Problem 1

The following statements are about group insurance contracts. Select the answer choice containing the correct statement.

1) If a group policyholder pays the entire premium amount for the group coverage, then the group insurance plan is a contributory plan.

2) Each group member must receive individual copies of the master group contract.

3) Each group member insured under a group life insurance policy has the right to name the beneficiary who will receive the benefit payable upon that group member's death.

4) Group policyholders are not required to provide each group member with a certificate of insurance or a separate benefit booklet that describes the group insurance plan.

Problem 2

In the United States, the tax treatment of an individual retirement arrangement (IRA) varies depending on whether it is a traditional IRA or a Roth IRA. One correct statement about a

1) traditional IRA is that contributions are not tax-deductible

2) traditional IRA is that investment earnings accumulate and are distributed on a tax-free basis

3) Roth IRA is that federal tax laws typically impose tax penalties if an individual who is younger than age 59½ makes a withdrawal from an IRA

4) Roth IRA is that there are no annual contribution limits

Problem 3

The Fencepost Corporation provides $50,000 of noncontributory group life insurance coverage for each of its eligible employees. The current monthly premium rate for this coverage is $0.50 per $1,000 of coverage. In February, Fencepost had 100 eligible employees. On March 1, Fencepost hired five additional employees who immediately became eligible for group life insurance coverage. During the month of March, the number of Fencepost employees remained constant. This information indicates that the amount of premium payable for the month of March was

1) $25

2) $125

3) $2,500

4) $2,625

Problem 4

Joel Cohen's disability income insurance policy contains the current usual definition of total disability that is included in most disability income policies. According to his policy, the definition of total disability changes after the insured has been totally disabled for two years. This information indicates that, should Mr. Cohen become disabled, then at the end of the initial two-year period of disability, he will be considered totally disabled only if his disability

1) prevents him from working at any occupation for which he is reasonably fitted by education, training, or experience

2) prevents him from performing the essential duties of his own previous occupation

3) prevents him from performing the essential duties of any occupation

4) causes him to earn less than he earned before becoming disabled

Problem 5

An insured group member under a group life insurance policy is prohibited from naming the group policyholder as the beneficiary of the policy UNLESS the policy is provided under a

1) group creditor life policy

2) single-employer group policy

3) multiple-employer group policy

4) labor union group policy

Problem 6

An annuity contract can be classified as either an immediate annuity or a deferred annuity. An annuity contract under which periodic income payments are scheduled to begin more than one annuity period after the date on which the annuity was purchased is (an immediate / a deferred) annuity. For this type of annuity contract, the time period between the contract owner's purchase of the annuity and the beginning of the payout period is known as the annuity contract's (liquidation / accumulation) period.

1) an immediate / liquidation

2) an immediate / accumulation

3) a deferred / liquidation

4) a deferred / accumulation

Problem 7

In the United States, most insureds are covered by some type of managed care plan. There are several types of managed care plans, but most of them share some common characteristics. One such characteristic is that managed care plans typically

1) shift all of the financial risk to the insurer rather than to the health care provider

2) require plan members to pay a copayment, in addition to premium payments, to the provider when a plan member receives services from that provider

3) adjust the amount of the plan member's monthly premium payment to reflect the number of times the plan member used provider services

4) exclude extensive preventive care programs, such as prenatal and well-baby care, routine physical examinations, and screening programs

Problem 8

Antoine Fargo purchased a variable annuity from the Habersham Insurance Company. The contract specifies that, each time Mr. Fargo withdraws money from the product, Habersham will charge a fee, expressed as a percentage of the withdrawal. This percentage will decrease over time, until eventually Mr. Fargo can withdraw funds without incurring a charge. By definition, this fee is known as a

Problem 8 options:

1) contingent deferred sales charge (CDSC), and it is considered a front-end sales charge

2) contingent deferred sales charge (CDSC), and it is considered a back-end sales charge

3) mortality and expense risk (M&E) charge, and it is considered a front-end sales charge

4) mortality and expense risk (M&E) charge, and it is considered a back-end sales charge

Problem 9

In the United States, two types of employer-sponsored retirement plans are a 401(k) plan and a stock bonus plan. With regard to these two types of retirement plans, it is correct to say that, under a

