 428death benefits, 303disability benefits, 303disability types, 428eligibility, 302elimination periods, 303extraterritorial provisions, 428income benefits, 303medical benefits, 302medical expense insurance, 378occupational diseases, 427rehabilitation benefits, 303second injury funds, 429