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IC-38 Insurance Agent Exam - Health study materials
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IC-38 Insurance Agent Exam - Health practice questions

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Question 1Health Insurance

Under a standard individual major medical policy, which provision allows the insurer to review claims after treatment and deny payment for services that were not medically necessary, even though the policy was in force at the time of care?

  1. The reinstatement provision
  2. The utilization review and medical necessity provision Correct answer.
  3. The incontestability clause
  4. The grace period provision

Explanation

Medical necessity and utilization review provisions let the insurer evaluate whether care met accepted clinical standards, and the insurer may deny or reduce payment for non-covered or unnecessary services. These reviews operate independently of whether premiums were paid or the policy was in force. Incontestability concerns misstatements on the application, not clinical appropriateness.

Question 2Health Insurance

A health insurance policy contains a preexisting condition limitation. Which statement best describes how such a limitation typically operates for an individual policy issued without guaranteed issue protections?

  1. It applies only to conditions diagnosed within 30 days after the policy takes effect
  2. It permanently excludes all conditions the applicant ever treated for
  3. It may exclude or limit coverage for a condition that manifested before the effective date for a stated period Correct answer.
  4. It converts the policy into a specified disease policy

Explanation

A preexisting condition limitation typically denies or restricts benefits for a defined period for conditions that showed symptoms or received treatment before coverage began. The look-back and exclusion periods are set by the policy and applicable law. It does not permanently exclude every past condition, nor does it change the policy type.

Question 3Health Insurance

An insured has a major medical policy with a $1,000 calendar-year deductible and 80/20 coinsurance up to a $5,000 out-of-pocket maximum for covered expenses. The insured incurs $11,000 in covered expenses in the first year. Ignoring any other cost-sharing, what amount does the insured pay out of pocket?

  1. $5,000
  2. $2,000
  3. $1,000
  4. $3,000 Correct answer.

Explanation

The insured first pays the $1,000 deductible, leaving $10,000 of covered expense. Under 80/20 coinsurance the insured owes 20 percent of $10,000, which is $2,000. Total out-of-pocket is $1,000 plus $2,000, or $3,000, which is below the $5,000 maximum.

Question 4Health Insurance

Which type of health insurance arrangement pays a fixed, predetermined amount for each day an insured is hospitalized, regardless of the actual billed charges?

  1. Comprehensive major medical policy
  2. Major medical expense policy
  3. Basic surgical expense policy
  4. Hospital indemnity policy Correct answer.

Explanation

A hospital indemnity policy pays a stated daily or per-admission benefit regardless of actual charges, so the benefit may be more or less than the hospital bill. Major medical and comprehensive major medical policies reimburse covered expenses subject to deductibles and coinsurance. A surgical expense policy pays scheduled amounts for procedures, not daily hospital confinement.

Question 5Health Insurance

An insured's group health plan includes a coordination of benefits provision. The insured is covered as an employee under Plan A and as a dependent spouse under Plan B. Which plan generally pays first?

  1. The plan with the lower deductible
  2. Both plans pay equally and simultaneously
  3. Plan B, because dependent coverage always pays first
  4. Plan A, because the plan covering the person as an employee pays before the plan covering the person as a dependent Correct answer.

Explanation

Under standard coordination of benefits rules, the plan that covers a person as an employee pays before a plan that covers that person as a dependent. The secondary plan then considers the remaining balance. Simultaneous equal payment and selection by deductible are not the governing rules.

Question 6Health Insurance

Which federal law primarily sets minimum standards for group health plans and individual health insurance regarding preexisting condition exclusions, lifetime limits, and dependent coverage to age 26?

  1. The Employee Retirement Income Security Act of 1974
  2. The Consolidated Omnibus Budget Reconciliation Act of 1985
  3. The Affordable Care Act Correct answer.
  4. The Health Insurance Portability and Accountability Act of 1996

Explanation

The Affordable Care Act established market reforms including the ban on preexisting condition exclusions, prohibition of lifetime dollar limits, and extended dependent coverage to age 26. HIPAA addressed portability and privacy, COBRA addressed continuation coverage, and ERISA governs fiduciary and reporting standards for employee benefit plans.