1) 401(k) plan, the amount of an employee's plan contribution is included in the employee's current taxable income

2) 401(k) plan, the employee enters into a salary reduction arrangement that permits the employer to deduct the amount of the employee's plan contributions from her salary

3) stock bonus plan, contributions are dependent upon company profits

4) stock bonus plan, retirement assets are accumulated on behalf of participants, and such a plan promises to provide a monthly retirement income benefit

Problem 10

For all types of life annuities, the number and timing of periodic income payments depends on mortality experience as well as on the frequency of payments and the total length of the payout period. All other factors being equal, it generally is correct to say that the shorter the time period that an annuitant is expected to live, the

1) larger the periodic income payments will be

2) smaller the periodic income payments will be

3) greater the number of periodic income payments that will be made

4) lower the annuity contract's stated interest rate will be

Problem 11

One type of group life insurance policy is yearly renewable term (YRT) insurance plans. With regard to group YRT plans, it is correct to say that

1) the insurer typically has the right to change the premium rate of a group YRT insurance plan each year when the coverage is renewed

2) few group life insurance policies are YRT insurance plans

3) evidence of insurability is required from the group insureds each year when the YRT insurance coverage is renewed

4) group YRT insurance plans build a cash value

Problem 12

The following groups have applied for group life insurance coverage from Palmino Financial. Palmino's group underwriting guidelines are typical of most insurers. Select the answer choice describing a group that will likely FAIL to qualify for group insurance coverage.

1) RBG Associates is a small group of retired individuals who banded together as a group for the sole purpose of obtaining group life insurance coverage at reasonable rates.

2) In the United States, the Milltown Labor Union promotes the welfare, interests, and rights of its members.

3) The Prism Company is a professional organization for accountants that provides continuing education classes and organized travel opportunities and seeks to provide voluntary group insurance coverage to its members.

4) CB&C Association is a group consisting of the eligible employees of several small employers and two labor unions that are in the building industry.

Problem 13

Greta Anderson was the contract owner, the annuitant, and the payee of a life with refund annuity for which she paid a single premium of $75,000. The annuity will provide an income payment of $5,000 per year during Greta's lifetime. Greta died five years after income payments began, and at the time of her death, she had received periodic income payments totaling $25,000. In this situation, the contingent payee named in Greta's annuity contract is entitled to receive

1) nothing

2) a single payment of $5,000

3) $50,000

4) $75,000

Problem 14

One individual annuity contract provision gives the contract owner a stated period of time-usually 10 to 30 days-after the contract is delivered in which to cancel the contract and receive a full refund of the initial premium paid. This type of individual annuity contract provision is known as the

1) incontestability provision

2) free-look provision

3) entire contract provision

4) dividends provision

Problem 15

In its major medical expense policies, the Nova Insurance Company specifies that the maximum benefit amount payable for a particular service will be 90% of the amount that medical care providers within a particular geographic region commonly charge for that same service. This information indicates that Nova bases the maximum benefit amount payable for a particular service on that service's

1) manual rate

2) blended rate

3) vesting requirement

4) usual, customary, and reasonable (UCR) fee

Problem 16

An insurance contract is an informal contract that must be formed in accordance with the rules of contract law. Thus, to form a valid group insurance contract, certain requirements must be met. The following statements are about these requirements. Select the answer choice containing the correct statement.

1) The group insureds covered under the group insurance contract and the insurer must mutually agree to the contract's terms.

2) Both the proposed group insureds and the group policyholder must have contractual capacity in order to enter into a contract for group insurance.

3) The group policyholder must prove an insurable interest in the group insureds so that the contract will have been formed for a lawful purpose.

4) The group policyholder and the insurer must exchange legally adequate consideration in order for the contract to be valid.

