NORTH CAROLINA XCEL TESTING LIFE & HEALTH INSURANCE EXAM STUDY EXAM | QUESTIONS & ANSWERS (VERIFIED) | LATEST UPDATE | GRADED A+

1 NORTH CAROLINA XCEL TESTING LIFE & HEALTH INSURANCE EXAM STUDY EXAM | QUESTIONS & ANSWERS (VERIFIED) | LATEST UPDATE | GRADED A+ Which of the following requires insurers to disclose when an applicant's consumer or credit history is being investigated: Correct Answer: 1970 - Fair Credit Reporting Act What type of reinsurance contract involves two companies automatically sharing their risk exposure? Correct Answer: Treaty What is the name of the law that requires insurers to disclose information gathering practices and where the information was obtained? Correct Answer: Fair Credit Reporting Act Who elects the governing body of a mutual insurance company? Correct Answer: policyholders 2 The stated amount or percent of liquid assets that an insurer must have on hand that will satisfy future obligations to its policyholders is called: Correct Answer: reserves A group-owned insurance company that is formed to assume and spread the liability risks of its members is known as a: Correct Answer: risk retention group What year was the McCarran-Ferguson Act enacted? Correct Answer: 1945 Which of these describe a participating life insurance policy? Correct Answer: Policyowners are entitled to receive dividends At what point must a life insurance applicant be informed of their rights that fall under the Fair Credit Reporting Act? Correct Answer: Upon completion of the application A nonprofit incorporated society that does not have capital stock and operates for the sole benefit of its members is known as: Correct Answer: a fraternal benefit society 3 An insurance applicant MUST be informed of an investigation regarding his/her reputation and character according to the: Correct Answer: Fair Credit Reporting Act Which of the following consists of an offer, acceptance, and consideration? Correct Answer: Contract Which of these is NOT a type of agent authority? Correct Answer: Principal E and F are business partners. Each takes out a $500,000 life insurance policy on the other, naming himself as primary beneficiary. E and F eventually terminate their business, and four months later E dies. Although E was married with three children at the time of death, the primary beneficiary is still F. However, an insurable interest no longer exists. Where will the proceeds from E's life insurance policy be directed to? Correct Answer: F All of the following are considered to be typical characteristics describing the nature of an insurance contract, EXCEPT: Correct Answer: Bilateral The part of a life insurance policy guaranteed to be true is called a(n): Correct Answer: warranty 4 A life insurance arrangement which circumvents insurable interest statutes is called: Correct Answer: Investor-Originated Life Insurance Taking receipt of premiums and holding them for the insurance company is an example of: Correct Answer: Fiduciary responsibility Which of these arrangements allows one to bypass insurable interest laws? Correct Answer: Investor-Originated Life Insurance Insurance contracts are known as ____ because certain future conditions or acts must occur before any claims can be paid. Correct Answer: conditional When third-party ownership is involved, applicants who also happen to be the stated primary beneficiary are required to have: Correct Answer: insurable interest in the proposed insured Statements made on an insurance application that are believed to be true to the best of the applicant's knowledge are called: Correct Answer: representations If a contract of adhesion contains complicated language, to whom would the interpretation be in favor of? 5 Correct Answer: Insured At what point does an informal contract become binding? Correct Answer: When one party makes an offer and the other party accepts that offer When must insurable interest exist for a life insurance contract to be valid? Correct Answer: Inception of the contract A life insurance policy would be considered a wagering contract WITHOUT: Correct Answer: insurable interest what is a warranty? Correct Answer: is a statement guaranteed to be true Which of these is NOT considered to be an element of an insurance contract? Correct Answer: negotiating Who makes the legally enforceable promises in a unilateral insurance policy? Correct Answer: Insurance company In an insurance contract, the insurer is the only party who makes a legally enforceable promise. What kind of contract is this? Correct Answer: Unilateral 6 In regards to representations or warranties, which of these statements is TRUE? Correct Answer: If material to the risk, false representations will void a policy A policy of adhesion can only be modified by whom? Correct Answer: The insurance company Insurance policies are considered aleatory contracts because Correct Answer: performance is conditioned upon a future occurrence Insurance policies are offered on a "take it or leave it" basis, which make them: Correct Answer: Contracts of Adhesion Stranger Originated Life Insurance (STOLI) has been found to be in violation of which of the following contractual elements? Correct Answer: Legal Purpose (Insurable Interest) Q purchases a $500,000 life insurance policy and pays $900 in premiums over the first six months. Q dies suddenly and the beneficiary is paid $500,000. This exchange of unequal values reflects which of the following insurance contract features? Correct Answer: Aleatory What is the consideration given by an insurer in the Consideration clause of a life policy? 