Question 7Health Insurance

An insured under a disability income policy has a 90-day elimination period and a 24-month benefit period. The insured becomes totally disabled on March 1. Assuming the disability continues, when do benefits begin and how long can they last?

  1. Benefits begin June 1 and can last 24 months Correct answer.
  2. Benefits begin March 1 and can last 24 months
  3. Benefits begin March 31 and can last 24 months
  4. Benefits begin June 1 and can last 90 days

Explanation

The elimination period is a waiting period before benefits start, so a 90-day elimination period beginning March 1 means benefits start around June 1. The benefit period is separate and governs how long benefits may continue once they begin, here 24 months.

Question 8Health Insurance

Which of the following best describes the purpose of a waiver of premium provision in a health insurance policy?

  1. It keeps coverage in force without premium payment while the insured is totally disabled for the required period Correct answer.
  2. It waives the deductible for preventive services
  3. It refunds premiums paid during a period of hospitalization
  4. It allows the insurer to waive the incontestability period

Explanation

A waiver of premium provision keeps the policy in force and waives premium payments during a qualifying total disability, typically after a waiting period. It does not refund past premiums or affect deductibles. The incontestability period is a separate contractual feature.

Question 9Health Insurance

An insured is hospitalized for a covered illness and the policy pays benefits based on the usual, customary, and reasonable charge. The provider bills $9,000, but the UCR amount is $7,500. The insured has no deductible remaining and 20 percent coinsurance. What amount is the insured responsible for as coinsurance?

  1. $1,800
  2. $300
  3. $1,500 Correct answer.
  4. $0

Explanation

Benefits are based on the UCR amount of $7,500, and the insured owes 20 percent of that allowed charge, which is $1,500. The difference between the billed charge and the UCR amount may be billed by the provider depending on network status, but the coinsurance calculation uses the allowed amount.

Question 10Health Insurance

Which provision in a health insurance policy specifies the time frame within which the insured must notify the insurer of a claim and submit proof of loss?

  1. Notice of claim and proof of loss provision Correct answer.
  2. Consideration clause
  3. Entire contract provision
  4. Legal actions provision

Explanation

The notice of claim and proof of loss provision sets deadlines for informing the insurer of a claim and providing documentation supporting the loss. The legal actions provision limits when suit may be filed, the entire contract provision defines the complete agreement, and the consideration clause states the premium exchange.

Question 11Health Insurance

A producer is reviewing a long-term care policy with an insured. Which feature guarantees that the policy cannot be canceled and premiums cannot be increased because of changes in the insured's health?

  1. Guaranteed renewable
  2. Optionally renewable
  3. Noncancellable Correct answer.
  4. Conditionally renewable

Explanation

A noncancellable policy guarantees the insurer cannot cancel and cannot raise premiums, though the insurer may raise rates for an entire class with regulatory approval under some designs. Guaranteed renewable prevents cancellation but allows class-wide rate increases. Conditionally and optionally renewable policies give the insurer more latitude to decline renewal.

Question 12Health Insurance

Under Medicare, which part primarily covers inpatient hospital stays, skilled nursing facility care after a hospital stay, hospice care, and some home health care?

  1. Part D
  2. Part B
  3. Part C
  4. Part A Correct answer.

Explanation

Medicare Part A provides hospital insurance, covering inpatient hospital care, post-hospital skilled nursing care, hospice, and limited home health services. Part B covers outpatient and physician services, Part C refers to Medicare Advantage plans, and Part D covers prescription drugs.

Question 13Health Insurance

An applicant for individual health insurance omits a history of heart disease on the application. The insurer issues the policy, and the insured dies from a heart attack 18 months later. If the policy contains a two-year incontestability clause, what is the insurer's likely position?