Problem 17

Some insurers offer group universal life (UL) plans and/or group variable universal life (VUL) plans. With regard to these two group plans, it is correct to say

1) that, under a group UL plan, the employer typically pays a portion of the policy premium

2) that, under a group UL plan, employees are not permitted to choose the amount of premium they wish to pay

3) that, under a group VUL plan, the employer typically pays the entire policy premium

4) that the participants in a group VUL plan are given a choice of different subaccount options for investing their cash values

Problem 18

Celestial Financial Services is negotiating with the following two prospective clients for group life insurance coverage:

• The Spiral Company is a newly formed organization that employs nine people.
• The Galaxy Company is seeking life insurance coverage for its 1,500 employees. Galaxy is presently insured by another insurer.
With regard to the methods used to calculate the premium rate for group insurance coverage and these two companies, it most likely is correct to say that Celestial Financial will use

1) manual rating for both Spiral and Galaxy

2) manual rating for Spiral and experience rating for Galaxy

3) experience rating for both Spiral and Galaxy

4) experience rating for Spiral and manual rating for Galaxy

Problem 19

Rafael Montero accepted a job with the Beehive Company on June 5, 2010, and actually began working for Beehive on June 10, 2010. Beehive provides both noncontributory group life insurance and contributory group health insurance to its employees. Beehive's employee benefits plan requires a typical 30-day probationary period and a 31-day eligibility period. This information indicates that Mr. Montero's group life insurance coverage will become effective on

1) June 10, and he will be eligible to enroll for group health insurance coverage during a 31-day period that begins on June 10

2) June 10, and he will be eligible to enroll for group health insurance coverage during a 31-day period that begins on July 10

3) July 10, and he will be eligible to enroll for group health insurance coverage during a 31-day period that begins on July 10

4) July 10, and he will be eligible to enroll for group health insurance coverage during a 31-day period that begins on August 10

Problem 20

One component of a retirement plan is a detailed legal agreement that establishes the existence of an employer-sponsored retirement plan and specifies the rights and obligations of various parties to the plan. Among other things, this component describes the individuals whom the plan covers, the benefits that the plan provides, and the method for funding the plan. This component is referred to as the

1) plan document

2) funding vehicle

3) plan sponsor

4) plan administrator

Problem 21

For this Problem, select the answer choice containing the terms that correctly complete the blanks labeled A and B in the paragraph below.

Underwriting of applications for individual health insurance focuses on the degree of morbidity risk that a proposed insured represents. One factor that can affect the degree of morbidity risk a proposed insured presents is whether the proposed insured is male or female. In general, females experience aAmorbidity rate than do males of the same age. Therefore, the cost of providing health insurance coverage to females generally is B than the cost of providing health insurance coverage to males of the same age.

A B

1) higher higher

2) higher lower

3) lower higher

4) lower lower

Problem 22

By definition, the person whose lifetime is used to determine the amount of benefits payable under an annuity contract is known as the

1) payee

2) annuitant

3) contract owner

4) annuity consideration

Problem 23

One commonly offered group cash value life insurance plan is a group paid-up plan, which combines paid-up whole life insurance with decreasing amounts of term life insurance. With regard to the premium contributions that employees and employers pay for these group paid-up plans, it is correct to say that the employees' premium contributions typically pay for

1) both the paid-up whole life insurance and the decreasing term life insurance

2) the paid-up whole life insurance only

3) the decreasing term life insurance only

4) neither the paid-up whole life insurance nor the decreasing term life insurance

Problem 24

The Skyline Company provides group medical expense and disability income insurance coverage to its employees through a self-insured plan. Skyline purchased stop-loss coverage to protect itself from the risk of having several catastrophic medical claims in a given year. Under the terms of the stop-loss coverage, the insurer will become responsible for paying claims when Skyline's total claims exceed $1 million within the contract year. This information indicates that Skyline purchased the type of stop-loss coverage known as

1) specific stop-loss coverage

2) aggregate stop-loss coverage

3) individual stop-loss coverage

4) salary continuation coverage

Problem 25

For this Problem, if answer choices (1) through (3) are all correct, select answer choice (4). Otherwise, select the one correct answer choice. Long-term care benefits generally are payable if an insured either loses his physical functional capacity to perform at least a specified number of the activities of daily living (ADLs) without assistance or has a severe cognitive impairment. With regard to ADLs, it is correct to say that activities that are considered to be ADLs include

1) eating

2) bathing

3) dressing

4) all of the above