7 Correct Answer: Promise to pay a death benefit to a named beneficiary The Consideration clause of an insurance contract includes: Correct Answer: the schedule and amount of premium payments When must insurable interest be present in order for a life insurance policy to be valid? Correct Answer: When the application is made Life and health insurance policies are: Correct Answer: Unilateral contracts All of these are characteristics of an Adjustable Life policy, EXCEPT: Correct Answer: ace amount can be adjusted using policy dividends No insurer shall refuse to insure an individual because of Correct Answer: race Which type of plan normally includes hospice benefits? Correct Answer: Managed care plans An insurance company may NOT reject a prospective insured's life application on the basis of which of the following factors? Correct Answer: Gender 8 Which statement is TRUE regarding a Variable Whole Life policy? Correct Answer: A minimum guaranteed Death benefit is provided Under the North Carolina insurance code, an insurance company must pay death benefits for suicide if the policy has been in force for a MINIMUM of Correct Answer: two years All of these statements concerning Settlement Options are true, EXCEPT: Correct Answer: Only the beneficiary may select Defamation is BEST described as publishing or circulating which of the following types of information? Correct Answer: Brochures falsely criticizing the financial condition of an insurance company A policyowner is able to choose the frequency of premium payments through what policy feature? Correct Answer: Premium Mode N is covered under an individual Disability policy with a 30-day Elimination period and a monthly benefit of $500. N is totally disabled for 3 1/2 months. N's total benefit received on this claim is: Correct Answer: $1,250 ........ After the 30-day Elimination period has been satisfied, the total benefit paid on this claim is $1,250 ($500+$500+$250) 9 Which of these factors does NOT influence an applicant's need for life insurance? Correct Answer: Self-maintenance expenses All of the following statements are true regarding a policy's Grace period, EXCEPT: Correct Answer: Past due premiums are waived All of the following actions are considered rebating EXCEPT Correct Answer: sharing commissions with other licensed and appointed agents According to the Affordable Care Act (ACA), a dependent child's eligibility status is determined by: Correct Answer: age In life insurance, the needs approach is used mostly to establish: Correct Answer: how much life insurance a client should apply for A person is required to be AT LEAST how old before he or she is licensed as an agent in North Carolina? Correct Answer: 18 Which of these actions is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan? 10 Correct Answer: Collateral assignment The policyholder has how many days to return an Accident/Health Insurance Policy and receive a full refund on premiums? Correct Answer: 10 The Legal Actions provision of an insurance contract is designed to do all of the following, EXCEPT: Correct Answer: protect the producer A Limited-Pay Life policy has: Correct Answer: premium payments limited to a specified number of years An individual working part-time has an annual income of $25,000. If this individual has an IRA, what is the maximum deductible IRA contribution allowable? Correct Answer: $25,000 An insurance company MUST clearly specify questions designed to obtain information solely for marketing research Correct Answer: in any insurance transaction A vacancy that occurs during the North Carolina Commissioner of Insurance's term of office MUST be filled by the Correct Answer: Governor 11 Every Group Health Policy providing benefits for chemical dependency treatments must include, for the life of the contract, a Correct Answer: minimum benefit of $16,000 An example of rebating would be Correct Answer: offering a client something of value not stated in the contract in exchange for their business If after satisfactory proof of loss, an insurer fails or refuses to pay death proceeds, the insurer must pay interest on the proceeds after how many days? Correct Answer: 30 A written agreement to provide a Life Insurance Policy holder immediate cash in exchange for the sale and transfer of a Life Insurance Policy is a Correct Answer: Viatical Settlement When L applies for a Health Insurance Policy, L unintentionally fails to list a previous visit to a cardiologist. If the insurance company contests the policy, it MUST do so within 2 years Correct Answer: from the date of issue When an employee is terminated, which statement about a group term life conversion is true? 12 Correct Answer: Policy proceeds will be paid if the employee dies during the conversion period Which of these actions should a producer take when submitting an insurance application to an insurer? Correct Answer: Inform insurer of relevant information not included on the application A prepaid application for individual Disability Income insurance was recently submitted to an insurer. When the insurer received the Medical