  1. The insurer may deny coverage only if the death occurred within 30 days of issue
  2. The insurer may rescind the policy because the omission was material and occurred within the contestable period Correct answer.
  3. The insurer must pay but may increase future premiums retroactively
  4. The insurer must pay because the contestable period has expired

Explanation

During the contestable period, typically two years, the insurer may rescind coverage if it discovers a material misrepresentation on the application. At 18 months, the death falls within that period, so rescission may be available. After the period ends, the insurer generally cannot contest the policy for misstatements absent fraud as defined by state law.

Question 14Health Insurance

Which type of health insurance policy provides benefits for a specific list of diseases, such as cancer or heart attack, and pays a stated amount upon diagnosis?

  1. Medicare supplement policy
  2. Specified disease policy Correct answer.
  3. Hospital indemnity policy
  4. Short-term medical policy

Explanation

A specified disease policy, sometimes called a critical illness or dread disease policy, pays a stated benefit when the insured is diagnosed with a condition named in the contract. Hospital indemnity pays daily benefits for confinement, short-term medical provides temporary comprehensive coverage, and Medicare supplement fills gaps in Medicare.

Question 15Health Insurance

An insured covered by a group health plan terminates employment. Under COBRA, which statement best describes the insured's continuation rights?

  1. The insured may continue coverage for a limited period, generally up to 18 months for termination of employment, by paying the full premium plus an administrative fee Correct answer.
  2. The insured loses coverage immediately with no continuation option
  3. The insured automatically converts to an individual policy at the same premium
  4. The insured may continue coverage indefinitely at the group rate

Explanation

COBRA allows qualified beneficiaries to continue group coverage for limited periods, generally 18 months for termination or reduction in hours, by paying the full premium plus a permitted administrative charge. Coverage is not indefinite, and conversion to an individual policy is a separate option.

Question 16Health Insurance

A health insurance policy includes a probationary period. What is the effect of this provision?

  1. It specifies a period after issue during which benefits for certain conditions, such as sickness, are not payable Correct answer.
  2. It requires the insured to work for a probationary period before group coverage begins
  3. It limits the insurer's right to contest the policy to one year
  4. It delays the effective date of coverage for all benefits until the first premium is paid

Explanation

A probationary period is a waiting period after the policy's effective date during which benefits for specified conditions, often sickness, are not payable. It differs from the elimination period, which applies after a covered loss occurs. It does not alter the effective date for all benefits or govern employment eligibility.

Question 17Health Insurance

An insured has a hospital confinement indemnity policy paying $200 per day with a 3-day elimination period and a maximum of 60 days per confinement. The insured is hospitalized for 10 days. What benefit is payable?

  1. $2,000
  2. $1,400 Correct answer.
  3. $1,200
  4. $600

Explanation

The 3-day elimination period means no benefit is paid for the first three days, leaving seven payable days. Seven days multiplied by $200 equals $1,400. The 60-day maximum is not reached.

Question 18Health Insurance

Which of the following is a characteristic of a health maintenance organization (HMO) compared with a preferred provider organization (PPO)?

  1. HMO members may see any provider and receive the same benefits
  2. HMO plans reimburse usual and customary charges without network restrictions
  3. HMO members generally must use network providers and obtain referrals for specialist care Correct answer.
  4. HMO plans do not use primary care physicians

Explanation

HMOs typically require members to use network providers, select a primary care physician, and obtain referrals for specialty care, with limited exceptions for emergencies. PPOs allow out-of-network care with higher cost-sharing. HMOs do rely on primary care gatekeeping rather than unrestricted provider access.

Question 19Health Insurance

An insured's policy contains a coinsurance clause requiring 80 percent participation. The insured has a $500 deductible and a $10,000 covered loss. What amount does the insurer pay, assuming no other limits?

  1. $7,600 Correct answer.
  2. $9,500
  3. $7,200
  4. $8,000

Explanation

After the $500 deductible, the remaining covered loss is $9,500. The insurer pays 80 percent of $9,500, which is $7,600, and the insured pays the remaining 20 percent plus the deductible. The calculation applies the coinsurance percentage to the post-deductible amount.

Question 20Health Insurance

Which provision in a health insurance contract states that the insurer's promise to pay benefits is conditioned on payment of the premium by the insured?

  1. Entire contract clause
  2. Consideration clause Correct answer.
  3. Assignment clause
  4. Free look provision

Explanation

The consideration clause identifies the exchange of value: the insured pays premiums and the insurer promises to pay covered benefits. The entire contract clause defines the complete agreement, the free look provision allows a review period, and assignment concerns transfer of rights.

Question 21Health Insurance

An insured is diagnosed with a terminal illness and the policy includes an accelerated death benefit. What does this provision generally allow?

  1. The insured to receive a portion of the death benefit early while still living Correct answer.
  2. The insured to increase the face amount without underwriting
  3. The beneficiary to collect benefits before the insured dies
  4. The insurer to cancel the policy upon diagnosis

Explanation

An accelerated death benefit allows a terminally ill insured to receive part of the policy's death benefit before death, with the remainder paid to the beneficiary later. It does not permit the insurer to cancel coverage or allow the beneficiary to claim early.

Question 22Health Insurance

A group health plan uses a self-funded arrangement. Which statement best describes the role of stop-loss insurance in such a plan?

  1. It guarantees the plan will meet federal minimum benefit standards
  2. It protects the employer against catastrophic claims that exceed a specified threshold Correct answer.
  3. It provides individual coverage to employees who leave the group
  4. It replaces the group plan with an HMO

Explanation

Stop-loss insurance protects a self-funded employer against very large individual claims (specific stop-loss) or aggregate claims exceeding a threshold (aggregate stop-loss). It does not provide individual coverage to departing employees or replace the plan structure. It is a financial risk-management tool, not a benefit mandate.

Question 23Health Insurance

Which of the following best describes the purpose of a free look provision in an individual health insurance policy?

  1. It allows the insurer to review the application for 10 days before issuing coverage
  2. It permits the insured to change beneficiaries without consent
  3. It extends the grace period for premium payment
  4. It gives the policyowner a set period after delivery to return the policy for a full premium refund Correct answer.

Explanation

A free look provision gives the policyowner a specified period, often 10 to 30 days after delivery, to examine the policy and return it for a full refund. It does not apply to the insurer's underwriting review, beneficiary changes, or grace periods.

Question 24Health Insurance

An insured has a major medical policy with a $2,000 deductible and a 70/30 coinsurance clause. The insured incurs $12,000 in covered expenses. What is the insured's total out-of-pocket cost, assuming no out-of-pocket maximum applies?

  1. $5,000 Correct answer.
  2. $4,200
  3. $3,000
  4. $3,600

Explanation

After the $2,000 deductible, $10,000 of covered expense remains. The insured pays 30 percent of $10,000, which is $3,000 in coinsurance. Total out-of-pocket is $2,000 plus $3,000, or $5,000.

Question 25Health Insurance

Which statement accurately describes the tax treatment of employer-paid premiums for group health insurance and the benefits received?

  1. Employer-paid premiums are taxable income to the employee, and benefits are taxable
  2. Employer-paid premiums are excluded from employee income, but benefits are fully taxable
  3. Employer-paid premiums are not deductible by the employer, and benefits are tax-free
  4. Employer-paid premiums are generally deductible by the employer and excluded from the employee's gross income, and benefits received are generally tax-free Correct answer.

Explanation

Employer contributions to group health coverage are generally deductible as a business expense and are excluded from the employee's taxable income. Benefits paid under the policy are generally received tax-free by the employee. This favorable treatment encourages employer-sponsored coverage.