Information Bureau (MIB) report, the report showed that the applicant had suffered a stroke 18 months ago, something that was not disclosed on the application. Which of the following actions would the insurance company NOT take? Correct Answer: Send a notice to the MIB that the applicant was declined F needs life insurance that provides coverage for only a limited amount of time with a death benefit that changes regularly according to a schedule. What kind of policy is needed? Correct Answer: Decreasing term policy Under a Renewable Term policy, Correct Answer: he renewal premium is calculated on the basis of the insured's attained age Which of these are NOT an example of a Nonforfeiture option? Correct Answer: Life Income 13 Which type of life policy contains a monthly mortality charge as well as self-directed investment choices? Correct Answer: Variable Universal Life Which statement regarding the Change of Beneficiary provision is true? Correct Answer: The policyowner can change the beneficiary What do Dread Disease policies cover? Correct Answer: A specific disease or illness What is the initial requirement for an insured to become eligible for benefits under the Waiver of Premium provision? Correct Answer: Insured must be under a physician's care Which of the following types of insurance is exempt from the Rules Governing Life Insurance and Annuity Replacements? Correct Answer: Credit Life A physician opens up a new practice and qualifies for a $7,000/month Disability Income policy. What rider would the physician add if he wants the ability to increase his policy benefit as his practice and income grow? Correct Answer: Guaranteed Insurability Option rider 14 Which of these is an element of a Single Premium annuity? Correct Answer: Lump-sum payment Which of the following actions will an insurance company most likely NOT take if an applicant, who has diabetes, applies for a Disability Income policy? Correct Answer: Issue the policy with an altered Time of Payment of Claims provision What is the purpose of a Policy Summary? Correct Answer: It highlights the critical parts of the policy issued Which of the following statements BEST describes how a policy that uses the "accidental bodily injury" definition of an accident differs from one that uses the "accidental means" definition? Correct Answer: Less restrictive Group/voluntary long-term care policy premiums are typically deducted from the employee's income and, Correct Answer: are less costly as compared to individual long term care coverage The fund that assures policyholders payment of death benefits on Life Policies, if the company is insolvent at the time of the claim, is called the Correct Answer: Life and Health Insurance Guaranty Association 15 AT LEAST how many days before the effective date of a rate increase must an insurer provide written notice to individual accident and health policyowners? Correct Answer: 30 The Rules Governing Life Insurance and Annuity Replacements define replacement as Correct Answer: exchanging an existing policy for a new policy K works for XYZ Clothing Store from September through December each year. K works 45 hours a week for this period of time. The employer's Group Policy would consider K Correct Answer: not eligible for the insurance because as a seasonal employee K does not meet the definition of "employee" under North Carolina law The Misstatement of Age provision requires that if the age of the insured is misstated, then any amount payable is Correct Answer: an amount that the premiums paid would have purchased at the current age or ages Which of the following requires that an applicant for an individual Health Policy be notified of an investigation into his personal character, general reputation, and mode of living? Correct Answer: Insurance Information and Privacy Protection Act Which of the following phrases refers to the fees charged by a healthcare professional? Correct Answer: Usual, customary, and reasonable expenses 16 Which of the following statements regarding a Tax Sheltered Annuity (TSA) is INCORRECT? Correct Answer: The income from the TSA is received income tax-free To be licensed as an accident and health insurance agent in North Carolina, the applicant MUST Correct Answer: have successfully completed at least 20 hours of instruction approved by the Commissioner of Insurance A whole life insurance policyowner does not wish to continue making premium payments. Which of the following enables the policyowner to sell the policy for more than its cash value? Correct Answer: Life settlement contract A trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid: Correct Answer: mandatory income tax withholding on the transfer amount A father who dies within 3 years after purchasing a life insurance policy on his infant daughter can have the policy premiums waived under which provision? Correct Answer: Payor provision To be eligible for Social Security disability benefits, an employee must be unable to perform: Correct Answer: any occupation 17 Making false statements about the financial condition of another insurance company is called Correct Answer: defamation For an individual health policy that is paid for on a monthly basis, the Grace Period provision is a MINIMUM of how many days? Correct Answer: 10 One of the stated purposes of the Life and Health