Question 26Health Insurance

Under a disability income policy, how is the benefit period defined?

  1. The maximum length of time for which benefits are payable for a single covered disability Correct answer.
  2. The interval after recovery during which a new claim may be filed
  3. The period during which premiums must be paid before coverage begins
  4. The waiting time between the onset of disability and the start of benefit payments

Explanation

The benefit period is the maximum duration for which the policy will pay the monthly benefit for any one disability. It is distinct from the elimination period, which is the waiting period before payments begin. A longer benefit period increases the cost of coverage because the insurer's exposure is greater.

Question 27Health Insurance

Which of the following is the primary purpose of a coordination of benefits provision in a group health plan?

  1. To require the insured to use network providers for all covered services
  2. To transfer the entire claim liability to the secondary carrier
  3. To allow the insurer to cancel coverage if the insured files too many claims
  4. To prevent payment of benefits exceeding the actual expenses incurred when an insured is covered by two plans Correct answer.

Explanation

Coordination of benefits establishes the order in which multiple health plans pay so that combined benefits do not exceed the actual covered expenses. One plan is primary and the other secondary, and the secondary plan pays only the remaining allowable amount. This prevents duplicate recovery rather than producing a profit for the insured.

Question 28Health Insurance

An insured's individual health policy is guaranteed renewable. What does this classification guarantee?

  1. The insurer may cancel the policy only during the first policy year
  2. The insured may renew the policy at the same premium for life without any increase
  3. The insurer must renew the policy but may increase the premium for the entire class of insureds Correct answer.
  4. The insurer cannot cancel the policy or raise the premium as long as premiums are paid on time

Explanation

Under a guaranteed renewable policy, the insurer must continue the coverage as long as premiums are paid, but it retains the right to increase premiums on a class basis with state approval. It cannot single out an individual for an increase or cancellation based on health. This differs from noncancellable coverage, which also fixes the premium.

Question 29Health Insurance

A Medicare beneficiary needs coverage for outpatient prescription drugs. Which Medicare option is designed primarily to provide that coverage?

  1. Medicare Part C hospital benefits
  2. Medicare Part B
  3. Medicare Part A
  4. Medicare Part D Correct answer.

Explanation

Medicare Part D provides outpatient prescription drug coverage through private plan sponsors approved by Medicare. Part A covers inpatient hospital care and Part B covers physician and outpatient services. Part C is the Medicare Advantage program, which may include drug coverage only when offered through a Part D component.

Question 30Health Insurance

A producer delivers a policy to an applicant and collects the initial premium. When does coverage typically become effective in this situation?

  1. On the date the producer mails the application to the insurer
  2. On the date specified in the conditional receipt, provided the applicant proves insurable Correct answer.
  3. On the date the applicant signs the application
  4. On the date the insurer issues the policy regardless of the applicant's health

Explanation

When a conditional receipt is issued and the initial premium is collected, coverage generally takes effect as of the date of the application or medical examination, provided the applicant meets the insurer's underwriting requirements. If the applicant is not insurable, no coverage arises under the conditional receipt. Without a receipt, coverage usually begins only when the policy is issued and delivered and the premium is paid.

Question 31Health Insurance

Which statement best describes the role of a utilization review program in a managed care plan?

  1. It determines the premium rate charged to each employer group
  2. It evaluates the medical necessity and appropriateness of care before, during, or after services are provided Correct answer.
  3. It sets the commission schedule paid to producers
  4. It verifies that the insured has paid all prior claims balances

Explanation

Utilization review evaluates whether care is medically necessary and appropriate, using prospective, concurrent, or retrospective review. The purpose is to control costs and ensure services meet established clinical criteria. It does not set premiums, verify claim balances, or determine producer compensation.

Question 32Health Insurance

An insured holds a health policy that pays a fixed daily amount for each day of hospitalization, regardless of the actual charges. What type of policy is this?

  1. A medical expense reimbursement policy
  2. A hospital indemnity policy Correct answer.
  3. A specified disease policy
  4. A major medical expense policy

Explanation

A hospital indemnity policy pays a stated daily or per-admission benefit regardless of the actual expenses incurred. Benefits are paid based on the schedule in the policy rather than on billed charges. Major medical and reimbursement policies instead pay based on actual covered expenses.

Question 33Health Insurance

An insured becomes totally disabled and the policy contains a waiver of premium provision after a 90-day waiting period. What happens to premiums during the approved disability?

  1. The insured must continue paying premiums but receives a credit at policy maturity
  2. Premiums are waived, and in many policies they are also refunded for the waiting period Correct answer.
  3. The insurer refunds all premiums paid before the disability began
  4. Premiums are reduced by half for the duration of the disability

Explanation

A waiver of premium provision excuses premium payments during an approved total disability after the waiting period. Many policies also refund premiums paid during the waiting period once the claim is approved. The provision keeps the policy in force without requiring payment from the insured.

Question 34Health Insurance

Which of the following describes the purpose of the reinstatement provision in a health insurance policy?

  1. It restores lapsed coverage when the insured provides evidence of insurability and pays overdue premiums Correct answer.
  2. It automatically extends coverage for 30 days after a premium due date
  3. It converts a term policy into permanent coverage
  4. It allows the insurer to void the policy for misrepresentation

Explanation

The reinstatement provision allows a lapsed policy to be restored, typically upon payment of overdue premiums and, in some cases, evidence of insurability. Coverage generally resumes without a new waiting period for sickness, though the insurer may impose conditions. This protects the insured from losing accumulated policy value and coverage.

Question 35Health Insurance

An insured under a group health plan has a dependent child who reaches the plan's limiting age for dependent coverage. Which statement best describes the typical result?

  1. The child's coverage ends, but the child may be eligible for continued coverage or an individual policy Correct answer.
  2. The entire family loses coverage at the same time
  3. The employer must pay for the child's coverage until age 30
  4. The child remains covered indefinitely at no additional premium

Explanation

Dependent coverage generally ends when the child exceeds the plan's limiting age, but continuation rights or conversion privileges may be available. Federal rules may extend dependent eligibility in certain circumstances, so the plan document controls. The employer is not obligated to continue paying for adult dependents.

Question 36Health Insurance

An insured has a policy with a $1,000 calendar-year deductible and 80/20 coinsurance. The insured incurs $5,000 in covered expenses in the first year. Ignoring any out-of-pocket maximum, what amount will the insurer pay?

  1. $4,800
  2. $3,200 Correct answer.
  3. $3,000
  4. $4,000

Explanation

The deductible is subtracted first, leaving $4,000 of covered expenses subject to coinsurance. The insurer pays 80 percent of $4,000, which is $3,200, and the insured pays the remaining $800 plus the $1,000 deductible. The out-of-pocket maximum would cap the insured's share if it were reached.

Question 37Health Insurance

Which statement accurately describes the tax treatment of benefits received under a personally purchased disability income policy?

  1. Benefits are fully taxable as ordinary income in the year received
  2. Benefits are tax deferred until the policy matures
  3. Benefits are taxable only to the extent they exceed the premiums paid
  4. Benefits are received income tax free because the insured paid the premiums with after-tax dollars Correct answer.

Explanation

Disability benefits from a policy purchased by the individual with after-tax dollars are generally received free of income tax. By contrast, benefits from an employer-paid group disability plan are usually taxable to the employee. The rationale is that the insured already bore the cost with taxed income.

Question 38Health Insurance

A long-term care policy offers a benefit trigger based on activities of daily living. Which set of conditions typically satisfies that trigger?