Insurance Guaranty Association is to Correct Answer: assist in the prevention of insurer insolvencies K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary? Correct Answer: $20,000 death benefit N is a student pilot with a large life insurance policy. Which of these features would limit the insurer's obligation in the event N was killed while flying as a student pilot? Correct Answer: Exclusion T is covered by two health insurance plans: a group plan through his employer and his spouse's plan as a dependent. Under the Model Group Coordination of Benefits provision, when T files a claim, his employer's plan is considered the: Correct Answer: Primary carrier 18 Which of the following statements BEST describes the intent of a Coinsurance clause in a Major Medical policy? Correct Answer: Discourages overutilization of the insurance coverage A policyowner would like to change the beneficiary on an Accidental Death and Dismemberment (AD&D) insurance policy and make the change permanent. Which type of designation would fulfill this need? Correct Answer: Irrevocable An agent who sells an individual life insurance policy in North Carolina MUST deliver to the policyowner Correct Answer: A Policy Summary and Buyer's Guide Periodic health claim payments MUST be made at least: Correct Answer: monthly What type of employee welfare plans are not subject to ERISA regulations? Correct Answer: Church plans An example of false advertising would be Correct Answer: An insurer exaggerating its dividends in a magazine advertisement 19 M's insurance company denied a reinstatement application for her lapsed health insurance policy. The company did not notify M of this denial. How many days from the reinstatement application date does the insurance company have to notify M of the denial before the policy will be automatically placed back in force? Correct Answer: 45 days Which of the following is NOT a limited benefit plan? Correct Answer: life insurance policies Insurers organized under the laws of North Carolina are called Correct Answer: domestic companies On an Accidental Death and Dismemberment (AD&D) insurance policy, who is qualified to change the beneficiary designation? Correct Answer: Policyowner Which of these life products is NOT considered interest-sensitive? Correct Answer: Modified Whole Life When a policyowner cash surrenders a Universal Life insurance policy in it's early years, this may be considered a red flag for a(n): Correct Answer: Anti-Money Laundering violation What does the insuring agreement in a Life insurance contract establish? 20 Correct Answer: An insurer's basic promise Under a Group Health Insurance Policy, continuation shall be available only to an employee who has been insured immediately prior to the date of termination for a period of AT LEAST Correct Answer: 3 months When applied to Whole Life insurance, the word "straight" denotes: Correct Answer: The duration of premium payments Approved premium rates for group health insurance shall be guaranteed by the insurer for an initial period of not LESS than how many months? Correct Answer: 12 Minors in North Carolina age __ and up can enter into life insurance contracts and have all the rights that come with ownership. Correct Answer: 15 Equity indexed annuities are invested in which of the following: Correct Answer: S&P 500 Which of the following types of insurance is exempt from the Rules Governing Life Insurance and Annuity Replacements? Correct Answer: Credit Life 21 North Carolina requires that an insurance agent must complete __ hours of continuing education on the subject of law and ethics every two years. Correct Answer: 3 T, age 70, withdraws cash from a profit-sharing plan and purchases a Straight Life Annuity. What will this transaction provide? Correct Answer: Income that cannot be outlived by the owner Which of these statements concerning an Individual Straight Life annuity is accurate? Correct Answer: Payments are made to an annuitant for life The underwriting process involves all of these, EXCEPT for: Correct Answer: Policy loan Which of these statements about a Guaranteed Insurability Option rider is NOT TRUE? Correct Answer: Evidence of insurability is required when the option is exercised Which health policy clause specifies the amount of benefits to be paid? Correct Answer: Insuring Which of the following BEST describes how pre-admission certifications are used? Correct Answer: Used to prevent nonessential medical costs 22 A Return of Premium life insurance policy is: Correct Answer: Whole life and Increasing term According to the Time Payment of Claims provision, the insurer must pay Disability Income benefits no less frequently than which of the following options? Correct Answer: Monthly An assignment of benefits of a Health Policy: Correct Answer: transfers payments to someone other than the policyowner What is the excise tax rate the IRS imposes on individuals aged 70 1/2 or older who do not take the required minimum distributions from their qualified retirement plan? Correct Answer: 50% Which of the following reimburses its insureds for covered medical expenses? Correct Answer: Commercial insurers The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers (and their families) whose employment has been terminated the right to: Correct Answer: continue group health benefits