  1. The insured has been hospitalized for any reason within the past year
  2. The insured is unable to perform a specified number of activities of daily living without assistance for at least 90 days Correct answer.
  3. The insured's physician recommends a nursing home stay for convenience
  4. The insured has reached age 65 regardless of functional status

Explanation

Long-term care policies commonly require that the insured be unable to perform a specified number of activities of daily living, such as bathing, dressing, and eating, without substantial assistance, expected to last at least 90 days. Cognitive impairment may serve as an alternative trigger. Age alone or a prior hospitalization does not establish eligibility.

Question 39Health Insurance

Which of the following best describes the purpose of a pre-existing condition limitation in an individual health policy?

  1. To require the insured to submit to an annual physical examination
  2. To exclude or limit coverage for a condition for which the insured received treatment before the policy's effective date Correct answer.
  3. To exclude coverage for all conditions that develop after issue
  4. To permit the insurer to raise premiums after a claim is filed

Explanation

A pre-existing condition limitation restricts benefits for a condition that manifested or was treated during a defined look-back period before coverage began. It may impose a waiting period before that condition becomes covered. Conditions arising after the effective date are generally covered subject to other policy terms.

Question 40Health Insurance

An insured under a group health plan wants to continue coverage after a qualifying event. Which statement best describes the employer's obligation regarding notice under COBRA?

  1. The qualified beneficiary must discover continuation rights without any notice
  2. The employer must notify the plan administrator of certain qualifying events, and the plan administrator must notify the qualified beneficiary of continuation rights Correct answer.
  3. The insurer must notify the employer's competitors of the termination
  4. The producer must personally pay for continuation coverage

Explanation

Under COBRA, the employer must notify the plan administrator of events such as termination of employment or reduction in hours within a specified period. The plan administrator must then provide the qualified beneficiary with an election notice describing continuation rights and deadlines. The beneficiary elects coverage within the election period.

Question 41Health Insurance

Which of the following is a distinguishing feature of a preferred provider organization (PPO) compared with a traditional indemnity plan?

  1. The PPO pays benefits only for a single named disease
  2. The PPO negotiates discounted rates with a network of providers and offers reduced cost sharing for in-network care Correct answer.
  3. The PPO eliminates all deductibles and coinsurance for out-of-network care
  4. The PPO requires all care to be received from salaried physicians employed by the plan

Explanation

A PPO contracts with a network of providers at negotiated rates and gives members financial incentives, such as lower cost sharing, to use in-network care. Members may generally use out-of-network providers at a higher cost. This network and incentive structure distinguishes it from traditional indemnity coverage.

Question 42Health Insurance

An insured has a health policy with an other insurance clause. The insured is covered by two plans for the same hospital stay. How do the plans typically determine which pays first?

  1. The insured chooses which plan pays first in every case
  2. Both plans pay the full billed amount independently
  3. The plan covering the insured as an employee pays before the plan covering the insured as a dependent Correct answer.
  4. The plan with the higher premium always pays first

Explanation

Coordination rules generally make the plan under which the insured is covered as an employee primary over a plan covering the insured as a dependent. The secondary plan then pays the remaining allowable expenses, up to its limits. This prevents combined payments from exceeding actual expenses.

Question 43Health Insurance

Which of the following best describes the function of an elimination period in a disability income policy?

  1. It is the time allowed to file a proof of loss after a claim
  2. It is the maximum number of years benefits may be received
  3. It is the waiting period during which no benefits are paid after a disability begins Correct answer.
  4. It is the period during which the insured may return the policy for a refund

Explanation

The elimination period is the initial waiting period after a disability begins during which no benefits are payable. It operates like a deductible measured in time, and a longer elimination period lowers the premium. It is distinct from the benefit period and the free look period.

Question 44Health Insurance

An insured has a major medical policy with a $500 deductible and a 75/25 coinsurance clause. The insured incurs $2,500 in covered expenses. What is the insured's out-of-pocket share, assuming no out-of-pocket maximum applies?

  1. $1,500
  2. $625
  3. $1,000 Correct answer.
  4. $500

Explanation

After the $500 deductible, $2,000 remains subject to coinsurance. The insured pays 25 percent of $2,000, which is $500, plus the $500 deductible, for a total of $1,000. The insurer pays the remaining $1,500 of covered expenses.

Question 45Health Insurance

Which statement best describes the purpose of a conversion privilege in a group health or disability plan?

  1. It allows the employer to convert the group plan to a self-funded arrangement
  2. It permits the insurer to convert the policy into a term life contract
  3. It allows a covered person whose group coverage ends to convert to an individual policy without proving insurability Correct answer.
  4. It converts the insured's coinsurance obligation into a fixed copayment

Explanation

A conversion privilege lets an individual whose group coverage terminates apply for an individual policy, typically within a stated window and without evidence of insurability. The premium is based on the individual policy's rates for the person's age and class. This protects insureds who might otherwise be uninsurable.

Question 46Health Insurance

A producer is reviewing a policy that includes a probationary period. How does this period affect coverage for sickness?

  1. Premiums are waived for a stated time after the effective date
  2. The insurer may cancel the policy at any time during the period
  3. The insured may return the policy for a full refund during the period
  4. Sickness benefits are not payable for a stated time after the policy's effective date Correct answer.

Explanation

A probationary period delays coverage for sickness for a specified time after the policy takes effect, while accidents are typically covered from day one. It is intended to protect the insurer against claims for conditions already developing at issue. It does not waive premiums or create a cancellation right.

Question 47Health Insurance

Which of the following best describes the purpose of the entire contract provision in a health insurance policy?

  1. It requires the insured to pay the entire premium at issue
  2. It requires the insured to complete a medical examination
  3. It states that the policy, the application, and any attached riders constitute the complete agreement Correct answer.
  4. It allows the insurer to change the policy terms without notice

Explanation

The entire contract provision defines the complete agreement as the policy plus the attached application and any riders or endorsements. It prevents the insurer from relying on outside documents or making unilateral changes. This protects the insured from hidden terms.

Question 48Health Insurance

An insured is enrolled in a health maintenance organization. Which statement best describes the typical role of the primary care physician in that plan?

  1. The primary care physician pays claims directly to specialists
  2. The primary care physician sets the premium for the plan
  3. The primary care physician serves as a gatekeeper who coordinates care and authorizes referrals to specialists Correct answer.
  4. The primary care physician is required to be an independent agent of the insurer

Explanation

In many HMO models, the primary care physician acts as a gatekeeper, coordinating care and authorizing referrals to specialists within the network. This controls costs and manages utilization. The physician does not set premiums, sell insurance, or pay claims.

Question 49Health Insurance

An insured's policy contains a change of occupation provision. The insured moves from a clerical job to a higher-risk occupation without notifying the insurer. What is the likely effect on a disability claim?

  1. Benefits may be reduced to the amount the premium would have purchased for the more hazardous occupation Correct answer.
  2. The insurer must pay full benefits and cannot adjust them
  3. The policy is automatically canceled retroactively to the issue date
  4. The claim is denied entirely for any reason

Explanation

A change of occupation provision allows the insurer to adjust benefits if the insured changes to a more hazardous occupation without notice. Rather than voiding coverage, the insurer reduces the benefit to what the premium would have purchased for the new occupational class. A refund of excess premium may apply if the new class is less hazardous.

Question 50Health Insurance

Which statement best describes the purpose of a suitability review when selling an annuity or life insurance product?

  1. It evaluates whether the product meets the consumer's financial objectives, needs, and circumstances Correct answer.
  2. It sets the producer's commission rate
  3. It verifies that the applicant has no prior insurance coverage
  4. It determines the insurer's statutory reserve requirement

Explanation

A suitability review assesses whether a recommended product fits the consumer's financial situation, objectives, and needs. It is a consumer-protection requirement intended to prevent inappropriate sales. It does not set reserves, commissions, or coverage eligibility.